Case ID: misc_3/html/0184-01.html
Source: Caselaw Access Project
Author: {"author": "Cullen, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Isham, as Trustee, v. Post, as Administratrix.
    (Supreme Court—Kings County, Special Term,
    April, 1893.)
    Plaintiff, having certain trust money uninvested, gave a check therefor to defendant’s intestate, who was a hanker, to loan for him. The check was signed by plaintiff as trustee. Defendant’s intestate loaned the same to a firm of brokers, who entered the loan upon their books as one having been made by defendant’s intestate. The collateral received therefor was certain railroad stock, the certificates for the greater part of which were thereafter found to be forgeries. In an action brought to recover the amount of the loan, held, that defendant’s intestate, as acceptor of said check, was not thereby charged with notice of the limitation of plaintiff’s right to invest the same, but that it was the duty of defendant’s intestate to verify the genuineness of the securities in question, and his failure to do so rendered him liable therefor.
    Henry H. Isham, trustee of the Trumbull estate of Hew Jersey, having $25,000 belonging to the trust uninvested, gave a check for this amount to Augustus T. Post, who was a banker a,nd dealer in investment securities, to loan for him. The check was signed “ Henry H. Isham, trustee.” Upon receipt of the check Hr. Post loaned the $25,000 to Hills, Robeson & Smith, who entered the loan upon their books as made to Post. The collateral upon which the loan was made was the stock of the Chicago, Hilwaukee and St. Paul railroad (preferred) and the Hew York and Hew England railroad. The certificates for the greater part of this stock had been raised by Smith, one of the firm of Hills, Robeson & Smith, and upon the failure of this firm the forgeries were first discovered.
    
      Frederick A. Ward, for plaintiff.
    
      Alfred EVy and William G. Choate, for defendant.
   Cullen, J.

Even though the plaintiff were a party to the wrong, if the defendant’s intestate was guilty of a spoliation of the trust estate, the plaintiff, in Ms representative character, can maintain this action. But I do not tliink that the loaii Mr. Post assumed to make was per se a misuse of trust funds, for which he would be responsible. The word trustee ” in the check gave notice to the banker that the funds were not or might not be the property of the plaintiff individually. Jaudon v. Nat. City Bank, 8 Blatchf. 430; Shaw v. Spencer, 100 Mass. 382; Baker v. Bliss, 39 N. Y. 70.

Therefore, if the transaction was pri/ma faeie a waste or spoliation of the trust estate, or if the trustee apparently was using the trust funds for his personal benefit, the banker participating in the matter and receiving the funds would be liable. But I think that this transaction was not of that character. I find as a fact that Post had no knowledge or notice that that money belonged to the particular trust estate of wliicli it now seems to be the property. The transaction was not dishonest or hazardous. The plaintiff himself had no thought that he was doing wrong. Loans oh collateral to brokers are made by banks, bankers and trust companies. To declare the defendant liable on the theory that the loan as it was intended to have been made was illegal and a waste of trust funds, it is necessary to hold not oidy that the word trustee ” put the receiver of the check on notice not only that the plaintiff did not hold the moneys in Ms own right, but that the trust was of such a character that the trustee was limited solely to what are called “ legal investments.” I think that would be carrying the doctrine of implied notice too far. In this very case the trustee could, with the assent of the beneficiaries, invest in any class of securities. It is a matter of common knowledge that many of the bank accounts in the name of a person simply as trustee require no such strictness in investments. I am not disposed, therefore, to hold the defendant liable on this ground.

The question then arises as to the responsibility for receiving the forged or altered certificates of stock. I have searched in vam for precedent in this respect. Two cases arising from stock transactions are to be found in the reports which approach the case in hand, but still are to be distinguished from it. In Lambert v. Heath, 15 M. & W. 486, the stockbroker was held not liable for the invalidity of certain Kentish Coast railroad scrip, purchased by him for his principal, on the ground that he bought the thing he was ordered to buy, that is, the scrip that was selling in the market. In Peckham v. Ketchum, 5 Bosw. 506, the stock delivered by the broker to his principal was a genuine certificate, but was alleged to be invalid because of an overissue of stock by the officers of the blew York and New Haven Railroad Company. Here also the broker was held not liable. But here the loan was conceded to have been made on the faith of the collaterals, and the securities on which it was made, spurious securities, were not the securities contemplated by the parties, nor did the banker take any precautions to verify the genuineness of the securities and guard against forgery. There were accessible to the banker, both the office and the company issuing the stock and the office of the trust company, which registered the certificates. An inquiry at either office would have disclosed the forgery and prevented the loss. It is true that the banker did not take this precaution in the case of his own loan. But this does not determine the question of care. He undoubtedly relied on the standing of the firm to whom he made the loan. But this confidence was his own; the plaintiff did not know the parties. This is a hard case for either party on whom ultimately the liability is adjudged to rest. But where so simple a precaution as that already stated would have exposed the fraud, I think that the liability should rest on the party who neglected to avail himself of it. There will, therefore, be judgment for the plaintiff, with costs.

Judgment for plaintiff.