Case Name: Strong v. Strauss
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1883-01
Citations: 40 Ohio St. 87
Docket Number: 
Parties: Strong v. Strauss.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 40
Pages: 87–95

Head Matter:
Strong v. Strauss.
W. R., guardian of the estate of three minors, upon a sale of their real estate, took the notes of the purchaser, drawing interest, for the deferred payments, payable to the order of said W. R., guardian of A. K., C. K., and E. K., and secured by a mortgage on the real estate sold.
Held: That one who buys such notes bearing on their face the marks of a trust fund, is put upon inquiry ; and if he buys them from the guai'dian, under circumstances fairly indicating that they were sold against the interest of his wards, he gets no title from the guardian who misappropriates the proceeds of the sale.
Error to the District Court of Hamilton County.
William Rankin was appointed and qualified by the probate court of Hamilton County, guardian of the estate of Catharine, Anne and Edward Kelly. The estate consisted, in part, of two promissory notes, dated June 27,1877, for the sum of six hundred and twenty-seven and dollars each, made by Michael Hope, and payable in one and two years from date, to the order of William Rankin as guardian, with interest at six per cent, per annum. The notes were purchase-money notes for land belonging to the minors, and sold by Rankin as guardian, to Hope, who executed the notes and a mortgage on the lands to secure the same, to Rankin as guardian, for the deferred payments. Said mortgage was recorded on the 20th day of July, 1877.
In the fall of 1877, Rankin went to a note broker with the notes, told him they were balance of purchase-money notes, and left them with him for sale. The broker applied to Raphael Strauss the defendant in error, showed him the notes, and urged them upon him as “ gilt-edged paper,” and a safe investment. Strauss wanted further evidence that it was really so. “ Being a note broker ” he “ did not take his word entirely.” He thereupon consulted a lawyer who knew Michael Hope, and to whom the broker referred him ; and the lawyer informed him as to the solvency of the said Hope and the title to the real estate ; and acting under the lawyer’s advice, Strauss, on the 27th and 29th days of October, 1877, purchased the notes and mortgage — taking the endorsement of Rankin individually and as guardian, as he did not deem it safe to do otherwise. The following are copies of the notes as endorsed, to wit:
“Cincinnati, June 27th, 1877.
“ I627.-2-0
“ One year after date I promise to pay to the order of William Rankin, guardian of Anne Kelly, Catharine Kelly and Edward Kelly, minors, six hundred and twenty-seven and thirty one-hundredths dollars. Value received, with 6 per cent, interest per annum.
(Indorsed) “ Michael Hope.”
“Wm. Rankin.
“ Wm. Rankin, Guardian.”
“ Cincinnati, June 27th, 1877.
“ $627.Afi
“ Two years after date I promise to pay to the order of William Rankin, guardian of Anne Kelly, Catharine Kelly and Edward Kelly, minors, six hundred and twenty-seven and thirty one-hundreths dollars. Value received, with interest at 6 per cent, per annum.
(Indorsed) “Michael Hope.”
'“Wm. Rankin.
“Wm. Rankin, Guardian.”
Raphael Strauss paid some money to make up the interest that was accumulated, but purchased the notes for less than their face value, and gave in payment his two checks, of which the following are copies, to wit:
“ (Stamp No. —) “ Cincinnati, October 27th, 1877.
“GILMORE DUNLAP & CO.
“ Pay to William Rankin, or order, six hundred and twenty-six and eighty-three one-hundredths dollars.
$626.aa “ R. Stbauss.”
“ (Stamp No. —) “ Cincinnati, October 29tb, 1S7T.
“GILMORE DUNLAP & CO.
“Pay to William Rankin, or bearer, five hundred and ninety-nine and seventy-four one-hundreths dollars.
$599.^ “R. Strauss.”
There was no evidence, nor was it claimed, that said ■Strauss, before purchasing, made any inquiry of .Rankin in reference to the notes and mortgage; or that he inquired of any person, official or otherwise, or in any way sought information, as to what the wards’ interest required in connection with the sale of said notes.
Not long after the sale of said notes, Rankin, being wholly insolvent, made an assignment, under the laws of Ohio, of all his property real and personal, for the benefit of his creditors, and was thereafter removed, or resigned his appointment as guardian. The said Rankin wholly failed to account to said minors, their estate, or to his successor as guardian, for the proceeds of the sale of said notes, or the face value thereof, or any portion or part thereof.
Charles J. Strong and Adolph Carnes, sureties upon the bond of said Rankin as guardian, filed their petition in the court of common pleas; and asked that the said Hope be restrained, by order of court, from paying said notes to any party holding the same by assignment or endorsement by said Rankin, except to some legally appointed guardian of said minors. E. B. Molony, guardian of said minors, and the said Raphael Strauss were made parties defendant, and each filed a separate answer and cross petition. The defendant Hope answered, but said Rankin filed no answer in the case. To the answer and cross petition of said Strauss the plaintiffs filed their reply.
The court of common pleas, on the issues joined, found for the plaintiffs; and that they were entitled to the relief prayed for; and that said E. B. Molony, as such guardian, was alone entitled to receive the money due from said Hope on said notes and mortgage. It was therefore considered, adjudged and decreed, that said money be paid to said E. B. Molony as such guardian; that the cross petition of said Strauss be dismissed ; and that the injunction which had before been granted in the case, be made perpetual.
On appeal, the district court found the issues joined upon the answer and cross petition of said Raphael Strauss in his favor, and that the equities of the case were with said Strauss, and against the plaintiffs and the other defendants herein.
The case comes into this court on petition in error to reverse the judgment of the district court.
John A. Shank and E. JB. f James Moloney for plaintiff in error.
The guardian and ward occupy a relation as principal and agent. 4th Md., 352, 13th Md.', 532.
The party dealing with the agent -is bound to see that he is acting within the scope of his authority, otherwise he deals with him at his peril. The legal title to none of the property of the ward is or can be in the guardian; it is in the ward. The words “ guardian,” etc., are merely “ descriptio personce,” describing the agency of the guardian. The relation is likewise a fiduciary one. See Story’s Equity, Sec. 1257 ; also, Adair v. Shaw, 1st Sch. & Lefroy, 243,262; Mea. Bank of Alexandria v. Seton, 1st Peters, 309; Wilson v. Mason, 1st Cranch, 100; Oliver v. Platt, 3d Howard, 433; also, Maddox Ch. Pr. 103, 104; Jeremy on Eq. .Jur. book 2, ch. 3, p. 281; Hill on Trustees, s. p. 144; and Long v. Mulford, 17 Ohio St. 509. All these authorities, and a multitude of others, clearly assert the “ doctrine that a party taking trust property, with a full knowledge of the trust as did the defendant in this case, becomes himself a trustee, and liable to all the duties and obligations incident to the trust in the hands of the prior trustee.”
The only question then, is, has the party knowledge of the trust? It is not necessary that there should be a collusion or fraud to vitiate the sale, nor fhat there should be an intention “to violate the object of the trust.” If the actual results of the sale are in violation of the trust; if he, the purchaser, whether collusively or not, is a party to the violation of the trust, having notice that there is a trust, courts of equity place him in the shoes of the trustee, and enforce the trust.
These funds bear upon their face their true character as trust funds, hence the purchaser was put upon his inquiry to ascertain:
1st. (In a statutory sense). Whether the sale was for the interest of the ward, or whether a court creating the relation had so ordered ; and,
2d. Having notice, whether the sale was in violation of the trust. 1st. La. An. 1, 223; Chitty on Bills, 10 Edition and notes, 200, 231, 232, 233; Story on Notes, Sec. 141,142; 17 La. an’ 1, 15; 4 Neb., 324. Sale without authority of court passes no title. 55 Ga., 21; 29 Ark., 500. Edwards on Bills and Notes, 252; 9 Cal., 591, (Statutory); 4 Md., 352 (Statutory). As to the right to pursue trust funds, 38 Ga., 452; ■ 31 Cal., 17, and numerous authorities.
Jlayns 8y Broadwell and W. T. Judkins fordefendant in error.
1. The guardian can not sell the real estate of the ward, except on application to the probate court, in the mode prescribed. But there are no such provisions relating to the disposition of the personal property of the ward. The duties of the guardian of the estate are clearly pointed out in section 6269, Rev. St., (Sec. 14, 1 S. & C., 673), and neither his duties nor the bond anywhere require him to make any application to the probate or other court for the disposition of the personalty belonging to the estate. It is simply left in his discretion to manage the estate for the best interests of the ward ; and to this end, the personalty is as absolutely under his control, and as subject to his disposition as if it were his own. The bond he gives is the security of the ward, to which he must look for protection; and the guardian may be removed or required to give new or additional security in the methods and for the causes named in the code. The law proceeds on the idea, that in order to effect the best interests of the estate and of the ward, it is indispensable that the guardian should have absolute control of the personal property of the ward, to dispose of it as he sees best, the bond being the guaranty that he will do right, and the reliance of the ward if he does wrong. And for these purposes his title is unquestioned, and his rights complete. Este £c. v. Strong c., 2 Ohio, 406.
2. The defendant in error was not bound to inquire whether the exercise of this discretion was right, or the discretion itself sound. Nor was he bound to see to the application of the purchase-money. There is a class of cases where this is required, but this is not one of them. It is true, the guardian is a fiduciary. But the general principle is that where the trust is “ of a defined and limited nature, the purchaser must see to the application of the purchase-money; otherwise, when it is general and unlimited.” Clyde v. Simpson, See., 4 Ohio St., 445; Coonrod v. Coonrod, ¿■e., 6 Ohio St. 113.
The guardian’s trust requires time and discretion in its management, and any moneys, the proceeds of the estate, are not to be paid over to designated third persons, but are to be collected and expended for the general benefit of the ward and his estate during minority.
Eield v. Sehieffeler, 7 Johns. Ch., 150; Kizer v. Jones, 16 How., 30; Elliott v. Merry-man, 1 L. C. Eq., 110; Fountain v. Anderson, 33 Ga., 372; Thornton v. Rankin, 19 Mo., 193; 2 Story’s Eq. Jur., 977 a.

Opinion:
Dickman, J.
The statutes of Ohio, in plain language, give a guardian power to sell his ward's personal estate, only "when for the interest of the ward." But, it may be well inquired, whether after the ward's personal estate has been disposed of by the guardian, at the sacrifice of the ward's interest, there can be no other remedy for the ward, than a removal of the guardian and an action against the sureties ? Is the property itself to be irrecoverable beyond reach? The guardian is a trustee, and if one buys from him the ward's personal estate, with actual or constructive notice that the same is held in trust, and under circumstances furnishing reasonable grounds to believe that the sale is not for the ward's interest, the purchaser can acquire no title to the property, if the guardian misappropriates the proceeds of the sale. In such a case, the purchaser is put upon inquiry; he buys at his peril; he can stand in no better position than the guardian himself, and must be held to be a trustee for the wards.
In this case, the defendant, Raphael Strauss, at the time he bought the notes, was informed as to their origin, and the title of the real estate mortgaged to secure them. An inquiry into the title doubtless disclosed the fact, that the real estate of the wards had been sold, and said notes taken as purchase-money notes for the deferred payments. The notes on their face plainly told that they belonged to a trust fund. They were put by William Rankin, the guardian, into the hands of a broker for sale; and the defendant purchased them for less than their face value. In buying them — although executed by a solvent maker and secured by mortgage — the defendant realized that he was purchasing at his peril, and that he was running a risk in taking the endorsement of Rankin in his fiduciary capacity alone, and therefore required, in addition, his individual indorsement. In paying for the notes — by drawing his checks to Rankin individually, and not as guardian, the defendant contributed to the concealment of the fact, that Rankin was receiving the money as a trust fund. The defendant apparently gave no thought to the interest of the wards. It is not claimed that he made any inquiry of Rankin himself, or in any way sought information, as to whether the interest of the wards would be promoted or sacrificed, by the guardian's sale of the notes. It may be said that it would have been of no avail to make inquiry of the guardian himself, who committed the breach of trust. But, there is much force in the words of Sir John Romilly, master of the rolls, in a leading case, Jones v. Williams, 24 Beav., 62.
"With respect to the argument that it was unnecessary to make any inquiry, because it must have led to no results," he says, "I think it impossible to admit of the validity of this excuse. I concur in the doctrine of Jones v. Smith, 1 Hare, 55, that a false answer or a reasonable answer, given to an inquiry made, may dispense with the necessity of further inquiry; but, I think it impossible beforehand to come to the conclusion, that a false answer would have been given which would have precluded the necessity of further inquiry."
We cannot resist the conclusion, that the defendant at the time he bought the notes, had sufficient warning to put him upon a more thorough inquiry, than that which he is shown to have made. Thus put upon inquiry, he might easily have removed all doubt and fortified himself, by declining to purchase the notes, unless the guardian would first obtain leave to sell the same, by application to the probate court.
Instead of an unmistakable trust fund to be regarded as sacred, the defendant treated the notes in the hands of the broker as ordinary commercial paper. We do not think the notes in question should have been so classed. Made payable as they were to the order of William Rankin, guardian of the minors respectively named in the body of the notes, they could not have the unrestricted circulation of commercial paper, or bills of exchange and promissory notes negotiable by the law merchant. Far from being treated as commercial paper, bought1 before maturity, in the usual course of trade, for a fair value, we consider it the better rule, to hold the defendant as charged with notice of the peculiarly trust character of the notes, and as bound to exercise that high degree of caution in purchasing the same, which the protection of such trust funds demands.
Not long after the purchase of these notes by the defendant, Raphael Strauss, the financial condition of Rankin culminated in an assignment by^ him, of all his property, for the benefit of his creditors; and no portion of the proceeds of the sale of the notes, has ever been accounted for by him to his wards, or the guardian who succeeded him.
In the case at bar, we think, that the circumstances under which the defendant came into the possession of said notes and mortgage, were such as to give him no title to the same, and that he must be held to have taken the same in trust for the wards.
Judgment of the district court reversed, and that of the court of common pleas affirmed.