Case Name: PEOPLE v. AMERICAN LOAN & TRUST CO. In re BURROWS
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1896-03-06
Citations: 37 N.Y.S. 780
Docket Number: 
Parties: PEOPLE v. AMERICAN LOAN & TRUST CO. In re BURROWS.
Judges: 
Reporter: West's New York Supplement
Volume: 37
Pages: 780–788

Head Matter:
PEOPLE v. AMERICAN LOAN & TRUST CO. In re BURROWS.
(Supreme Court, Appellate Division, First Department.
March 6, 1896.)
Trust Fund—Specific Pledge.
M., as receiver of decedent’s estate, sued a trust company to recover certificates of stock which he alleged had been wrongfully pledged by the executor. Judgment went against him, and, pending appeal, it was stipulated, under the sanction of the court, that cash should be substituted for the stock, and held by the company subject to the same lien, if any, which it had on the stock; and that, in the event of plaintiff’s ultimate success in the suit, the company should return the cash on demand without interest. ' After the money had been paid, -and the stock withdrawn, the trust company became insolvent, and a receiver was appointed. Final_ judgment was rendered declaring that the company never had any lien on the stock, and that M. was entitled to the same, or to the money deposited in lieu thereof. Held that, as the fund was a specific pledge, to be returned in case M. finally succeeded, he was entitled to the same as against creditors of the trust company. O’Brien, J„ dissenting.
The following statement is by O’BRIEN, J.:
In 1884, Charles H. Moore was the receiver of the estate of Roswell S. Burrows, deceased. He has since died, and the petitioner here succeeded him as such receiver. In that year Mr. Moore commenced an action against the American Loan & Trust Company to recover certificates of the capital stock of the Niagara Falls International Bridge Company, then held by the said American Loan & Trust Company in pledge. The latter defended the action, and thus an issue arose between the receiver and the trust company as to who was legal ly entitled to the possession of the certificates. Judgment was rendered in thar suit in favor of the trust company. Pending appeal to the court of appeals, Moore, the receiver, thereafter obtained an order of court allowing him to enter into a stipulation which was made between the parties on October 21, 1887, as follows: “The said receiver shall exchange with said trust company cash to the amount of the claim of said defendant fis established by the judgment herein, with interest and all the costs awarded at special or general term for the certificates of bridge stock, and the power of sale and transfer accompanying the same, now held by the said trust company. Said cash to be held by the said trust company subject to the same lien, if any, that it may be ultimately decided in this suit that the trust company has on the said stock, and, in case judgment herein is aifirmed by the court of appeals, the said trust .company may apply such money to the payment of its said claim and costs to the discharge of said loan. And if the plaintiff shall succeed in this suit, and obtain the judgment of this court, determining that he is entitled to said stock, then the said trust company, upon the entry of such judgment, and upon demand, will return said cash without interest to the receiver, and at the same time, and under the same circumstances, shall deliver, to the receiver the note and other papers relating to the loan for which the said defendant now holds said stock as collateral.” On the same day the trust company delivered to Moore the certificates of stock, and the latter deposited the money in question with the trust company, and took a receipt therefor. Thereafter the trust company became insolvent, and Simmons was appointed its receiver, and on or about the 21st of July. 1892, Moore served upon Simmons a notice of the deposit of this money, and of his claim that it was held as a pledge, and that neither the trust company nor its receiver had any “right to mingle the said money so deposited in pledge with the general assets of the company.” Subsequently Moore died, and Lorenzo Burrows was appointed receiver in his stead. Afterwards a judgment was recovered in the action of Burrows as receiver against the American Loan & Trust Company, wherein it was adjudged “that the plaintiff, as the receiver of the estate of Roswell S. Burrows, deceased, was entitled to the certificates of stock, and to the said sum deposited in lieu thereof.”
The trust company was incorporated by special act of the legislature of this state, and section 3 of said act provides: “In case of the dissolution of said company * * * the debts due of the company as trustee and guardian, receiver or depositary of moneys in court and savings bank funds shall have a preference.” Laws 1884, p. 326. The trust company carried on a general banking business from October, 1SS7, when said deposit was made, until Mr. Simmons was appointed as receiver on March 7, 1891. When the deposit in question was made, the money was not kept separate, but was mingled with the funds of the company generally. At the time when Mr. Simmons, as receiver, took possession of the assets of the company, there was on hand the sum of $31,793.89 in cash. There was then no special sum of money set apart to meet the claims asserted in the action of said Moore. The amount of the indebtedness of the company to which by the terms of the charter preference was expressly given was $704,840.10. In addition, there are claims to the amount of $400,000. The principal of the preferred claims has been paid in full, but the receiver has not now in his hands a sufficient amount of money to pay the interest, and nothing whatever has been paid upon the unpreferred claims. The receiver of the estate of Burrows petitioned this court for an order that his claim be “paid in full in preference to the claims of any general creditor upon the funds or assets in the hands of said Simmons as receiver aforesaid.” The receiver of the trust company opposed this motion upon the ground that the petitioner was not entitled to such preference, either by reason of the character of the transaction out of which the claim arose or of the provisions of the charter of the trust company. An order was, however, made directing such payment absolutely, and from that order Mr. Simmons, as receiver, has appealed to this court.
Appeal from special term, New York county.
Application by Lorenzo Burrows, as receiver of the estate of Boswell S. Burrows, deceased, for an order directing J. Edward Simmons, as receiver of the American Loan & Trust Company, to pay a sum of money deposited with said company. From an order granting the application, said Simmons appeals. Affirmed.
Argued before VAN BRUNT, P. J., and BARRETT, RUMSEY, O’BRIEN, and INGRAHAM, JJ.
David Willcox, for appellant.
John Cunneen, for respondent Burrows.

Opinion:
INGRAHAM, J.
The American Loan & Trust Company was a trust company incorporated under an act of the legislature of this state passed June 1,1872, and known as "Chapter 868 of the Laws of 1872" [amended by Laws 1882, c. 391], doing business in the city of New York. On the 15th day of March, 1884, it made a loan of $25,-000 to one Mary Burrows Smith, and said Mary Burrows Smith delivered to the said trust company a certain promissory note, wherein it was stated that for value received the said Mary Burrows Smith and one Albert S. Warner, as executor of Roswell S. Burrows, jointly and severally promised to pay to the American Loan & Trust Company $25,000, with interest; and to secure the payment of the said note the said Warner delivered to the trust company certificates of 300 shares of the stock of the Niagara Palls Intérnational Bridge Company, the propérty of the said estate, held by him in trust as such executor; and at the time the said trust company received the said stock it was well known to said trust company that the said certificates of stock were the property of the estate of the said Burrows, deceased, and were held by said Warner in trust, as executor of said estate, and as part of the assets of said estate. Subsequently there was repaid of the said loan certain sums of money, reducing the principal of the said loan to $17,067.64, and upon such payment there was returned to said Warner by said trust company certificates for 100 shares of the capital stock of the bridge company; and on October 21, 1887, the said trust company held 200 shares of the capital stock of the bridge company, and there was due upon said loan the said sum of $17,067.64. Warner was removed as executor, and one Moore was appointed receiver of the property, who, on the 4th day of September, 1884, filed his bond, and entered upon the discharge of his duties as such receiver. Moore subsequently died, and the respondent was appointed in his place as receiver, and qualified on the 9th of January, 1894. Subsequent to the appointment of Moore as receiver he demanded of the trust company the return of the certificates of stock held by it as security for the said loan as the property of the estate, and, the trust company having refused to return such stock, an action was commenced in the supreme court by Moore, as receiver, against the trust company, to recover the possession of the said stock as the' property of the estate, it being claimed by said Moore that the said certificates of stock had been illegally pledged by Warner to secure the payment of the debt of the said Mary Burrows Smith. It seems that while such action was pending, and before it was finally determined, and on or about the 21st of October, 1887, an order was entered in the action in which said Moore was appointed receiver, whereby he was authorized and directed to enter into a stipulation with such of the persons or corporations who held the bridge stock "to exchange cash to the amount of their respective claims against the estate for the bridge stock held by them as pledgees to secure payment of the same, such cash to be held by them subject to the same lien, if any, that it may be ultimately decided in the suit now pending between such pledgee and the receiver that the pledgee has on the stock, and, in case such is established, that the pledgee may apply such money in discharge of the lien, but otherwise to return the same to the receiver, such exchange to be without prejudice to and in no wise to affect such suit, but that the same may be conducted to final judgment, and on appeal, if an appeal be taken by either party, with the same force and effect .and in the same manner in all respects as if such exchange was not made." And in pursuance of such order the said Moore and the said trust company entered into a stipulation entitled in the action wherein Moore was plaintiff and the trust company defendant, by which it was agreed that the said Moore, as receiver, "shall exchange with said trust company cash to the amount of the claim of said defendant as established by the judgment herein, with interest and all the costs awarded at special or general term, for the certificates of bridge stock, and the power of sale and transfer accompanying the same, now held by the said trust company; said cash to be held by the said trust company subject to the same lien, if any, that it may be ultimately decided in this suit that the trust company has on the said stock; and that, in case judgment herein is affirmed by the court of appeals, that the said trust company may apply such money to the payment of its said claim and costs to the discharge of the said loan; and that, if the plaintiff shall succeed in this suit, and obtain the judgment of this court, determining that he is entitled to such stock, then , that the said trust company, upon the entry of such judgment, and upon demand, will return said cash, without interest, to the receiver." And in pursuance of such stipulation the said Moore, as receiver, paid to the trust company the sums of $17,067.64 and $185.44, and took from the said trust company a receipt as follows:
"Oharles H. Moore, as Receiver of the Estate of R. S. Burrows vs. The American Loan and Trust Company. Received, New York, October 21, 1887, from the plaintiff in the above-entitled action, ¡>17,007.04, deposited in lieu of two hundred shares (200) of the stock ol' the Niagara Ralls International Bridge Company, and $185.44 costs, pursuant to the stipulation bearing date this day, made, signed, and delivered in this action.
"American Loan & Trust Company,
. "By W. D. Snow, Secretary."
It appears that subsequent to the death of Moore and the appointment of the respondent as receiver, the said respondent was substituted as plaintiff in the action between Moore and the trust company, and that final judgment was entered in that action, whereby it was adjudged that the delivery of the certificates of stock of the bridge company by said Warner to the trust company as a pledge to secure the payment by said Mary Burrows Smith to the said trust company of the moneys that it loaned and advanced to her- was a violation of his duty as executor; that the said trust company, by receiving from the said Warner, as executor, the said stock of the bridge company, assets of his testator, knowing that he was depositing the same in pledge for the payment of the debt of a third party, and in violation of his duty, is to be adjudged as conniving with the said executor, and that the said trust company acquired no title to or lien upon the said certificates; and that the plaintiff was entitled to judgment directing that the defendant Simmons, as receiver of the trust company, deliver to the said plaintiff, as receiver of the estate of Burrows, the said certificates for 200 shares of the capital stock of the bridge company. And it was thereby adjudged that the American Loan & Trust Company acquired no title to nor lien upon the said certificates, and that the plaintiff, as receiver of Burrows, was entitled to the said certificates, and to the said sum of money deposited in lieu thereof, and that plaintiff recover of the defendant' Simmons, as receiver, his costs. This latter judgment was entered after the appointment of Simmons as receiver of the trust company, and he seems to have been substituted before the entry of judgment as the defendant in the action in place of the trust company that had been dissolved.
It having thus' been adjudged, in an action in which the appellant, as receiver of the trust company, was a party, that the trust company never acquired any title to or lien upon the said bridge stock, it would seem to be clear that if the bridge stock had remained in the possession of the trust company, and had been received by Simmons upon his appointment as receiver of that company, the respondent would have been entitled to an order directing Simmons to deliver that stock to him as receiver. From this judgment it conclusively appears that the trust company never was the owner of the stock, and never had acquired a lien thereupon,' or right to the possession thereof; that it at all times remained the property of the estate of which the respondent is receiver, and that such estate at all times was the owner and entitled to the exclusive possession thereof; that the possession of the trust company was wrongful, and without right; that the estate of Bur-
rows at all times was its owner, and entitled to its possession. The fact that a judgment had been entered by which it was held that the trust company had such an interest in the stock that it was entitled to retain possession thereof, which judgment was subsequently reversed, gave the trust company no title to the stock while such j udgment remained in force, so that during that time the trust company could lawfully dispose of the stock; for the final judgment that was entered adjudged that no such title or right" to possession had ever vested in the trust company. Such erroneous judgment was absolutely without force, and, as no proceedings took 0 place under it, it was ineffectual for any purpose to affect the rights of the parties. The trust company thus being in possession of the stock, the property of the estate of which the respondent was receiver, and of which such estate was entitled to the possession, the representative of the estate and the trust company entered into the stipulation before mentioned, by which a sum of money was exchanged with said trust company for the certificates of the bridge stock, and said sum of money was held by the said trust company subject to the same lien, if any, that it might be ultimately decided the trust company had on the stock, with the further agreement that, in case the judgment of the court should ultimately decide that the trust company had no lien or right of possession to said stock, that the said trust company would "return said cash, without interest, to the receiver." This delivery of money to the trust company gave to the company no greater title to that money than it had to the stock. It had no right to apply such sum of money to the general uses of the company. On the contrary, it was clearly bound to hold it as a trust fund, and subject to the determination by the final judgment in the action between the estate of Burrows and the trust company as to the right of possession of the stock. Such money no more became the property of the trust company than did the stock that it held, the title to which was in dispute. Nor is there any evidence to show that the trust company violated this covenant, and actually used this money; for at the time the receiver took possession a sum of money in cash largely in excess of that deposited and substituted for the stock came into the possession of the receiver, and it does not appear that at any time prior to the appointment of a receiver the trust company did not have in its actual possession this sum of money. The mere fact that it was deposited in the trust company's general account, and was not kept, separate, is unimportant It was bound to keep this specific sum of money to await the determination of the final judgment in the action between the receiver of the estate and the trust company, and that sum of money was on hand and in its possession when the appellant was appointed receiver. The relation of debtor and creditor never existed as between the respondent as receiver and the trust company. The trust company was never a debtor to the respondent for this sum of money, but the trust company had held this bridge stock, claiming a lien upon it, and subsequently held this sum of money that had been exchanged for the bridge stock, claiming a lien upon it; and the fact that the trust company was not to pay interest upon this sum of money if it should be ultimately determined that it had no lien upon the bridge stock or its substitute (this sum of'money) shows clearly that it was never the intention of the parties that the money was to be used by the trust company, but rather that it was to be held by it as a specific pledge to be returned in case the estate should ultimately succeed. It seems entirely clear, therefore, that neither the trust company nor the appellant, as receiver, has acquired any interest in or right to this sum of money, and that, as between the respondent, as receiver, and the trust company or its creditors, either general or preferred, the respondent was entitled to the money.
We think, therefore, that the order was clearly right, and that it should be affirmed, with $10 costs and disbursements.
VAN BRUNT, P. J., and BARRETT and RUMSEY, JJ., concur.