Court Opinion

ID: 7900359
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:55:02.938114+00
Date Added: 2024-06-11T16:21:04.980784
License: Public Domain

Fowler, J.,
dissented and delivered the following opinion, in which Boyd, J., concurred:
In July 1891, James T. Perkins, who was then the Treasurer of Prince George’s County, called at the National Bank of Baltimore. The object of his visit, as stated by the president of the bank, was to ascertain whether the bank would loan to Henry W. Clagett of Prince George’s County eleven thousand dollars on $12,500 of four per cent coupon bonds of that county. He stated to the president of the bank that the county owed Clagett quite a large sum of money, and was not in condition to pay him; that the County Commissioners would give Clagett $12,500 of said bonds for the purpose of negotiating the loan, and at the same time he also informed the bank that the Commissioners had not been able to dispose of the bonds, principally for the reason that one of the requirements of the Act authorizing the issue was that the coupons were payable at Upper Marlboro, Prince George’s County, and it was necessary that the bonds should accompany the coupons before payment would be made; that the County Commissioners had decided it was useless to attempt to sell •them, and had determined to get legislative authority to issue bonds for a like sum to take the place of the first issue, and that when the new issue was made, the county would either give Clagett the new bonds for $12,500 which could be substituted in place of the old bonds as collateral for the loan, or he would pay it off. Perkins represented Clagett to be a man of large means and perfectly responsible outside of the collateral. Perkins was notified that the bank had decided to make the loan as requested by him, and on the 4th of August, *301891, Clagett went to the bank and consummated the transaction by giving his note for $11,000 and as collateral he gave the $12,500 bonds we have already mentioned. On the same day this note was discounted by the bank, and the proceeds placed to Clagett’s credit on its books. The note was renewed on February 7th, 1892, for six months, but before it matured the second time, Clagett called, sometime in June, 1892, on the president of the bank and stated “ that the county was ready to pay him the money it owed him but would not do so unless he produced the bonds.” The bank, however, refused to give up the collateral until the note was paid, but after some discussion it was arranged that the bank would send the bonds to Perkins, and when he received the money he was to turn the bonds over to Clagett. This arrangement was agreed to by all parties, and the bonds were delivered to Perkins in pursuance thereof. He handed them to the County Commissioners and demanded a check for them for the bank. The witness Williams, clerk of the Board of County Commissioners, says that on the 1st of August, “ we drew the check, made it payable to J. Thomas Smith, Cashier of the National Bank of Baltimore, and delivered it to Mr. Perkins with the statement ” showing the amount of county paper of Prince George’s County held and owned by Henry W. Clagett as sole trustee for Mrs. Bowling'. Perkins gave to the County Commissioners a receipt for their check, describing it as payable to J. Thomas Smith, Cashier,- — -making no reference whatever to Clagett as trustee, nor to the statement showing the indebtedness of the County Commissioners to him as such. Both Perkins and Williams, the latter the clerk of the Commissioners, appear to have ignored the memorandum on the check and the statement of account which accompanied the check, the former on his receipt, and the latter when in his testimony he described the check as payable to the order of the cashier, etc. But as the form of the check is important in this case, we will give it as it appears in the record:
*31“ Office of the County Commissioners, etc.
“ No. 18.
“ Upper Mareboro, Md., Aug. ist, 1892.
“ The Citizens’ National Bank of Laurel. Pay to the order of J. Thomas Smith, Cashier Natl. Bank of Baltimore $r2,568.55; twelve thousand five hundred and sixty-eight tVV dollars in full for amount due as assignee of Ply. W. Clagett, sole Trustee of Mrs. E. Bowling from 1874 to 1881 inclusive.” This check was duly signed and countersigned. The cashier of the bank receipted for it to Perkins, describing it as “ check on the Citizens’ National Bank, Laurel, drawn by Prince George’s County Commissioners for $12,568.55.”
When Clagett first negotiated the loan with the Bank of Baltimore, he was President of the Board of County Commissioners of Prince George’s County; but when, in June, 1892, he called upon the bank to deliver to him the county bonds which had been issued under the Act of 1890, chapter 121, he had ceased to be a member of that Board. In the meantime, the Act of 1892, chapter 535 had been passed, repealing and re-enacting the former Act giving power to issue new bonds and requiring that before any new bonds could be issued the whole of the old issue should be counted and destroyed. It is apparent that the new issue could not be put upon the market, and that they were and would continue to be unavailable for the payment of the county paper until the Commissioners could regain possession of the old bonds which were in the hands of the bank. We have already referred to the condition on which the bank relinquished possession of the bonds— namely upon the payment of the money. While Clagett was President of the Board of County Commissioners, on the 10th June, 1891, that Board passed an order allowing to him, as trustee, 1890 bonds for his county paper on file for the years 1874, 1875, 1876, 1877, and that these bonds be exchanged for the bonds when issued with six per cent interest from date. In his testimony Clagett says the Commissioners sometime in *321891 passed an order turning over to him the $12,500 bonds but he did not remember whether the order read “ in trust ” or not. But we have already seen that the bonds (the very bonds that were hypothecated to the appellee) were in fact passed to him as trustee. But this transfer of the bonds as well as the delivery of the check, we will presently show were acts of the County Commissioners done without authority and having no effect whatever upon the trust estate.
Under these circumstances, the appellants, who are substituted trustees under the will of John D. Bowling in the place of H. W. Clagett, who has been removed from the position of sole trustee by order of the Circuit Court for Prince George’s County, filed a bill in the Circuit Court No. 2 of Baltimore City against said Clagett and the appellee bank to make the latter responsible for the alleged breach of trust of the former in hypothecating said bonds as collateral security for his individual note, and for his alleged fraudulent conversion of the said check and the proceeds thereof.
A decree pro confesso was taken against Clagett, but the bank answered fully. Several questions are presented for our consideration, but the controlling one is whether any part of the trust estate represented by the appellants came into the hands of the appellee bank in the course of the transactions with Henry W. Clagett.
In-the first place, it must be conceded that the appellee had and could have had, under the circumstances, no notice of a breach of trust, if any had been committed, until long after the loan was made and the collateral taken. In a word, until the check and the accompanying statement were sent to and received by it, there was nothing in the transaction to put it upon inquiry or to raise even a suspicion in the mind of the most prudent person that Clagett was dealing with trust funds. It was suggested, however, that if the appellee had examined, as it should have done, the Act of 1890 under which these bonds were issued, it would have been apparent that the bonds in question were transferred to Clagett without legal authority. But if *33this position should be conceded, it is difficult to see what probative force this alleged violation of law would have in establishing the proposition that the appellee had notice that the trust estate was being despoiled. That Clagett and his colleagues were guilty of an official malfeasance does not in this case necessarily establish that he was guilty of a breach of trust. But it is urged in the second place that even if, under all the circumstances of this case, the appellee could in the first instance fairly claim to have been a bona fide holder of the bonds for value, yet the fact that it received the check which we have transcribed in the first part of this opinion, and second, the fact that that check was accompanied by the statement of the indebtedness of the county to the trust estate upon which statement the receipt of the bank was written, are circumstances sufficient to have given it full notice that it was receiving trust funds from Clagett in payment of his individual note.
We think, however, that what we said in the recent case (86 Md. 400) in which the same trustees were appellants and The National Mechanics’ Bank was appellee, is conclusive so far as the effect of the check in this case is concerned. In the case just referred to, the trustees were seeking to fix responsibility upon the National Mechanics’ Bank for aiding the trustee Clagett in improperly spending and squandering the trust money for his individual uses, while here the effort is to follow trust funds claimed to be in the hands of the National Bank of Baltimore and paid by Clagett in satisfaction of his individual debt to it. In the former case we held that the bank did no more nor less than its duty when it placed to the credit of Clagett the amount of the check of January 13th, 1892, because the check was written for “ deposit to the credit of Henry W. Clagett,” and not to the credit of Henry W. Clagett, trustee. And we so held in spite of the fact, that it was also declared on the face of the check that the fund it represented “ was the balance of purchase money due ” Clagett, as trustee. By the check in this case, drawn *34by the County Commissioners of Prince George’s County, the money was directed to be paid to the order of J. Thomas Smith, Cashier of National Bank of Baltimore, and this memorandum was added: “ in full for amount due as assignee of Henry W. Clagett,sole trustee of Mrs. E. Bowling from 1874 to 1881 inclusive.” The money was duly paid to the appellee upon the endorsement of its cashier, and was appropriated in part to the payment of Clagett’s note for $11,000 and the balance placed to his credit.
It seems to be perfectly clear that if there were no other circumstance but this memorandum upon the check, it would follow, as we said in the former case, that the memorandum itself imposed no duty on the bank and operated only to subserve the convenience of the drawer of the check. In the present case, however, there is an additional circumstance which was earnestly urged as conclusive proof that the appellee had notice that the check in question represented the funds and was a part of the trust estate of Mrs. Bowling. Now while it may be conceded, for the sake of the argument, though not admitted, that the statement of account in connection with the check and all the other circumstances may have been sufficient to put the bank upon inquiry, and thus make it responsible if there was in fact and in law any part of the trust estate actually used by Clagett in the payment of his individual indebtedness, yet it can hardly be contended that if the County Commissioners on their own responsibility and for their own purposes paid this large sum of money to the appellee bank, they were thereby using funds of the trust estate, only because they happened to owe the trust estate that sum of money, and chose to say that the payment was made to an assignee of the trustee. It must be remembered that the check in question and the accompanying statement were sent to the appellee without the authority of the trustee or of the Court -having jurisdiction of the trust. It is also conceded that although the appellee is called assignee of the trustee, in point of fact it was not such ¿ssignee. Now let us see *35what really was the transaction between the County Commissioners and the bank leading to and resulting in the payment of the money which is here claimed to be the money of the trust estate. The facts have been already stated and it will be necessary only to call attention to them and remark upon their significance. In the first place it has been made apparent, indeed it is among the first and basic allegations of the bill that the certificates of indebtedness, commonly called county paper, constituted part of the assets of the trust estate in the hands of Clagett. It is true that in the ninth paragraph of the bill it is alleged that Clagett, as trustee, being entitled to said fund had no right to assign said claim to the bank or its cashier, or to order the check in question to be drawn or delivered or transferred to the latter in payment of Clagett’s note. But there is not only no proof of this allegation of the assignment of said claim but it is conceded that, although the bank is called the assignee of Clagett, there was no attempt to prove it. Nor is there any proof that the claim — the certificates of indebtedness — was ever transferred to the county. And when we remember the circumstances of the transaction between the bank and the County Commissioners it is not remarkable that this is so. For the trustee, so far as we have been informed, took no part in the preparation or delivery of the check to the bank. So far as appears by the testimony, he was a stranger to that part of the transaction, and the County Commissioners by their clerk acted entirely independent of him. Being then, as alleged in the bill, at that time in possession of the certificates of indebtedness, he did not deliver them to the county. He therefore retained possession of them in fact. We have already shown that there was and could have been no legal transfer. The acts of the trustee and of the county were without the authority of the Court having jurisdiction, and even if there had been an attempt to transfer the thing itself — the county paper which is the evidence of the claim of the estate against the county — such an attempt would have been abortive.
*36But again it is apparent that the county which is a debtor of the trust estate, of its- own motion by a misrepresentation of fact, that is to say, by calling the bank the assignee of Clagett when in point of fact it was not such assignee, attempted to substitute the bank in the place of its real creditor which was the trust estate — the bank having nothing whatever to do with, and being a stranger to that estate. The asset of the trust estate consisted of county certificates in possession of the sole trustee, Clagett, and that asset remains intact in the hands of the substituted trustees so far as we know— not having by any valid act, or indeed by any act valid or invalid, rightful or wrongful, of the trustee been converted into money, or into chattels of another description. Certainly it needs no authority to show that the trustee, without the order of the Court having jurisdiction of him and the trust estate, had no power whatever to accept the bonds of 1890 in place of the county paper. Nor is it contended that the transfer by him of these bonds to the appellee operated as payment. All the evidence shows that they were given and taken as collateral. And even if he had accepted them as payment, such acceptance could have had no binding effect, because done without authority. And so also with the payment made by the County Commissioners. It was equally without authority and without effect upon the trust estate. It would be a most dangerous doctrine to hold that such an unauthorized act of the debtor of the trust estate, to wit, the payment by the county to the appellee, operates as a valid payment of the claim of the trust estate against the county. It happens in this case that the appellee is amply able, if required, to pay the money to the trust estate, but generally the reverse would- be the case. The result would be that the claim against the county which was perfectly good would become worthless — and that too by the unauthorized act of the debtor. Neither the trustee nor his bond could be held, for it is shown that he neither authorized nor ratified the payment. If, therefore, there has been' any conversion or attempt to convert the asset of the trust *37estate into money, such conversion or attempt was the act of the debtor without the knowledge of the trustee. There is no room, therefore, for the application of the well-settled equity doctrines relating to the following of trust property, and the ratification of the wrongful act of the trustee by the beneficiaries of the trust.
Our conclusion is, therefore, that no part of the trust estate has been converted into money and used by Clagett in the payment of his note held by the appellee, and that the asset — the county paper which was alleged to have been converted and misapplied — has not been so converted and misapplied and that therefore the bill filed by the appellants was properly dismissed as against the appellee bank. This conclusion not only does not violate any principle of equity, but accords with the justice of the whole case. The bank in good faith loaned its money to Clagett and in equally good faith gave up the collateral upon the understanding that the money so advanced was to be repaid. And now that it has been repaid, to require the payment of it by the bank to the trust estate would seem almost like a justification — certainly it would be a practical approbation, of the manner in which the representative of the county secured possession of the hypothecated bonds. True, it may be that no title to them could have been successfully asserted against the county, yet the bank held them innocently and for value. The county wanted the bonds and it may be it could have recovered possession of them by an action at law, but it did not pursue that course. The county having through its officers and agents obtained possession of the bonds under the circumstances already stated, the bank was entitled upon every principle of fair dealing, to have the money paid to it by the county. And as we have already said the money which was received by the bank was in fact the money of the county and not that of the trust estate. Therefore no question can arise out of the payment thereof except as between the county and the bank! And as to the bonds, it cannot be said that they were part of the trust estate. All the testimony shows that *38they were not passed to the Trustee Clagett in payment of the claim of the trust estate, for at the time he received them from the county, it is conceded the bonds could not be negotiated or sold. At the most they were only intended as temporary security, and were subsequently destroyed in accordance with the provisions of the Act of Assembly. It not being in the power of the appellants as trustees to elect to take these worthless bonds in the place and payment of valid county paper, they have never even attempted to do so. Nor have the beneficiaries, who alone have the right to make such election, ever exercised or attempted to exercise it. The appellants have filed a bill to enforce their claim against the County Commissioners of Prince George’s County and whatever may be the result of that proceeding, the appellants should be denied relief in this according to every principle of equity and fair dealing.
Judge Boyd authorizes me to say that he agrees with the views here presented.