Allen v. Puritan Trust Co.

• Decision Date: 05 March 1912
• Parties: ALLEN v. PURITAN TRUST CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

211 Mass. 409

97 N.E. 916

ALLEN v. PURITAN TRUST CO.

Supreme Judicial Court of Massachusetts, Suffolk.

March 5, 1912

COUNSEL

Peabody Arnold, Batchelder & Luther, for plaintiff.

A. E Pillsbury and Warren, Garfield, Whiteside & Lamson, for defendant.

OPINION

BRALEY J.

The master to whom the case was referred reports that William L Baker, the first administrator of the estate of Albert H Bird, opened two accounts with the defendant. By the terms of deposit as entered on its books, the first stood in his name individually, while the second consisting wholly of moneys belonging to the estate appeared in the name of the estate followed by his own name as administrator. But while the money deposited could be disposed of by the company subject only to the obligation to pay an equivalent sum on demand, or to his order, the checks of the depositor would not transfer the debt, or title to the debt to the payee without the defendant's consent. Carr v. National Security Bank, 107 Mass. 45, 48, 9 Am. Rep. 6; Gregory v. Merchants' National Bank, 171 Mass. 67, 69, 50 N.E. 520; Heath v. New Bedford Safe Deposit & Trust Co., 184 Mass. 481, 483, 69 N.E. 215; Bank of the Republic v. Millard, 10 Wall. 152, 157, 19 L.Ed. 897; Phoenix Bank v. Risley, 111 U.S. 125, 4 S.Ct. 322, 28 L.Ed. 374. The master finds that either to reimburse the defendant for overdrafts, or for his own private purposes, Baker as administrator transferred the money of the estate to his personal account by checks drawn to his own order, and that it also accepted checks in similar form drawn on the funds of the estate deposited in a national bank, and credited him with the amounts. The report further states that there was no evidence to show that the administrator had authority in fact to make any of these transfers for his own use, and there having been none in law, the plaintiff, who is the second administrator of the Bird estate, having been partially reimbursed by the payment of the surety company on the first administrator's bond, brings this bill in equity to recover from the defendants the full amount of the embezzled deposits.

The second and third of the defendant's nine exceptions to the report having been expressly waived, we first consider the first, fifth and sixth which raises the questions whether the finding of the master that the decree of the probate court upon the second administrator's account was conclusive as to the amount of Baker's embezzlement, and his rulings that the plaintiff's right of recovery was not affected by the conduct of the surety company, or defeated by the failure of the next of kin of Bird to discover his misconduct and protect the estate, and the exclusion of evidence offered in support of these alleged defences, were erroneous. The surety company was obliged to pay the amount fixed by the probate decree until the penal sum was exhausted, and Baker having filed only a first account on which no action was taken by the court until after his death, the decree upon the second probate account presented by the plaintiff, who also is his administrator, is decisive as to the amount of the defalcation, and cannot be collaterally attacked in the present litigation. Rev. Laws, c. 162, § 2. Bennett v. Pierce, 188 Mass. 186, 187, 74 N.E. 360; Connors v. Cunard Steamship Co., 204 Mass. 310, 322, 90 N.E. 601, 26 L. R. A. (N. S.) 171, 134 Am. St. Rep. 662, 17 Ann. Cas. 1051. If it had not paid, the plaintiff could have sued, and the failure of the next of kin to ascertain, that the estate was being misappropriated, would not have defeated the suit. Oberlin College v. Fowler, 10 Allen, 545; Hayes v. Hall, 188 Mass. 510, 514, 74 N.E. 935; Choate v. Arrington, 116 Mass. 552, 556.

The plaintiff if he preferred could resort to the bond, rather than litigate the alleged equitable claims now presented against the defendant, which if fully recovered would have been insufficient to exonerate the surety. By relying on the bond he did not waive his right to proceed subsequently against the defendant, even if by agreement between them the expenses of the present litigation are to be borne by the surety, and if successful, the amount recovered is to be divided in certain proportions for its benefit, and the benefit of the estate. O'Herron v. Gray, 168 Mass. 573, 47 N.E. 429, 40 L. R. A. 498, 60 Am. St. Rep. 411. Moreover, the surety would have been subrogated to the excess, after the difference between the penalty of the bond, and the amount of the probate decree with the costs of recovery had been satisfied from any proceeds recovered from the defendant, and could have enforced this right by suit. Johnson v. Bartlett, 17 Pick. 477; Hart v. Western Railroad, 13 Metc. 99, 46 Am. Dec. 719; Wall v. Mason, 102 Mass. 313, 316; Thayer v. Finnegan, 134 Mass. 62, 66, 45 Am. Rep. 285. It may be assumed that if the next of kin had been diligent the misconduct of the administrator might have been discovered earlier; but they are not shown to have known of the transactions or been possessed of any information which should have aroused their suspicion, and their inaction by failing to compel the administrator to account, or to inquire as to his administration of the estate did not mislead the defendant, with whom they sustained no contractual relations. Stiff v. Ashton, 155 Mass. 130, 29 N.E. 203. The agreement of indemnity which Baker gave to procure the contract of suretyship having been for the protection only of the surety, its failure to enforce it does not estop the plaintiff from pursuing the defendant if a participator in the administrator's betrayal of the trust.

But if these exceptions are not tenable, the fourth, seventh, eighth and ninth exceptions present the principal questions upon which the defendant's liability depends. It broadly contends that the master's findings that on and after the date of the first overdraft, which was paid by a check drawn on the estate's account, the defendant if judged from the point of view of a reasonably prudent banker had knowledge of such facts as should have led it to suspect that the funds of the estate were being wrongly used, were unwarranted either in law, or upon the evidence, and that it cannot be held for any part of the moneys taken by the administrator. The personal property of the estate was held by him in a fiduciary capacity, and the source and nature of the respective accounts were fully disclosed by the contract. Robins v. Hope, 57 Cal. 493, 497; Hayes v. Hall, 188 Mass. 510, 511, 74 N.E. 935; J. G. Brill Co. v. Norton & Taunton Street Railway, 189 Mass. 431, 75 N.E. 1090, 2 L. R. A. (N. S.) 525; Quinn v. Burton, 195 Mass. 277, 279, 81 N.E. 257. And in the discharge of their several duties, which were fully detailed by the master, the officers and agents of the defendant were charged with knowledge of the scope and effect of the various entries relating to the deposit as shown on the defendant's books. Foster v. Essex Bank, 17 Mass. 479, 489, 9 Am. Dec. 168; Elliott v. Worcester Trust Co., 189 Mass. 542, 545, 75 N.E. 944; East Hartford v. American National Bank, 49 Conn. 539; Bundy v. Monticello, 84 Ind. 119; American Exchange National Bank v. Loretta Gold & Silver Mining Co., 165 Ill. 103, 46 N.E. 202, 56 Am. St. Rep. 233; Cutler v. American Exchange National Bank, 113 N.Y. 593, 21 N.E. 710, 4 L. R. A. 328; Duncan v. Jaudon, 15 Wall. 165, 21 L.Ed. 142; Bodenham v. Hoskyns, 2 De Gex, M. & G. 903; Pennell v. Deffell, 4 De Gex, M. & G. 372; Bailey v. Finch, L. R. 7 Q. B. 34. If the primary relation was that of debtor and creditor, nevertheless on the face of a specific contract the money belonged to the estate, and the defendant must be held to have known that if the administrator appropriated it to his own use the appropriation would be a breach of his trust. Shaw v. Spencer, 100 Mass. 382, 97 Am. Dec. 107, 1 Am. Rep. 115; McCarthy v. Provident Institution for Savings, 159 Mass. 527, 34 N.E. 1073; O'Herron v. Gray, 168 Mass. 573, 47 N.E. 429, 40 L. R. A. 498, 60 Am. St. Rep. 411; Gerard v. McCormick, 130 N.Y. 261, 29 N.E. 115, 14 L. R. A. 234; Central National Bank of Baltimore v. Connecticut Mutual Life Ins. Co., 104 U.S. 54, 26 L.Ed. 693. The money due to the defendant for overdrafts was paid with its knowledge and consent by checks drawn on the administrator's account, which were in excess of the debt, and were correspondingly credited in his private account. If, as the defendant urges, the legal title to the personal property of the estate was in the administrator, the beneficial interest was in the heirs of the intestate, who not only could demand, but could enforce an accounting. Rev. Laws, c. 150; Bard v. Wood, 3 Metc. 74; Choate v. Jacobs, 136 Mass. 297; Silsby v. Young, 3 Cranch, 249, 2 L.Ed. 429. And the nature of the fund was not changed by its having been diverted, and placed to the personal credit of the administrator. Morrill v. Raymond, 28 Kan. 415, 42 Am. Rep. 167; Central National Bank of Baltimore v. Connecticut Mutual Life Ins. Co., 104 U.S. 54, 26 L.Ed. 693; Union Stockyards National Bank v. Gillespie, 137 U.S. 411, 11 S.Ct. 118, 34 L.Ed. 724; Bailey v. Finch, L. R. 7 Q. B. 34.

It is not a sufficient answer, that if inquiry had been made doubtless the administrator might have given an explanation which would have appeared to be reasonable. Having notice of the trust, the defendant was dealing with trust funds, and was bound by the information which it could have obtained if an inquiry had been pushed until the truth had been ascertained. Shaw v. Spencer, 100 Mass. 382, 389, 391, 97 Am. Dec. 107, 1 Am. Rep. 115; Loring v. Brodie, 134 Mass. 453, 459; Ex parte Kingston, L. R. 6 Ch. App. 632. The transformation of the account in the manner adopted was furthermore a voluntary...