Cameron v. Peoples' Bank of Maytown
| Decision Date | 30 September 1929 |
| Docket Number | 85 |
| Citation | 147 A. 657,297 Pa. 551 |
| Parties | Cameron, Secretary of Banking, v. Peoples' Bank of Maytown; Smith's Appeal |
| Court | Pennsylvania Supreme Court |
Argued May 20, 1929
Appeal, No. 85, Jan. T., 1929, by D. Sherman Smith, from order of C.P. Lancaster Co., Trust Book No. 28, page 141 distributing fund in the hands of the secretary of banking in case of Peter G. Cameron, secretary of banking of the Commonwealth of Pennsylvania v. Peoples' Bank of Maytown. Order modified and affirmed.
Adjudication of account of the secretary of banking. Before BIDDLE, P.J., specially presiding.
The opinion of the Supreme Court states the facts.
Exceptions to adjudication overruled and distribution directed in accordance with adjudication.
Dr. D. Sherman Smith, purchaser of securities, appealed.
Error assigned, inter alia, was order, quoting record.
The decree of the court below is to be modified so that appellant shall be entitled to participate in the distribution on his claim as represented by the three certificates purchased from Michael, Jr., and Mrs. Schadt. Costs to be paid from the fund for distribution.
Peter P. Zion, with him S. V. Hosterman, for appellant. -- A holder of certificates of deposit is not chargeable with bad faith where he purchased them, with his funds, at approximately seventy-three per cent of their face value, from a vendor, reputedly wealthy, to whom he was related by marriage and whose husband and sons were bankrupt: Gray v. Bank, 29 Pa. 365; Sloan v. Banking Co., 67 Pa. 470; Lancaster Co. Nat. Bank v. Garber, 178 Pa. 91; Second Nat. Bank v. Morgan, 165 Pa. 199; Phelan v. Moss, 67 Pa. 59; State Bank v. McCoy, 69 Pa. 204; Moorehead v. Gilmore, 77 Pa. 118; McSparran v. Neeley, 91 Pa. 17.
Where a married woman acquired three certificates of deposit from payees (her son and daughter) and her husband, more than four months later is adjudged bankrupt, the court may not treat such certificates as property of her husband as against a purchaser for value: Holcomb v. Bank, 92 Pa. 338.
It is apparently the burden of one attempting to reclaim a specific thing or fund to so identify that thing or fund into its new or altered form so that the court may definitely state that the original fund or thing has been earmarked: Com. v. Tradesmen's Trust Co., 250 Pa. 372; Com. v. Tradesmen's Trust Co. (No. 2), 250 Pa. 378; Lebanon Trust & Safe Deposit Bank's Assigned Est., 166 Pa. 622; Com. v. State Bank, 216 Pa. 124.
B. J. Myers, of Zimmerman, Myers & Kready, with him Charles G. Baker, for appellees, cited: Meyer v. Shickler, 47 Pa.Super. 282; Second Nat. Bank v. Hoffman, 229 Pa. 429; Com. v. McHenry, 92 Pa.Super. 162; Com. v. Trust Co., 250 Pa. 372; Webb v. Newhall, 274 Pa. 135; Lifter v. Earle Co., 72 Pa.Super. 173; Schwartz's App., 291 Pa. 463; Kuhns v. Bank, 68 Pa. 445.
Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.
The Peoples' Bank of Maytown, which was being liquidated by the secretary of banking, had issued a number of certificates of deposits; two sets of these were in dispute. Both sets were presented for payment by appellant, Dr. Smith, who had purchased them from Ida Hoffman. The first set, or eleven of these certificates, had been purchased with money (belonging to the Hoffman Leaf Tobacco Company, a partnership) which had been embezzled by the husband of Ida Hoffman, who was also one of the partners. The other certificates were not so purchased. Payment to appellant on both sets was resisted, by creditors of the tobacco company and the husband, through their trustees in bankruptcy. The court below held that the equitable title to the eleven certificates purchased with the partnership funds was in the tobacco company and title to the other set in the trustee of the husband, and refused appellant's claim. A different question is involved as to each set of certificates.
First, as to the set of eleven certificates claimed by the trustees of the bankrupt tobacco firm: That company, with all its partners, was adjudged bankrupt on May 17, 1926. On the last day of March, 1926, M. R. Hoffman, one of the partners, and husband of Ida, received a check, payable to the firm, for $22,000, which he endorsed in the partnership's name, and purchased with this money the eleven certificates of deposit in question, for his wife. In December, 1926, his son went to Philadelphia and sold to appellant these certificates, together with the other set of three certificates, having a total face value of $11,721.68, for $8,500. At this time all the certificates were overdue.
The court below found that appellant was the father-in-law of one of the partners of the tobacco company; that he knew of the financial condition of the firm and all its partners; and that he had knowledge of the misappropriation of the $22,000 check. These findings, being supported by evidence, have the weight of the verdict of a jury: Glenn v. Trees, 276 Pa. 165; Rokeach v. Polish Co., 295 Pa. 366. The court below awarded the proceeds of the eleven certificates to the trustees in bankruptcy of the tobacco company.
The money of the company was fraudulently used to buy the certificates, and, in legal contemplation, Ida Hoffman held them as constructive trustee for the firm. The question here is whether there was sufficient evidence from which the court below could find the purchaser of the securities from her, knew, or should have known, the title transferred was tainted with fraud, and that an equitable title existed in a third party. It is a universal rule that if one purchases property from a trustee, with notice of the trust, he should be charged with the same trusts as the trustee from whom he purchases: Perry on Trusts, section 217, and cases there cited. This rule applies to constructive as well as express trusts.
Notice need not be actual. A purchaser is chargeable with notice of the trust where the facts and circumstances existing at the time of the purchase, within his knowledge, are such as would put a man of ordinary prudence upon inquiry and require him to make an investigation, and he fails to do so (39 Cyc. 562; Trefts v. King, 18 Pa. 157); no particular kind of evidence is necessary to constitute notice.
As has been pointed out, the parties lived in Lancaster, and Michael, Jr., arranged with Dr. Smith for the sale to him, in Philadelphia, of the certificates of deposit held by Michael, Sr.'s, wife, Ida Hoffman. The price paid was much less than their face value, or the sum paid for their original purchase: In re Hill, 187 F. 214. Dr. Smith knew when he purchased the certificates that the bank was in liquidation, and that Ida's husband, with Michael, Jr., was in bankruptcy. There was also some evidence that Dr. Smith had known of the misappropriation. The mere fact that his daughter was married to one of the bankrupts, who may have been concerned in the fraud, would not be sufficient to charge him with notice: Stewart County Bank v. Adams, 96 Georgia 529; see Clark v. Roberts, 206 Mass. 235. Nor would the fact that such bankrupt as his son-in-law was connected with the fraud. All this testimony may, however, be taken into consideration in determining whether notice was received.
A person who is about to purchase securities, or other choses in action, cannot wilfully close his eyes to information, or means of information, which he knows is at hand and which would show a defective title. He must act in good faith and the circumstances may be such as to impose on him the duty of inquiry. To charge a purchaser with notice he must have actual knowledge of the defect, or knowledge of such facts that his act in taking title amounted to bad faith. Mere negligence is not sufficient to impeach good faith. But it, with other matters, may be inquired into as bearing on the credibility and the weight of the testimony in support of good faith, which is required affirmatively to appear. If it appears he purposely and consciously avoided inquiry to evade notice or knowledge of a defect in the title, his act in this respect amounts to bad faith; or, to use the language of the federal Supreme Court in Goodman v. Simonds, 20 How. 343, "such conduct, whether equivalent to notice or not, would be plenary evidence of bad faith": Connelly v. Bank, 192 Iowa 876, 185 N.W. 887; Paika v. Perry, 225 Mass. 565, 114 N.E. 830; Bank v. Mason, 192 Iowa 1048, 186 N.W. 30; Kipp v. Smith, 137 Wis. 234, 118 N.W. 848. Here there was ample to put Dr. Smith on inquiry.
The firm, having traced its funds into these eleven certificates, is entitled to claim them as the property of that firm: Com. v. Tradesmen's Trust Co., 250 Pa. 373, 376; Webb v. Newhall, 274 Pa. 135; Lifter v. The Earle Co., 72 Pa.Super. 173.
The court below found that eleven of the certificates held by Dr. Smith were purchased with funds belonging to the tobacco company, and we are not convinced, after reading the evidence, that the court was in error in holding that Dr. Smith knew enough to put him on inquiry as to who really owned the certificates.
A different question is raised as to the three certificates acquired in January, 1926, from M. R. Hoffman, Jr., and Mrs. Schadt, amounting to $664.63. At that time there was no misappropriation of money, no bankruptcy proceedings, nor does it appear in the record that Michael, Sr., the husband of Ida Hoffman, was then indebted to anyone. The certificates were transferred to her before maturity, and to appellant in 1926 when the other eleven were purchased. The court below held the proceeds to be the property of the husband's creditors.
The theory of the lower court was that since Ida Hoffman was a married woman, the certificates were presumably purchased not with her money,...
To continue reading
Request your trial