Fid. & Deposit Co. of Maryland v. Queens County Trust Co.

• Decision Date: 22 April 1919
• Citation: 123 N.E. 370,226 N.Y. 225
• Court: New York Court of Appeals Court of Appeals
• Parties: FIDELITY & DEPOSIT CO. OF MARYLAND v. QUEENS COUNTY TRUST CO.

226 N.Y. 225

123 N.E. 370

FIDELITY & DEPOSIT CO. OF MARYLAND

v.QUEENS COUNTY TRUST CO. ^*

Court of Appeals of New York.

April 22, 1919.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by the Fidelity & Deposit Company of Maryland against the Queens County Trust Company. From a judgment on an order of the Appellate Division (174 App. Div. 160,159 N. Y. Supp. 954), reversing a judgment for plaintiff entered upon a directed verdict, and directing a dismissal of the complaint, plaintiff appeals. Judgment of the Appellate Division reversed, and new trial granted.

See, also, 174 App. Div. 929,160 N. Y. Supp. 1130.Eli J. Blair, of New York City, for appellant.

Charles H. Street, of Huntington, for respondent.

COLLIN, J.

The plaintiff brings the action to recover the amount it was compelled to pay as surety in the bond given by Robert J. Peebles, as trustee in bankruptcy of William Trist Bailey, and which Peebles, as trustee, illegally withdrew from the defendant and appropriated to his personal use. At the trial the court directed a verdict in favor of the plaintiff in the sum of $6,600 and interest. The Appellate Division reversed the consequent judgment and dismissed the complaint.

We have concluded there was error in dismissing the complaint. The cardinal facts are:

By order duly made in June, 1906, Robert J. Peebles, trustee in bankruptcy of William Trist Bailey, a bankrupt, was directed to furnish a surety company bond in a stated sum and to deposit in the defendant all moneys of the estate immediately upon the receipt of them. The bond of the trustee and of the plaintiff as surety, in the usual form, was responsively furnished. The evidence did not show that a copy of the order or bond was served upon the defendant. Between July 3, 1906, and June 27, 1907, the trustee made in the defendant 12 deposits of funds belonging to the bankrupt estate. The deposit slips stated the deposits were made by Robert J. Peebles, trustee, and the deposits were credited to the account of ‘Robert J. Peebles, Trustee.’ On the same day, July 3, 1906, that such account was opened by the deposit of a check, the individual account of Robert J. Peebles in the defendant was charged with a withdrawal of the amount of the check. Of the 11 checks of third persons deposited in the trustee account a part were payable to ‘Robert J. Peebles, Trustee,’ and a part to ‘Robert J. Peebles.’ They were apparently indorsed ‘Robert J. Peebles, Trustee.’ A check, deposited September 13, 1906, was drawn by John J. O'Grady payable to himself and was indorsed:

‘Pay to the order of Robert J. Peebles, Trustee in Bankruptcy for William Trist Bailey, Bankrupt. John J. O'Grady.’

‘Robert J. Peebles, Trustee in Bankruptcy for William Trist Bailey, Bankrupt, for deposit to the credit of Robert J. Peebles, Trustee.’

The withdrawals from the trustee account were made between July 17, 1906, and September 17, 1908, by fifty checks, each signed, ‘Robert J. Peebles, Trustee.’ Of the 50 checks, 32, drawn and paid prior to September 17, 1908, were issued upon the order of the United States District Judge for the Eastern District of New York, and each was countersigned across its face, ‘Percy G. B. Gilkes, Deputy Clerk U. S. District Court Eastern Dist. of New York,’ or ‘Richard F. Morle, Clerk U. S. District Court Eastern District of New York,’ and each of 25 of the 32 had upon its face in writing, ‘In re Wm. Trist Bailey.’ Three of those checks were certified by the defendant on the day of their date. Eight checks drawn and paid prior to September 17, 1908, were in the ordinary form; that is, without the countersignature or the statement.

The appropriations of the trust funds by the trustee to his personal use began on September 17, 1907, and were accomplished by 9 checks drawn and paid within the ensuing year. Each check was in the ordinary form and, with the exception of 2, was deposited in the individual account of Peebles in the defendant. During that period, one check was drawn on the account pursuant to the order of the court and was countersigned, ‘Richard F. Morle, Clerk U. S. District Court Eastern Dist. of New York.’ There is no evidence that Peebles was indebted to the defendant at any time or that any of the moneys of the bankrupt estate misappropriated by him were received by the defendant in payment of any indebtedness to it.

General Order 29 of the United States Supreme Court General Orders in Bankruptcy (18 Sup. Ct. viii) adopted and promulgated by that court November 28, 1898, pursuant to Bankruptcy Act July 1, 1898, c. 541, § 30, 30 Stat. 554 (U. S. Comp. St. § 9614), is:

‘No moneys deposited as required by the act shall be drawn from the depository unless by check or warrant, signed by the clerk of the court, or by a trustee, and countersigned by the judge of the court, or by a referee designated for that purpose, or by the clerk or his assistant under an order made by the judge, stating the date, the sum, and the account for which it is drawn; and an entry of the substance of such check or warrant, with the date thereof, the sum drawn for, and the account for which it is drawn, shall be forthwith made in a book kept for that purpose by the trustee or his clerk; and all checks and drafts shall be entered in the order of time in which they are drawn, and shall be numbered in the case of each estate. A copy of this general order shall be furnished to the depository, and also the name of any referee or clerk authorized to countersign said checks.’

There is no evidence that the defendant was furnished a copy of this rule.

Robert J. Peebles died December 31, 1908. A substituted trustee compelled an accounting on the part of his administrator, which revealed the peculations we have stated. Under the order of the court the plaintiff paid (the estate of Robert J. Peebles being insolvent) their amount.

[1][2] The conclusion that the facts permit and give support to the inference that the defendant knew or ought to have known that the funds deposited in the trustee account were trust funds belonging to Peebles as trustee in bankruptcy of William Trist Bailey, is too manifest and indisputable to require an analytical restatement of or discussion concerning them. The defendant did not, however, by paying moneys of those funds to Peebles or crediting them to his individual account, through the check of ‘Robert J. Peebles, Trustee,’ participate in the misappropriation of them by the trustee. A liability of the defendant did not arise from those facts. Bischoff v. Yorkville Bank, 218 N. Y. 106, 112 N. E. 759, L. R. A. 1916F, 1059.

In case a copy of the General Order 29 had been furnished to the defendant, or the defendant had known or ought to have known of its existence, prior to the payment of the checks by which the misappropriation was effected, the payment of the 9 checks would have made it liable for the diversion of the...