Gartner v. Cassatt

• Decision Date: 02 January 1934
• Docket Number: 180
• Citation: 313 Pa. 491,169 A. 889
• Parties: Gartner, Trustee, Appellant, v. Cassatt et al
• Court: Pennsylvania Supreme Court

169 A. 889

313 Pa. 491

Gartner, Trustee, Appellant, v. Cassatt et al

No. 180

Supreme Court of Pennsylvania

January 2, 1934

Argued December 7, 1933

Appeal, No. 180, Jan. T., 1933, by plaintiff, from decree of C.P. No. 4, Philadelphia Co., Sept. T., 1931, No. 10629, in case of Fred C. Gartner, trustee in bankruptcy, of estate of Harry Muhlschlegel and Leonard Reichert, individually and trading as Henry Muller & Company, v. Robert K. Cassatt et al. Decree affirmed.

Bill in equity to recover personalty transferred to defendant. Before HEILIGMAN, J.

The opinion of the Supreme Court states the facts.

Decree entered dismissing bill. Plaintiff appealed.

Errors assigned, inter alia, were dismissal of exceptions, quoting record seriatim.

Decree affirmed at the cost of appellant.

Joseph J. Brown, with him John Arthur Brown, Isadore Katz, Nathan J Bonx and Harry Felix, for appellant.

H. S Drinker, Jr., with him Thomas Reath, Jr., of Drinker, Biddle & Reath, and Philip Wallis, for appellees.

Before FRAZER, C.J., SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.

OPINION

MR. JUSTICE LINN:

This is an effort by the trustee in bankruptcy of a firm of private bankers to follow money alleged to be trust property. The important question is, has a fiduciary relation between private banker and depositors been shown? The plaintiff, who is appellant, is trustee in bankruptcy of Muller and Company, a partnership, engaged in business as private bankers. The defendants, Cassatt and Company are stockbrokers. Appellant's general position is that Muller & Company, in the conduct of their business, were quasi-trustees for depositors; that in the purchase and sale, through defendant brokers, of stocks and bonds, -- some outright and others on margin, -- they acted unlawfully; that defendant brokers knew the source of the money used by the bankers and must therefore be held to have participated in the unlawful transactions and to be accountable, etc.

The banking house was near 5th Street and Girard Avenue in Philadelphia, where the bankrupts and their immediate predecessors, conducted the business established in 1888 by Henry Muller, and where, for many years, he had been engaged as private banker. January 22, 1926, Frost, then the proprietor of the bank, began trading with Cassatt and Company, defendants. It is stated that from January, 1926, until his retirement from business in July, 1927, ^[1] his purchases through his account aggregated $402,388.87 and his sales $302,952.49. About a year later, he opened a margin account. In 1924, Frost's nephew, Harry Muhlschegel, also a defendant, became his partner; Muhlschlegel had been employed in the bank since 1907, and from 1920 had been assistant manager. When Frost retired in July, 1927, Muhlschlegel and Reichert, a defendant, became partners, continuing the business under the same firm name. After Frost's retirement, the succeeding partners continued trading in the margin account. In addition, in August, 1927, Muhlschlegel opened a margin account in his own name with the understanding that it would be operated on behalf of the firm. Both accounts were used and considered as partnership transactions. January 23, 1931, Muhlschlegel and Frost, individually, and as partners, were declared bankrupts.

Muller, in one or the other accounts, bought and sold securities from time to time. Appellant's brief contains an exhibit showing purchases aggregating $4,158,893. Appellees' brief contains one showing that by October 24, 1929, Muller had made a profit of $102,176 on the sale of stocks and bonds costing $1,357,713. The deflation that followed this period resulted in heavy loss.

The bill prays that Cassatt and Company "be declared constructive trustees of all of the moneys and securities which were transferred and turned over to them by Harry Muhlschlegel and Leonard Reichert; that they be ordered to render a full, complete and accurate account of all of the moneys and securities received by them from Henry Muller & Company and/or Harry Muhlschlegel and that they be ordered to pay the value of same . . . [to plaintiff] . . . to be received and held by him subject to the order and control of the District Court. . . ." ^[2] A responsive answer was filed. The case was tried and the bill was dismissed.

The learned chancellor was of opinion that there was no constructive trust; that the evidence would not support a finding that Cassatt and Company had knowledge, prior to the adjudication in bankruptcy, January 23, 1931, that Muller & Company were insolvent, and was "guilty of no fraud in continuing the Muller & Company accounts"; that the transactions shown in the record were not gambling transactions, as appellant also alleged; and that the relation of Muller and Company to depositors was that of debtor and creditor, not trustee and cestui que trust. No question requiring discussion is raised under the Uniform Fraudulent Conveyance Act of 1921, P.L. 1045, or under 13 Eliz. c. 5.

As the legislature has not determined what the obligations of a private banker to his depositors shall be, ^[3] the relation is determined by the common law. It is firmly settled as debtor and creditor: Foley v. Hill, 2 H.L.C. 28, 36, et seq., 9 Eng. Rep. 1002, 1005 et seq. In Bank of Northern Liberties v. Jones, 42 Pa. 536, in considering the subject, this court made the following quotation from one of the opinions rendered in Foley v. Hill: "I cannot at all confound the situation of a banker with that of a trustee, and conclude that the banker is a debtor with a fiduciary character." We added, "A banker is therefore in relation to his customer, neither a trustee nor a quasi-trustee, but simply a debtor to him for a loan. The relation thus established is that of debtor and creditor merely, unaccompanied by any fiduciary connection." See, too, Commercial Nat. Bank v. Henninger, 105 Pa. 496; Com. v. Stone, 236 Pa. 35, 84 A. 659; Prudential Trust Co.'s Assignment, 223 Pa. 409, 413, 72 A. 798; Thompson v. Riggs, 5 Wall 663; Engel v. O'Malley, 219 U.S. 128; Ward v. Johnson, 95 Ill. 215, 242, et seq. Cf. Bulakowski v. Phila. Savings Fund Soc., 270 Pa. 538, 113 A. 553.

To the contract so implied in law, Muller and the depositor added terms, by rules agreed upon. Credit was given in the depositor's passbook, but the deposits were not subject to check. To withdraw, it was necessary to produce the passbook for charge; up to $100 could be withdrawn in any week without notice, but two weeks' notice was required to withdraw sums in excess of $100. Interest was credited once a year. ^[4] There is nothing in that arrangement materially changing the debtor and creditor relation implied at common law; nothing to support a finding of agency or of bailment, either of which would, of course give rise to a fiduciary relation, though not strictly that of trustee and cestui qui trust. The money deposited became the banker's; he could mingle it with his own moneys; there was no agreement that he should keep it separate. Appellant does not contend that the depositors were entitled to all the income or profits realized by Muller on money deposited. ^[5] We, of course, all agree with the condemnation by the learned counsel for appellant of the conduct of Muller & Company described in the record, but relief cannot be had in this suit. We are not now called upon to define the precise measure of care assumed by the private banker who invites deposits in savings accounts on the terms stated above, nor to pass on claims of separate depositors. While the general relationship is...