Prescott v. Coppage

• Decision Date: 30 October 1972
• Docket Number: No. 3,3
• Citation: Prescott v. Coppage, 266 Md. 562, 296 A.2d 150 (Md. 1972)
• Parties: Stedman PRESCOTT, Jr., et al. v. John H. COPPAGE, Receiver for Security Financial Insurance Corporation et al.
• Court: Maryland Court of Appeals

Page 562

266 Md. 562

296 A.2d 150

Stedman PRESCOTT, Jr., et al. v.John H. COPPAGE, Receiver for Security Financial Insurance Corporation et al.

No. 3.

Court of Appeals of Maryland.

Oct. 30, 1972.

Robert L. Burchett, Rockville (Miller, Miller & Canby, Rockville, on brief), for J. Ingram Medley and Aetna Casualty & Surety Co.

William A. Ehrmantraut, Rockville (Donahue & Ehrmantraut, Rockville, on brief), for Stedman Prescott, Jr.

James P. Garland and Albin M. Plant, Baltimore (Charles R. Moran and Semmes, Bowen & Semmes, Baltimore, on brief), for appellee.

Argued before BARNES, McWILLIAMS, SINGLEY, SMITH and DIGGES, JJ., and W. ALBERT MENCHINE, Special Judge.

W.ALBERT MENCHINE, Special Judge.

This is a sequel to Coppage, Receiver v. Maryland Thrift Savings and Loan Company, 253 Md. 238, 252 A.2d 869(1969).

The original plaintiff herein will hereafter be referred to as 'Coppage.'The defendants will hereafter be referred to as 'Medley,''Aetna,' or 'Prescott.'

Coppage sued Medley and Prescott individually and Aetna as surety of Medley to recover $40,000.00 with interest, claimed to have been a priority obligation of the receivership of Maryland Thrift Savings and Loan Company, Inc., but which Medley, as receiver, and Prescott as counsel for the receiver, failed to pay but caused its assets to be paid to lower priority creditors.Medley and Aetna filed a cross-claim against Prescott seeking judgment grounded upon the theory that their liability to Coppage was the product solely of the negligence of Prescott and that he is liable for all of the original plaintiff's claim against them.

The trial court in the original suit gave judgment to Coppage against Medley and Aetna for $40,000.00, plus interest from January 9, 1962, but not to exceed the proceeds of certain collateral as to Medley and not to exceed $50,000.00, the amount of its bond, as to Aetna, but with judgment in favor of the defendant Prescott.In the cross-claim the trial court gave judgment in favor of Medley and Aetna against Prescott in the amount of $40,000.00, with interest from January 9, 1962, within the limitations previously recited.

Medley and Aetna have appealed from the judgment against them.Prescott has appealed from the judgment against him in favor of Medley and Aetna in the cross-claim.Coppage has appealed from the court's failure to enter judgment against Prescott in the original action.

The facts are these:

Coppage was receiver for Security Financial Insurance Corporation(Security); Medley was receiver for Maryland Thrift Savings and Loan Company(Maryland Thrift).Maryland Thrift was indebted to Security on two promissory notes in the face amounts of $40,000.00 and $38,000.00, dated respectively January 9, 1962 and January 17, 1962.Although receivership assets of Maryland Thrift were sufficient to pay the principal and interest on both notes in full, Medley, Receiver, paid only $44,839.20, including interest.He thereafter made distribution to depositors of Maryland Thrift after petition and order of court.The rights of depositors to distribution were inferior to the rights of Security.The distribution by Medley, Receiver, depleted the assets below the amount required to pay the balance of the obligation due Security.

In the connected case of Coppage v. Maryland Thrift, supra, this Court declared the issues therein decided to be as follows:

'There are four questions presented in this appeal, (1) whether the claim on behalf of Security was filed at the proper time, (2) whether the claim should have been denied on the basis that Medley was led to believe that the obligation from Maryland Thrift to Security had been paid, (3) whether 'the equities are such that the loss, if any, should be at the hands of the claimant and not the receiver for Maryland Thrift', as stated by the chancellor, and (4) whether the claim should have been denied on the basis of a setoff under the insurance policy issued by Security.'

All issues were decided adversely to Maryland Thrift.On remand, the chancellor passed his order and decree: (1) allowing the claim of Coppage; (2) directing Medley, Receiver, to state an account and refer to an auditor under Rule BP9 of the Maryland Rules of Procedure, and (3) setting aside the prior distribution to shareholders if the funds in the hands of the receiver were insufficient to pay the claim of Security.No appeal was taken from that order and decree.

In the instant case it is conceded: (a) that the fund remaining in the hands of Medley, Receiver, is insufficient to pay the amount ordered to be paid to Security, and (b) that Medley, Receiver, has not and will not attempt recovery of the distribution made to shareholders.

Medley's and Aetna's principal attack on the judgment of the trial court is upon the grounds: (1) that the receiver is excused from personal liability because he acted pursuant to a court order, and (2) that the negligence vel non of the receiver should be determined in these proceedings, wholly unaffected by collateral estoppel suggested as arising under Coppage v. Maryland Thrift, supra.

Prescott joins Medley and Aetna in those contentions and alternatively urges that his negligence, if any, was not the proximate cause of the loss to Security, and that contributory negligence of Medley bars recovery against him on the cross-claim.Medley, Aetna and Prescott all join in attacking allowance of interest on the judgments as granted by the trial court.Prescott also suggests the defense of limitations.

Coppage urges that Prescott is jointly and severally liable in the original action and that the limitation as to interest and as to collateral security value imposed by the trial court upon the extended judgments was erroneous.

Medley's Personal Liability

Medley and Aetna rely upon Clark on Receivers as supporting their contention that the receiver is not personally liable because he acted under an order of court.Their reliance is misplaced.It is true that Clark in general discussions in the chapter 'Liabilities of a Receiver' states broadly in § 388and§ 392 that 'it is not conceivable that such receiver would be liable personally' for an act done pursuant to the lawful order of the appointing court.However, in the instant case, the order for distribution was obtained ex parte on the basis of the very representations that are said to have been negligently made.

It seems plain that the rule stated by Clark has no application to a fiduciary who negligently distributes to persons other than the beneficiary as the result of a course of action pursued by the fiduciary himself that was bottomed upon an order obtained through incorrect information submitted by him to the court.The correct rule as to personal fiduciary liability is set forth in Restatement of the Law of Trusts, 2d, in § 226:

' § 226.Liability for payments or conveyances made to persons other than the beneficiary.

If by the terms of the trust it is the duty of the trustee to pay or convey the trust property or any part thereof to a beneficiary, he is liable if he pays or conveys to a person who is neither the beneficiary nor one to whom the beneficiary or the court has authorized him to make such payment or conveyance.'

Comment (b) to the cited section reads as follows:

'b.Mistake of law or fact.

The trustee is liable although he makes the payment or conveyance under a reasonable mistake of law or of fact.If he is in doubt as to the proper person to whom a payment or conveyance should be made, he can apply to the court for instructions and will be protected by the order of the court against claims of all persons who were made parties to the proceedings.

The trustee is liable although he reasonably believes that the person to whom he pays or conveys is the beneficiary or that the payment or conveyance is authorized or directed by the beneficiary or by the termination of the trust.'(Italics supplied)

That Maryland subscribes to the doctrine announced in the Restatement is apparent from Prince de Bearn v. Winans, 111 Md. 434, 472, 74 A. 626, 632(1909):

'If * * * the trustees were in any doubt as to the proper disposition to be made of the fund in their hands, they should have applied to a court of equity, in accordance to the long existing practice in this state, by a bill convening all parties in interest, and procured a construction of the deed of trust and a disposition of the fund under the direction and supervision of the Court.If they had adopted that course and made the distribution of the fund under the court's decree, they would have been protected, and the appellant would have been concluded by it.'

See alsoCounty Corporation v. Semmes, 169 Md. 501, 523, 182 A. 273, 283(1936), wherein receivers, empowered by court order to continue the operation of a business, were found accountable where subsequent operations of that business produced substantial operational deficits:

'* * * when, in the exercise of such caution and diligence as would commonly be expected under the known facts and circumstances, a reasonably prudent person, who was in charge of the affairs of the utility, would, except through his default, have known of the actual financial loss then incurred and involved in the further operation of the business of public carrier; and would, in consequence of such knowledge, have submitted * * * these facts to the court and requested its further direction * * *.'

A receiver is personally liable for an improper distribution of assets.

Medley's Liability as Affected by Collateral Estoppel

The doctrine of collateral estoppel bears a close relationship to res judicata.In his able opinion the trial judge said:

'The doctrine of collateral estoppel might be explained by first describing the two basic effects of a judgment.They are first, that of deciding the rights and liabilities of the parties and second, that of pronouncing a sentence of law on the ultimate facts admitted by the...