Whiting v. Hudson Trust Co.

• Decision Date: 09 January 1923
• Citation: 138 N.E. 33,234 N.Y. 394
• Parties: WHITING v. HUDSON TRUST CO. et al.
• Court: New York Court of Appeals Court of Appeals

234 N.Y. 394

138 N.E. 33

WHITING

v.HUDSON TRUST CO. et al.

Court of Appeals of New York.

Jan. 9, 1923.

Action in equity by Richard D. Whiting, as surviving executor of William Richard Denham, deceased, against the Hudson Trust Company and Howard C. Taylor, as agent and representative of the New York Supreme Court, to execute trusts created by the will of Joseph H. Snyder, deceased, and another. Judgment of Special Term for plaintiff (115 Misc. Rep. 425,189 N. Y. Supp. 745) was modified, and as modified affirmed, by the Appellate Division of the Supreme Court (202 App. Div. 375,195 N. Y. Supp. 829), and the defendants named appeal.

Reversed as to the defendant first named, and affirmed as to the other named defendant.

See, also, 234 N. Y. 576, 138 N. E. 453.Appeal from Supreme Court, Appellate Division, First department.

Victor E. Whitlock, of New York City, for appellant Hudson Trust Co.

Abram J. Rose, Alfred C. Petté, and MacIntosh Kellogg, all of New York City, for appellant Taylor, as trustee.

Gilbert D. Lamb, of New York City, for respondent.

CARDOZO, J.

The action is in equity, brought by a surviving executor to follow and reclaim trust moneys converted by a deceased fiduciary.

In September, 1915, John C. R. Eckerson had an account in his own name with the defendant, the Hudson Trust Company. He told Mr. Purdy, one of the defendant's officers, that he wished to open a second account, which for his own bookkeeping reasons was to be kept separate from the first. This account, it was agreed, would be designated ‘special.’ A day or so later he opened the new account with a deposit of $7,000. He brought with him a certified check for that amount upon the United States Mortgage & Trust Company. The check was signed, ‘Wm. R. Denham by John C. R. Eckerson, Atty. in fact,’ and was drawn to the order of ‘John C. R. Eckerson, Trustee.’ Some comment was made by Mr. Purdy upon the use of the word ‘trustee’ instead of the word ‘special.’ Mr. Eckerson said that he supposed the words to be interchangeable, that in fact there was no trust, and that the deposit was his own. Upon his indorsement of the check, an account described as ‘special’ was opened in the defendant's books. At that time the standing of the depositor with banks and in the business community generally was high. His reputation went far to disarm suspicion of wrongdoing.

William R. Denham, the drawer of the check through Eckerson as agent, had signed a power of attorney in April, 1915. The power was a broad one, conferring authority on the agent for and in the name of the principal to make and indorse negotiable paper; to borrow money, to keep one or more banking accounts, and to draw against the accounts and make deposits therein. Mr. Denham was ill when the special account was opened, and died a few days later, September 21, 1915. His will named two executors, Eckerson and the plaintiff. Letters were issued to both, but the plaintiff took little part in the administration of the estate. Securities which had belonged to Mr. Denham were kept in a box in the United States Safe Deposit Company. Eckerson removed them, brought them from time to time to McCurdy, Henderson & Co., stockbrokers, and caused them to be sold. Checks of McCurdy, Henderson & Co., aggregating $18,817.36, drawn to the order of J. C. R. Eckerson and J. C. R. Eckerson ‘special,’ were deposited in the special account in April, 1916. They were for the proceeds of sales. Checks of the same firm, aggregating $22,468.54, drawn to the order of J. C. R. Eckerson, ‘executor,’ were deposited in the same account in May, 1916. They were for the proceeds of other sales.

Eckerson at these times was the executor and trustee of another estate, that of Joseph H. Snyder. He kept an account as the representative of that estate with the Hudson Trust Company. A judgment of the Supreme Court made in April, 1916, in an action for an accounting directed distribution of $188,089.35, adjudged to constitute principal, and $52,999.81, income. The assets held by the trustee were not sufficient to permit the payments to be made. His embezzlements had brought about a deficit of $166,166.38. In this emergency he made good his thefts from one estate, or part of them, by stealing from the other. He drew three checks aggregating $29,195 upon the ‘special’ account, which contained the proceeds of the securities belonging to the estate of Denham. The checks, dated in May, 1916, were to the order of the estate of Joseph H. Snyder, and were placed to the credit of Eckerson, as executor. He distributed the moneys thus obtained among the Snyder legatees.

Eckerson died in October, 1916, and his thefts were then discovered. The surviving executor of the Denham estate now looks for reimbursement both to the Hudson Trust Company and to the estate of Joseph H. Snyder, represented by the defendant Taylor, who on the death of Eckerson was appointed the agent of the Supreme Court to execute the trusts. The Appellate Division has held that in accepting the check for $7,000, which opened the account, and in accepting the three checks for $22,468.54, drawn by McCurdy, Henderson & Co. to the order of ‘Eckerson, executor,’ the Hudson Trust Company had constructive notice through the form of the checks that the deposit was a breach of trust. Judgment has gone against the trust company for the total of these items, less however, the balance remaining in the special account on the death of the depositor. The result is to charge the trust company with liability for $18,448.87 principal, and interest $6,008.88, in all $24,457.75. The Appellate Division has held that the defendant Taylor, as agent or trustee, must refund $29,195, principal, and $9,340.40, interest, in all $38,535.40, moneys withdrawn from the estate of Denham and turned over without right to the trustee of the estate of Snyder. Both the Hudson Trust Company and Taylor appeal.

1. The liability of the trust company will be the first subject of inquiry.

[1] We begin with a consideration of the check for $7,000, which opened the account. The check was drawn, as we have seen, by Eckerson, attorney, to the order of Eckerson, trustee. The argument is that the trust company made itself a participant in the wrong when it placed the description ‘special’ rather than ‘trustee’ in the title of the account. Rights and wrongs are not built upon distinctions so inconsequent. If the word ‘trustee’ had been added, Eckerson would have been equally free to draw the money out and use it as he pleased. Gray v. Johnston, L. R. 3 H. L. 1. The style of the account, the term of description attached to it, had no bearing on the result, no relation to the consequences. A different question would be here if the trust company had received the check for its own use, as, for example, in payment of a debt. Bischoff v. Yorkville Bank, 218 N. Y. 106, 112,112 N. E. 759, L. R. A. 1916F, 1059;Ward v. City Trust Co., 192 N. Y. 61, 84 N. E. 585. What it did was to accept the check for the use of the depositor upon an agreement that the proceeds should be subject to his order. When the order was given and the money disbursed, the situation was the same as if cash had been delivered for safekeeping and afterwards returned. In such a situation, the defendant is to be held liable, if at all, only upon a showing that by the form of the account it has facilitated a conversion and made itself, in so doing, a party to a tort. Allen v. Puritan Trust Co., 211 Mass. 409, 422, 97 N. E. 916, L. R. A. 1915C, 518;Squire v. Ordemann, 194 N. Y. 394, 87 N. E. 435. But nothing that was done by the defendant did facilitate a conversion. Eckerson was the payee of the check with power to collect it. His power was neither increased nor diminished by the form of the deposit. He was the owner of a chose in action, whether subject to a trust or free from one. Under the law as it then stood, a trustee did not convert the moneys of the trust by the mere act of depositing them in a bank in his individual name. Bischoff v. Yorkville Bank, supra; Sagone v. Mackey, 225 N. Y. 594, 599,122 N. E. 621;Wickenheiser v. Colonial Bank, 168 App. Div. 329, 333,153 N. Y. Supp. 1035;Wickenheiser v. Herring, 224 N. Y. 650, 121 N. E. 899. Whether any change in this respect has been brought about by later statutes (Code Civ. Proc. § 2664a, as amended by Laws 1916, c. 588, in effect September 1, 1916; Surrogate's Court Act, § 231) we need not now determine. The defendant did no more to facilitate the conversion than it would have done if it had accepted a deposit of cash with notice that there was a question whether the cash belonged to the depositor in his own right or as fiduciary. The fact that the check described the payee as trustee, though suggestive of a trust, was not conclusive (Manhattan Savings Inst. v. N. Y. Nat. Exch. Bank, 170 N. Y. 58, 67,62 N. E. 1079,88 Am. St. Rep. 640;Matter of Totten, 179 N. Y. 112, 71 N. E. 748,70 L. R. A. 711,1 Ann. Cas. 900. Whether a trust did in truth exist the defendant could not be sure. What it could be sure of was that the style of the account would neither change the quality of ownership nor work injury to any one.

[2] The plaintiff makes a point that the deposit, if not wrongful because of the description of the payee is to be deemed wrongful, none the less, because of the description of the maker. The payee was described as trustee, the maker as an agent. One answer to this point suffices, though others may be available. The payee of the check, before delivering it to the defendant, had caused it to be certified. The legal result was the same as if he had received the cash over the counter (Freund v. Imp. & T. Nat. Bank, 76 N. Y. 352;Carnegie Trust Co. v. First Nat. Bank of N. Y., 213 N. Y. 301, 107 N. E. 693, L. R. A. 1916C, 186;Meuer v. Phoenix Nat. Bank, 94 App. Div. 331,88 N. Y. Supp. 83;Id., 183 N. Y. 511, 76 N. E. 1100. Between the drawee bank and its depositor, the check had been paid....