Ludington v. Mercantile National Bank

Willard Bartlett, J.: The plaintiffs in this action, as substituted trustees under the will of Robert Barkley, deceased, seek to recover 200 shares of the capital stock of the National Broadway Bank, transferred by them to the Mercantile National Bank, in violation of the terms of the will and of the orders of the Supreme Court under which they were appointed to succeed the original trustees. These orders provided that the substituted trustees should have no power or authority to bargain, sell, alienate or in any manner dispose of any part of the principal of the real or personal property of the estate without having first obtained leave of the court, nor until they should have given such security for the due and proper proportion of the proceeds of any sale as the court might thereafter direct and require. The transfer of the National Broadway Bank stock to the Mercantile National Bank was made by the indorsement of the certificates by the plaintiffs as [258] such trustees, and in return therefor the plaintiffs received from the Mercantile National Bank a certificate for fifty shares of the capital stock of that corporation in the name of the estate of Robert Barkley, deceased. The circumstances of the transfer as set out in the complaint were such as to charge the defendants with knowledge of the limitations imposed by the will and'the orders of the Supreme Court upon the powers and authority of the plaintiffs as trustees. “ Knowledge of the trustee’s violation of the trust conditions will be chargeable to the person dealing with him, if the facts were such as, in reason, to put him upon inquiry and to require him to make some investigation, as the result of which the true title and authority of the trustee might have been disclosed. He will then be regarded as having constructive notice of the terms of the trust, whence the trustee derives his power to act.” (First National Bank v. National Broadway Bank, 156 N. Y. 459, 468.) A person who takes trust property with such constructive notice takes it subject to the right of the trustee to reclaim possession thereof. The obligation of a party who deals with a trustee in the purchase from him of trust securities to look into the trust agreement to ascertain the power of the trustee, was distinctly asserted in the clearest language by the Appellate Division in the first department in the case of Suarez v. De Montigny (1 App. Div. 494), and the judgment therein rendered was affirmed upon the opinion below by the Court of Appeals (153 N. Y. 678). It seems to me that under these authorities the complaint clearly states a cause of action against the Mercantile National Bank, and that the National Broadway Bank is a proper party because its interests will be directly affected if the plaintiffs succeed in enforcing their equitable demand 'against the Mercantile National Bank. I think the judgment should be reversed and that the plaintiffs should have an interlocutory judgment overruling the demurrers, but providing that the defendants have leave to answer over. Jenks, Rich and Miller, JJ., concurred;' Hooker, J., not voting. Final judgment reversed, with costs, and interlocutory judgment directed overruling the demurrer, with costs, with leave to the defendants to answer over upon payment of costs.