Third National Bank v. Lange

Brent, J., delivered the opinion of the Court. _. The note, about which this case has arisen, is as follows : $1100. Baltimore, Feby. 8th, 1876. Twelve months after date we promise to pay to the order N. W. Watkins, trustee, eleven hundred dollars with interest, value received. Flynn & Emerich.” [143] The names of “N. W. Watkins, trustee,” and “J. Regester & Sons,” are endorsed upon it. This note was given for the purchase of property sold by N. W. Watkins, as trustee under a decree of the Circuit Court of Baltimore City, and is for one of the deferred payments, as authorized by that decree. At the time of its delivery to the trustee, it was endorsed by J. Regester & Sons as securities for the drawers, — the terms of sale requiring the deferred payments to be secured in that form. Subsequently N. W. Watkins wrote above the names of J. Regester & Sons the endorsement “ N W. Watkins, Trustee,” and applied to the Union Banking Company to buy the note, offering to sell it for 12 per cent. off. The Banking Company not being willing to buy it, its cashier offered to sell it for Watkins, and placed it in the hands of a bill broker for that purpose. After getting into the hands of a second bill broker it was taken by him to The Third National Bank, the appellant, and offered to it for sale. The bank bought it from the broker at nine per cent, off, and the proceeds seem to have been appropriated by Watkins. The appellees claim that the bank acquired no right to the note, while it is contended for the bank that the note is embraced in the class of commercial paper, and was acquired by it in a fisual and proper way. Without intending to decide upon the right of a national bank to purchase paper, as the question does not necessarily arise in this case, we do not think the note in question is within the class of paper known as commercial paper. Although like it in general form, the fact that it is payable to the order of Watkins, trustee, restricts its free circulation, and excepts it from some of the rules governing commercial paper. No doctrine is better settled, than that a trustee has no power to sell and dispose of trust property for his own use and at his own mere will. One who obtains it from [144] him or through him with actual or constructive notice of the trust, can acquire no title, and it may be recovered by -suitable proceedings for the benefit of the cestui que trust. If there are circumstances connected with the purchase which reasonably indicate that trust property is being dealt with, they will fix upon the purchaser notice of the trust, and if he fails to make inquiry about the title he is getting, it is his own fault and he must suffer the consequences of his own neglect. The general doctrine is stated in 1 Story’s Eq. Juris., sec. 400, where it is said: “ for whatever is sufficient to put a party upon inquiry, (that is, whatever has a reasonable certainty as to time, place, circumstances and persons,) is, in equity, held to be good notice to bind him.” A large number of authorities is referred to in the note, and it is unnecessary to allude to them more particularly. In the case of the present note, it cannot be read understanding^ without seeing upon its face that it is connected with a trust and is part of a trust fund. It was the duty of the bank, before purchasing it, to have made enquiry into the right of the, trustee to dispose of it. But this it wholly failed to do, and as it turns out, he was disposing of the note in fraud of his trust, the bank must suffer the consequences of the risk it assumed. In the case of Shaw vs. Spencer, and others, 100 Mass., 382, the question is considered, whether the addition of the word trustee to the name alone is sufficient to indicate a trust and put a party upon inquiry. That was the case of stock certificates, which were pledged by the holder as collaterals for certain acceptances. The certificates in question were in the name of E. Carter, trustee. They were by him endorsed, and one of the questions presented was whether the word trustee was sufficient to put the holders upon inquiry, and thereby affect them with notice of the trust. The Court says on page 393, “The rules of law are presumed to be known by all men; and they must [145] govern themselves accordingly. The law holds that the insertion of the word ‘trustee’ after the name of a stockholder does indicate and give notice of a trust. No one is at liberty to disregard such notice and to abstain from inquiry, for the reason that a trust is frequently simulated or pretended when it really does not exist. The whole force of this offer of evidence is addressed to the question, whether the word ‘ trustee ’ alone has any significance and does amount to notice of the existence of a trust. But this has heretofore been decided, and is no longer an open question in this commonwealth.” And upon the ground that pledgees took the certificates with this notice of the trust, it was held that they could not retain them against the equitable owner, inasmuch as Carter, the trustee, had no authority to use or dispose of them for any such purpose. The argument, that the bank should not be deprived of its action against J. Regester & Sons, whose endorsement it is claimed guarantees the preceding endorser, would be entitled to weight but for the facts of the case. While the rule is undoubted that a subsequent endorser guarantees the preceding endorsement, it cannot apply to a case where in fact there was no previous endorsement at the time of the alleged second endorsement. The obligations of J. Regester & Sons upon this note were those of original makers, Ives vs. Bosley, 35 Md., 263; Good vs. Martin, (Sup. Court U. S.) Am. L. Reg., Feb’y, 1878, as is clearly shown by the proof in the case. Their name was placed upon the note as security, and they cannot be held.to a contract of guaranty into which they never entered. That parol evidence is admissible to show the character in which they stand relative to this note is settled by the Supreme Court of the United States in the case of Good vs. Martin, just referred to. [146] (Decided 25th March, 1879.) We are therefore very clearly of opinion, that the bank cannot hold Regester & Sons liable as guarantors. When the note is paid, their liability ceases. We find no error in the decree of the Court below, and it will be affirmed. Decree affirmed with costs, and case remanded.