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estate to exonerate the stock in the possession of the bank from its liability for the indebtedness as the only property pledged being trust property, there was no opportunity to marshal assets in the payment of the debts from the proceeds of the pledged property.
Report from Superior Court, Suffolk County; Jas. B. Richardson, Judge.
Bill by Stephen C. Lowe against M. B. Jones, administrator. Reported to the Supreme Judicial Court. Bill dismissed.
Powers & Hall, for plaintiff. Warner, Warner & Stackpole, for defendant.
KNOWLTON, C. J. The defendant's intestate, one Merriam, held stock of the plaintiff under an arrangement which established a relation of trust between the parties, and made it his duty to continue to hold it until the conditions should change. It is averred in the bill that he sold a part of it and received the proceeds as his own, and pledged the remainder of it to the defendant bank as security for a loan made to him personally. On the facts averred there is nothing to show that the bank did not take the pledged property in good faith, under such circumstances as would enable it to hold it as security for the loan. Indeed, this part of the stock, with Merriam's note which it was pledged to secure, has been taken up by the plaintiff under a stipulation that the redemption should be without prejudice to the right of any of the parties. There is no doubt of the plaintiff's right to hold this part of the stock as trust property, except as to the claim of the bank under its loan. Were it not for the bank's claim he could redeem it from the defendant, in accordance with the arrangement under which it was originally held. The present contention as to this stock relates only to that part of its value which is represented by the loan. As to that part the rights of the parties are substantially the same as they are in regard to the other stock which Merriam sold in violation of his trust.
The plaintiff avers that Merriam's estate has been represented insolvent, and he seeks to establish a trust against the general assets of the intestate in the hands of the administrator, in such a way as to obtain the full value of the stock to the corresponding diminution of the amount to be divided among the creditors. All the stock that was sold and the interest of the bank in that which was pledged have gone into the hands of holders in good faith for a valuable consideration. The plaintiff therefore cannot obtain it in specie. His only right, if he has any beyond that of the general creditors, is to follow the money received on account of it, and establish his trust against that. The rule stated in some of the early cases that a trust cannot be enforced against money mingled with other money in a common fund, because money has no earmarks, has been relaxed, and it is now held that
if the proceeds of trust property can be traced into a particular fund, the trust may be established and enforced as a charge upon the fund. This principle has often been recognized both in England and America. A leading case on this subject is In re Hallett's Estate, 13 Ch. Div. 696. The opinions in this case have sometimes been understood as carrying the law further in the direction of following proceeds to enforce a trust than it was actually carried. As a consequence, there have been decisions in some of the American states to the effect that, if one's general estate has been enriched by the proceeds of trust property, the trust may be established against the general assets, even though the estate is insolvent. See McLeod v. Evans, 66 Wis. 401, 28 N. W. 173, 214, 57 Am. Rep. 287; Davenport Plow Company v. Lamp, 80 Iowa, 722, 45 N. W. 1049, 20 Am. St. Rep. 442; Myers v. Board of Education, 51 Kan. 87, 32 Pac. 658, 37 Am. St. Rep. 263; Carley v. Graves, 85 Mich. 487, 48 N. W. 710, 24 Am. St. Rep. 99. But these cases have all been either expressly overruled or greatly limited and qualified. Nonotuck Silk Company v. Flanders, 87 Wis. 237, 58 N. W. 383; Burnham v. Barth, 89 Wis. 362, 366, 62 N. W. 96; Bradley v. Chesebrough, 111 Iowa, 126, 82 N. W. 472; Fire Commissioners v. Wilkinson, 119 Mich. 658, 670, 78 N. W. 893, 44 L. R. A. 493; Travelers' Insurance Company v. Caldwell, 59 Kan. 156, 52 Pac. 440; Kansas State Bank v. First State Bank, 62 Kan. 788, 64 Pac. 634. In some states it is held that, while it is not enough to show that trust property went into the general assets, it is enough to charge the whole estate with a trust, if it can be shown that the proceeds remain unexpended somewhere in the estate. See Slater v. Oriental Mills, 18 R. I. 353, 27 Atl. 443; Bradley v. Chesebrough, ubi supra: Hopkins v. Burr, 24 Colo. 502, 52 Pac. 670, 65 Am. St. Rep. 238; Pearson v. Haydel, 90 Mo. App. 264; Lincoln v. Morrison, 64 Neb. 822, 90 N. W. 905, 57 L. R. A. 885. But by the great weight of authority, a trust cannot be established against the proceeds of trust property which has been disposed of, unless the proceeds can be identified and traced into some specific fund or property. This is the doctrine of In re Hallett's Estate, to which we have already referred. In the later case of In re Hallett & Company (1894) 2 Q. B. 237, 244, it was said in the opinion: "There is nothing in our decision in the present case which is in conflict with the decision in Re Hallett's Estate. In order to follow trust money there must be specific property, capable of being identified, into which the money has been converted, and in that case this doctrine was applied in this way. It was said that where a trustee pays his own money and also trust money in his banking account, it is the same thing as though he had placed them in a box, and his drawing for his own purposes must be assumed to be out of his own money. That decision in no
way qualifies the rule that there must be a specific thing capable of being followed." See, also, In re Stenning (1895) 2 Ch. 433; In re Oatway (1903) 2 Ch. 356. The rule in Massachusetts has always been held, with considerable strictness, to require the identification of the trust property as passing into some other specific property or fund, as distinguished from the general assets of one's estate. Howard v. Fay, 138 Mass. 104; Attorney General v. Brigham, 142 Mass. 248, 7 N. E. 851. In Little v. Chadwick, 151 Mass. 109, 23 N. E. 1005, 7 L. R. A. 570, this court said: "When trust money becomes so mixed up with the trustee's individual funds that it is impossible to trace and identify it as entering into some specific property, the trust ceases. The court will go as far as it can in thus tracing and following trust money, but when as matter of fact it cannot be traced, the equitable right of the cestui que trust to follow it fails. * There is nothing to the contrary in National Bank v. Insurance Company, 104 U. S. 54, 66, 71, 26 L. Ed. 693, and In re Hallett, 13 Ch. Div. 696, 708, 721, which are chiefly relied on by the annuitants. In Wisconsin a majority of the court has declared that it is not necessary to trace the trust fund into any specific property to enforce the trust, and that if it can be traced into the estate of the defaulting agent or trustee this is sufficient. McLeod
v. Evans, 66 Wis. 401, 409, 28 N. W. 173, 214, 57 Am. Rep. 287. But this seems to us to be stated too broadly." We have already seen that this case in Wisconsin has been overruled.
The great weight of authority both in England and America is in accordance with the rule in Little v. Chadwick, above stated. Bank's Assigned Estate, 166 Pa. 622, 31 Atl. 334; Fire Commissioners v. Wilkinson, 119 Mich. 670, 78 N. W. 893, 44 L. R. A. 493; Hauk v. Van Ingen, 196 Ill. 20, 39, 63 N. E. 705; Ellicott v. Kuhl, 60 N. J. Eq. 333, 46 Atl. 945; Ober & Sons' Company v. Cochran, 118 Ga. 396, 45 S. E. 382, 98 Am. St. Rep. 118; In re Mulligan (D. C.) 116 Fed. 715, 717, 718; Burnham v. Barth, 89 Wis. 362, 62 N. W. 96; Northern Dakota Elevator Company v. Clark, 3 N. D. 26, 30, 53 N. W. 175; Cushman v. Goodwin, 95 Me. 353, 50 Atl. 50; Rockwood v. School District, 70 N. H. 388, 47 Atl. 704; Peters v. Bain, 133 U. S. 670, 678, 693, 10 Sup. Ct. 354, 33 L. Ed. 696; Frelinghuysen v. Nugent (C. C.) 36 Fed. 229, 239; Holmes v. Gilman, 138 N. Y. 369, 376, 34 N. E. 205, 20 L. R. A. 566, 34 Am. St. Rep. 463; Matter of Hicks, 170 N. Y. 195, 198, 63 N. E. 276, and English cases above cited.
All that is averred in the present case is that the proceeds "were received by said Merriam, and form a part of the assets of his estate now in the hands of said responden: Jones." This is equivalent to a statement that the proceeds in the form of money came into the hands of Merriam, and cannot be traced further, although the plaintiff avers
that they were not paid out, but went to increase the assets of the estate.
Where money is received and mingled with one's general property by the holder, and used as his own, there would be great difficulty, in most cases, in showing that none of it was expended or used to pay debts, if it were held for any considerable time. Moreover, if it is impossible to trace the money into any fund or investment, and it becomes part of the general assets of the holder, which assets perhaps have changed their form in a variety of ways after the receipt of the money, it would be impossible to enforce a trust, unless it were established against every variety of property belonging to the holder, including debts, choses in action, and other things which it is not easy to make the subject of a trust. In the settlement of an insolvent estate there would be little equity in preferring this kind of claim, as against other creditors some of whose claims might be quite as meritorious, and founded on as great a violation of private rights as that of the cestui que trust. Except in cases of the insolvency of the trustee, the right to establish a trust against his estate is of no consequence, for all that could be obtained in such a case would be the value of the trust property, or its proceeds, and that can always be collected of the trustee if he is solvent. For different reasons we think the rule stated in Little v. Chadwick, ubi supra, should be followed, and that a trust should not be declared against the insolvent estate of a deceased person on the ground that the proceeds of trust property went into the general assets, and thereby increased the amount in the hands of the administrator.
The contention of the plaintiff, that the administrator should be compelled to use the general assets of the estate to exonerate the stock in the possession of the bank from its liability for the bank's debt, is simply another way of urging that the general assets of the intestate are impressed with a trust, to the amount of the loan received by the intestate. Unless they are so impressed they cannot be taken from the general creditors and used for the redemption of the trust property in the hands of the bank. case of Ex parte Allston, L. R. 4 Ch. App. 168, has no application to this contention. That was a case of marshaling assets which had been pledged for a debt of the bankrupt. The pledge included trust property and other property of the bankrupt. It was decided that the other property held in pledge must all be applied to the payment of the debt, to the exoneration of the trust property. In the present case the only property pledged was trust property, and there is no opportunity to marshal assets in the payment of the debt from the proceeds of the pledged property.
Bill dismissed, without prejudice to the right of the plaintiff to prove his claim against the estate.
(192 Mass. 137)
FRANCIS et al. v. HAZLETT. (Supreme Judicial Court of Massachusetts. Bristol. May 18, 1906.)
1. JUDGMENT-RES JUDICATA - PARTIES CONCLUDED-STOCKHOLDERS.
Stockholders of a bank are concluded by a judgment in an action in which the bank was a party, by which a receiver was appointed and the court, having found that the assets of the bank had all been disposed of and the proceeds paid out and applied in pursuance of the order of court, that there had been claims adjudicated against the bank, and that the bank was wholly insolvent and had no property, authorized the receiver to bring suits against its stockholders. [Ed. Note.-For cases in point, see vol. 30, Cent. Dig. Judgment, § 1226.]
In a suit by stockholders to restrain the prosecution of actions by a receiver against them for debts due the corporation, a cross-bill cannot be maintained for the amounts due, especially where actions at law had been brought against the plaintiffs for the recovery of those amounts.
Report from Supreme Judicial Court, Bristol County; John W. Hammond, Judge. Bill in equity by Francis and others against Hazlett to restrain the prosecution of actions brought against shareholders of a failed bank. Case reported to Supreme Judicial Court. Bill dismissed.
Fredk. S. Hall, Wade Keyes, and Wm. J. Davison, for complainants. Hollis R. Bailey and Elliott B. Church, for defendant.
SHELDON, J. J. The principal question raised is whether the plaintiffs are bound by the proceedings had in the district court of Gage county, Neb., on March 5, 1895, in which the defendant was appointed receiver of the American Bank of Beatrice in that county, and by the interlocutory decree entered in June, 1898, by which the court, having found that the assets of the bank had all been disposed of, and the proceeds paid out and applied by the receiver in pursuance of the order of court, that there had been adjudicated and put in judgment claims against the bank to the amount of $32,795.08 and accruing interest and costs, and that the bank was wholly insolvent and had no property of any kind out of which to make the amounts due to its creditors, authorized and instructed the receiver to bring suits against the several stockholders of the bank. The importance of this question arises from the fact that, as is agreed by both parties, under the Constitution and laws of Nebraska, by which the substantive rights of the parties are governed, the liability of the stockholders for the payment of the debts of the bank is merely secondary, and can be enforced in suits brought by the receivers only after the amount of the debts has been judicially ascertained and other corporate property exhausted. Farmers' Loan & Trust Co. v. Funk, 49 Neb. 353, 68 N. W. 520; State v. German Savs. Bank, 50 Neb. 734, 70 N. W. 221; Hastings v. Barnd,
55 Neb. 93, 75 N. W. 49. The plaintiffs claimed before the master, and offered to show that the conditions precedent to any right of action against them had not in fact been complied with.
There is no claim that any of these plaintiffs were directly made parties to the suit in the district court of Nebraska in which the proceedings in question were taken. If the corporation, the American Bank of Beatrice, had not been a party to that suit, undoubtedly the present plaintiffs would not have been bound by any action taken therein. This was assumed in Clark v. Knowles, 187 Mass. 35, 72 N. E. 352, 105 Am. St. Rep. 376, and Hancock Nat. Bank v. Ellis, 172 Mass. 39, 45, 51 N. E. 207, 42 L. R. A. 396, 70 Am. St. Rep. 232. They would be neither party nor privy to such a suit; having no notice of its inception and no duty to make any contest in it, they would be mere strangers to it, and no rights of theirs could be affected by any findings or adjudication made therein. Eayrs v. Nason, 54 Neb. 143, 74 N. W. 408. But there is no dispute that the plaintiffs were stockholders in this bank; and the decrees which we are considering were made in a suit brought directly against the bank, alleging its insolvency and asking for the appointment of a receiver, and no question is made but that the bank was properly served with process and appeared, or that the court in which the suit was brought had full jurisdiction both of the subject-matter of the suit and of the parties thereto. Under such circumstances, it is well settled that the stockholders of the bank are bound by the proceedings taken in the suit. Hambleton v. Glenn, 72 Md. 331, 20 Atl. 115; Parker v. Stoughton Mill Co., 91 Wis. 174, 64 N. W. 751, 51 Am. St. Rep. 881. The decrees entered in the Nebraska court and the findings made and stated therein are conclusive in that state against both the corporation and the stockholders, and must have the like force and effect when their enforcement is sought in our courts. Hancock Nat. Bank v. Farnum, 176 U. S. 640, 20 Sup. Ct. 506, 44 L. Ed. 619. The plaintiffs were bound by the provisions and laws of the state of Nebraska which entered into the contract by which they acquired their shares; they have assented to this obligation by receiving their stock, and have subjected their rights to that extent to the jurisdiction of the Nebraska courts, and are sufficiently represented by the corporation in proceedings before those courts. Tompkins v. Bailey, 70 N. H. 584, 49 Atl. 111; Childs v. Cleaves, 95 Me. 498, 50 Atl. 714; Andrews v. Steele City Bank, 57 Neb. 173, 77 N. W. 342; Richards v. People, 81 Ill. 551.
It is not necessary, however, to multiply citations for the support of these propositions. They have been settled in this commonwealth by the decision in Howarth v. Lombard, 175 Mass. 570, 56 N. E. 888, 49 L. R. A. 301. In the carefully reasoned opinion
by Mr. Justice Knowlton in that case it is said: "The question arises how far these proceedings in the court of Washington are binding on the defendant. The stockholders must be assumed to have understood the statute from the first as it has been construed by the court. They must be presumed to have agreed that on the insolvency of the corporation a receiver might be appointed by the court, and the affairs of the corporatión administered, and the amount of its assets and liabilities determined, and the deficiency ascertained under the order of the court, and an assessment to meet this deficiency made ratably upon all who were then stockholders. This is the only proper way of accomplishing the object of the statute, and the statute, as construed by the local courts, means this as plainly as if every part were expressed. Under the statute the stockholders impliedly agreed that if their subscriptions were in part unpaid when they were needed for creditors, they would pay the balance to the corporation or its legal representative, and that if more was needed they would also pay their proper share, up to the amount of their subscriptions, to the trustee of this additional fund, for the benefit of creditors. The determination of the questions involved are a part of the proceedings of the court in the administration of the affairs of a local insolvent corporation. The court of Washington, acting under its general authority in such administration, is the only tribunal which has jurisdiction to determine the amounts due creditors, and to collect and apply the assets of the corporation. The undertaking of the stockholders relates directly to the payment of amounts, so to be ascertained. The ascertainment is like a common case of a judgment against a corporation which is binding on stockholders. The members of such corporations, as well as the corporations themselves, are within the jurisdiction of the local court so far as is necessary for the determination of the rights and liabilities of the corporation and its members among themselves. In reference to this kind of liability such decisions and orders are binding on stockholders who are not before the court otherwise than by virtue of their membership in the corporation." And see the cases cited in that opinion. Although these plaintiffs were not parties to the Nebraska suit, yet they were bound by the orders which are here in question. Howarth v. Ellwanger (C. C.) 86 Fed. 54, quoted in Howarth v. Lombard, 175 Mass. 580, 56 N. E. 888, 49 L. R. A. 301.
The cases relied upon by the plaintiffs to support their contention that they are not bound by these orders made by the Nebraska court in the suit there pending against the bank contain nothing at variance with what has been said, and need not be particularly considered. The argument of their counsel rests upon the fallacy that the court had no jusisdiction over the subject-matter of these decrees unless the assets of the bank were
in fact absolutely exhausted. The correct position is that the court had not the right to enter these decrees until it had found the necessary facts, including the exhaustion of the corporate assets. It had jurisdiction to determine this question; and its determination thereof is conclusive in the state of Nebraska. Brinkworth v. Hazlett, 64 Neb. 592, 90 N. W. 537; Andrews v. Steele City Bank, 57 Neb. 173, 77 N. W. 342; State v. German Savs. Bank, 59 Neb. 292, 80 N. W. 901; Stenburg v. State, 48 Neb. 299, 316, 67 N. W. 190; Smithson v. Smithson, 37 Neb. 535, 56 N. W. 300, 40 Am. St. Rep. 504. That it must be given like force and effect here under the Constitution of the United States, art. 4, § 1, is settled by the decisions already cited.
It follows from what has been stated that none of the plaintiffs' exceptions to the master's report can be sustained, and that the defendant's fourth exception at least must be sustained. It necessarily follows also that the plaintiffs' bill cannot be maintained. It is unnecessary, accordingly, to consider the defendant's demurrer to the bill; and the only question which remains to be disposed of is that which arises upon the defendant's appeal from the decree dismissing his crossbill.
It may be granted, as the defendant contends, that a "cross-bill for relief is proper in cases where in the original suit all things in litigation touching the subject-matter cannot be brought before the court, but the defendant, in order to obtain a complete settlement of the controversy, is entitled to some relief which the scope of the plaintiff's bill will not afford him." Morton, J., in Richards v. Todd, 127 Mass. 167. Nor is it necessary that a cross-bill should show any independent right to equitable relief, if it really involves a part of the subject-matter of the original bill. North British & Mercantile Ins. Co. v. Lathrop, 70 Fed. 429, 17 C. C. A. 175; Springfield Milling Co. v. Bernard & Leas Manuf. Co., 81 Fed. 261, 26 C. C. A. 389. But the subject-matter of this bill is not strictly the question whether the plaintiffs are respectively liable to pay assessments upon the stock for the benefit of creditors of the corporation; it is rather whether the conditions precedent to the defendant's right to enforce his claim that they are thus liable have been performed. Moreover, it appears that some time before the filing of the bill the defendant had brought actions at law against the respective plaintiffs for the recovery of the amounts for which he claims that they are severally liable; and it is only a several liability against each one of them that he seeks to enforce. In our opinion, he has no legal right in such a case to enforce his claims by a cross-bill, but should be left to the remedy at law to which he first elected to resort.
The result is that each of the decrees appealed from must be affirmed, and that the plaintiffs' bill must be dismissed; and it is So ordered.
(192 Mass. 412) EVANGELICAL BAPTIST BENEVOLENT & MISSIONARY SOCIETY v. CITY OF BOSTON.
(Supreme Judicial Court of Massachusetts. Suffolk. June 21, 1906.) TAXATION-EXEMPTIONS-BENEVOLENT INSTI
Acts 1857, p. 503, c. 154, § 2, incorporating a benevolent society, authorized it to hold real and personal estate to the amount of $350,000 and exempted the same from taxation. The corporation acquired property worth less than $350,000, at a time when it had no other property, but the property became worth more than $350.000. Held, that the excess of value over $350.000 was not exempt from taxation.
[Ed._Note. For cases in point, see vol. 45, Cent. Dig. Taxation, § 349.]
Appeal from Superior Court, Suffolk County.
Action by the Evangelical Baptist Benevolent & Missionary Society against the city of Boston. From a judgment in favor of defendant, plaintiff appeals. Affirmed.
Jas. R. Dunbar and Harrison M. Davis, for appellant. Thos. M. Babson, for appellee.
MORTON, J. This is an action of contract to recover back taxes alleged to have been unlawfully assessed and collected. The taxes were assessed as of May 1, 1903. The case was submitted to the superior court on agreed facts, and a pro forma finding was made for the defendant from which the plaintiff appealed.
The plaintiff is the owner of the land and building on Tremont street, Boston, known as Tremont Temple, the total valuation of which as determined by the assessors in 1903 was $935,000. From this the assessors deducted the sum of $350,000 and assessed the plaintiff on the balance. This deduction was made pursuant to section 2, c. 154, p. 503, Acts of 1857, under which act the plaintiff was incorporated and organized. That section is as follows: "Sec. 2. Said corporation may hold real and personal estate to the amount of three hundred and fifty thousand dollars. which property, and the net income thereof, after the same has been paid for, shall be appropriated exclusively for the purposes in this act specified, and the same shall be exempted from taxation." The property was acquired by the plaintiff in 1858 and the total value of the land and building was then and continued for some years to be less than $350,000. In 1893 the building was destroyed by fire and a new one was built at a cost of upwards of $346,000. For purposes of assessment the land was valued at $611,000, and the building at $324,000, making the total of $935,000 referred to above. The plaintiff contends, in substance, that the effect of the section quoted above is to exempt from taxation property acquired by it up to the value of $350,000 regardless of the subsequent increase in value, and that as the plantiff had no other property so far as appears, when
this was acquired, and it was less than $350,000 in value, it comes within the exemption. In other words it contends that the exemption is specific rather than general in character and attached for the benefit of the plaintiff to particular parcels as acquired up to the limit named. In support of this contention it relies upon the cases of Hardy v. Waltham, 7 Pick. 108, and Harvard College
Boston, 104 Mass. 470. These cases arose under the charter of Harvard College where the language is quite different from that in the case before us. The material part of the charter is printed in the margin in Harvard College v. Boston, 104 Mass. 473, 474. The provision relating to exemption is as follows: "And further, be it ordered by this court and the authority thereof, that all the lands, tenements and hereditaments, houses or revenues, within this jurisdiction, to the aforesaid president or college appertaining, not exceeding the value of five hundred pounds per annum, shall from henceforth be freed from all civil impositions, taxes and rates." This was construed in the cases above referred to. as exempting specifically lands and tenements not exceeding in value £500 per annum. There is an intimation in Harvard College v. Boston, 104 Mass. 489, that if the question were a new one a different construction might be adopted. However that may be the language of the charter particularly exempts lands, tenements, hereditaments and houses not exceeding in value the amount named. The exemption therefore is not only an exemption of a given amount of property but of the specific parcels of which it may be composed. In the present case the plaintiff is given the general right to hold property to the amount of $350,000, and then it is provided generally that "the same shall be exempted from taxation." The intention was to provide that the corporation could hold property to a given amount and to exempt that amount from taxation. It follows that all above that amount however and whenever acquired is liable to taxation. This is the construction on which the assessors have acted. There is no contention that the property is exempt on any other ground and the result is that the judgment must be affirmed. So ordered.