Brown v. Houck — 2 N.Y. St. Rep. 194

Majority

p. 194

Roxanna B. Brown, executrix, etc., et al., respondents, v. George H. Houck, impleaded, etc., appellant.

(Supreme Court, General Term, Fifth Department,

Filed June 17, 1886.)

Headnote

1. Trust Funds—Conversion—Bona fide purchasers.

The rightful owner may follow a trust fund into the hands of all persons in which it may he found, who may have received it with the knowledge that it was a trust fund, and the fact that a person with such knowledge received it in payment fcr property sold is not a defense.

2. Same—Want op knowledge may be shown.

He may, however, show want of such knowledge at the time of the sale, and will then he entitled to protection to the extent of the amount of the sale though he would not he permitted to apply the fund upon an antecedent debt.

Appeal from a judgment entered upon a verdict of the Monroe circuit.

Raines Brothers, for appellant, George H. Houck.

J. A. Stull, for respondents, Roxanna B. Brown et al.

In the spring of 1876, George W. Provost was elected collector of taxes for the town of Rush, and qualified and entered upon the discharge of his office, giving the usual official bond as town collector, signed by the plaintiff as sureties. In December of that year the annual tax roll of the town, with warrant attached, was issued to him commanding him to collect the sum of $11,165.05, and pay the same over to the county, treasurer. Of the moneys collected by him as such collector, he paid over to the treasurer all except the sum of $2,065, as to which sum he made default. Thereafter the plaintiffs, as sureties upon his bond, were required to and did pay to the treasurer of the county the sum of $1,423, which sum, together

p. 195

with certain personal property of Provost’s which they had caused to be sold and converted into money, made up the deficit. This action was brought to recover of the defendants the amount so paid by the plaintiffs. It was claimed on the part of the plaintiffs that the defendant Houck borrowed of George W. Provost $1,211.92 of the moneys collected by him as town collector, and that Houck knew at the time he so borrowed the money that it was tax moneys. It was claimed on behalf of the defendant Houck that he did not know that the moneys borrowed were tax moneys; that he had subsequently sold to Provost a large quantity of beef, and had made some payments in cash by which the money loaned was fully repaid and settled. The evidence upon the questions of the loans being made from the tax and Houck’s knowledge that it was tax money was conflicting. It was of that character that made it a question for the jury to dispose of. The jury would have been justified in finding that at least a portion of the money loaned by Provost to Houck was tax money, and that Houck knew it at the time of making the loan. So that there was no error in refusing the defendant’s motion for nonsuit.

The court, in its charge, first submitted to the jury the question as to whether or not the loans made were in fact made from the tax money, and then said, “if you come to the conclusion that this was tax money the plaintiffs are entitled to recover. It makes no difference on this branch of the case whether Houck knew it was tax money. If he borrowed the tax money it is his misfortune. The only question for you, up to this time, is whether this was tax money, and how much of it Houck had.” To this the defendant excepted and requested the court to charge that if Houck, not knowing that any of these moneys were tax moneys, received the moneys and parted with the full and fair consideration for them they cannot be recovered back. This request was declined and exception was taken. Upon the trial the defendant offered to show that the firm of John Provost & Son, of which the defendant, George W. Provost, was a member, became indebted to the defendant, Houck, for the price of beef sold to them between the first day of May and the middle of October, 1877, for a balance of over $800; that upon a settlement of accounts it was agreed to apply the meat balance upon the loans made by Provost to Houck. And again, that an agreement was made at the time, that the money that Houck had in his hands should go to pay for any balance that might be due him for meat furnished by him during that summer. These offers were objected to; the objection was sustained and the evidence was excluded. The question is thus presented,

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as to whether or not this action can be maintained if the defendant, Houck, sold and delivered beef to the defendant, Provost, in payment of the money loaned, without knowledge that it was tax money. The plaintiff's, as sureties, having been required to make good the loss to the treasury of the money misappropriated, undoubtedly became subrogated to all the rights and remedies of the rightful owner,, and, as such, may pursue the money into the bands of all. persons in which it may be found who may have received it with knowledge that it was tax money; and the fact that a person has received such money in payment for property. sold would be no defense, if at the time he had notice, actual or constructive, of the character of the money; but. a bona fide seller for a valuable consideration, and without notice, express or implied, is entitled to full protection. Iff a trustee loans a trust fund in breach of the trust, and the borrower has notice of the trust and the breach, he becomes-a quasi trustee, and he cannot separate the loan from the trust so as to reheve himself from liability to the cestui que. trust.

If, however, the borrower has no notice of the trust and. of the breach, and subsequently and before knowledge thereof, repays the same by the sale of property for full value, he should be protected, even though he would not be permitted to apply the sum upon an antecedant debt. Perry on Trusts, §§ 218, 828-832 inclusive; Tiffany and Bullard on the Law of Trusts, 197; Thorndike v. Hunt, 3 De Gex., and Jones Chanc., 563; Stephens v. The Board of Education of the city of Brooklyn, 79 N. Y., 183 ; The Grand Trunk Railway Co. v. Edwards, 56 Barb., 408 ;. Segelken v. Meyer, 94 N. Y., 473 ; Boyce v. Brockway, 31 id., 490 ; The Fifth National Bank v. The village of Hyde Park, 101 Ill., 595 ; Wetmore v. Porter 92 N. Y., 76 .

If, therefore, the defendant, Houck, had no knowledge of the funds borrowed by him were trust funds, and could have shown that in good faith he sold and delivered to the defendant, Provost, meat of the value of $800, with the understanding and agreement that it should be deducted from the amount loaned, it would to that extent establish a defence, and we are of the opinion that the exclusion of the evidence was erroneous.

Judgment should be reversed and a new trial ordered, with costs to abide the event.

Smith, P. J„, Baker and Bradley, JJ., concur.