This is a case in which a court of equity is called upon to
decide upon which of two innocent parties is to fall a loss
occasioned by the dishonesty of a third person. On the facts as
stated by the court, it appears that the relation that existed
between Thompson, the executor of Dr. Saul who left a legacy to the
Missionary Society, and that society was that of executor and
legatee; that the relation between Thompson and Holly, the
purchaser of the estate sold by the executor, was that of attorney
and client, and that, as between themselves, Holly and the society
were absolute strangers. The court, on the facts, holds that the
pleadings and evidence
Page 180 U. S. 285
fail to show any such dereliction of duty or supine negligence
on the part of the Missionary Society in demanding and enforcing
payment of the Saul legacy as would show, or even tend to show,
that the society knew, or had reason to believe, that Thompson was
insolvent, or had been guilty of any misappropriation of the
property or funds of the Saul estate; also that the evidence fairly
showed that the Missionary Society had appropriated the money
received by it to the purposes appointed by the testator, before
any notice was given of the complainant's claim.
As against the Missionary Society, Holly has no equities, and
even if it could be said that the equities were equal, a court of
equity will not transfer a loss that has already fallen upon one
innocent party to another party equally innocent.
This was the case of a bill in equity filed in January, 1891, in
the Circuit Court of the United States for the Southern District of
New York by James Holly, a citizen of the State of Pennsylvania,
against the Domestic and Foreign Missionary Society of the
Protestant Episcopal Church in the United States of America, a
corporation of the State of New York, and E. Walter Roberts,
treasurer of the same.
The case came to issue on bill, answer, and replication.
Evidence was adduced by the respective parties, and certain
exhibits and stipulations were filed.
The principal facts disclosed by the pleadings and evidence were
these:
On December 23, 1887, the last will of Rev. James Saul, D.D.,
was duly proved, and letters testamentary thereon granted by the
register of wills in and for the City and County of Philadelphia to
Rev. Benjamin Watson, D.C. and Henry C. Thompson, executors named
in said will. In and by said will, the testator bequeathed the
whole of his estate to
"the following institutions and in the following proportions,
viz., to the Domestic and Foreign Missionary Society of
the Protestant Episcopal Church in the United States of America,
three-fourths of the whole of my said estate, conditioned that the
amount thus bequeathed shall be appropriated by said society in
equal proportions of one third to domestic missions, one third to
foreign missions, and one third to the benefit of the colored
people in the southern or formerly slave states for the support of
schools and missions."
The remaining one-fourth of the whole of the
Page 180 U. S. 286
said estate he gave and bequeathed to the Theological Seminary
near Alexandria, Virginia. By a codicil, the bequest to the
theological seminary was revoked, the testator having substituted
therefor a donation of 100 shares Pennsylvania Railroad stock, and
which he had transferred to the trustees of the seminary, and by a
later codicil the testator further gave and devised to the Domestic
and Foreign Missionary Society of the Protestant Episcopal Church
in the United States of America all the residue of his estate.
Neither the amount of the estate, nor the property of which it
consisted was mentioned in the will or codicils, but it appeared
that, in addition to about $2,493.03 cash, the testator was
possessed of bonds of the North Pennsylvania Railroad Company and
of the United Railroads of New Jersey, and in their account filed
in the Orphans' Court of Philadelphia County, the executors charged
themselves with $17,268.03 as the amount of the estate. This
account was confirmed on November 5, 1889, showing a balance in the
hands of the executors of $14,927.54, which was awarded by the
court to the Domestic and Foreign Missionary Society.
On June 19, 1890, the executor, Henry C. Thompson, called at the
office of the defendant society in New York City and handed to
Roberts, the treasurer, a memorandum showing the above balance
$14,927.54 awarded to the society by the decree of the orphans'
court, from the Saul estate, and $650 dividends received since and
not included in the account, making a total of $15,577.54. For this
sum Thompson gave a check in the following words and figures:
"$15,577.54 Philadelphia, June 19, 1890"
"
THE UNION TRUST COMPANY"
"
Nos. 715, 717, 719 Chestnut Street"
"Pay to the order of the Domestic and Foreign Miss. Soc. of the
P. E. Church fifteen thousand five hundred seventy-seven 54/100
dollars."
"No. 623 H. C. Thompson"
Roberts, the treasurer, handed Thompson a receipt, as
follows:
Page 180 U. S. 287
"New York, June 19, 1900"
"Received from executors estate of James Saul, late of
Philadelphia, Pennsylvania, fifteen thousand five hundred
seventy-seven 54/100 dollars ($15,577.54)."
"George Bliss,
Treasurer"
"per E. Walter Roberts,
Assistant Treasurer"
Thompson's check was deposited by Roberts, treasurer, in the
Bank of New York, for general account of the Foreign and Domestic
Missionary Society of the Protestant Episcopal Church in the United
States of America, by which bank the check was forwarded for
collection to the Bank of North America of Philadelphia, and was to
that bank paid, on June 21, 1890, by the Union Trust Company of
Philadelphia.
The proceeds of this check were deposited in the general bank
account of the missionary society, and were applied, with other
moneys of the society, to domestic, foreign, and colored missions
before the society was notified of the claim asserted in the bill
of complaint.
In May, 1890, James Holly, a resident of Philadelphia, bought at
auction for $12,000 a house and lot situated upon North Fifteenth
Street in that city. He took the title papers to H. C. Thompson,
who had previously been employed by him, and requested Thompson to
have proper conveyances made. As some of those interested in the
sale resided elsewhere, there was some delay in getting the papers
signed. Finally, on June 19, 1890, Holly called on Thompson, who
told him that the papers were ready and asked for a check to meet
the purchase money. T hereupon Holly gave him a check in the
following form:
"Philadelphia, June 19, 1890"
"The Fidelity Insurance, Trust & Safe Deposit Co., pay to
Henry C. Thompson, attorney, or order, twelve thousand
dollars."
"$12,000 James Holly"
And Thompson gave Holly a receipt, as follows:
Page 180 U. S. 288
"Philadelphia, June, 19, 1890"
"Received from James Holly twelve thousand dollars, and J. A.
Freeman's receipt for $200, to be applied to purchasing house, No.
643 North Fifteenth street."
"$12,000 (Signed) H. C. Thompson"
Holly never afterwards saw Thompson, but, on July 15, 1890, was
informed by Morgan, one of the vendors of the property purchased,
that Thompson was lying at a hospital in Jersey City, where he had
attempted suicide.
Taking alarm, Holly consulted Mr. Burton, as an attorney, and it
was discovered that Holly's check on the Fidelity Insurance, Trust
& Safe Deposit Company in favor of Thompson for $12,000, dated
June 19, 1890, had been by Thompson that day deposited in the Union
Trust Company, Philadelphia, and that, by a check of June 19, 1890,
in favor of the Domestic and Foreign Missionary Society of the P.
E. Church in the United States of America, Thompson had drawn out
$15,577.54, leaving a balance in his favor of $72.41.
According to the finding of the circuit court, this check in
favor of the Domestic and Foreign Missionary Society was, to the
extent of $10,028, paid by the Union Trust Company out of the
moneys realized from Holly's check to Thompson, and that court
decreed against the missionary society in favor of the complainant
for that amount. 85 F. 249.
Upon appeal, the decree of the circuit court was reversed by the
Circuit Court of Appeals for the Second Circuit, and the bill
directed to be dismissed (92 F. 745), and thereupon the case was
brought to this Court by a writ of certiorari.
MR. JUSTICE SHIRAS delivered the opinion of the Court.
This is a case in which a court of equity is called upon to
decide
Page 180 U. S. 289
upon which of two innocent parties is to fall a loss caused by
the dishonesty of a third person. The relation that existed between
Thompson and the missionary society was that of executor and
legatee; between Thompson and Holly, that of attorney and client.
As between themselves, Holly and the missionary society were
absolute strangers.
Our examination of the pleadings and evidence fails to show any
such dereliction of duty or supine negligence on the part of the
missionary society in demanding and enforcing payment of the Saul
legacy as would show, or even tend to show, that the society knew,
or had reason to believe, that Thompson was insolvent or had been
guilty of any misappropriation of the property or funds of the Saul
estate. It is true that the legacy was not paid as promptly as the
society had reason to expect, but there was nothing unusual about
such a delay.
The very fact that Rev. Dr. Saul had selected Thompson to be one
of his executors authenticated him to the society as a trustworthy
person, and while it is true that Rev. Mr. Watson, who was a
co-executor, in letters answering inquiries by the secretary of the
society in April and May, 1890, admitted that Thompson was dilatory
in settling the estate, there was nothing to justify suspicion on
the part of either Mr. Watson or of the society that there was
anything wrong in Thompson's dealings with the estate. Accordingly,
we are fully satisfied that, when Thompson called upon the society
at the New York office on June 19, 1890, and paid the amount shown
to be due the society by the account of the executors in the
Orphans' Court of Philadelphia County, approved November 23, 1889,
together with the additional sum of $650 received after and not
included in the account, there was nothing either in the previous
transactions or in the form of the payment by Thompson's check to
put the society upon notice, or to have justified the treasurer in
refusing to accept the payment. When Thompson's check was paid the
following day and the proceeds had gone into the bank account of
the missionary society, the matter was fully closed between the
executors of Saul's estate and the society.
Beyond this, we think the evidence fairly shows that the
missionary society had appropriated and expended the money so
Page 180 U. S. 290
received to the purposes appointed by the testator before any
notice was given of the complainant's claim. While such use and
application of the money might not exonerate the society from
liability, if they had received the money in circumstances that
visited them with notice of Thompson's dishonest conduct towards
Holly, yet if the money, received in good faith by the legatee, had
actually and
bona fide been applied and expended for the
use of the beneficial purposes appointed in the will, without
knowledge of Holly's claim, or, indeed, that such a man existed, we
think a court of equity would refuse to hold the society as a
trustee
ex maleficio.
The learned judge of the circuit court, speaking of this aspect
of the case, does indeed say:
"Some suggestion is made that this was received as a charitable
bequest, and so applied that it had gone beyond reach, and cannot
be recovered. But the defendant has not shown that this particular
money has been applied to any particular purpose as coming from
Saul, or otherwise than as it would use its general funds in the
furtherance of its objects, nor that any of this particular money
was applied to any of its purposes."
If this statement is to be understood to mean that the money,
bank notes or specie, actually received on Thompson's check, was
not immediately and in form applied to the beneficial purposes
named in Saul's will, it may be true; indeed, it appears that the
proceeds of Thompson's check were paid into the Bank of New York
for general account of the missionary society, and that thus the
identity of the bank notes or specie was lost in the credit account
of the society in that bank. But it is not perceived that such a
state of facts disabled the society from having the advantage of
showing that money to an equal amount was appropriated and applied
by them, out of their general account, to the purposes appointed by
the testator. To demand that such a society should make special
deposits of legacies received, so as to be able to trace the
application of such deposits into the hands of beneficiaries in the
same form as when received, would be in the highest degree
unreasonable.
If, however, the meaning of the learned judge was that it did
not distinctly appear that the missionary society had
appropriated
Page 180 U. S. 291
and applied an amount of money equal to that received from the
Saul estate to the purposes appointed in the will, before any
notice was received of Holly's claim, we are constrained to
decidedly dissent from such a view.
In the bill of complaint, the defendants were explicitly called
upon to answer under oath whether and in what circumstances they
had received money from Thompson, and particularly whether such
money had been received as coming from the estate of James Saul,
deceased, and whether they had not received a letter from
plaintiff's attorney, on or about July 17, 1890, notifying them
that the moneys so received by the defendants through Thompson's
check came from moneys belonging to Holly To these allegations and
interrogatories the defendants answered, denying any knowledge or
belief on their part of the transaction between Thompson and
Holly
"until long after the receipt by defendants and expenditure of
the $15,577.54 referred to, and these defendants, further
answering, alleged that at the time of the notification
hereinbefore referred to and the receipt by the defendant society
of the letter from plaintiff's attorney, these defendants had
expended, in the usual course of their business and according to
the will of the said Rev. James Saul, the said sum of
$15,577.54."
To this portion of the answer the plaintiff filed exceptions for
insufficiency as follows:
"In not stating how the defendants have expended the $15,577.54,
what the items of expenditure were and the respective dates of such
items of expenditure, and how and in what respect the said moneys
were expended according to the will of the Rev. James Saul,
deceased, and what was the usual course of business of defendant's
society in making said expenditure of said moneys, whether the same
was expended by standing order or special resolution of the board
of managers of the society defendant, or otherwise."
Thereupon the defendants, responding to these exceptions, filed
a supplemental answer as follows:
"These defendants, further answering, allege that the moneys
received as aforesaid from Henry C. Thompson, executor, were
expended by the defendant society for domestic missions,
Page 180 U. S. 292
foreign missions, and for the benefit of colored people in the
southern or formerly slave states, for the support of schools and
missions, through its officers, acting partly under the general
direction of the board of managers and partly under a resolution of
said board passed on the tenth day of June, 1890, authorizing the
treasurer to apply such legacies as might be received before
September 1, 1890, to the payment of appropriations to September 1,
1890, of which resolution a copy is hereto annexed and marked
'P.'"
The copy of the resolution was as follows:
"Resolved, that the treasurer be instructed to apply so much of
the gross amount received from domestic and general legacies to
September 1, 1890, as may be required toward the appropriations for
corresponding work to same date."
It was also made to appear that, on June 20, 1890, the balance
in bank to the credit of the missionary society was $43,569.83. On
that day, the balance was increased by the proceeds of Thompson's
check, $15,577.54, and other money, to $60,110.09, and that, by
checks drawn between June 20 and July 18, the day on which the
letter of Holly's attorney was received, the sum of $88,589.74 was
drawn out, aggregating more than the sum of Thompson's check and
the balance on hand when it was received, and it was shown that
these payments were on account of domestic, foreign, and colored
missions and office expenses.
It is true that, owing to further receipts between June 20 and
July 18, 1890, there was a balance on hand in bank on the latter
day, but those receipts were themselves trust funds, contributed
and held for the charitable purposes of the society. It need
scarcely be said that a court of equity will not interfere with the
proper application of such funds by constraining the society to
divert them to relieve Holly. This, of course, was not the case of
a running account between debtor and creditor, where the general
rule is that the debtor has a right, if he pleases, to make the
appropriation of payments; if he omits it, the creditor may make
it; if both omit it, the law will apply the payments according to
its own notions of justice. Here, there was no relation of debtor
and creditor between the
Page 180 U. S. 293
missionary Society and Holly, and the latter cannot be heard to
complain of the application by the society of the money received
from Thompson, executor, to the purposes prescribed by the
testator, nor to demand that moneys subsequently received by the
society from third persons for specific charitable purposes shall
be used to indemnify him from loss occasioned by trusting his money
with his attorney.
From the numerous cases cited, we think it sufficient to refer
to two or three which resemble in their facts the case in hand, and
in which were laid down principles now applicable.
Stephens v. Brooklyn Board of Education, 79 N.Y. 183,
was a case where one Gill, who was a member of the Board of
Education of the City of Brooklyn had converted to his own use the
money of the board, and so became indebted to it in the amount thus
subtracted. Gill forged a mortgage upon the land of another and
sold it to Stevens, receiving from him the proceeds and depositing
them to his own credit. He then drew a check for the amount of his
debt to the board of education, and with it paid that debt in full.
The court held that Stevens could not recover the money from the
board, saying:
"It is absolutely necessary for practical business transactions
that the payee of money in due course of business shall not be put
upon inquiry at his peril as to the title of the paper. Money has
no earmark. The purchaser of a chattel or a chose in action may, by
inquiry, in most cases ascertain the right of the persons from whom
he takes the title. But it is generally impracticable to trace the
source from which the possessor of money has derived it. It would
introduce great confusion into commercial dealings if the creditor
who receives money in payment of a debt is subject to the risk of
accounting therefor to a third person who may be able to show that
the debtor obtained it from him by felony or fraud. The law wisely,
from considerations of public policy and convenience, and to give
security and certainty to business transactions, adjudges that the
possession of money vests a title in the holder as to third persons
dealing with him and receiving it in due course of business and in
good faith upon a valid consideration. If the consideration is good
between the parties, it is good as to all the world. 'Money,' said
Lord Mansfield
Page 180 U. S. 294
in
Miller v. Race, 4 Burr. 452, 'shall never be
followed into the hands of a person who
bona fide took it
in the course of currency and in the way of his business.'"
In
Hatch v. National Bank, 147 N.Y. 184, the agent of
Hatch procured a loan upon stock which he had fraudulently
converted. He then, with the money thus procured, paid an
antecedent debt which he owed to the bank. The court said:
"This doctrine goes upon the broad ground that money has no
earmark, that in general it cannot be identified as chattels may
be, and that to permit in every case of the payment of a debt an
inquiry as to the source from which the debtor derived the money
and a recovery if shown to have been dishonestly acquired would
disorganize all business operations and entail an amount of risk
and uncertainty which no enterprise could bear. The rule is founded
upon a sound general policy, as well as upon that principle of
justice which determines, as between innocent parties, upon whom
the loss should fall under the existing circumstances."
In
State Bank v. United States, 114 U.
S. 401, it was held that where, by the connivance of a
clerk in the office of an Assistant Treasurer of the United States,
a person unlawfully obtains from that office money belonging to the
United States, and to replace it pays to the clerk money which he
obtains by fraud from a bank, the clerk having no knowledge of the
means by which the latter money was obtained, the United States are
not liable to refund the money to the bank.
The case made out for the appellant Holly does not require
extended notice.
Let it be conceded that he was not, in the circumstances,
estopped from following his money into the hands of the missionary
society by having entered an attachment against Thompson for a
fraudulent conversion of his money; let it also be conceded that,
by trusting his money with Thompson, who had theretofore been his
attorney and whose standing in the community was good, he was not
guilty of conduct so reckless and negligent as to, of itself,
deprive him of a remedy; yet his case fails in the essential
particular that he has not shown that the missionary society, in
receiving from Thompson, executor, the
Page 180 U. S. 295
money due from the estate of Rev. Dr. Saul, and in applying it
in accordance with the appointments in the will, acted with any
notice or knowledge, actual or imputable, that Thompson was
misapplying funds entrusted to him by a third person with whom the
society had no relations whatever. As against the missionary
society, Holly, in the circumstances disclosed, has no equities,
and even if it could be said that the equities were equal, a court
of equity will not transfer a loss that has already fallen upon one
innocent party to another party equally innocent.
The decree of the circuit court of appeals of the Second Circuit
is
Affirmed.
MR. JUSTICE BREWER did not hear the argument or take part in the
decision.
