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paid; that he had gone to Berry and had told him that the taxes must be paid; and that Berry had said, “Yes, I ought to pay them. Come with me to City Hall and see me pay the bill”; and suppose that they had gone together to the collector's office where in his co-trustee's presence Berry had paid the tax bill, using for the purpose the plaintiff's money but keeping his co-trustee in ignorance of that interesting feature of the transaction. The city could have kept the money, because it was money and was taken in good faith and in payment of a preëxisting debt. By the same token the innocent co-trustee would have had a right to keep the benefit which Berry bought for the trust, because he knew that it was bought with money, and accepted this use of the money in satisfaction of Berry's obligation. Money being money, the co-trustee would have had a perfect right to assume that Berry was the owner, to treat him accordingly, and to go his way satisfied that Berry had so far discharged his duty. Yet there would have been no transaction between Berry and his innocent co-trustee in which the money was delivered to the latter. The innocent co-trustee would have been but a spectator of the passing of the money. The transaction between the two trustees would have been in the nature of an accounting, the one doing something he was bound to do, the other accepting the benefit enuring to the trust in satisfaction. No one can doubt the right of the innocent co-trustee to be treated as a purchaser for value in the case supposed, — not of the money itself, because he did not receive the money, but of the benefit bought for him with the money. Yet, being a mere spectator of the transaction between Berry and the city, his knowledge of the payment and acceptance of it in satisfaction of Berry's debt to the trust are the only essential things making him a purchaser for value of the benefit. If, then, the bill be paid without the knowledge of the co-trustee the benefit enures to him just the same. And if he afterwards learns that the bill has been paid with money and gives Berry a discharge on the faith of it, the equity of his position is just as strong as if he had obtained his knowledge by witnessing the payment.
The talk about subrogation suggests still another way of illustrating the point. The title to the money which Berry used to pay the defendants' bill, was in Berry and in his co-trustee, Newell. If in equity the debts were not paid but were kept alive, then Berry and Newell became the equitable assignees of the debts, holding them in place of the money and in trust for the Newell Estate. If Newell had discovered Berry's misappropriation of the money, it would have been his duty as trustee to enforce payment of the debts and thus recover the money. But so long as Berry kept his secret, there were still persons in the world, namely, his innocent co-trustee and the cestuis of the Pickett Estate, in dealing with whom he could use the debts just like money. He could in effect make a tender of the benefit he had bought for the Pickett Estate just as effectually as if he made a tender of so much money. He had but to produce his paid cheques or receipted bills, and the allowance of the corresponding items in the account was inevitable. It is impossible to see why the Newell Estate should, by reason of what in fact occurred, be in any better position or the Pickett Estate in any worse position than it would have been in, had Berry retained the money itself and had paid that over at the time of his accounting.
It remains for us to examine some of the other points made in the course of the opinion, and to show that they are either specious only or beside the mark. The first of these can hardly be called even specious. To say as the court did that the account was a lying account and that the defendants were not bound by it,15 or “It cannot be that in equity the defendants are to have both their claim against Berry . . . and the payment of their debts . . does not help to answer the question whether what occurred at the time of the accounting gave the defendants a right in equity to keep what they had got. These observations of the court simply beg that question. If the defendants, through Berry's wrongful use of the plaintiffs' money, got no benefit which they could retain, then of course Berry should not have been allowed for the payment of the bills. On the other hand, if the defendants did have a right to retain the benefit because they became purchasers for value at the time of the accounting, then the account was not a lying account, and they had no claim against Berry for the money he had stolen from them but had accounted for by showing that he had paid the bills in question. The reasoning of the court would make it impossible ever to treat a man like a purchaser for value in respect of property taken in payment of a preëxisting debt.
15 206 Mass. 350, 92 N. E. 514. 16 206 Mass. 351, 92 N. E. 514.
In this connection attention may be called to the fact that if Berry's obligation to the Pickett Estate was discharged, the benefit which the Pickett Estate received through the payment of its bills was offset by the loss, to an equal amount, of its claim against Berry. In other words, Berry had used the plaintiffs' money not only to pay the bills, but also to obtain his own discharge, so that the trust estate was not benefited but was only made whole. It is a curious circumstance that if the defendants' equity to retain the benefit as purchasers for value was a good equity, it not only defeated but utterly destroyed the plaintiffs' equity, because the plaintiffs could no longer say that the Pickett Estate had been unjustly enriched by the use which Berry had made of their money.
It makes no difference, so far as the right of the defendants to be regarded as purchasers for value was concerned, whether the benefit enured to the Pickett Estate, to the trustees, or to the cestuis. In the probate accounting the innocent trustee of the Pickett Estate represented the estate. The cestuis represented themselves. Each and all had a right to make Berry account, and consented to his discharge in the belief that he had paid the bills with money which he ought to have used for the purpose.
In all the reasoning of the court in respect to the effect of the accounting the trouble is due to the fact that the court confused what the defendants actually received with the money which Berry used to pay the debts. It was this confusion of ideas that led the court to say that the plaintiffs' rights were fixed when Berry paid the defendants' debts with the plaintiffs' money. But suppose again that Berry's duty to the defendants had been to buy them bonds, and that he had bought the bonds with the plaintiffs' money, but suppose for our present purpose that he had held the bonds till the time of the accounting when he had turned them over to the cestuis. No one would venture to say that the plaintiffs' rights were fixed when Berry used the money for the defendants' benefit, that the bonds belonged to the plaintiffs in equity because Berry had bought them with the plaintiffs' money, and that the subsequent delivery to the defendants did not make them purchasers for value. If the actual receipt of the thing in question with knowledge and an intention to discharge the debtor is the essence of the equity, then the defendants' equity remained in abeyance, as it were, from the time when the bills were paid until Berry settled his account. The knowledge which they then received and the discharge of Berry perfected the equity.
It would serve no purpose to follow the opinion through all the discussion which it contains, based on the theory that when Berry paid the money to the creditors he somehow or other paid it to himself as the defendants' trustee. The case of the Atlantic Bank v. Merchants’ Bank, for example, discussed by the court,17 had no application to the case at bar except on this impossible theory as to what the defendants had actually got and claimed a right to hold.
We wish, however, to say something about Bannatyne v. MacIver,18 cited by the court to the point that the state of the accounts between Berry and his trust could have no effect to raise an equity on the defendants' side strong enough to overcome the plaintiffs’ equity. Our court failed to perceive that the plaintiffs in the English case not only had the equity resting on the fact that their money had been used to pay the defendants' bills, but also had the equity resting on an equitable estoppel which made it unjust for the defendants to deny the agent's authority to the extent to which as their agent he had actually used the money for their benefit. Hudson, the agent in the English case, had not attempted to discharge any duty that he personally owed to the defendants by borrowing the money and using it to pay the defendants' bills. If he bought for them a benefit by the payment of the bills he tried to impose on them a corresponding burden by borrowing the money in their names. He undertook to borrow the money and to use it simply as their agent. If in Bannatyne v. MacIver it had appeared that the defendants had become aware of Hudson's improper withdrawals, and in consequence had demanded that he pay the bills from his own resources, and he had then stolen the plaintiffs' money, paid the bills, sent the receipts to the defendants, and settled his accounts with the defendants, the case would have been like Newell v. Hadley, but it would have been a widely different case from that with which the English court actually had to deal.
How wide the difference between Bannatyne v. MacIver and
10 Gray (Mass.) 532 (1858). The discussion is in 206 Mass. 350-351, 92 N. E. 513, 514.
18 (1906) 1 K. B. 103, su pra, p. 607. See the discussion of this case in 206 Mass. 352, 92 N. E. 514.
Newell v. Hadley is, can be shown by supposing a case which lies midway between the two. Suppose that Hudson in response to a demand that he make good his overdrafts had gone out and fraudulently borrowed money in the defendants' names, had paid their bills with it and had thus obtained credit in an accounting with them. Here the equitable estoppel might possibly have been invoked. On the other hand, it could have been argued that when Hudson used the borrowed money to pay the bills he used it not only to buy a benefit for the defendants, but also used it to discharge his own personal obligation to them. In this case the defendants' right to be regarded as purchasers for value would have overcome the plaintiffs' equity. For if Hudson to make good his shortage had fraudulently borrowed money in the defendants' names and paid it over to his principals, they would have been purchasers for value of the money. And if of the borrowed money itself, then why not of the benefit which he bought for them with the borrowed money and for which he got credit?
Disregarding any possible equity on the defendants' side other than those considered by the court, we think that we have shown that the decision was as wrong as wrong could be. In the first place, the court failed to understand the nature of the plaintiffs' equity and the extent to which the cases relied on were really applicable. In the next place, the court wholly misconceived what it was that the defendants had got and in respect to which they might be treated as purchasers for value. And, finally, the court failed to perceive on what the equity of a so-called purchaser for value, who has taken property for a preëxisting debt, really rests.
R. D. Weston. Boston, MASS.