In a suit on a bond given by trustees for the sale of real estate, brought by one entitled in distribution under an order of the court of equity, for failure of the trustees to make payment of the proceeds, defense has been made on the ground of loss of the money by failure of a carefully chosen depositary nine days after the passage of the equity court's order; and the question is on whom the loss is to fall under the law. The plaintiff, distributee, has recovered a judgment on the bond for the amount unpaid, and the defendants appeal.
William H. Surratt and Stephen P. Campbell were appointed trustees for the sale, and they gave bond with the Maryland Casualty Company as surety. The sale was made for an amount to be paid in installments, and partial distributions were made upon the ratification of two earlier accounts filed respectively on July 21st, 1931, and June 20th, 1932. The amounts paid in were, as they were received, deposited by the trustees in the banking department of the Title Guarantee Trust Company of Baltimore, and there is no contention that there was any lack of diligence in the choice of depositary then or at the time of the loss subsequently. After some delay on the part of the trustees, their final account of distribution of the remainder of the proceeds of sale was filed on January 31st, 1933; and it was ratified on February 11th, 1933, in due course. The time intervening before payment, nine days, was consumed in demands on behalf of the distributee for payment, a demand by Mr. Surratt,
one of the trustees, for a release, which counsel for the distributee then prepared, some hesitation on Mr. Surratt's part to accept the release in the form adopted, and other delays by Mr. Surratt interspersed through the time. Mr. Surratt was ill, unable to attend to his duties regularly, and was seldom found in his office. His cotrustee was not performing any of the duties of the trust except that of signing papers, leaving the active administration to Mr. Surratt entirely.
The day of the ratification of the final account was a Saturday, February 11th. There was testimony of a demand by the distributee upon Mr. Surratt's secretary that day for payment, but payment could not be made because of Mr. Surratt's absence. Failing to receive payment on the following Monday, Mr. Freeny, counsel for the distributee, twice again made demand, and late in the same day was informed of Mr. Surratt's desire for a release in a specified form. Mr. Freeny prepared a release, had it executed by his client, and on Thursday presented it to Mr. Surratt's secretary and again made demand for payment; but, although checks for payment had been prepared, Mr. Campbell had not yet signed them. Later on the same day, Thursday, Mr. Surratt, reached by telephone, reported that the release was not in the form he desired. On Friday, the release was accepted, and on Saturday, February 18th, the checks, duly signed by both trustees, were paid over, and were deposited on the same day in the Union Trust Company, also of Baltimore. Before they could be paid on the next succeeding business day, the drawee, the Title Guarantee Trust Company, failed. It did not open on Monday, and has since been in the hands of the banking commissioner as receiver.
The condition of the bond was the usual one of faithful performance of the trust reposed in the trustees by the decree of the court appointing them, or that might be reposed in them by any future decree or order in the premises, and the question of breach has been argued partly as one of performance of the duties of the trust
with reasonable diligence and promptness. But the case differs from those in which questions of diligent performance usually arise. The order of final ratification of their distribution account did not commit the fund to the care and custody of the trustees any longer. All that was over. The court of equity was through with the administration of the trust, the trust management was ended, and the trustees were left under the single, peremptory obligation to deliver over the assets out of their hands, terminating their care and custody. From that point they had money due and payable to the distributee. "The suit is then considered as closed." Trayhern v. Nat. Mechanics' Bank,57 Md. 590, 597. "The trustee's duty, as soon as the order was passed, and the money was received by him, was to pay it over to the parties, or to carry it into the Court of Chancery."Richardson v. State, 2 Gill, 439, 443. Such an order is, indeed in one sense, itself the distribution. "The order of a court of equity ratifying an auditor's report is in the nature of a final decree. It is not confined to a mere direction to the trustee to pay certain claims, but, as respects the trustee and his sureties, partakes of the qualities of an adjudication in rem
distributing the trust estate itself with which the trustee is properly charged, and operating directly upon that estate."Taylor v. State, 73 Md. 208, 220, 20 A. 914, 915; Rogers,Brown Co. v. Citizens' Bank, 93 Md. 613, 616, 49 A. 843. It constitutes a final, binding adjudication in the court of equity that the trustees have the money to be distributed; the specified distributees have been adjudged entitled to receive it, and entitled to receive it at once. It is settled that trustees and their sureties cannot then, in a suit on their bond, defend on the ground that the money was not in fact received by them. Proof of that fact would not be within the issue. Butler v. State, 5 G. J. 511, 520; Taylor v. State, 73 Md. 208, 218, 20 A. 914. The only questions that would then be within the issue, as this court stated in the cases cited, would be: Did the court of equity pass such an order; and has payment been made conformably
thereto? Ward v. Schlosser, 111 Md. 528, 531, 75 A. 116; Statev. Graham, 115 Md. 520, 522, 523, 81 A. 31.
The question of time when distribution must be made to conform to the order, and to the condition of the bond for performance, has been settled in many cases. "It is enough, if the trustee has received the money and knows that the account has been audited and confirmed. In such a case a claimant can sue on the bond, immediately after he has made a demand for what is due him."Scott v. State, 2 Md. 284, 291. "When the auditor's account was ratified, Forrester, as trustee, became liable to pay on notice thereof and demand, and Kernan entitled to receive the sum of money audited to the latter." Forrester v. State, 46 Md. 154, 162; Brooks v. Brooke, 12 G. J. 306, 319; Dent v. Maddox,4 Md. 522, 529; Gott v. State, 44 Md. 319, 338; Brumbaugh v.Schleigh, 54 Md. 641, 646; State v. Digges, 21 Md. 240.
This settled finality of the equity order adjudging the distributee entitled to the fund, and the settled liability on the bond when payment is not made to him on demand, would seem to dispose of the present question of liability after a subsequent loss from failure of the trustees' depositary.
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In a suit on a bond given by trustees for the sale of real estate, brought by one entitled in distribution under an order of the court of equity, for failure of the trustees to make payment of the proceeds, defense has been made on the ground of loss of the money by failure of a carefully chosen depositary nine days after the passage of the equity court's order; and the question is on whom the loss is to fall under the law. The plaintiff, distributee, has recovered a judgment on the bond for the amount unpaid, and the defendants appeal.
William H. Surratt and Stephen P. Campbell were appointed trustees for the sale, and they gave bond with the Maryland Casualty Company as surety. The sale was made for an amount to be paid in installments, and partial distributions were made upon the ratification of two earlier accounts filed respectively on July 21st, 1931, and June 20th, 1932. The amounts paid in were, as they were received, deposited by the trustees in the banking department of the Title Guarantee Trust Company of Baltimore, and there is no contention that there was any lack of diligence in the choice of depositary then or at the time of the loss subsequently. After some delay on the part of the trustees, their final account of distribution of the remainder of the proceeds of sale was filed on January 31st, 1933; and it was ratified on February 11th, 1933, in due course. The time intervening before payment, nine days, was consumed in demands on behalf of the distributee for payment, a demand by Mr. Surratt,
one of the trustees, for a release, which counsel for the distributee then prepared, some hesitation on Mr. Surratt's part to accept the release in the form adopted, and other delays by Mr. Surratt interspersed through the time. Mr. Surratt was ill, unable to attend to his duties regularly, and was seldom found in his office. His cotrustee was not performing any of the duties of the trust except that of signing papers, leaving the active administration to Mr. Surratt entirely.
The day of the ratification of the final account was a Saturday, February 11th. There was testimony of a demand by the distributee upon Mr. Surratt's secretary that day for payment, but payment could not be made because of Mr. Surratt's absence. Failing to receive payment on the following Monday, Mr. Freeny, counsel for the distributee, twice again made demand, and late in the same day was informed of Mr. Surratt's desire for a release in a specified form. Mr. Freeny prepared a release, had it executed by his client, and on Thursday presented it to Mr. Surratt's secretary and again made demand for payment; but, although checks for payment had been prepared, Mr. Campbell had not yet signed them. Later on the same day, Thursday, Mr. Surratt, reached by telephone, reported that the release was not in the form he desired. On Friday, the release was accepted, and on Saturday, February 18th, the checks, duly signed by both trustees, were paid over, and were deposited on the same day in the Union Trust Company, also of Baltimore. Before they could be paid on the next succeeding business day, the drawee, the Title Guarantee Trust Company, failed. It did not open on Monday, and has since been in the hands of the banking commissioner as receiver.
The condition of the bond was the usual one of faithful performance of the trust reposed in the trustees by the decree of the court appointing them, or that might be reposed in them by any future decree or order in the premises, and the question of breach has been argued partly as one of performance of the duties of the trust
with reasonable diligence and promptness. But the case differs from those in which questions of diligent performance usually arise. The order of final ratification of their distribution account did not commit the fund to the care and custody of the trustees any longer. All that was over. The court of equity was through with the administration of the trust, the trust management was ended, and the trustees were left under the single, peremptory obligation to deliver over the assets out of their hands, terminating their care and custody. From that point they had money due and payable to the distributee. "The suit is then considered as closed." Trayhern v. Nat. Mechanics' Bank,57 Md. 590, 597. "The trustee's duty, as soon as the order was passed, and the money was received by him, was to pay it over to the parties, or to carry it into the Court of Chancery."Richardson v. State, 2 Gill, 439, 443. Such an order is, indeed in one sense, itself the distribution. "The order of a court of equity ratifying an auditor's report is in the nature of a final decree. It is not confined to a mere direction to the trustee to pay certain claims, but, as respects the trustee and his sureties, partakes of the qualities of an adjudication in rem
distributing the trust estate itself with which the trustee is properly charged, and operating directly upon that estate."Taylor v. State, 73 Md. 208, 220, 20 A. 914, 915; Rogers,Brown Co. v. Citizens' Bank, 93 Md. 613, 616, 49 A. 843. It constitutes a final, binding adjudication in the court of equity that the trustees have the money to be distributed; the specified distributees have been adjudged entitled to receive it, and entitled to receive it at once. It is settled that trustees and their sureties cannot then, in a suit on their bond, defend on the ground that the money was not in fact received by them. Proof of that fact would not be within the issue. Butler v. State, 5 G. J. 511, 520; Taylor v. State, 73 Md. 208, 218, 20 A. 914. The only questions that would then be within the issue, as this court stated in the cases cited, would be: Did the court of equity pass such an order; and has payment been made conformably
thereto? Ward v. Schlosser, 111 Md. 528, 531, 75 A. 116; Statev. Graham, 115 Md. 520, 522, 523, 81 A. 31.
The question of time when distribution must be made to conform to the order, and to the condition of the bond for performance, has been settled in many cases. "It is enough, if the trustee has received the money and knows that the account has been audited and confirmed. In such a case a claimant can sue on the bond, immediately after he has made a demand for what is due him."Scott v. State, 2 Md. 284, 291. "When the auditor's account was ratified, Forrester, as trustee, became liable to pay on notice thereof and demand, and Kernan entitled to receive the sum of money audited to the latter." Forrester v. State, 46 Md. 154, 162; Brooks v. Brooke, 12 G. J. 306, 319; Dent v. Maddox,4 Md. 522, 529; Gott v. State, 44 Md. 319, 338; Brumbaugh v.Schleigh, 54 Md. 641, 646; State v. Digges, 21 Md. 240.
This settled finality of the equity order adjudging the distributee entitled to the fund, and the settled liability on the bond when payment is not made to him on demand, would seem to dispose of the present question of liability after a subsequent loss from failure of the trustees' depositary. On no theory of law could that established liability, not appealed from at its source in the court of equity, be subsequently canceled by the loss of money. Nothing but payment, or a transfer to the distributee of the risk of insolvency of the bank, could discharge the liability.
There seem to have been very few cases in which courts have had to deal with this question of loss of funds after trustees have been ordered to make payment, none at all in this country apparently. In the English case of Lunham v. Blundell, 27 L.J. Ch. 179, 4 Jur. (N.S.) 3, 6 W.R. 49, an order of August 11th, that a trustee should turn money over to a substituted trustee, was not complied with during more than a month, the trustee meanwhile having been ill and absent from home, and having asked and received indulgence from the transferee. The bank in which he had kept the money failed on September
24th following. Stuart, V.C., held that after the order or decree for payment over, the retiring trustee held the money on deposit at his personal risk. "Upon the pronouncing of the decree, the defendant's character of trustee was determined, and after the taxation of his costs, there could be no fair pretence for delaying to pay the money to the new trustees appointed by the court. The letters were written for indulgence which was granted, but the defendant cannot on that ground be held entitled to be exonerated from his personal liability to make good the loss which has taken place." 27 L.J. Ch. 179. And in Wilkinson v.Bewick, 4 Jur. (N.S.) 1010, trustees were ordered to pay into court money found payable in an audit or account but delayed doing so, and their depositary failed. Romilly, M.R., said: "The effect of the account which had been passed by the chief clerk in July, was to make the 546 l, 0 s, 9 d, in the bank cease to be trust property, and become the money of the trustees themselves; and as to that amount therefore, they must consequently bear the loss."
There is a question of a possibility that the risk of failure of the bank may have been transferred to the distributee by the check given him. But the payee of a check drawn on a bank in the same city is, in the absence of special circumstances, allowed the whole of the banking hours on the next secular day for presentment on the drawee. Code, art. 13, secs. 90 and 104;Daniel, Negotiable Instruments (7th Ed) secs. 368 and 1775;Anderson v. Gill, 79 Md. 312, 320, 29 A. 527. So much time is allowed for taking over the money; before the expiration of that time, the risk of loss of the deposit remains on the drawer; and after that time, while the payee may, if he deems fit, delay the appropriation of the money, he does so only at his own risk. And in this case, the loss by failure of the depositary occurred on the next secular day (Monday), after the delivery of the check, while the deposit was still at the risk of the drawers, the trustees.
It is not uncommon for trustees to defer payment for convenience — or, it may be, to proceed unhurriedly with
it — and in ordinary times, when failure of banks is not to be feared, there is little or no harm done, and no occasion for litigation. But that fact does not answer the question of responsibility on the bond for money due the distributees and unpaid because of bank failure. The delay in this case was comparatively short, although obviously beyond the time required to turn over the money. It is explained by Mr. Surratt's illness in part, though it might be found not justified by it, because his cotrustee was also an attorney, capable of attending to the distribution. The delayed demand for a release is not unusual, but it does not extend the time necessary for turning the money over. 2 Perry, Trusts (7th Ed.) secs. 922-924; Lewin, Trusts
(13th Ed.) 310. But the risk of the loss, and the liability on the bond, need not be based on negligence in the trustees, or on wrong done. It is the opinion of this court that, however it might be explained and excused, the delay was at the risk of the trustees in case of the unexpected event of bank failure, that the subsequent loss does not save the breach of the bond, and that, payment not having been made as ordered by the court, the bond is liable.
Coming to the specific rulings of the trial court objected to, the jury was instructed on a prayer of the plaintiff that after the order ratifying the account the sum awarded to the plaintiff was due and payable. This exactly repeats the ruling in the cases previously cited, and was correct. The defendants prayed a direction of a verdict in their favor on general grounds, or on the particular ground that the bank failure relieved them of liability on the bond. The direction was denied, and for the reasons already given this was a correct ruling. No other rulings on prayers for instructions have been questioned on appeal. An exception was taken to the admission of evidence for the plaintiff that upon earlier distributions made by the trustees they did not require releases to be given them, evidence offered to prove that the trustees were seeking delay in this instance, but the admission would be insufficient to vitiate the judgment if the evidence
was not relevant. It could not have obtained for the equitable plaintiff in the case a verdict beyond his legal rights on the admitted facts.
Judgment affirmed, with costs.
ADKINS, J., dissents.