James Jenkins vs. James P. Walter, 8 G. & J. 218

StepheN, Judge, delivered the opinion of the court. This is an appeal from an order of the Orphans’ court of Baltimore county, directing the defendant, James Jenkins, the late guardian of the appellee, to pay to him the sum of f>490 84 with interest thereon, from the 28th March, 1836, until paid. A part of this sum was deposited in the Bank of Maryland by the guardian of the appellee, on the day he received it from the executor on his ward’s account; the bank at that time being in high credit and in prosperous circumstances.

The deposite however, was made and the certificate taken in his own name, and no communication was made to the bank at that time, that the money deposited was trust property. The bank was to pay for the money deposited an interest of five per centum per annum.

On the certificate of deposite an endorsement was made, that the money deposited was the property of the appellee, but the fact of such endorsement was not at the time disclosed to the bank, and the appellant appeared upon the books of the institution to be the absolute proprietor of the sum deposited; and it does not appear that in his settlements with the Orphans court he ever communicated to that tribunal, that in making the deposite he acted in his fiduciary capacity, until the failure of the bank took place, in the year 1834.

In his second account settled with that court, it appears he charged himself with an interest of six per centum per annum, upon the amount of his ward’s property in his hands, including the sum so as aforesaid deposited. Upon this state of facts the question arises, upon whom the loss arising from the failure of the bank is to fall ? Is it to be borne by the ward, or ought the guardian to be held responsible for the consequences following from the ultimate insolvency of that institution ?

According to the decision of the court below, the loss arising from that contingency is to be visited upon the appellant, and from that decision an appeal has been taken to this court for its revision, so that if erroneous, the error may be corrected. Although, in this transaction there may'have been the most upright intention, and perfect good faith on the part of the guardian in making the deposite, still we arc constrained to say, that we think the decision of the court below was correct, and that it ought to be affirmed.

At the same time that this court feels itself bound to shield a trustee from harm, in the honest and faithful discharge of his duties in his fiduciary character, it is bound studiously to exercise a vigilant care in protecting the interests of those who, from their tender years, are incapable of protecting themselves. No principle seems to be better settled than that in such a case as this, any loss arising from a misplaced confidence in the solidity of a banking institution, or other depositories of trust property must be borne by the trustee, and not by his cestui que trust.

By making the deposite in his own name, he gained a credit with the bank, and reaped all the advantages which could be derived from the apparent ownership of the sum deposited, assuming his authority so to make such a deposite, and having received the benefit, the law declares, and justice seems to require, that he should bear the loss.

Nor is there any peculiar hardship in the establishment of such a principle, which would deter a prudent trustee from assuming upon himself the responsibilities of such a fiduciary relation ; as it is at all times in his power to avoid any risk or responsibility by clothing the transaction in its true colours, and making the deposite not in his own name, but in the name of him who is the real owner, and for whom he is trusted. That such is the doctrine of a court of equity, wTe need only refer to a case reported in 4 Maddoxes Ch. Rep.

That was the case of an agent, who gratuitously undertook the collection of debts for certain trustees, which he deposited with a banker, then in good credit, but who ultimately failed; there as here, the money was deposited in his own name, and upon interest, and the vice-chancellor in delivering the opinion of the court expressed himself in the following emphatic terms. “This may be a case of individual hardship, but the court is bound to proceed upon those principles, which are deemed essential to the general interests of mankind.

The defendant being the gratuitous agent of his sister’s trustees. receives their money which he mixes with his own, by paying it into his own bankers and on his own general account. These bankers were in the habit of paying him an interest of three per cent, on the moneys in their hands. The defendant says he meant to give credit to the trustees for their proportion of the interest, but he never made any intimation to that effect. This money is partly lost by the failure of the bankers; and the question is, whether the defendant can throw this loss upon the trust.

I will not say what might have been the effect if he had placed these moneys in the same bankers’ hands, with full information of the trust and to a distinct trust account. It is sufficient to say, that here the defendant gave no notice to the bankers that any part of the moneys in their hands was trust property. Both he and they treated the money as wholly his own ; and the bankers considered themselves as his agents solely. It is said that he gave notice to the trustees that he had so invested the money,- and that they did not object to it, and are therefore to be considered as having authorized it.

If he had given full notice with whom he had invested it, and that he had mixed it with his own moneys, and that an interest would be derived from it, there would have been great weight in that argument, but his letter of the 26th of January, 1816, only states that it is in bank, not stating with what banker, or that it is mixed with his own moneys, or that a profit is to be derived from it. The fact alleged by the defendant, that he had always a balance in his bankers’ hands equal to the trust money, is in my view of the case immaterial.

I consider the trust moneys thus mixed with his own and placed in his banker’s hands, on his own general account, to be an employment of the trust money for his own advantage or his own credit; and that he is therefore responsible for the loss which has resulted from it.” It is true this was the case of a gratuitous agency for trustees, but the principles upon which he was held responsible, would, we think, equally have applied if the deposite had been made by the trustees themselves, and a loss under similar circumstances had subsequently occurred.

The reasoning of the court upon which the agent was held responsible, would equally have applied to his principals. The principle of the decision in 4 Mad. received the sanction of Lord Chancellor Eldon, in a case to bq found reported in 11 Vez. 377. That was the case of a receiver who was charged with a loss arising from the failure of a banker, to whom remittances had been made to his own credit and use; and not to a separate account for the trust.

In that case the Lord Chancellor says, it would be most dangerous to let a receiver deal with the money as his own, until the time his accounts are to be passed, “ and if any loss occfirs, then to deal with it as the trust estate.” In the settlement of his second account with the Orphans court the appellant charged himself with the legal interest of six per centum, and not with the bank interest for which he had stipulated upon making the deposite.

It is not readily perceived upon what ground this was done, unless he considered the depositeLo have been made upon his own responsibility ; and if prior to the failure of the bank, he had become insolvent, the credit which he obtained with the bank on his own account would have enured to the benefit of his creditors, and his ward must have sustained the loss.

In the case above referred to in 11 Vez. the Lord Chancellor says, if he (the receiver,) had failed before the failure of the bankers, this estate could never have claimed any part of the balance there, for it was carried to his own private credit, and there was nothing to prevent his paying any other debt with it; and although the claims of creditors upon the fund deposited might be defeated by the exhibition of the endorsement upon the certificate, showing on whose account the deposite was made, yet we think it clear, the bank would have had a right to appropriate the money so deposited to the satisfaction of any demand they might have had against the ‘appellant.

This may be a case of some hardship to the appellant, but in such a conflict of interest it is of less consequence that individual injury should be sustained, than that the wisdom and policy of established principles should be violated. Before dosing this opinion we wish it however, to be distinctly understood, that we do not mean to decide that a guardian could protect himself from loss, by making the deposite in the name of his ward without the sanction of the Orphans court, but mean to leave that question unaffected by any views herein expressed.

We therefore think that the decree of the Orphans court of Baltimore county was correct, and ought to be affirmed with costs. ' DECREE AFFIRMED.