
    The People of the State of New York, Plaintiff, v. The American Loan and Trust Company, Defendant. In the Matter of the Application of Lorenzo Burrows, as Receiver of the Estate of Roswell S. Burrows, Deceased, Respondent, for an Order Directing J. Edward Simmons, as Receiver of The American Loan and Trust Company, to Pay Claim, etc., Appellant.
    
      Wrongful pledge of stock by an executor—the estate is entitled to recover it specifically— tlie substitution of orwney for the securities does not alter the rights of the parties.
    
    Upon an appeal from an order directing JV Edward Simmons, as receiver of the American Loan and Trust Company, to pay from the fund in his hands to Lorenzo Burrows, as receiver of Boswell S. Burrows, a certain sum of money, it appeared that on the 15th day of March, 1884, the trust company loaned §25,000 to Mary Burrows Smith, who gave to the trust company a note for that amount made by her and by Albert S. Warner, executor of Boswell S. Burrows, Warner pledging as collateral security for the payment of the note 300 shares of a bridge company’s stock which belonged to the estate of his testator, the ownership of which was known to the trust company.
    The loan having been paid in part, some of the stock was returned to Warner, who was subsequently removed as executor, and Charles H. Moore was appointed receiver of the estate of Boswell S. Burrows.
    Moore brought an action on behalf of his estate to recover of the trust company such certificates of the stock as were still in its hands on the ground that the said certificates of stock had been illegally pledged by Warner. Upon the trial of that action a judgment was rendered in favor of the trust company, and. pending an appeal the parties, under the authority of the court, entered into a, stipulation under which Moore paid the trust company its loan in full and. received the shares of stock which were in its hands, and the trust company, upon its part, agreed to hold the cash thus received by it in lieu of such stock to abide the final judgment in the action. It was further stipulated that if Moore was ultimately successful^; would return to him the amount of his payment, hut without interest. Moore having died, Lorenzo Burrows was substituted in his place as receiver of the estate of Boswell S. Burrows, and J. Edward Simmons, as receiver of the American Loan and Trust Company, was. substituted as defendant in place of the trust company. The final judgment in that action decided that the act of Warner in pledging the stock of his testator for the debt of Mary Burrows Smith was in violation of his duty as. executor; that the trust company obtained no title to the stock, and that, Lorenzo Burrows, as receiver of the estate of the testator, was entitled to receive the stock in question from J. Edward Simmons, as. receiver of the .trust company. - ,
    
      Held, that Simmons was bound by the judgment and must pay the money which represented the stock to Burrows as receiver;
    That although the trust company had succeeded in the court below in the action brought against it by Moore, it could not, pending the appeal in that action, lawfully dispose of the money until final judgment;
    That the transaction under which the money was received, and was to be held by the trust company in place of the stock, did not alter the rights of the • parties;
    That the fact that the money was deposited in the trust company’s general account; was not material. -
    It appeared that money sufficient to pay the claim was on hand at the time of the " appointment of the receiver of the trust company.
    
      Held, that this money was- to be regarded as held by him as a specific pledge; to-be returned to the estate of Roswell S. Burrows, if it was'finally successful;,
    That the receiver of the Burrows estate was entitled to the money in question in preference to any creditors of the trust company, whether general or preferred;
    O’Brien, J., dissented.
    Appeal -by J. Edward Simmons, as receiver of The American Loan and Trust Company, from an-order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the. 9th. day of December, 1895, directing said receiver to pay from the funds in his hands as such receiver to Lorenzo Burrows, the receiver of the estate of Ros^well S. .Burrows, deceased, of his 'attorney, a sum of money deposited with the American Loan and Trust Company by. the said Burrows as sucli receiver.,. '
    , David Wilcox, for the appellant.
    v John Gunneen,. for the respondent.
   Ingraham, J.:

■ The American Loan and Trust Company was a trust company ' incorporated under an act of the Legislature of this State, passed June 1, 1872, and known as chapter 868 of.the. Laws of 1872, doing business in the .city of New York. On the 15th day of "March, 18'84, it made a loan of $25,000 to one Mary Burrows •.Smith'; and said Mary Burrows. Smith delivered to the said trust company a certain promissory note wherein- it was stated that, for value received, the said Mary Burrows Smith and one Albert S. Warner, as executor of Roswell S. Burrows, jointly and severally promised to pay to the American Loan and Trust Company $25,000, with interest; and to secure the payment of the said, note the said Warner delivered to the trust company certificates of 300 shares of the stock of the Niagara Falls International Bridge Company, the property of the said estate held by him in trust as such executor; and at the time the said trust company received the said stock it was well known to said trust company that the said certificates of stock were the property of the estate of the said Burrows, deceased, and were held by said Warner in trust, us executor of said estate, and as part of the assets of said estate. Subsequently there was repaid of the said loan certain sums of moiiey, reducing the' principal of the said loan to $17,067.64 ; and upon such payment there was returned to said Warner by said trust company certificates for 100 shares of the capital stock of the bridge company; and on October 21, 1887, the said trust" company held 200 shares of the capital stock of the bridge company, and there was due upon said loan the said sum of $17,067.64. Warner was removed as executor, and one Moore was appointed receiver of the property of the estate, who, on the 4th day of September, 1884, filed his bond and entered upon the discharge of his duties as such receiver. Moore subsequently died, and the respondent was appointed in his place as receiver, and qualified on the 9th of January, 1894. Subsequent to the appointment of Moore as receiver he demanded of the trust company the return of the certificates of stock held by it as security for the said loan as the property of the estate; and the trust company having refused to return such stock, an action was commenced in the Supreme Court by Moore as receiver against the trust company to recover the possession of the said stock as the property of the estate, it being claimed by said Moore that the said certificates of stock had been illegally pledged by Warner to secure the payment of the debt of the said Mary Burrows Smith.

It seems that while such action was pending, and before it was finally determined, and on or about the 2-lst of October, 1887, an order was entered in the action in which said Moore was appointed receiver, whereby he was authorized and directed to enter into a stipulation with such of the persons or corporations who held the bridge stock “.to exchange cash to the amount of their respective claims against- the estate for the bridge stock held by them as pledgee to secure payment of the same, such cash to be held by them subject to. the same lien, if any,' that it may be ultimately decided in .the suit now pending between such pledgee and the receiver that .the pledgee has on the stock, and in case such is estab-. lished that the pledgee may apply such money in discharge of the-lien, but otherwise to return the same to the receiver, such exchange* to'be without prejudice to, and in riOwise to affect, such, suit, but that the same may be conducted to final judgment, and on appeal, if an appeal be taken by either party, with the same force and effect, ■ and in the same manner in all respects, as if such exchange was not made.” And in pursuance of such order the said Moore and the said' trust company entered into a stipulation entitled in the aCtion- • wherein Moore was plaintiff and the trust company defendant, by which it was agreed that the said Moore, as receiver, “ shall exchange with said trust company cash to the amount of the claim of said-defendant, as established by the judgment herein, with interest and all the costs awarded at Special or General Term, for the- certificates of bridge' stock, and the power of sale .and transfer accompanying the same, now held by the said trust company; 'Said cash tó be held by the said trust company subject to the same lien, if any, that.it may be ultimately decided in this suit, that the trust company bason the said stock, and that in case judgment herein is affirmed by the Court of Appeals, that the said trust company. may apply such-money to the payment of its "said claim and costs to the discharge of said loan, And that if • the plaintiff shall succeed in this suit and obtain the judgment of" this court, determining that he is entitled" to said stock, then that the said trust company, upon the entry of such judgment and upon demand, will return said cash without interest to the receiver.” And in pursuance of such stipulation the said, Moore,- as receiver, paid to the trust company the sum of $17,067.64. and $185.44, and took from the said- trust company a receipt, as follows: ,

Charles H. Moore, as Receiver of the Estate of R. S. Burrows, v. The American Loan, and Trust Company. Received, New York, October 21, 1887, from the plaintiff in the above-entitied action, $17,067.64, deposited in lieu of two hundred shares (200) of the stock of the Niagara Falls International Bridge Company, and $185.44 costs, pursuant to the stipulation bearing date this day, made, signed and delivered in this action.
“ AMERICAN LOAN AND TRUST COMPANY,
“ By W. D. Snow,
Secretary.”

It appears that subsequent to the death of Moore and the appointment of the respondent as receiver, the said respondent was substituted as plaintiff in the action between Moore and the trust company, and that final judgment was entered in that action, whereby it was adjudged that the delivery of the certificates of stock of, the bridge company by said Warner to the trust company as a pledge to secure the payment by said Mary Burrows Smith to the said trust company of the moneys that it loaned and advanced to her, was a violation of his duty as executor; that the said trust company by receiving from the said Warner as executor the said stock of the bridge company, assets of his testator, knowing, that he ivas depositing the same in pledge for the payment of the debt of a third party and in violation of his duty, is to be adjudged as conniving with the said executor, and that the said trust company acquired no title to or lien upon the said certificates ; and that the plaintiff was entitled to judgment directing that the defendant Simmons, as receiver of the trust company, deliver to the plaintiff, as receiver of the estate of Burrows, the said certificates for 200 shares of the capital stock of the bridge company. And it was thereby adjudged that' the American Loan and Trust Company acquired no title to nor lien upon the said certificates, and that the plaintiff, as receiver of Burrows, was entitled to the said certificates, and to the said sum of money deposited in lieu thereof, and that plaintiff recover of the defendant Simmons, as receiver, his costs. This latter judgment was entered after the appointment of .Simmons as receiver of the trust company, and he seems to have been substituted before the entry of judgment as the defendant in the action in place of the trust company that had been dissolved.

It having thus been adjudged in an action in which the appellant, as receiver of the trust company was a party, that the trust company never acquired any title to or lien upon the said bridge stock, it would seem to be clear that if the bridge stock had remained in the possession of the trust company and had been received by Simmons upon his appointment as receiver of that company, the respondent would have been entitled tó an order directing Simmons to deliver that stock to him as receiver. • From this judgment it conclusively appears that the trust company never was the owner of the' stock, and never had acquired a lien thereupon, or right to the possession thereof ; that it at all times remained the property of'the estate of which the respondent is receiver, and that such estate at all times was the owner, arid entitled to the exclusive possession thereof; that the possession of the trust company was wrongful ■ and without right. The fact that a judgment had been entered, by which it was held that the trust company had such an interest in the stock that it was entitled to retain pos7 session thereof, which judgment was subsequently reversed, gave the trust company no title to the stock while such judgment remained in force, so that during that time the trust company could lawfully dispose of the stock; for the final judgment that was entered adjudged that no such title or right to possession had ever vested in the trust company. . Such erroneous judgment was absolutely without force, and as no proceedings took place under. it, it ' was ineffectual for any purpose to affect the rights of the parties. The trust company thus being in possession of the stock, the property of the estate of which the. respondent was receiver, and to the’possession of which such estate was entitled, the representative of the estate and the trust company entered into the stipulation before mentioned, by which a sum of money was exchanged with said trust company for the certificates of the bridge stock, and said sum of money was held by the said trust company subject to the same lien if any, that it might be ultimately decided the trust company had on the stock, with the further agreement that, in case the judgment of the court should ultimately decide that the trust company had no lien or right of possession to said stock, the said trust company would “ return said cash, without interest, to the receiver.”'

This delivery of money to the trust company gave to the company no greater title to that money than it had to the. stock. It had no right to apply such sum of money to the general uses of the company. On the contrary, it was clearly bound to hold it as a trust fund and subject to the determination by the final judgment in the action between the receiver of the estate of Burrows and the trust company as to the right of possession of the stock. Such money no more became the property of the trust company than did the stock that it held, the title to which was in dispute. Nor is there any evidence to show that the trust company violated this covenant and actually used this moneyfor at the time the receiver took possession a sum of money in cash, largely in excess of that substituted for the stock, came into the-possession of the receiver, and it does not appear that at any time prior to the appointment of a receiver the trust company did not have in its actual possession this, sum of money. The mere fact that it was deposited in the trust company’s general account and was not kept separate is unimportant". It was bound to keep this specific sum of money to await the determination of the final judgment in the action between the receiver of the estate and the trust company, and that sum 'of money was on hand and in its possession when the appellant was appointed receiver. The relation of debtor and creditor never existed as between the respondent, as receiver, and the trust company. The trust company was never a debtor to the respondent for this sum of money, but the trust company had held this bridge stock, claiming a lien upon it, and subsequently held this sum of money that had been exchangéd for the bridge stock, claiming a lien upon it-; and the fact that the trust company was not to pay interest upon this sum of money if it should be ultimately determined that it had no lien upon the bridge stock or its substitute (this sum of money), shows clearly that it Was never the intention of the parties that .the money was to be used by the trust company, but rather that it was to be held by' it as a specific pledge, to be returned in casé the estate should ultimately succeed. It seems entirely clear, therefore, that neither the trust company nor the appellant, as receiver, has acquired any interest in or right to this, sum of money, and that as between the respondent, as receiver, and the trust company or its creditors, either general or preferred, the respondent was entitled to the money. ■ •

We think, therefore, that the order was clearly right, and that it should be affirmed, with ten dollars costs and disbursements.

Van. Brunt, P. J., Barrett and Rumset, JJ., concurred; O’Brien, J., dissented.

O’Brien, J.

(dissenting):

Appeal from order directing payment of claim.

In 1884 Charles H. Moore was the receiver of the estate of Roswell S. Burrows, deceased. . He has since died, and the petitioner here succeeded him as such receiver. In that year Mr. Moore commenced an action against the American Loan and Trust Company to recover certificates of the capital stock of the Niagara Falls International Bridge Company, then held by the said American Loan and Trust Company in pledge. The latter defended the action, and thus an issue arose between the receiver and the trust company as to who was legally entitled to the possession of the certificates. Judgment was rendered in that suit in favor of the trust company. Pending appeal to the Court of Appeals, Moore, the receiver, thereafter obtained an order of court allowing, him to enter into a stipulation which was. made between the parties on October 21, 1887, as follows : The said receiver shall exchange with said trust company cash to the amount of the claim of said defendant as established by the judgment herein, with interest and all the costs awarded at Special or General Term for the certificates of bridge stock, and the power of sale and transfer accompanying the same, now held by the said trust company. Said cash to be held by the said trust company subject to the same lien, if any, that it may be ultimately. decided in this suit that the trust company has on the said stock, and that in case judgment herein is affirmed by the Court of Appeals, that the said trust company may apply’such money to the payment of its said claim and costs to the discharge of said loan. And that if the plaintiff shall succeed in this suit and obtain the judgment of this court, determining that he is entitled to said stock, then that the said trust company, upon the entry of such judgment and upon demand, will return said cash without interest to the receiver, and at the same time and under the same circumstances, shall deliver to the receiver the note and other papers ’relating to the loan for which the said defendant now holds said stock as collateral.”

On the same day the trust company delivered to Moore the certificates of stock, and the latter deposited the money in question with the trust company and took a receipt therefor. Thereafter the trust company became insolvent and Simmons was, appointed its receiver,, and on or about the 21st of July, 1892, Moore served upon Simmans a notice of the deposit of this money and of his claim that it was held as a pledge and that neither the trust company nor its receiver had any “ right to mingle the said money so deposited in pledge with the general assets of said trust company.” Subsequently Moore died and Lorenzo Burrows was appointed receiver in his stead. Afterwards a judgment was recovered in the action of Burrows, as receiver, against the American Loan and Trust Company, wherein it was adjudged that the plaintiff, as receiver of the estate of Roswell S. Burrows, deceased, was entitled to the certificates of stock and to the said sum deposited in lieu thereof.

The trust company was incorporated by special act of the Legislature of this State (Chap. 868 of the Laws of .1872, as amended by chap. 260 of the Laws of 1884), and section 8 of said act provides : “In case of the dissolution of the said company * * * the debts due from the company as trustee, guardian, receiver or depositary of moneys in court or of savings bank funds shall have a preference.” The trust company carried on a general banking business from October, 1887, when said deposit was made; until Mr. Simmons was appointed as receiver on March 7, 1891. When the deposit in question was made, the money was not kept separate, but was mingled with the funds of the company generally. At the time when Mr. Simmons, as receiver, took possession of the assets of the company there was on hand the sum of §31,793.89 in cash. There was then no special sum of money set apart to meet the claims asserted in the action of said Moore. The amount of the indebtedness of the company, to which by the terms of the charter preference was expressly given, was $704,840.10. In addition, there are claims to the amount of $400,000. The principal of the preferred claims has been paid in full, but the receiver has not now in his hands a sufficient amount of money to pay the interest, and nothing whatever has-been paid upon the unpreferred ^claims.

The receiver of the estate of Burrows petitioned this court for an order that his claim be “ paid in full and in preference to the claims of any general creditor upon the funds or assets in the hands of the said Simmons as receiver as aforesaid.” The receiver of the trust company opposed this motion upon the ground that the petitioner was not entitled to such preference, either by reason of the character of the transaction out of which the claim arose or of the provisions of the charter of the trust company. An order was, however, made directing such payment absolutely, and from that order Mr. Simmons, as receiver, has appealed to this court.

The certificates of stock for which the money was substituted were not deposited with the trust company by Burrows or by his receiver, Moore, but were held by that company as security for a debt. Moore, claiming the stock as the property of the estate of Burrows, brought his action for the pfirpose of procuring a determination to that effect, but judgment went against him and he appealed. If at that time the trust company, as it then had the legal right to do, had sold the certificates of stock and applied the proceeds to the payment of its debt, using the money realized in its business, would the receiver of Burrows’ estate, upon subsequently obtaining a reversal and a judgment in his favor, have been entitled, as against the receiver of the trust company, to a preference over all other creditors ? Such a judgment would eventually entitle the receiver of Burrows to a return of the stock or, in case it was sold, to its Value. In such a transaction it could not be held that there was any trust relation, or that the trust company acted as bailee, for Burrows, but, as we have seen, it was claiming in hostility with respect to securities which it held in pledge for a debt due it,'and the judgment when rendered, and before it was reversed, decreed that it was entitled to sell the stock and apply the proceeds to 'the payment of its debt. I think that, in such a transaction, the certificates having been sold and the money applied in discharge of the debt due the trust company, and the money realized mixed with its general funds and used in its ordinary business,' where, as shown, there was no fiduciary relation, and no relation as between the Burrows estate and the trust company of bailor and bailee, the remedy of Burrows receiver upon obtaining the judgment ‘ in liis favor would be a right to have a return of the stock dr its value if sold. And the claim thus arising would place the receiver of Burrows in the category of a general creditor, and would hot create any such fiduciary relation as would entitle him to a preference over all other general creditors. ' ■

If this view of the original relation between the parties is right, I do not see how it is in any way changed by the' stipulation, which merely substituted the money for the stock. The stipulation, provides that the cash shall ¡he held by the trust company subject to-the same lien, if any, that it may be ultimately decided in the suit that the trust company has in the .stock, and that if the plaintiff shall obtain a judgment determining that he is entitled to the stock, then the trust company shall return the cash. There is no agreement that the money shall be retained in specie, but simply that, after recovery of a judgment by plaintiff, the money shall be returned upon demand. No force can be attached to the provision that the money shall be sub ject to the same lien as the stock, because this provision was in the interest of the trust company, and was inserted, not for the protection of the receiver of Burrows, but as-recognizing the lien which the trust company claimed, and it was proper that it should provide that the money deposited in lieu of the stock should be subject to the same rights as the trust company had to the stock. I fail to' see hów a deposit thus made is any stronger than that of the ordinary. depositor in a trust company,, because in the latter casé the trust company agrees to pay back the-money on demand, without any preliminary process of litigation, whereas, under the stipulation, the money deposited by Moore was to be repaid only if he could succeéd in establishing his right thereto by litigation.

But even if we should regard the stipulation as constituting -the petitioner a trust creditor, this would not entitle him to a"preference. •As said in Matter of Cavin v. Gleason (105 N. Y. 262): “ Upon an accounting in bankruptcy or insolvency a trust creditor is not entitled' to a preference over general creditors of the insolvent, merely on the ground of the nature of his claim, that is, that he is a trust creditor as distinguished from a general creditor. * * * The equitable doctrine that, as between creditors,, equality is equity, admits, so far as we know, of no exception founded on the greater supposed .sacredness of one debt, or that it arose out of a violation of duty, or that its loss involves greater apparent hardship in one case than another, unless- it" appears in addition that there is some specific recognized equity founded on some agreement, or the relation of the debt to the assigned property, which entitles the claimant, according to equitable principles, to preferential payment. If it appears that trust property specifically belonging to the trust is included in the assets, the court, doubtless, may order it to be restored to the trust.” In that case also we find an answer to the suggestion made, that this amount should be preferred before other claims because the funds and assets which came to the possession of Simmons were increased by the amount of the moneys in controversy, .and that by reason of them he received that amount more than he ■otherwise would. As therein said: “In a very general sense all ■creditors of an insolvent may be supposed to have contributed to the assets which constitute the residuum of his estate.” I think the principle of that case sustains the appellant’s view, that upon -whatever terms the stock or the money might have been received, ■even if it were the fact that the trust company had wholly concerted or misapplied the same ; still, that alone would not give the ■debt so arising a preference over other indebtedness of the trust' company. In order to secure a preference it would be necessary to .show in addition' that some part of the proceeds arising from such action was in the hands of the trust Company when Mr. Simmons was appointed receiver, and then the preference would not extend beyond the amount of such proceeds actually coming into the receiver’s possession.

I do not think that the petitioner’s right to relief can be predicated upon the second ground, namely, the. terms of the charter of the trust company, that “ debts due from the company as trustee, .guardian, receiver or depositary, of moneys in court, * * * .shall have a preference.” Regarding the manner in which the -deposit was made, we do not think it constituted the company “a •depositary of moneys in court.” That provision covers cases in which the company is intrusted as an officer of the court, acting in ■a fiduciary capacity, with the property of others, and can have no .reference to a case where, acting in its own behalf, it accepts security for a debt which it claims to be due to it.

I am of opinion, therefore, that the order directing a preference ■was erroneous and should be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs.

Order affirmed, with ten dollars costs and disbursements.  