
    The First National Bank of Paterson, N. J., Appellant, v. The National Broadway Bank and Seth M. Tuttle, as Alleged Substituted Trustee, etc., Respondents.
    Bona fide purchaser — talcing stock standing in the name of a trustee, to secure his individual indebtedness — the assent of the beneficiary to the violation of the trust does not operate to assign the dividends.
    
    A person who takes bank stock, with the word “trustee” upon its face, as collateral security for a loan made to a firm of which the trustee is a member, is put upon inquiry, and is chargeable with such knowledge as would be obtain, able upon such inquiry ; and where the lender might, by applying to the bank which issued the stock, have learned of the existence of the instrument creating the trust, and thus become acquainted with its terms, the fact that at the time the lender accepted the stock there was delivered to it a paper signed by the life beneficiary of the trust, in which she consented to the pledge of the stock, and also falsely stated that she was the sole beneficiary then interested in the trust, does not make the lender a bona fide holder of it.
    The giving of such a paper by the life beneficiary will not have the effect of transferring the dividends upon such stock, to which she is entitled, to the holder of the note, as her interest in the income of the trust is by statute made inalienable.
    Appeal by the plaintiff, The First Rational Bank of Paterson, R. J., from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Rew York on the 18th day of February, 1897, upon the decision of the court rendered after a trial at the Rew York Special Term dismissing the complaint.
    
      The suit is to determine the ownership of sixty-one shares of the capital stock of the defendant, the Rational Broadway Bank, issued and standing upon the books of the bank in the name of Philo P. Hotchkiss, trustee, which said shares, together with the dividends thereon, are claimed both by the plaintiff and by the defendant Seth M. Tuttle as substituted trustee. The appointment of Hotchkiss as trustee was made by the Probate Court of Hartford, Conn., and the stock was transferred to him by order of that court. The trust was created in that jurisdiction by one William H. Imlay, by deed dated January 17, 1857. The estate, of which one Chester A. Adams was appointed trustee, consisted wholly of personalty, bank shares, the income whereof was payable to the creator’s three daughters in equal shares, with words of survivorship and remainder over to children. The sixty-one shares constituted a part of the trust fund created by Imlay for the benefit of his daughter, Georgiana I. Hotchkiss, during her life, and upon her death for her children. Mrs. Hotchkiss and two of her children are still living. Adanis was succeeded as trustee by one Bartholomew, and Bartholomew by Philo P. Hotchkiss, and the latter thus obtained a transfer to himself as trustee of the sixty-one shares upon the books of the bank. On July 25, 1889, Hotchkiss made and gave to the plaintiff a note for $12,000 signed by him in the name of Hotchkiss & Co., and pledged with the plaintiff, as collateral to said note, with other stock of this trust, the stock in suit. The plaintiff discounted the note and paid the proceeds to the Home Insurance Company in satisfaction of a former note of Hotchkiss & Co., on which former note the same collateral had been held by the Home Insurance Company. At the time the plaintiff took the stock as collateral, it also received from Philo P. Hotchkiss a writing signed by Georgiana I. Hotchkiss, consenting that the trustee pledge this stock to borrow money for use in the business of Hotchkiss & Co., and reciting that she was the sole beneficiary now interested in the trust.
    On August 30, 1893, the plaintiff, through auctioneers., sold at public auction the stock in suit, under said stock note made by Hotchkiss, and bid in the stock. The plaintiff then filled in its name in the blank powers of attorney to transfer said stock, and presented the stock certificates and powers of attorney to the defendant, the Wational Broadway Bank, and demanded the issuance of new certificates, and that the stock be transferred on the stock book of the defendant bank from the name of Pililo P. Hotchkiss, trustee, to that of the plaintiff, which the defendant bank declined to do.
    Hotchkiss, the former trustee, was convicted of grand larceny, and is now serving his sentence in prison. Subsequently, on May 22, 1895, Alice I. Richards, a daughter of Georgiana I. Hotchkiss, and entitled to one-half of the trust fund, absolutely on the' death of her mother, presented a petition to the Supreme Court for the removal of Hotchkiss as trustee and the appointment of Seth M. Tuttle in his stead, which petition was granted upon due proof of its service on Hotchkiss and on Georgiana I. Hotchkiss and her daughter, Georgia I. Hotchkiss, the other beneficiaries of the trust. On May 23, 1895, an order was entered removing Philo P. Hotchkiss as trustee and appointing the defendant Tuttle as trustee in his stead under said trust deed.
    This action having been commenced in April, 1895, Tuttle, subsequent to his appointment as trustee, made application to be made a party defendant, claiming that the stock was trust property fraudulently pledged to the plaintiff and that the plaintiff had notice of the trust. Between January 1, 1894, and July 2, 1896, dividends amounting to $549 were declared upon the stock, and at the time of trial were held by the Broadway Wational Bank. The court below rendered judgment in favor of the defendant Tuttle as trustee for the possession and transfer of the stock and the accumulated dividends, and it is from that judgment that this appeal is taken.
    
      Preston Stevenson, for the appellant.
    
      O. P. Waldo, for.respondent Tuttle, as trustee.
    
      W. 0. Beecher, for respondent Wational Broadway Bank.
   O’Brien, J.:

The existence of the trust is not disputed, for the plaintiff is seeking to make title to the shares of stock here in controversy through and under Hotchkiss’ title as trustee. The evidence shows that, in violation of the terms of the trust, Hotchkiss sought to divert the stock and use it for kis own benefit or that of his wife, and the main question is whether he has succeeded, to the detriment of the cestuis que trust, in conferring a good title to the stock upon the plaintiff. The rule is that one who takes securities from a trustee, with the word “ trustee ” upon their face, in payment of a private debt due from the trustee, acquires but a voidable title as against the cestuis que trust. In the well-considered case of Shaw v. Spencer (100 Mass. 389) it is said: “And that the mere use of the word trustee ’ in the assignment of a mortgage and note imports the existence of a trust and gives notice thereof to all into whose hands the instrument comes has been expressly decided by this court. * * * Where one known to be a trustee is found pledging that which is known to be trust property, to secure a debt due from a firm of which he is a member, the act is one prima facie unauthorized and unlawful, and it is the duty of him who takes such security to ascertain whether the trustee has a right to give it. The appropriation of corporate stock held in trust as collateral security for the trustee’s own debt, or a debt which he owes jointly with others, is a transaction so far beyond the ordinary scope of a trustee’s authority and out of the common course of business, as to be in itself a suspicious circumstance, imposing upon the creditor the duty of inquiry. * * * Inasmuch as such an act of pledging property is priona facie unlawful, there would be little hardship in imposing on the party who takes the security, not only the duty of inquiry, but the burden of ascertaining the actual facts at his peril. * * * Notice of the existence of a trust is, by all the authorities, held to impose the duty of inquiry as to its character and limitations. And whatever is sufficient to put a person of ordinary prudence upon inquiry, is constructive notice of everything to which that inquiry might have led.” (Suarez v. De Montigny, 12 Misc. Rep. 260; 1 App. Div. 494; affd., 153 N. Y. 678.) This statement of the rule as relating to stocks and notes which, upon their face, show that the person holding them does so as trustee, is supported by the authorities in this State, and a clear definition of constructive notice is to be found in the case of Acer v. Westcott (46 N. Y. 384), wherein it is said: “ Constructive notice may be said to be a knowledge by the purchaser of some facts which should put him upon inquiry, and require him to examine other matters that would generally unfold the true title. If he omit to make the examination in a proper case, he is conclusively charged with negligence and with notice of the defect in the title. * * * But if he exercised due diligence and failed to discover the defect, the presumption of negligence is rebutted, and he is regarded as a tona fide purchaser.” In Perry on Trusts (vol. 1 [4th ed.], 288, 289, § 225) it is said: “ If the transfer is by way of pledge or sale for the security or payment of the private debt of the administrator, it will be equivalent to full notice of the illegality of the transaction and fraudulent. * * * But if a purchaser takes securities from a trustee, with the word trustee upon their face, in payment of a private debt due from the trustee, the sale may be avoided by the cestui que trust, or the purchaser may be held as a trustee.” And our Court of Appeals has said in Wetmore v. Porter (92 N. Y. 81): “ Whoever receives property, knowing that it is the subject of a trust, and has been transferred in violation of the duty or power of the trustee, takes it subject to the right not only of the cestui que trust, but also of the trustee to reclaim possession of the specific property or to recover damages for its conversion in case it has been converted.” We regard it, therefore, as settled that the title of the cestui que trust in trust property can never be destroyed except in favor of one who, for value, in good faith, without -notice, receives it; and that one who receives property under such circumstances that he knew, or ought to have known, that it was the subject of a trust, ca-nnot acquire title thereto as against the rightful owners.

The stock here consisted of shares of the Rational Broadway Bank, and had upon its face the word “ trustee ; ” and the plaintiff in taking it had notice that the title of Hotchkiss was that of a trustee, and that he was pledging it in connection with a loan, for a purpose which it could not be assumed was a trust purpose. Inquiry at the Rational Broadway Bank would have shown that in the order for the transfer to Hotchkiss there was a recital of the trust of January 17, 1857, of Chester A. Adams’ will, its probate in Hartford, Connecticut, the appointment of Bartholomew as trustee, and the petition for the appointment of Hotchkiss as trustee ; and with this as a guide, further inquiry would have revealed the record of the original trust deed. The exercise, therefore, of ordinary caution and prudence would have led to a full disclosure of the terms of the trust; and the plaintiff having been put upon inquiry, which it failed to make, cannot be regarded as a bona fide purchaser. It will thus be seen that upon the main question we have reached the same conclusion as that arrived at by the learned trial justice, whose opinion is so satisfactory that we might well have rested our decision upon his statement of the law.

It is insisted, however, by the appellant that the court below ignored the plaintiff’s special equity as against the life beneficiary of the trust estate. Considering the character of the certificate given to the plaintiff by Georgiana I. Hotchkiss, which to some extent deceived the plaintiff, she is not placed before the court in an enviable position, or entitled as against the plaintiff to any great consideration. She had no title to the stock, but as the life-beneficiary had a right to the dividends; and if the power existed, a court of equity might well have compelled her to repair in part, the injury which she was instrumental in inflicting upon the plaintiff, by depriving her of the dividends and turning those over to the plaintiff. The difficulty, however, is that it was not in the power of the court, nor was it in that of the beneficiary, to alienate her interest in the dividends, the beneficiaries of trusts being expressly prohibited by statute from assigning or disposing of their interests. (1 R. S. 729, § 63.) This provision, "though relating to rents and the profits of land, was held to apply, by force of other sections of the statute, to the interests of beneficiaries in similar trusts of personalty. (Lent v. Howard, 89 N. Y. 169, 181; Graff v. Bonnett, 31 id. 9 ; Tolles v. Wood, 16 Abb. N. C. 1, 9.) This legislative policy should not be defeated by the action of the court in permitting such alienation or abrogating the trust; and the cases cited are authority for the proposition that it is only surplus of income, not-necessary for the support of the beneficiary, that can be reached by creditors or applied to the payment of debts. As the disposition of such income cannot be anticipated by the cestuis que trust or incumbered by any contract entered into providing for its pledge, transfer or alienation previous to its accumulation, the court properly held that it could not upon any principle of estoppel turn over the dividends which, subsequent to the giving of the paper to the-plaintiff by Mrs. Hotchkiss, accumulated on the stock.

The appellant further contends that Tuttle, as trustee, has no-standing in court because he was not validly appointed as trustee and should not have had the stock awarded to him. As we have held that the appellant has no title to the stock, it has no interest in the question to whom it shall be awarded, and for that reason it is not necessary to pass upon this contention.

We think, therefore, that the judgment was right and should be affirmed, with costs.

Van Brunt, P. J., Rumset, Patterson and Ingraham, JJ., concurred.

• Judgment affirmed, with costs.  