
    Stella A. Marshall, as Sole Executrix, etc., of Sarah Drake, Otherwise Called Sarah Merle, Deceased, Respondent, v. Alfred de Cordova, Appellant, Impleaded with Others.
    
      Misappropriation of trust money — an action for its recovery is an, equitable action — the misappropriation only need, be proved, by the plaintiff— defense of its repayment or of a release rests on the defendant — notice— inquiry required.
    
    An. action brought by the executrix of an estate to recover from a firm of stockbrokers money which a temporary administrator of the estate previously appointed had lost in speculations conducted through that firm, on the ground" that the firm had knowledge that the money so used was trust money, is equitable in its character—-the plaintiff being entitled to an accounting for such money, and, if profit has been made, to such profit, and, if a loss has. resulted, to the sum of money thus misappropriated, with interest.
    
      In such a case, whether the action be deemed one at law or in equity, a demand is not a necessary -preliminary to its maintenance. The plaintiff in the action ' is only bound to establish the fact that the trust money has been misappropriated; and a defense that the right to recover it has been lost by its repayment, or by a release or otherwise, is an affirmative defense to be alleged and proved by the defendant.
    The receipt by the brokers of a check drawn on a bank by a customer “ as trustee” and deposited with the brokers in an account with this customer “ as trustee,” and proof that a subterfuge to withdraw the. money from the category of trust funds was resorted to by a repayment of the money by a check drawn by the brokers to the trustee, who immediately deposited the proceeds of such check with the brokers, were considered to be sufficient evidence of notice on their part of the trust character of the money; and an inquiry made, after the ■ money had been embarked in the speculation, by a member of the firm, of tlie trustee only, was held to be an insufficient discharge of the duty of investigation imposed by such notice.
    Appeal-by the defendant, Alfred! de Cordova, from'a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of .the county of Hew York on the 6th day of July, 189J, upon the decision of the court rendered after a trial at the Hew York Special Term.
    
      Thomas G. Shearman, for the appellant.
    
      Samuel Greenbaum, for the respondent.
   Van Brunt, P. J.:

This, action was brought by the executrix of the will of Sarah Drake, or Merle, to recover $5,000 and interest which it was claimed one Robert P. Hoah, temporary administrator of Mrs. Drake’s estate, had misappropriated, and which the defendants had received with notice that it was a trust fund improperly applied. Hoah had been appointed temporary administrator of the above estate and had received some $10,500 in cash which he had deposited in bank. Out of this money, on the 10th of October, 1881, Hoah, in his name as . trustee, opened a speculative account, with the firm of Alfred de Cordova & Co., who were stockbrokers doing business in the city of Hew York. Upon that day he deposited with said firm a check for $5,000 drawn by him as trustee upon the Merchants’ Exchange Hational Bank to the order of the .firm. On the eleventh of-'October, the defendants bought for account of Robert P. Hoah, trustee, 500 shares of Hew York Elevated Railroad Company stock at a cost of $54,962.50, and on the seventeenth or eighteenth of October sold the same, realizing the sum of $55,437.50 ; making a profit upon the account of- $417.55, after deducting interest and commissions. About the same time there was purchased for his account 500 shares of the Denver and Rio Grande stock, costing about $43,000. A day or two after this purchase Mr. de Cordova asked Mr. Noah for some explanation in respect to this accbunt; and he testifies that Noah told him that the money was his own ; that he wanted to make some trades and wanted to enter it as trustee only upon one ground so that it could not be touched in any way by little indebtednesses that he owed around.” It further appears that upon the same day a check was drawn for the amount to the credit of Noah as trustee by the defendants upon the Bank of the State of New York, which was indorsed by Noah as trustee, and according to his own testimony he did not get the money upon the check, but the proceeds were placed with the defendants to his individual credit. Noah’s speculation in the Denver and Rio Grande stock subsequently proved disastrous, and he ivas sold out and all the money was lost. The will of the said Sarah Drake having been duly admitted to probate, and the plaintiff having qualified as sole executrix, this action was brought some six years afterwards.

Upon the trial of the action, at the opening of the case, it was urged that the complaint did not state a cause of action and should be dismissed, among other grounds stated, for the reason that there was no allegation that Noah had failed to account for the money which he had received. This objection is not well taken. It having been established that the money deposited with the defendants by Noah belonged to the estate of which he Avas a temporary administrator, under circumstances which imputed' notice to the defendants of the origin of the money, when the estate claims its own money which had been received Avrongfully by the defendants, it Avould seem that the burden was upon the latter to show that such payments had been made as absolved them from accounting to the estate for its property which they had wrongfully received. It is true that the counsel for the defendants cites the case of Gray v. Farmers' Exchange Bank (105 Cal. 64), which seems to conflict with this view. But no authority in this State has been produced which imposes any greater obligation upon a party whose money has been misappropriated by the act of its servant than to establish the fact of such misappropriation, with the knowledge of the party receiving it. The defense that the right to such money has been lost, either by payment by the servant, or release, or otherwise, is an affirmative defense which it is necessary for the defendants to-allege and prove.

It is also claimed that the complaint was defective because no demand was alleged. Of course, if this action is to be considered as one in equity, no demand was necessary. If an action at law,, neither was any demand essential to its maintenance. Notwithstanding the claim of the defendants’ counsel -that the receipt of the money in question was not wrongful ab initio, no other conclusion than that it was wrongful ab initio can be arrived at. The defendants knew, at the time they received this money, that it was trust money, or, at least, they were put upon inquiry, and no inquiry whatever was made until after the money had been at the risk of this Denver and Rio Grande speculation, which resulted in a loss, and then inquiry was only made (according to the testimony of the defendant de Cordova himself) of Mr. Noah. That he did not believe Mr. Noah’s statement is evidenced by the subterfuge which' was resorted to in order to take the money out of the category of trust funds by going through the form of payment to Noah as trustee ; handing over the check to him with one hand and receiving back th¿ procéeds of it with the other. No inquiry whatever was made where any information might be procured. But it is said that inquiry at the bank would have resulted in no information. This is not made to appear. Consequently, we have the defendants receiving the money under such circumstances as to put them upon inquiry, and making inquiry only from the party who was endeavoring to perpetrate the fraud upon the estate which he represented. The complaint seems to have been sufficient, therefore, whether we consider the action as one at law or in equity.

It is further urged that -the proof was defective, in that there was no legal evidence that the defendants received any money from the Drake estate. It seems to us that the conclusion of the learned judge below was amply justified by the evidence introduced. It appears that Noah received $10,500 in cash belonging to the estate^ and that a part of this money was used by him in this transaction, which was represented by the check of $5,000 signed by him as trustee. The criticism upon the tinreliability of Hoah’s testimony seems to be equally applicable to the testimony of the defendant, who was examined upon this trial as a witness. He, shortly after the transactions now under consideration, was examined as a witness in respect to that transaction, and made statements which do not precisely harmonize with those made upon this trial.

It is also urged that the addition of the word trustee ” to the check was not such a notice of a trust as to put the defendants upon inquiry. The case of Gerard v. McCormick (130 N. Y. 261) seems to lay down a different rule, and the cases therein cited clearly establish a different rule. Furthermore, it appears from the examination of the defendant de Cordova, made shortly after this transaction, that he knew this money was trust money, and desired to change the account for that reason, and went through the form above described. of changing the account, which shows, not only that the defendants received the money under circumstances putting them upon inquiry as to the money being a trust fund, but that they knew the fact at the time. Under such circumstances, it is not necessary for us to discuss the question as so whether proper inquiry was made.

As to the question of" laches, we are of opinion that, as long as an action is brought within the period allowed by the Statute of Limitations, the right to maintain the same is not lost by mere lapse of time.

The only remaining question necessary to be discussed is as to the right to a trial by jury. It seems to be apparent that the action in question was equitable in its nature. The defendants had wrongfully received trust funds, and the estate to which it belonged had a right to receive'the principal and all the increase which had resulted from its use. The plaintiff, therefore, had a right to an accounting in respect to this money'.. ■ If a profit had been made she. would have been entitled to such profit. If the result of the speculation was a loss she was entitled to recover the principal and interest. Cleárly a cause of action of an equitable nature. Therefore, there was no right to a trial by jury. And even if the action be deemed an action at law the defendants lost their right to a trial by jury by not making their demand in time. Upon the trial the Counsel for the plaintiff had opened the case, and the counsel for the defendants had made a motion to dismiss the complaint upon the ground that it did not state any cause of action. This motion was denied, and then came the question of a trial by jury. It seems to us that the rule is that before the commencement of the trial if a party desires to avail himself of the right to a trial by jury he must make his demand, and not in any manner proceed with the trial. In the case at bar, as already stated, the case' had been opened and á motion made to dismiss the. complaint, and the defendants took the risk of that ruling as part of the trial before making their demand for a jury. This was too late. The case of The People v. The Albany & Susquehanna Railroad Company (57 N. Y. 161) in no way conflicts with this rule. In -that case the plaintiffs set forth several causes of action, as they claimed, all of which but one were equitable, if anything. It Was in their power to waive ■ the legal-claim set forth and press only-those which w,ere equitable. Whether' they would do so or not the defendants had no means of knowing until after reading the pleadings. The plaintiffs rested without calling any witnesses. It was then for the .first time apparent that the plaintiff relied on the legal claim in respect' to the title of the defendants to the offices in question. It was at this stage that the fight to a trial by jury was claimed, and the court held that it was error to refuse it — a case essentially different from the. one above.

- The judgment should be affirmed, with costs.

Barrett, R'umsey, Ingraham and McLaughlin, JJ., concurred.

• Judgment affirmed, with costs. '  