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[Vol. 38. of which is that the plaintiffs have no standing to maintain this action. It is the averment of the complaint that the plaintiffs have an interest in the estate of which Daley is the trustee, and that they, together with such persons as are made defendants, are the only persons in interest. It is further averred that the plaintiffs have requested the trustee to bring an action for the protection of the property of the estate; that he has refused so to do, and that for this reason the trustee is made a party defendant. In this respect the action is to be treated as though it were brought in the name of Daley as trustee, and as he would have standing to maintain the action, it necessarily follows that the plaintiffs, having an interest which he was called upon to protect, may avail themselves of all his rights. (Harvey v. McDonnell, 113 N. Y. 526; Prentiss v. Bowden, 145 id. 342.) The proof upon the trial tended to establish, and the court was authorized to find, that the acts of the trustee had resulted in creating a deficiency in the Ward estate for which he had not accounted; and as it appeared that he had paid over to his cestuis que trustent the amount of the income of the estate, it would authorize the court to find, and we may so assume in support of this judgment, that the deficit was in the corpus of the estate and not in the income. So that any technical question which might arise as to whether the funds which were converted were income or principal, is not available to the defendants. The action being necessarily treated as though brought by the trustee, the plaintiffs not only become entitled to enforce their rights as against particular property upon which they might assert a lien, but also have standing to recover as and for a conversion of the trust funds, whether represented by specific property or not, or whether the same be income or corpus.

We come, therefore, to a consideration of the main question in this case; and first, as to whether the evidence is sufficient upon which the court was authorized to find that Jones stood in relation to this estate in the position of a trustee de son tort. The evidence is clear that Jones was aware of the use of the trust funds of the Ward estate some time prior to January 31, 1895. It may be assumed that so far as the trust funds of the estate of Ward were used by the firm of Devlin & Co., or by the corporation which was thereafter formed, Jones would not have been personally

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responsible therefor on account of the dealings therewith by the firm or the corporation prior to January 31, 1895; although the testimony discloses the fact that as early as 1893 Jones had knowledge of the use of these trust funds by the corporation, and had to some extent participated therein, either by the reception and indorsement of checks or by the payment of bills and drafts drawn upon the account with the firm. But the theory of the action and the finding of the court proceed solely upon the ground that Jones, having knowledge of the insolvency of the corporation from January, 1895, thereafter agreed to become responsible to the Ward estate for the moneys which might thereafter be used in its business. It is undisputed in the case that subsequent to this time Jones had actual knowledge of the use of these moneys, and his participation therein in connection with their use in the corporation was as active, or nearly so, as that of Daley.

It is a well-settled proposition of law-too well settled to now admit of dispute that where a person dealing with a trustee in respect of trust funds, with knowledge on his part that the trustee is making unlawful disposition of the trust estate, receives such funds. with such knowledge, he is chargeable as a trustee de son tort, and may be called upon to respond to the cestui que trust, either by way of restoration of specific property or, if that be not admissible, as and for a conversion of the trust funds. (English v. McIntyre, 29 App. Div. 439; First Nat. Bank v. Nat. Broadway Bank, 156 N. Y. 459; Barnes v. Addy, L. R. [9 Ch. App. Cas.] 244 ; Blyth v. Fladgate, L. R. [1 Ch. Div. (1891)] 337.) While it is true that fraud lies at the basis of fixing liability of this character, yet it is not essential that there should have been a corrupt intent, either to cheat the trustee or the cestui que trust out of the moneys thus received. In the eye of the law fraud may be predicated upon the act, even though there may have been an honest intent to restore the funds at some future time. The act of receiving is unlawful, and fraud may be predicated of such act. (1 Perry Trusts, §§ 169, 170.)

In the present case it is strenuously insisted that the evidence did not warrant the court in finding an agreement between the trustee and Jones to use the moneys as partners in the business, and to hold the estate of Ward harmless therefor. It is quite true that

SECOND DEPARTMENT, MARCH TERM, 1899.

[Vol. 38. the evidence does not establish that such an agreement was made in terms. It does, however, clearly establish that Jones was aware of the insolvent condition of the corporation, and he also had knowledge that moneys of the estate were being furnished by the trustee and used in the business of the corporation. He was an active participant in the use of such moneys. Consequently, whether we treat Jones as having made an affirmative agreement with Daley for the use of the funds or not, the evidence is clearly sufficient to charge him with knowledge and participation in their use for the business of the corporation, and, therefore, for his own benefit; and this is sufficient to charge him with liability whether an affirmative agreement existed or not. Nor can he shield himself by the fact that in what he did he acted as an officer of the corporation. The corporation could only act through its officers, and it is not essential that the misuse of the trust funds should be for the exclusive benefit of the person making such unlawful use, or indeed any benefit at all. Where he possesses the knowledge of the misuse of the trust funds, and knowingly applies them either for his own benefit or for the benefit of another, his liability is complete as the injury to the estate is the same whether he do it as an officer or as an individual. The basis of his liability is knowledge and injury, both of which here exist.

The cases relied upon to exonerate Jones from liability for his acts in this respect do not support the defendants' contention. In Wilson v. Lord Bury (L. R. [5 Q. B. Div.] 518) the directors of a company were held not liable for a failure by it to replace a mortgage which had been paid to the company, although the latter had agreed with the plaintiff that it should be replaced if paid off. This holding went upon the ground that the act was a mere breach of contract on the part of the company, and that as the directors had not actually participated therein, and were not shown to have knowledge of the transaction, they could not be held liable as trustees of the plaintiff; that liability could only attach to the principal in the transaction, and the mere relation to it as directors, with nothing else, was not sufficient upon which to predicate liability. In that case there was no offer to show that the defendants therein had any knowledge of the insolvency of the company at the time when the mortgage was paid off. Had knowledge of the insolvency of the

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company and of the transaction been possessed by the directors, then within the rule which the court laid down liability would have attached. (P. 532.) In Barney v. Barney (L. R. [2 Ch. Div. (1891)] 265) the defendants simply acted as advisers of the trustee. They had no interest in the business, received none of the funds, had no control over them, except to a limited extent, and that for the purpose of their protection; and the court held that these facts excluded any finding of wrongful participation in the misuse of the funds of the estate. The test of responsibility as announced in that case was whether the money under the control of the defendants could be used by them to do with as they pleased. It is quite evident that this test is not based upon the idea of the rightful use of the moneys, but is predicated of the fact as to whether the party might so far obtain control of the funds as that he might make disposition of them. In the case now before us it appears that Jones received moneys and checks of the estate of Ward; that he drew checks on the fund and that he paid bills therefrom, and this for his own benefit, because benefit to the corporation is inseparable from the benefit to himself, he being financially interested therein. It is, therefore, apparent, in the sense of the test laid down by this authority, that Jones might at any time have taken the moneys which he received and appropriated them to his own use. In other words, he occupied a position where he might have so used them, and, therefore, was not within the rule of this case. These are the strongest cases in support of the defendants' theory, and it is evident that their doctrine cannot be extended to advantage Jones in exoneration of his acts.

The further claim is made by the defendants that Jones may not be made liable for the balance due the Ward estate on January 31, 1895. This claim proceeds upon the theory that more money was withdrawn by the trustee after that period than was paid in of the trust funds, and that Jones' undertaking was to hold the Ward estate harmless in respect of moneys which should be advanced after that time. This claim would have controlling force were it not for the fact that the property of Devlin & Co. had all been transferred to the corporation at the time it was organized, and the business thereafter carried on was the same business, for all the purAPP. DIV.-VOL. XXXVIII.

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[Vol. 38.

poses connected with the use of the trust funds, that had been theretofore carried on. When Jones became aware of the insolvency of the corporation and had knowledge of the use of the funds of the estate, he and all the other officers of the corporation used the money in and about the business. It must be assumed that the moneys which were withdrawn by the trustee after January 1895, were the product of the property of the corporation, which had been received by it from the firm of Devlin & Co.; consequently, the source from which the money was received required, under well-settled rules of equity, that the moneys should be used in discharge of the debts prior in point of time. If the moneys withdrawn could be applied in exoneration of the liability of Jones therefor, to the exclusion of the prior indebtedness, then it would necessarily follow, if the business were carried on for a sufficient length of time, that the Statute of Limitations would run against the earliest indebtedness. It must be assumed that the property was in part the product of the use of the funds of the Ward estate. The account in connection therewith was a continuous running account of deposits and withdrawals. Upon all principles of equity, the proceeds of the property were required to be used in discharge of the debt, and equity appropriates them to the earliest item.

In Devaynes v. Noble (1 Tud. Lead. Cas. 1) the estate of a deceased banker was sought to be charged with the payment of a particular deposit made prior to his decease. The account in the bank was a continuous running account, in which the plaintiff made deposits and withdrawals; and charging the withdrawals against the earliest items of the account, it showed no indebtedness existing at the time of the death of the decedent whose estate was sought to be charged; that the subsequent deposits, after the death, were to be held as constituting a new debt for which the members of the firm were liable; and they having become bankrupt, no equitable rule could be invoked which would enable the plaintiff to treat the withdrawals as being from the deposits with the firm after the decease. The doctrine of that case has found uniform application. (Pattison v. Hull, 9 Cow. 747; The Antarctic, 1 Sprague, 206; Commissioners v. Springfield, 36 Ohio St. 643; Bussey v. Gant, 10 Humph. 238; Jones v. Benedict, 83 N. Y. 79; Webster v. Mitchell, 22 Fed. Rep. 869; Buster v. Holland, 27 W. Va. 510.)