BROWN v. CHRISTMAN, 126 F.2d 625 (D.C. Cir. 1942)

No. 7781.United States Court of Appeals, District of Columbia Circuit.
Decided February 9, 1942.

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Appeal from the District Court of the United States for the District of Columbia.

Action by Frederick E. Brown and others against Anna S. Christman, administratrix of the estate of Jesse H. Hedges, deceased, and others to impress a lien on a certain fund and to have it distributed to plaintiffs pro rata, wherein the named defendant filed a counterclaim. The District Court dismissed the complaint and the counterclaim, both with prejudice, and from the judgment dismissing the complaint, plaintiffs appeal.

Reversed and remanded with directions.

Mr. Edmund D. Campbell, of Washington, D.C., with whom Messrs. Jaquelin A. Marshall and Edward A. Beard, both of Washington, D.C., were on the brief, for appellants.

Mr. James M. Earnest, of Washington, D.C., with whom Mr. W. Gwynn Gardiner, of Washington, D.C., was on the brief, for appellees. Mr. Raymond S. Norris, of Washington, D.C., also entered an appearance for appellees.

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Before GRONER, Chief Justice, and MILLER and RUTLEDGE, Associate Justices.

MILLER, Associate Justice.

Jesse H. Hedges was a real estate broker in the District of Columbia. Among other things his business included the collecting of rents for various property owners. It was Hedges’ established practice to deposit all rental money, which he collected, in an account standing in the name of Jesse H. Hedges Rent Account. From time to time he would draw checks upon this account, payable to the several property owners whom he represented, for the moneys which he had collected, after making deductions for expenses and other charges. Hedges died on February 9, 1938. At the time of his death he owed to property owners, on account of rents collected in January and February, 1938, an amount approximating $21,000; but the total amount in the special rent account was only $2,795.41. Following Hedges’ death, Anna S. Christman was appointed administratrix of his insolvent estate. The money in the special rent account was transferred to her and she holds it separate and apart from the other assets of the estate.

Appellants are property owners for whom Hedges collected rents and to whom at the time of his death he was obligated to pay approximately $10,500; one-half of the total for which he was obligated, to property owners, on account of rent collections. Appellants, as plaintiffs in the District Court, sued the administratrix to impress a lien upon the fund of $2,795.41, and to have it distributed to them pro rata. Anna S. Christman filed an answer and a counterclaim. Following a trial, the District Court dismissed the complaint and the counterclaim, both with prejudice. No appeal was taken from the judgment dismissing the counterclaim. Each of the various contentions tried by the District Court and urged on this appeal, depends upon additional facts which can be best analyzed in connection with each respective contention.

Appellants rely, first, upon an alleged equitable assignment, pro tanto, of the special fund. In our opinion the District Court correctly held to the contrary. The court found that shortly before his death, Hedges sent to each of the plaintiffs a rental statement covering the receipts and disbursements for their respective properties; and forwarded to each of them his check drawn on the rent account. The total of these checks was far in excess of the balance in the account. All of them were deposited for collection, and payment of each was refused by the bank because of the death of the maker. It is conceded that under the applicable section of the District of Columbia Code,[1] which is Section 189 of the Uniform Negotiable Instruments Law, the mere delivery of a check without more does not operate as an equitable assignment, even as between drawer and drawee. To establish “something else”[2] beyond

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mere delivery of the checks, reliance is placed upon an alleged understanding between Hedges and appellants concerning the rent account; and to prove that understanding appellants rely upon one of the findings made by the District Court, which reads as follows: “4. The said Earll [a real estate broker], acting for and on behalf of said plaintiffs respectively, turned said rent accounts of said plaintiffs over to said decedent upon an understanding between him and each of said plaintiffs that the rents collected from all of the said properties were to be kept by said decedent in a separate account, out of which disbursements were to be made; and also upon the further understanding that the said Earll would have the right to make withdrawals of funds from said special account in the event of the disability or incapacity of said decedent, in order to fully protect the interests of said plaintiffs.” [Italics supplied] The first clause of finding No. 5 lends color also to appellants’ contention. It reads: “5. Accordingly such an account was opened * * *.” But the most that can be said for appellants is that these findings are ineptly and ambiguously worded. While, standing alone, they might suggest an agreement by Hedges to set up a special account for the sole use and benefit of appellants, the rest of the record reveals clearly that there was no such understanding. Finding No. 5 goes on to say that Hedges, in the course of his business “deposited all rents collected on behalf of the property owners whom he represented, including all of the plaintiffs herein, in said account; * * *.” [Italics supplied] Again, it will be noted that on September 26, 1940, fourteen days after the findings were filed, appellants stipulated: “The business practices of the decedent referred to in paragraph 2 of the Findings of Fact had been followed by the decedent for some years prior to the time he had any relations with the plaintiffs.” [Italics supplied] The finding referred to in this stipulation is set out in the margin.[3] It is apparent therefrom that the special account had been set up by Hedges some years prior to his dealings with Earll, and to his employment by appellants. Moreover, appellants’ contention is further met by the eighth finding of the District Court, which reads as follows: “8. During the period involved in this case said decedent acted as rental agent for more than thirty different property owners, including the plaintiffs herein; and all rents collected by the decedent on behalf of said owners were indiscriminately commingled and deposited in said rent account.” There was, therefore, no showing sufficient to remove the case from the rule of Section 306, and the District Court properly so held.

Appellants contend, in the alternative, that they are entitled to impress an equitable lien upon the fund in the special account because the moneys therein “were essentially the property of the plaintiffs and other property owners similarly situated.” In Boss v. Hardee,[4] this court stated the applicable rule as follows: “Undoubtedly, the rule is that when a landlord’s agent receives rent money from the tenant, he receives the landlord’s money, and unless the relation of debtor and creditor is created by agreement express or implied, the agent is trustee for the landlord and not his debtor.” The rule as thus stated finds support in the Restatements, both of Agency[5] and of Trusts.[6] The maintenance, by Hedges, of a separate bank account, appropriately entitled “Rent Account,” was a proper discharge by him as an agent, of his duty to conserve the funds;[7] and was sufficient to

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segregate them in trust.[8] Neither is there any reason to infer that he acted improperly in commingling the funds of the various property owners in a single account, properly earmarked.[9] Moreover, further evidence of trusteeship appears from the fact that Hedges maintained a separate personal banking account. How long this account had existed does not appear. It is significant in this respect that while the findings — assisted by the stipulation previously referred to — reveal the existence of the Jesse H. Hedges Rent Account for a number of years prior to, as well as during the period involved in the case, finding No. 10 states, merely, that: “At the time of his death said decedent likewise maintained a personal account in addition to said rent account, which contained the sum of $31.43.” [Italics supplied] The significance of this finding lies in the facts revealed by the seventh finding, which reads: “Said decedent never physically withdrew his 5 per cent commission from said rent account, but merely made a bookkeeping entry of his credits on account of commission. He used said rent account indiscriminately during the period in question in order to pay his household and office expenses, premiums on life insurance and the like.” [Italics supplied] These uses were clearly inconsistent with trusteeship of the funds and if they had been consented to by appellants, expressly or by implication, were sufficient to prevent the existence of a trust.[10] There is nothing in the findings to indicate whether appellants consented to such inconsistent uses or had any knowledge thereof. But appellees stipulated — following the filing of findings — that they were unknown to appellants until after the death of Hedges. This being true it is obvious that there was no consent, express or implied. The facts thus far analyzed, therefore, in the light of the Boss case, reveal a trust fund properly segregated, rather than a debtor-creditor relationship.

Appellees insist, however, that appellants have failed to trace the trust funds into the rent account or to show that funds in the hands of the administratrix have been augmented by trust funds. As to the first point, it was admitted by appellees and found by the court that all rents collected by Hedges were deposited in the rent account.[11] The court also found as follows: “14. At the time of his death said decedent was obligated to pay plaintiff for rents collected in January and February, 1938, including plaintiffs’ said checks sued on herein in an amount approximating $10,500; and he was obligated to pay other property owners for rents collected in January and February, 1938, and not disbursed in an amount approximating $10,500.” It is idle to contend, in the face of these findings, that the trust funds were not traced into the rent account. What happened to them thereafter is more uncertain. On January 4, 1938, according to his checkbook, Hedges had in the rent account only $97.56. On or about that date he received from appellee, Anna S. Christman, in her individual

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capacity, the sum of $4,500, for the specific purpose of purchasing a deed of trust note. But, instead, Hedges unlawfully converted appellee’s money and deposited it on January 4, 1938, in the rent account, together with an additional sum of $454.40. On January 15, 1938, the balance in the rent account was $460.21; and that was the lowest balance in the account between January 4, and February 9, 1938, the date of Hedges’ death; at which time the balance was $2,795.41. It thus appears that Hedges deposited in the special account during January not less than $4,954.40; that he also deposited in the account, collections made in January and February amounting to $21,000, of which all, except $454.40 at least, was in addition to the $4,954.40 deposit of January 4. The $454.40 may have come from some other source than rents. Part of the $20,545.60, remaining from rent collections, may have been deposited before January 4, and part of it may have been deposited before January 15. It is fair to assume that the balance of $2,795.41 in the account on February 9, less the January 15 balance of $460.21, must have been made up of rent collections. The record fails to reveal any other source.

There is no evidence in the record to suggest that Hedges deposited any of his own money in the rent account — apart from his interest in the collections — during the period in question. The burden was upon the estate, therefore, to show that any part of the fund was not of a trust character.[12] Even if we should assume that Hedges made subsequent additions to the rent account, of his own funds, the inference would be that such deposits were made by way of restitution.[13] The court found, and it is not disputed, that Hedges never physically withdrew his five per cent commission from the rent account; nevertheless, as long as the balance of the deposit is less than the aggregate of the trust funds, it is the beneficiaries’ right, as against Hedges, to impress that balance with a lien for their claims, and to share the balance proportionately to their claims; regardless of the order of such withdrawals;[14] or the order of deposits.[15]

It seems clear, therefore, that when the $2,795.41 balance was transferred to the administratrix the funds in her hands were augmented by trust funds at least to the extent of $2,335.20. Appellants claim no more than this. They do not seek to trace, into the estate, funds withdrawn and dissipated by Hedges and they concede that $460.21 of the fund may be traceable to and belong in equity to Anna S. Christman.

Prior to this suit, appellants asserted their claims in an action on a bond given by decedent under an Act of Congress of August 25, 1937, entitled “An Act to define, regulate and license real estate brokers,” etc.[16] Each appellant herein recovered in that action various sums on account of rents collected but never accounted for by decedent. Appellees insist that by taking this remedy appellants made an election which is inconsistent with the assertion of an equitable lien on the trust fund and, consequently, that the latter remedy is not now available to them. However, the Act provides that the aggrieved person’s remedy against the surety shall be “in addition

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to his right of action against the principal * * *.”[17] Nor is an action against a principal inconsistent with the assertion of an equitable lien against a trust fund.[18] As stated by this court: “The doctrine of election, where it applies at all, applies only to a case where one assumes an inconsistent position, or where, through his action, other rights have arisen as to which he should be estopped to take a contrary position. It is never applicable where, as here, a creditor has a right to pursue more than one remedy.”[19] The remedies in this case are cumulative and nothing less than complete satisfaction of appellants’ claims would operate as a bar.[20]

At this point it seems proper to say that the evidence presented in the District Court was insufficient for a proper determination of the case; and that some of the findings reflect, in their ambiguity, the confusion of issues and of facts with which the trial judge was confronted. This is made painfully evident by the stipulation which was entered into a few days after the findings were filed. It contains matter so vital as to be determinative of two issues presented on this appeal. The stipulation could have been presented as early as the pre-trial stage of the proceedings in the District Court; probably to the substantial advantage of all parties.[21] But it was not presented, even at the trial proper.

We note, also, the unexplained absence, as parties to this litigation, of other property owners who are entitled, presumably, equally with appellants, to participate in any proper distribution of the disputed fund.[22] If they are indispensable parties,[23] it would be no sufficient answer

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that a decree entered in a case in which they were not parties, would not be res judicata as to them.[24] The facts which would be presented by these additional property owners might vary from the facts presented here. A disposition of the funds, made without giving them an opportunity to establish their claims, might be seriously prejudicial to their interests.[25] If they are indispensable parties it is our duty to protect their interests on this appeal, even though the question was not raised in the District Court;[26] and it will be the duty of the District Court to protect them in any further proceedings there. That court will be able to determine, upon a proper showing, whether the other property owners are indispensable parties.

The judgment and order appealed from must be reversed, and the case is remanded with directions to permit appellants, within thirty days from the entering of the judgment of this court herein, to amend their complaint by supplying such parties as are indispensable to their action and thereafter to proceed to a determination of the case in conformity with the views expressed in this opinion.[27]

Reversed.

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