In re Knight — 21 Abb. N. Cas. 388

Majority

p. 388

MATTER OF KNIGHT.

N. Y. Supreme Court, Eighth District,

Special Term ,

July, 1888.

Headnote

1. Trustee ; liability for Toss of funds by failure of bank:] A trustee is liable for the loss of money deposited with a bank which ■afterw.ard fails, although he was appointed in place of executors-after the money was on deposit, there being no such recurring; demands to be made upon the trasteé as required such an investment.

2. Same; exoneration.] Nor will the trustee be exonerated from this-liability because of a clause in the will declaring that the executors shall not be responsible for the unavoidable loss of any property or money by reason of the insolvency of a bank; as this was not an unavoidable loss, but one arising out of the trustee’s failure to properly invest the funds.

Motion to confirm referee’s report.

The facts appear sufficiently in the opinion.

Tracy C. Becker, for the trustee.

James C. Beecher, for the contestants.

The motion in this proceeding is made on behalf of the trustee to confirm the report of the referee exonorating him from liability for the loss of the sum of $922.26, and interest thereon, by the failure of the First Rational Bank of Buffalo. The money was on deposit in that bank when the trustee was appointed under he will in place of the executors. He was so appointed by an order-made on June 16, 1880, and the bank failed in April, 1882,

There were no such recurring demands tó be made upon the trustee in the trust as required the money to be. con-

p. 389

tinned on deposit in this manner for the purpose of meeting them, but it seems to have been left there by the trustee as .an investment of the fund which he supposed himself to be authorized to make. But "the law does not permit a trustee to deal with moneys in his hands in that capacity in this manner. He is on the contrary required to invest it in public stocks or securities by way of bond and mortgage, which will thereby insure the preservation of the fund for the parties entitled to its income, and finally to the payment of the principal. In the case of Moyle v. Moyle, 2 Hussell <& Mylne, 710, money was in this manner allowed to remain on deposit in the bank, which failed upwards of a year after the deposit was made, and the trustee had the control of the fund, and it was held there that the trustee was liable for the loss. It is true that other circumstances were in the case to some extent affecting the decision, but it is quite plain, nevertheless, that the trustee was held liable because of this unauthorized continuation of the deposit in the bank. In the case of Drake v. Martin, 1 JBeava/n, 525, the banker failed in less than a year after the deposit was made. And as there was no occasion for keeping the money on deposit in that manner to meet recurring demands to be satisfied out of the fund, the trustee was held liable for the loss. In these respects the case is quite apposite to the one now to be decided. In Johnson -v. Newton, 11 Hare, 169, the executors were using the money deposited. There was a necessity, accordingly, for continuing the deposit, and they were held not to be liable for its loss, where the banker failed after the expiration of about nine months.

Not only is the trustee liable under the rule maintained by these authorities, but that liability also results from the direction given to him concerning this fund by the order under which he was appointed. For, after paying the expenses of the proceedings, the order directed that “ The said fund shall be securely invested by the said James F. Hurd, as trustee, and held subject to the provisions of the

p. 390

said last will and testament of Samuel W. Knight, deceased.” This direction the trustee failed to comply with. If he had obeyed it then, the fund, by being securely invested, would not have been jeopardized or lost by the insolvency of the bank, but it would have been preserved for the benefit of those entitled to it under the provisions of the testator’s will.

The trustee cannot be exonerated from liability under the clause in the testator’s will, declaring that the executors shall not be held responsible for the unavoidable loss of any property or money by insolvency of banks, for this was not an unavoidable loss by reason of the insolvency of a bank. It was a loss arising out of the failure of the trustee to invest the fnnd as he was directed to do so by the order. If that had been done the loss would have been avoided, although the bank, in which the deposit stood at the time of the appointment of the trustee, failed in April, 1882. The will did not authorize or direct a continuation of the money on deposit in banking institutions, but declared no more than the law by its authorities has sanctioned, that where money may be deposited with a banking institution in good credit, the deposit may be continued for so long a period as will enable the trustee, in the use of ordinary diligence, to obtain its secure and proper investment, or the exigencies of the estate may require. But where he fails by his neglect within a reasonable time to secure investments, and allows the money still to remain on deposit, and it is thereby lost, the law charges the trustee with the loss. . The exceptions filed to the report of the referee will, consequently, be sustained, and the trustee directed to account for and pay over to another trustee, to be appointed in this proceeding, this, amount, as well as any residue of the fund still remaining in his hands under his appointment, but no costs of the application will be allowed against him.