Chesterman v. Eyland — 8 Abb. N. Cas. 92

Majority

p. 92

CHESTERMAN v. EYLAND.

N. Y. Court of Appeals ;

1880.

Headnote

Payment into Court.—Infants, and Judicial Investment of Bunds.—Liability of Chamberlain or County Treasurer, for securities.

The County Treasurer or City Chamberlain is not liable as an insurer against loss by the investment of money paid into court.

Rule 180 of the court of chancery,—providing that where no direction for the investment of funds paid into court is contained in the decree, and the money is not applied for within six months, the official depositary shall, without any special order for that purpose, cause it to be invested,—is still in force and applies to the County Treasurers and the Chamberlain of the city of New York.

The rule of the present Supreme Court (Rule S3 of 1849; 79 of 1853; 81 of 1858; 83 of 1871; 83 of 1874),—prescribing the place of deposit,—does not forbid investment in stocks or bonds and mortgages, but only applies to uninvested funds while they remain uninvested.

A violation of the last-mentioned rules as to deposit, which proves harmless to the fund, does not create or enhance liability on the part of the officer in respect to an investment of the fund made after it has been removed from its place of deposit.

A County Treasurer or City Chamberlain is not liable personally for a loss in investments because of the investment being made by massing the funds of different beneficiaries, and crediting the owner of the particular fund with a share in a bond and mortgage previously held by the officer as security for others. Changing a beneficiary by using the fund of one to pay off the deposit of another, thereupon crediting the former with a proper share of the security, is hot a transfer of the security, nor a subjecting of the moneys invested to any prior lien or incumbrance, within the rule prohibiting such acts.^[2]

The fact that at the time when funds were invested by the treasurer or chamberlain in a mortgage there were taxes in arrears, constituting an incumbrance upon the mortgaged property, does not suffice to render the officer personally liable on a subsequently arising inadequacy of the security, if meanwhile the taxes as soon as ascertained were paid off and satisfied, restoring the integrity of the investment.

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If the securities chosen by the investing officer were at the time ample, and to all reasonable judgment and prudence a safe investment, and the fund, intact, represented by good securities, was at the close of his term handed over to his successor, his personal responsibility is thereby terminated.

The act of the treasurer or chamberlain in foreclosing a mortgage without order of court, and buying in the property for the benefit of the beneficiaries, is not a violation of the statute, nor does it render him personally liable for deficiency, although the security prove worthless.

Appeal from a.n order.

George Chesterman and another brought an action of partition against George C. Eyland and others, among whom was Mary C. Timpson, the present appellant. Judgment of partition was recovered, and the premises were sold by a referee.

The decree was entered December 15, 1873, and on March 18, 1874, the sum of $13,457.23, part of the proceeds of sale, was paid into the office of. the Chamberlain of the City of New York, then George W. Lane, Esq. Of this amount, the sum of $5,767.38 was the share belonging to Mary C. Timpson, one of the defendants, and the present appellant, who was then a minor. She became of age in 1877, and took these proceedings to require the then chamberlain, and his successor, Nelson J. Tappan, Esq., to make good a deficiency arising on foreclosure, in the value of the security taken for the fund so held in court.

The matter was brought before the court by a notice of motion in the cause, addressed to the chamberlain and the late chamberlain, for an order directing them to pay over to Mary C. Timpson, or her attorney, the moneys belonging to her, and deposited in their hands on the date above mentioned, together with all the in-' terest accrued thereon. The motion was founded on an affidavit reciting the details, and alleging that the property on which the chamberlain held a mortgage was not worth more than the amount of unpaid taxes

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and assessments, now liens against it. That the mortgagor and bondsman were now hopelessly insolvent, and the security of little or no value.

It appeared by the evidence taken ' before the referee, in respect to the manner in which these investments were made, that on March 13, 1874, the supreme court had made an order in another suit, namely, the suit of Robins against Robins, directing the chamberlain to pay the share of one of the infants in that suit who had come to her majority, and that share was at that time held by the chamberlain in certain bonds and mortgages ; and in order to comply with this order of the court, and at the same time to invest so much of" the cash just paid in by the referee, in the suit of Chesterman against Eyland, $4,101.25 was invested in the bond and mortgage of Edward Jones ; that bond and mortgage of Edward Jones were transferred, March 19, 1874, to the suit of Chesterman against Eyland.

That portion of the money paid in went to . the credit of the suit of Robins against Robins, and was so entered on the books ; the suit of Robins against Robins was debited with the amount of the mortgage, $4,101.25, and Chesterman against Eyland was charged with the value of the mortgage, at that time, including interest, $4,150 ; that went to the credit of the suit of Robins against Robins. That bond and mortgage remained to the credit of the suit of Chesterman against Eyland until the foreclosure of the mortgage. This mortgage was regarded as belonging to a number of other suits. The whole amount payable by the terms of that bond and mortgage was charged to other suits, besides an amount of it equal to $4,101.25.

The supreme court at general term held that there was no personal liability on the part of the chamberlains, unless it should appear that there had been negligence ; but that as it appeared there was' a balance of

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$2,430.73 cash in hands of the present chamberlain, to which the petitioner was entitled, a reference should be had.

The late chamberlain, Mr. Lane, appealed from this order to the court of appeals, where the order was held not appealable, because not final.

Testimony was then taken before the referee, at length, in regard to the practice of massing the funds of different infants in investments, in the office of the chamberlain, which was shown to have been in operation in that office for more than twenty-three years. The advantages claimed for this practice were that the chamberlain’s office could comply with an order for the payment of the money at once, without waiting for the calling in of money that was out on bond and mortgage, and could make investments with the same readiness, keeping the funds drawing full interest with uncommon regularity, saving time and expense, and loss of interest.^[2]

Testimony was also taken at length in regard to the conduct of the officers respecting this particular investment.

On the referee’s report of the facts and proofs, Mr. Justice Donohue denied the motion.

The supreme court, at general term, on appeal from his order, affirmed it.

From the order entered on this decision, the petitioner appealed to the court of appeals.

Edward E. Brown, attorney for appellant.

Red,field <6 Hill, attorneys for the city chamberlain.

Charles H. Woodruff, attorney for the late city chamberlain Lane.

In this action, which was brought for the partition of real estate, a sale was had pursuant to the judgment rendered, and the share of the proceeds belonging to Mary 0. Timpson and others, amounting in the aggregate to $13,475.23, was brought into court by reason of their infancy, and paid over to George W. Lane, as chamberlain of the city of New York, in trust for the infants. No order of the court directing its investment appears to have been made in the action. The money was paid to the chamberlain on December 15, 1873, and was immediately deposited by him to the credit of his account in the Fulton Bank. It apparently remained there on deposit until March 19, 1874, when it was invested in a manner evidently common in the chamberlain’s office, but which is criticised by the parties interested in the fund. The' chamberlain held a mortgage made by one Edward Jones in 1867, which covered certain vacant lots in the city of New York, and having been originally given for $15,000, had been reduced to $10,000, and a portion of the lots released.

On March 19, 1874, the chamberlain was ordered to pay over certain moneys in the suit of Robins against Robins to the persons entitled, and desiring to keep these Jones mortgages and certain others in which those- moneys had been invested, he used the moneys deposited in this case to make the payments required, crediting the suit now before us with an equivalent interest in the Jones mortgage, and practically transferring to himself, in trust for the infants in this case, an interest in such mortgage to the amount of $4,101.25. The balance of the fund was thereupon deposited in the trust company, where it remained until the following May, when it was invested in a similar manner by the same process, in certain other mortgages held by the chamberlain. At the time of this investment in the Jones.,mortgage, taxes .upon the..mortgaged prop

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erty to the amount of something over $700 were in arrears, but the fact was unknown to the chamberlain, and when afterwards discovered, the amount necessary to pay them was called for, and they were paid in full.'

There is no reason to doubt the sufficiency of the Jones mortgage as a security for the sum unpaid upon it at the time of this transaction. The interest was promptly paid. The obligor in the bond was responsible, and in February, 1875, this mortgage, with others, was delivered over by Lane ; at the close of his term of office, to J. Nelson Tappan, the present city chamberlain. While it remained in his hands a severe depreciation in values in real estate ensued, and in 1876, an assessment of more than $8,000 was imposed upon the property, with the usual ruinous effects to the parties interested. The mortgagor abandoned the payment of interest, and the present chamberlain, acting on his own impression of duty, foreclosed the mortgage, bid the property in for $8,000, ajad now holds it at the risk and benefit of those whose funds went into the investment. ■ The taxes remain unpaid, and the result is substantially a total loss of the fund which the courts took from" the infants for the purpose of its safety and preservation.

Mary C. Timpson, becoming of age, called for her money, and being unable to obtain it, moved at special term for an order requiring the late and present chamberlain to pay it over to her. That motion was denied, the denial affirmed at the general term, and an appeal taken to this court.

The right to compel Lane or Tappan to pay this money is founded upon allegations that their treatment of the fund committed to their care was unauthorized by law, and in violation of their duty.

To establish this, it is strenuously argued that in the absence of an explicit order of the court to invest

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the fund on bond and mortgage, they had no right to do so, and should have deposited the money in the authorized trust companies.

In cases of partition, it is provided [3 JR. 8. 6 ed. p. 594, §§ 78, 82, 84^[1] ), that where any of the known parties are infants, the court may, in. its. discretion, direct the share of such infant to be paid over to the general guardian, or be invested in permanent securities at interest, in the name and for the benefit of such infant; that when the security is directed to be taken otherwise than in the name of a known owner, it shall be taken in the name of the clerk and his successors in office, and that the investment when made shall be in public stocks of the State'or the United States, or in bond and mortgage upon unincumbered real estate of at least double the amount of the loan in value. Such investment being once made, the security is not to be discharged, transferred or impaired without the order of the court entered in its minutes.

These provisions evidently contemplate a case where the court by an order in the action directs an investment ; they perhaps assume that such direction will be given, but do not purport to furnish a rule to control the action of the officer in the absence of a special direction by the court. This difficulty was ■ met and remedied by Rule 180 of the court of chancery, that where no direction for the investment of funds paid into court is contained in the • decree, and the money is not applied for within six months thereafter, it shall be the duty of the register, assistant register, or clerk with whom the same is .deposited, but without any special order for that purpose, to cause it to be invested in public stocks, or other- permanent securi

* Same statute, 3 B. 8 . 1 ed. 337, $ 64, 338, §§ 68, 70; 3 Edm. Ed. 337.. Revised .and section 68 modified by Code Civ. Pro. §§ 1581, 1585.

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ties; and a similar duty was imposed as to accumulations of income.

Thus both cases were provided for. Where special direction in the suit itself was given, that order furnished the guide; where such direction was omitted, the chancery rule required the officer to invest according to its terms. That rule has survived the changes of recent legislation, and is still operative. When the court of chancery was abolished and its jurisdiction and duties imposed upon the supreme court, the Judiciary Act of 1847, which directed the change (Laws of 1847, c. 280, c. 71), and vested the securities brought into the court of chancery in the clerk of the court of appeals, was careful to preserve the rules of the older tribunal respecting the deposit and investment of such funds, subject only to the rules and regulations that might thereafter be prescribed by the supreme court. The act of 1848 ( c. 277) worked no other change than to substitute the county treasurers and, in the city of New York, the chamberlain, in the place of the clerk of the court of appeals, as custodians of this class of funds.

It is claimed,, however, that the rules of the supreme court have abrogated Rule 180, and prescribed for the county treasurers a different duty (Rule 83, of 1849 ; Rule 79, of 1852; Rule 81, of 1858 ; Rule 82, of 1871; Rule 82 of 1874).

Through all the changes of the rule referred to, it steadily did but one thing—it prescribed the place of deposit of moneys that were to be deposited, and did no more than that. It did not forbid investment in stocks, and bonds, and mortgages, either directly or by implication. Its entire operation is plainly limited to uninvested funds while they remain uninvested.

We conclude, therefore, that Rule 180 is yet in force and furnishes the standard by which to test the action of the chamberlain, modified only by the rule of the

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supreme court as to the place of deposit, The chamberlain deposited the moneys resulting from the sale in this action in the Fulton Bank, and kept them there for a brief period. This deposit was a violation of Rule 82, but no injury resulted, The violation was harmless. The fund was in no manner lost or diminished by this act. Soon after, a portion of the fund was invested in the Jones mortgage, and the balance deposited with the trust company, where it remained till the after investments were made. The manner in which they were made by massing in one mortgage the moneys of different beneficiaries is complained of by the appellant. The sole objections pointed out seem to be that by this process there was a transfer of securities in violation of the rule in partition, and an investment in a mortgage subject to prior incumbrances, which is equally forbidden.

There was no transfer of the mortgage: it remained all the time vested in the chamberlain. He did not transfer it at all. He only changed one of the beneficiaries for whom it was held. Nor in making this change did he subject the moneys invested to any prior lien or incumbrance because the interests of the other beneficiaries were vested in them earlier. Whatever the date of their interests, all stood on an equality, no one having any preference over the other, the mortgage being held for all.

We cannot see any legal objection to the practice adopted in the chamberlain’s office of aggregating in one mortgage the funds of the several beneficiaries, The court which has supervision of this fund has been conversant of the custom and has never forbidden it. It aids to a prompt investment, of funds, and has much, of convenience to recommend it. No rule of law forbids it,, and we. are not prepared to. say it should be discontinued.

It was further objected that when these funds were

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invested in the Jones mortgage there were taxes in arrears constituting an incumbrance upon the mortgaged property. That was true, but as soon as their existence was ascertained the amount necessary for their payment was called for, and they were discharged in full.

We discover, therefore, nothing in the conduct of Lane to justify the order which was sought against him. He invested these funds, and had a right to do so. The securities chosen at the time were ample, and to all reasonable judgment prudent and safe investments. The fund thus intact and represented by good securities was at the close of his- term of office handed over to his successor. That ended the responsibility of Lane, and we see no reason to continue or prolong it. His successor, Tappan, continued to receive the interest upon these investments until the two misfortunes happened from which has come all the mischief. Real estate largely depreciated in value, and the property covered by the Jones mortgage, while falling in price, was fatally weighted by the added load of a city assessment amounting to some $8,000. The mortgagor became discouraged and defaulted in his interest; the chamberlain thereupon foreclosed the mortgage, bid in the property, and holds what the depreciations in values and the rapacity of municipal assessments has left of the investment, for the benefit of the infants.

It is objected that he ought not to have foreclosed this mortgage without the order of the court, and that in doing so he discharged the mortgage in violation of the statute. We do not deem this foreclosure a discharge within the prohibition of the statute. Practically, the security remains the same, still vested in the chamberlain and changed only in form. And while it would have been wiser to have asked the direction of the court, we cannot say that the foreclosure was

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improper or illegal; the right to hold the mortgage involved both- the right and duty of collecting all sums due upon it, and that, in turn, the right and duty of using the ordinary modes of collection. Indeed, if he had not foreclosed, but allowed the debt to accumulate without an effort to collect it, it is not impossible that a just complaint might have drawn with it the consequence of negligence.

We conclude, therefore, that no remedy for the loss exists against either Lane or Tappan. The wrong to the infants is great. Their property has been taken from them by the law in order to protect it from harm, and the protection has ended in a total loss. -

There is much of shame and disgrace in a system which leaves such a result possible. But the remedy is not with us. We cannot redress one wrong by committing another.

The conclusion we have reached on the merits renders it unnecessary to consider whether the motion made in this case or an action against the late chamberlain was the proper remedy.

The order should be affirmed.