Steele v. Leopold

sentatives of the deceased executor. They made other claims upon the trial which are not pressed here, and therefore need not be considered. The appellants have been held liable for the full amount.

This action was commenced on the 23d day of November, 1905, by the plaintiff Steele as administrator and by one Helen Steele Gwynne, as administratrix with the will annexed of the deceased Louise Gwynne. Louise Gwynne, the plaintiff’s testatrix, died on the 25th or 27th—it appears by the complaint and by a deposition that it was on the 25th, and by a stipulation that it was on the 27th—day of May, 1902, leaving a last will and testament in and by which she appointed her son, Edward E. Gwynne, her executor. The will was duly probated, and letters testamentary were issued to him on the 31st day of May, 1902, and he duly qualified and acted as executor, but died, without having accounted, and insolvent, on the 9th day of May, 1904, having been duly adjudged a bankrupt on the 3d day of June, 1902.' On the 18th day of August, 1904, Helen Steele Gwynne presented to the Surrogate’s Court a duly verified petition, showing, among other things, that she was a resident of the county of New York, that on the 27th day of July, 1904, she was duly appointed the general guardian of the person and estate of the three grandchildren of the plaintiff’s testatrix by the surrogate of the county of New York, that they were the sole legatees under the will, the probate of the will, and issuance of letters testamentary to her husband and his death, having assets of the estate in his hand, and praying that letters testamentary be issued to her and to her father who resided at the city of Washington, D. C. A decree was duly made on the 1st day of September, 1904,° appointing her and her father, Franklin Steele, administratrix and administrator with the will annexed of Louise Gwynne, deceased. It appears by the will of Louise Gwynne, deceased, that, after directing the payment of her debts, funeral charges, and expense of administration, and making .a specific bequest of her jewelry, she directed that her executor divide the -rest, residue, and remainder of her property “into three equal shares or parts,” and that he pay over the income of one of such shares or parts to each of her three grandchildren therein named until such grandchild should attain the age of 21 years, at which time the grandchild, if living, was to receive the principal, and, in the event of his death before such time, his share was to go to the survivors or survivor of the grandchildren. The executor was authorized to sell the real estate of the testatrix and to invest and reinvest the proceeds thereof “in such securities as he in his judgment may deem best.”

Helen Steele Gwynne is the mother- of the grandchildren and the widow of Edward E. Gwynne, deceased. It is not claimed that she was not authorized to receive letters of administration with the will annexed, but the contention is that her father was not so authorized, and that he could not be joined with her. We are of opinion that -this contention is not well founded. It is based on the provisions of section 2643 of the Code of Civil Procedure, which expressly authorize the surrogate to issue letters of administration with the will annexed in the event that, by death or otherwise, there is no executor or administrator with the will annexed qualified to act. Section 2643 pro

vides that the proceeding may be instituted by a person interested in the estate. It is manifest that the guardian of the property of the sole legatees was such a person. The petition was .sufficient to give the Surrogate’s Court jurisdiction to issue letters of administration with the will annexed, and, in the absence of fraud or collusion with respect to the jurisdictional facts, jurisdiction is conclusively presumed. Code Civ. Proc. § 2473. Any one of the residuary legatees, or, in case he is a minor, his guardian if competent, is by virtue of the express provisions of section 2643 first entitled to such letters, and therefore it is perfectly clear that she was entitled to receive the letters of administration. With respect to the validity of the letters issued to her father, the learned counsel for the respondents relies on a provision in or following subdivision 9 of section 2660 of the Code of Civil Procedure, as follows:

“If there are several persons equally entitled to administration, the surrogate may grant letters to one or more of such persons, and administration may 'be granted to one or more competent persons, although not entitled to the same, with the consent of the person entitled to be joined with such person or persons; which consent must 'be in writing and filed in the office of the surrogate.”

Most of the provisions of that section do, as claimed by counsel for appellants, relate to cases of intestacy, but it seems clear that subdivision 9 relates to cases in which the decedent has left a will, for, after specifying in eight subdivisions the order in which persons are entitled to letters, it is provided in the ninth as follows:

“And an executor or administrator of a sole legatee named in a will whereby the whole estate is devised to such deceased sole legatee.”

This subdivision we think relates to letters of administration with the will annexed, which is the case at bar, and it has been so held by two of the learned surrogates of this county who in their opinions trace the history of the legislation which ultimately resulted in the incorporation of these provisions in this section of the Code, and such they state has been the practice thereunder. Matter of Morgan, 4 Dem. Sur. 68; Matter of Moehring, 24 Misc. Rep. 418 , 53 N. Y. Supp. 730 . We see no reason why the general provisions with respect to joining a competent person with one entitled to letters of administration in case of intestacy should not apply likewise to letters of administration with the will annexed. The provisions of the statute herein quoted refer to persons “entitled to administration.” This provision is general, and is not confined to administration in cases of intestacy. The guardian of the sole legatees was entitled to administration, and fairly comes within the statute. But, if this were not so, by the express provisions of section 2591 of the Code of Civil Procedure the letters of administration are made conclusive authority of the administrator to act until the decree upon which they were issued is reversed on appeal or revoked at least in the absence of allegations and proof of fraud or collusion in attempting to give the Surrogate’s Court jurisdiction to issue them. Hoes v. N. Y., N. H. & H. R. R. Co., 173 N. Y. 435 , 66 N. E. 119 . The person to whom letters are issued is accountable to the estate for any property received under or by virtue of them,

and it was competent for the Legislature to preclude a litigation over the validity of the letters where the Surrogate’s Court had jurisdiction to issue letters, and the claim of invalidity is based, not on want of jurisdiction to issue letters, but on lack of authority to issue them to a particular party.

It appears that pending the action, and on the 1st day of April, 1907, Helen Steele Gwynne duly accounted, and letters of administration to her were' revoked. The decree, however, expressly provided that the plaintiff, as her coadministrator, should continue the administration of the estate under the letters theretofore granted to him. On the 1st day of November thereafter, by an order of the Special Term, Helen. Steele Gwynne, as administratrix, was stricken from the record as a party plaintiff, and Steele, as administrator, was permitted to prosecute the action as the sole plaintiff; and at the instance of the appellants he was thereupon by the same order required to bring in as parties defendant Helen Steele Gwynne and himself, as administratrix and administrator of Edward E. Gwynne, deceased, and to serve what is described as “an amended and supplemental summons and complaint,” bringing them in. This was done and the original sole defendants, these appellants, who had unsuccessfully demurred to the original complaint ( 116 App. Div. 913 , 101 N. Y. Supp. 1124 ), answered jointly and served answers on the plaintiff and on their co-defendants thus brought in. The personal representatives of the deceased, Edward E. Gwynne, thus brought in, appeared, but did not answer, and are represented by the same counsel who represents the plaintiff. It appears that the theory upon which the personal representatives of Edwin E. Gwynne were brought in was that the appellants claimed a right to have them in to the end that a recovery over against them might be had. No objection was taken by answer to the right of the plaintiff to continue the action, based on the ground that his appointment as administrator with the will annexed, although valid when made, fell with the revocation of the letters to Helen Steele Gwynne, nor is that point presented on the appeal, and therefore it is not decided. It may be observed, however, that it would seem from the provisions of section 2591 of the Code of Civil Procedure that when the Surrogate’s Court obtains jurisdiction, as it clearly did by the petition, to issue letters of administration, and the issuance thereof is authorized, they remain valid until the decree pursuant to which they were issued is reversed or until they are revoked by an order of the Surrogate’s Court, and that they cannot be questioned collaterally in the absence of course, of fraud or collusion with respect to the jurisdictional facts.

The further point is taken by the appellants that the deceased, Gwynne, was not acting as executor at the time of this unauthorized investment or appropriation of the trust funds for the purpose of speculating therewith.. This claim is based upon the theory that his duties as executor had terminated, and that he then held the fund as trustee under the will for the benefit of the three residuary legatees, and that, therefore, he became a trustee, and the cause of action, if any, vested in him, not as executor, but as trustee of those trusts. This

the remainder of the assets “under and pursuant to the last will and testament of Louise Gwynne, deceased.” This accounting did not terminate the right of Steele as administrator to maintain this action, and it is perfectly clear that he will be accountable to the estate for the benefit of the cestui que trust under the three residuary trusts in the will for any moneys which he may recover in this action, and that the recovery will cancel the liability of the appellants.' See Moss v. Cohen, 158 N. Y. 240 , 247, 58 N. E. 8 ; Bingham v. Marine Nat. Bank, 112 N. Y. 661 , 19 N. E. 416 ; Spies v. Michelsen, 2 App. Div. 226 , 37 N. Y. Supp. 720 . Since we are of opinion that the cause of action vested in the executor as such, arid not in him as a trustee by implication by virtue of the provisions of the will, it becomes unnecessary to consider the further question as to whether, if the cause of action were vested in Steele as trustee, the fact that he was formally' appointed a trustee of the trusts under the will by an order of the Supreme Court on the 25th day of September, 1907, would enable him to maintain the action as administrator, as contended by counsel for respondent, being accountable as administrator to himself as trustee for the fruits of the action.

A serious question is presented by the exceptions of the appellants to the refusal of the court to find that they were entitled to credit for certain amounts which they paid to the executor. As has been seen, the account was opened on the books of the appellants with the executor in his representative capacity. It appears by uncontroverted evidence that the appellants paid to the executor from this account, and charged him as executor in the account therewith the sum of $200 on the 8th day of August by a “cash draft” and in cash $35 on the 15th, $55 on the 16th, $10 on the 22d, and $200 on the 26th days of August, respectively, and $75 on the 12th day of September, aggregating the sum of $575. The learned trial justice disallowed this claim for credit on account of these items upon the theory that the appellants and the deceased executor were joint tort-feasors, and for the same reason he denied the right of the appellants to contribution or. a recovery over against the personal representatives of the deceased executor. We are of opinion that in this the trial court erred. Of course, if the appellants and the executor were guilty of bad faith, or if they violated the express command of a statute, or if their acts were inherently dishonest, then they would be joint tort-feasors (Moss v. Cohen, 158 N. Y. 246 , 247, 53 N. E. 8 ; Holden v. N. Y., etc., Bank, 72 N. Y. 286 ; Knapp.v. Roche, 94 N. Y. 329 ), but such are not the facts in the case at bar. Speculating in stock on margins is not prohibited by law. It is perfectly lawful (Hurd v. Taylor, 181 N. Y. 231 , 73 N. E. 977 )? but courts of equity, by a long line of decisions, have established a rule that an investment of trust funds in a speculative enterprise or in business is not consistent with the exercise of the care which a trustee owes to the cestuis que trust to safely hold, invest,'and preserve the funds, and therefore the trustee who makes such an investment or use of trust funds is at liberty to, and it is his duty to, disaffirm his own acts and restore or recover the funds thus applied. Deobold v. Oppermann, supra; Matter of Myers, supra; Moore v. American Loan

& Trust Co., supra; King v. Talbot, supra. Such an appropriation of trust funds is regarded as a devastavit, and the funds are at once recoverable, but it does not follow that the act is in all cases regarded as corrupt or so contrary to the rules of public policy that it must necessarily be considered tortious. The Legislature has authorized investments by trustees in certain securities, but it has not expressly prohibited other investments by them (section 21, Personal Property Law, being chapter 41, Consol. Laws). It has long been the settled law of England that there is a right of contribution between trustees who become liable to the cestui que trust for an unauthorized or improper investment, and, moreover, that a trustee in such case may recover against a cestui que trust who induced the investment to the extent of the 'interest of the latter therein. Chillingworth v. Chambers, L. T. R. vol. 74, N. S. 34. This use of the trust funds was unauthorized, and the appellants had notice by the form of the account and they thereupon became liable to the estate immediately; but the question is: Are they wrongdoers in the sense that their-act necessarily involves or implies a state of facts or mind on account of which they should be left without remedy by the courts as between themselves ? We are of opinion that it does not. See Moss v. Cohen, supra. The testator might lawfully authorize the investment of his property in a business enterprise (Willis v. Sharp, 113 N. Y. 586 , 21 N. E. 705 , 4 L. R. A. 493 ), and I know of no law prohibiting from directing that his executors continue or open and conduct for a given time a speculative account for the benefit of his estate. The executor evidently supposed that he had such authority, for he did not attempt to gain any private advantage by the speculation. He did not convey trust funds to his individual use. He, in effect, represented to the appellants that as executor he was authorized to open the account. He and the brokers apparently acted openly and in good faith. The estate would have had the right to ratify his acts, and, as executor, he, as already observed, had a right of action to recover the moneys, which he might have enforced at any time. The account showed certain moneys to his credit. Of these moneys the appellants concededly paid over to him the sum of $575. He was only entitled to the moneys as executor. He is charged in the account with them as -executor. The fair and we think the only reasonable inference is that they were paid to him as executor. The learned counsel for the plaintiff, on the argument, conceded that, if these moneys had been repaid to the executor by check drawn to his order in his representative capacity, the appellants would have been entitled to credit therefor. The learned counsel for the plaintiff, however, invokes the doctrine of the case of Squire v. Ordemann, 194 N. Y. 394 , 87 N. E. 435 , and Moore v. American Loan & Trust Co., supra, to the effect that the burden is on the appellants to show that the money has actually been restored to the estate, or that the estate has had the benefit thereof. We are of opinion that the doctrine of those cases and kindred cases is not controlling here, for the reason that as executor, the deceased, Gwynne, had the right to receive back this money any time after it was delivered to the appellants, and on account of the form of the' account, we are of opinion that it

cannot be successfully maintained that the payments made were made to him individually and not as executor. Of course, the burden was upon the appellants to show repayment to Gwynne as executor, or to some one authorized to receive the money for the estate (Marshall v. De Cordova, supra; Moore v. Am. Loan & Trust Company, supra), but we are of opinion that the appellants satisfactorily bore that burden, and established a defense in part (Knapp v. Roche, 94 N. Y. 329 -332), and therefore, unless the judgment can be modified, there must be a reversal. The learned court found that no part of this sum “was ever restored or repaid to the estate of said Louise Gwynne.” If this finding is to be taken literally, we cannot modify the judgment by allowing credit for the amount which the appellants paid to the executor with interest from the date of such payments. Counsel for plaintiff contends, in effect, that the finding is sustained literally by the evidence. The facts, however, are uncontroverted, and there is nothing to indicate that they can be changed upon a new trial. We are of opinion that this finding should receive the construction that the learned court means thereby that a payment to the executor was not sufficient, and that, as contended by counsel for the respondents, appellants were called upon to show further that the executor used the moneys which were repaid to him for the benefit of the estate. Of course, we are precluded by this finding from modifying the judgment on the theory advanced by appellants, that the estate actually received the benefit of the moneys thus repaid, which was not very satisfactorily shown, but a new trial should be avoided, if possible, and we think that we are not precluded by this finding from modifying the judgment upon the theory that by the uncontroverted evidence, which it is not claimed can be changed on a new trial, it appears that the moneys were paid to the deceased Gwynne as executor. We deem this sufficient to entitle the appellants to credit for the amount so paid and the judgment should be modified by allowing them credit therefor, together with interest on the amount of each payment from the time it was made.

The appellants further contend that they are entitled to a judgment over against the estate of the deceased executor. If they were joint tort-feasors with him, they would not have such right of recovery over, but, in the view we take of the case, they probably have that right. However, that is a matter with which the plaintiff is not concerned, and it should not be litigated in this action. The plaintiff saw fit to elect to bring the action against the brokers, and no claim is made against the estate of the deceased executor. There was, therefore, no propriety in bringing in the representatives of his estate, and the fact that they were brought in does not compel the court to adjudicate the question of a right to contribution or a recovery over as between them and the appellants. Since, however, the representatives of deceased executor were brought in and appellants have served an answer on them, setting forth the facts in which judgment over is demanded to prevent any question with respect to the judgment being a bar to an action that may be brought hereafter by the appellants against the representatives of the estate of the deceased executor, if, in view of his

bankruptcy they deem such course profitable, the judgment should be further modified by inserting a provision to the effect that it is without prejudice to any action which the appellants may hereafter bring against the personal representatives of the deceased executor, or on account of the facts set forth in their answer herein.

The judgment should therefore be modified in accordance with these views, and, as modified, affirmed without costs. Let the order be settled on notice.

INGRAHAM and SCOTT, JJ„ concur. CLARKE, J., dissents, and votes for affirmance. PATTERSON, P. J., not voting.