In re Johnston's Estate — 26 N.Y.S. 966

Majority

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In re JOHNSTON’S ESTATE; In re HART; In re LANGAN et al.

(Supreme Court, General Term, First Department.

December 15, 1893.)

Headnote

1. Executors and Administrators—Wrongful Sale of Assets.

An executor sold an undivided interest in a leasehold for $110 on an adjourned day of sale, which did not appear to have been advertised, and the executor’s attorney bid for the purchaser. A short time before this the executor purchased for himself an equal, undivided interest in the same leasehold for $1,500. Held, that the executor would be charged with the value of such interest, at $1,500.

2. Same—Refusal to Sue to Set Aside Conveyance.

An administrator is excusable for refusing to sue to set aside a transfer by decedent as in fraud of creditors, where the transferee declared that she had paid value for the property, and counsel advised the.administrator not to sue after such declaration.

8. Same—Evidence.

Failure of an administrator to sue for assets of the estate will not impose any liability on, him, where it appears that he could not have prevailed if he had sued.

Appeal from surrogate’s court, New York county.

Judicial settlement of the accounts of William T. A. Hart, as administrator of the estate of Archibald Johnston, deceased. From an order surcharging the account with costs to the amount of $1,-033.55, and fixing at $1,500 the value of an undivided interest in the leasehold sold by him for $110, the administrator appeals.

Modified.

The following is the opinion of Sherman W. Knevals, Esq., to whom the cause was referred:

It has been seriously contended by the contesting creditors that Mr. Hart had no beneficial interest in the Garvey lease, but that he was a mere surety for Johnston. I cannot yield to this view. I think it clear that Hart and Johnston took the lease in the ordinary way, and that the burdens and benefits were shared by them equally. This is shown by their dealings with each other and with the lessor in the reconstruction of the buildings upon the leased property, and by the declarations of Johnston in his assignment to Enscoe and his assignment to Ezekiel Harris. Being convinced, from the whole case, thatthis view is correct, I cannot found an argument upon certain loose and unconsidered expressions in Hart’s testimony to deprive him of his one-half of the lease. In regard to the assignment of one-eighth of the lease by Johnston to Ezekiel Harris, and by Harris to Mrs. Johnston, I should, of course, be bound by the opinion of the general term, were it not that new testimony presented on the trial before me shows that Hart was informed by Mrs. Johnston that she had paid two thousand dollars for the interest so assigned to her. A repetition of this statement of Mrs. Johnston’s by Hart to his counsel elicited the opinion that, under the circumstances, it was not the administrator’s duty to endeavor to set aside the Harris and Johnston assignments. There is, besides, some testimony to the effect that soon after the Garvey lease was executed, and while the rebuilding by the lessees was going on, moneys belonging to Mrs. Johnston were loaned by her to her husband. Without, however, giving great weight to this evidence, I am satisfied to rest my decision upon the ground above stated, viz. that the counsel for the administrator advised him to bring no action after Mrs. Johnston had declared that she paid value for the assignment.

The sale by the administrator of the one-eighth interest in the lease ip James Kenney remains to be considered: This transaction occurred directly after the purchase by Mr. Hart, in his own right, of a similar interest from Mrs.

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Johnston for $1,500. Presumably, he paid no more than It was worth. We must therefore fix the value of one-eighth of the lease at $1,500. The administrator advertised the sale to take place on the 20th February, 1888. The sale did not take place on that day, but, for some reason that does not appear, was postponed until February 27th. There is no evidence that the adjournment was advertised. On the 27th of February, the one-eighth interest is sold to Kenney, in his absence; Mr. Hart being present, directing the sale in person, and Mr. Merritt,—Mr. Hart’s attorney,—being also present, and bidding for Kenney. The price at which it was sold was $110. Kenney, who was an acquaintance of Hart’s, holding continuous business relations with him, paid the administrator the consideration, by an allowance, in some unexplained way, of that amount in their mutual dealings. On the day of the sale, the two assignments,—the one from Theodosia H. Johnston to Hart, of her one-eighth interest in the lease, with the expressed consideration of $1,500, and the other from Hart, administrator, to Kenney, of a similar interest, with an expressed consideration of $110,—were recorded. This transaction cannot stand. It was the clear duty of the administrator, when he found he could get no better bid than $110, to stop the sale, withdraw the property, and make an effort to dispose of it at private sale, or to protect himself by an application for instructions to the surrogate. He cannot shield himself by a plea of ignorance, for he, better than any one else, knew what the thing he sold was worth; he cannot shield himself by alleging that he was obliged to act without advice, and hastily, for his counsel was present; and, finally, he cannot shield himself under the advice of counsel, for, if he had stated his dilemma to his counsel, he would have been advised that such a bid was altogether inadequate, and consequently that the sale was improper. If he did consult his counsel, he was unquestionably so advised. The conclusion reached by me, that the sale to Kenney was improper, is strengthened by the subsequent transactions of Hart in regard to the leasehold. Directly after the sale to Kenney, and on the 5th day of March, 1888, he brought an action against Neal and Kenney for a partition and sale of the leasehold. The action was carried to a decree and sale. At the sale the premises were bought by Neal, who subsequently assigned his bid to Hart When the referee conveyed to Hart the leasehold premises, Hart produced and delivered Kenney’s receipt, and his (Hart’s) own check to the order of the referee, for the amount of Kenney’s interest in the proceeds of the sale. The referee indorsed this check payable to the order of Kenney, and retened it to Hart. Hart then procured Kenney’s indorsement, and canceled the check. It is in evidence that the check was never deposited by Kenney, or collected through the bank, or paid by the bank on which it was drawn. It was a mere memorandum check; and, as it is clear that Kenney’s share of the proceeds of sale did not pass from Hart to Kenney through the medium of the check, it was, I think, incumbent upon Hart to show how otherwise the money reached Kenney. This he has failed to do, and I am forced to the conclusion, by the facts as I have detailed them, that the purchase by Kenney through Merritt at the sale of February 27, 1888, was made at the request of Hart, and for his benefit.

Argued before VAN BRUNT, P. J., and O’BRIEN and FOLLETT, JJ.

George L. Terry, for appellant.

William C. Reddy, for respondents.

It appears that on February 24, 1886, Archibald Johnston, deceased, was the owner of a two-eighths interest in a leasehold, and that on that day he assigned to Ms wife, through one Harris, as an intermediary, one-half of his interest, being one-eighth of the leasehold. He died August 31, 1887, and in February, 1888, the other one-eighth was sold by the administrators to one James Kenney for the consideration of $110. With respect to this

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sale to Kenney, the referee held that it was improvidently made, and in violation of their duty as administrators, and that the administrator, Hart, should be personally charged with the value thereof, with interest. With respect to the assignment by the intestate to Harris, and by Harris to Mrs. Johnston, the referee held that it was for a valuable consideration, and valid. The surrogate confirmed so much of the report of the referee as held the administrator Hart chargeable with the value of the leasehold interest sold to Kenney, and also charged him with the costs, and refused to allow the administrators any commissions; and in the conclusion thus reached we concur, for the reasons which are clearly set forth in the opinion of the referee, and in the interlocutory and final decrees of the surrogate.

This leaves us to a consideration as to whether the view of the referee, or that of the surrogate, should prevail, respecting the one-eighth interest assigned to Harris, and by Harris to Mrs. Johnston, and by the latter, for a valuable consideration, assigned to the administrator Hart, individually. Upon a former appeal, it appeared that Johnston, for years prior to his decease, was insolvent, and that the administrators had knowledge of his insolvency. It further appeared that in 1886 he conveyed to one Harris one-eighth interest in the leasehold estate, which Harris, upon the same day, conveyed to the wife of said Johnston, and that the consideration expressed in such assignments was alike, viz. the nominal sum of one dollar. Upon these facts appearing, it was held that it was the duty of the administrators to take legal proceedings to recover the property, upon the ground that it had been disposed of in fraud of the creditors of the intestate, and that, they having refused to do so, it was error in the surrogate's court to discharge them as administrators. 60 Hun, 516 . 15 N. Y. Supp. 239 . Upon' this new proceeding before the referee, additional evidence was offered, tending to show that, although the nominal consideration of one dollar was expressed in the assignment, Mrs. Johnston paid her husband $2,000' out of moneys which she stated she had obtained upon a mortgage of $8,000 on property owned by her; that $2,000, by check of the person from whom the loan was obtained she gave to her husband, subsequently receiving the assignment in question. In addition, the administrator Hart testified that Mrs. Johnston, shortly after the death of the death of her husband, had informed him that she had paid this consideration; and this testimony is supported by that given by Mrs. Johnston, who says that she did so tell the administrator Hart, and the latter states that thereupon he applied to counsel, and was told that it was not his duty to attempt to set aside the Harris and Johnston assignments. The referee thought, as is apparent, that the former decision, if these facts were supported, would not be applicable, because they are entirely different from those appearing upon the former appeal. The referee was not inclined to give much weight to the statement of Mrs. Johnston that she had loaned the $2,000, placing his decision upon the ground that the administrator was not liable for the reason “that the counsel for the administrator advised him to bring no action after Mrs,

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■Johnston had declared that she paid value for the assignment.” The learned surrogate seemed to think that little weight should be .given to this conclusion; otherwise, the report would have been, in ■this as in other respects, confirmed.

We think, however, that the conclusion reached by the referee might have been placed upon both grounds; and without referring again to the one upon which he placed his decision, which appears in his opinion, let us for a moment consider the effect of the testimony now presented upon the question of whether it was the duty of the adminstrators to bring suit, or whether or not the creditors ■could successfully assail Mrs. Johnston’s statement that she was a purchaser for value. Having regard to the price, viz. $1,500, at which she sold the interest to the administrator Hart, and the sale of the entire property for $6,300, as made in the partition suit, it must be assumed that $2,000 was full value for one-eighth interest in this leasehold, which she testifies she loaned to her husband, sub•sequently receiving the assignment. Assuming, nevertheless, that it was the duty of the administrator to sue, we think that, if it can be shown that in such an action he could not have prevailed, in the light of all that now appears, it would be extending the liability -of an administrator beyond that fixed by law to hold him responsible for not having brought a suit which he could not successfully maintain. Had he brought such a suit, he would have been met by testimony such as was produced before the referee in this case,— of Mrs. Johnston asserting that she had loaned her husband $2,000. which was the consideration- for the subsequent assignment to her •of the leasehold interest. She testified to the sources from which she received this money, and gave the date thereof. Her testi-many is that she paid $2,000 in check, which, upon cross-examinatian, she stated was obtained by mortgaging her house on Fourth ■or Park avenue to one Buchanan Winthrop for $8,000, and that out of this $8,000 the $2,000 was paid. Upon Mr. Winthrop’s examination, it appeared that he had made a loan which was secured by the bond and mortgage of Mrs. Johnston and her husband upon her house, but that in payment thereof he gave one check to Edward S. Daldn, which money was undoubtedly paid subsequently to Mrs. •Johnston, but in what checks or in what way does not appear. It does appear, however, from Mr. Winthrop’s statement, that this payment was made on the 21st day of December, 1881; and, by a bank book of Mrs. Johnston’s husband, it would appear that upon the same day he deposited in the Bank of the Metropolis the sum of •$1,889.52, or almost $2,000. The fact, therefore, that the husband ■and wife on that day raised a mortgage, and the further fact appearing that the husband was insolvent, render this deposit of the intestate, to some extent, confirmatory of the inference that could be drawn, that this $1,889.52 was given to him by his wife. However, without regarding this as conclusive evidence, we think it clearly appears that had this testimony been elicited in an action brought by the administrator against Mrs. Johnston to set aside the assignment to her, standing as it does upon the record, uncontradicted, it could not have supported the burden of proof which

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would have been, upon the plaintiff, of showing that the assignment to Mrs. Johnston was without consideration, and therefore void as against creditors of her insolvent husband. Upon this new testimony elicited, and for reasons given, in addition to those assigned by the referee, we think that the modification made in the report of the referee in respect to this interest should be reversed, and that the referee’s report, as presented, should be confirmed, and the interlocutory .and final decrees of the surrogate in all other respects-affirmed, without costs to either party upon this appeal. All concur.