In re Westerfield

In refusing to exonerate Thomas Rogers from Iia-v bility for the devastavit of the estate by his co-trustee, Cauldwell,' the learned surrogate held that the decree of March 16, 1897, conclusively established the liability of Thomas Rogers to account for the assets then shown to have been in the possession of the trustees. The verified petition which accompanied the account stated that the trustees had possession and control of such assets, and the decree, being founded upon such petition and account, concluded Thomas Rogers from being heard to question the same. We agree with the learned surrogate that the decree had the effect of establishing the liability of Thomas Rogers to account as therein directed, and so long as the decree stands he may not be heard to question it or his liability under it. Code Civ. Proc. §§ 2552, 2743; In re Waring’s Estate, 1 App. Div. 29 , 36 N. Y. Supp. 529 ; In re Underhill, 117 N. Y. 471 , 22 N. E. 1120 . While this law is sound, it by no means follows that Thomas Rogers was liable on account of such decree for

The learned surrogate, in addition to holding that the decree entered in March, 1897, is a binding adjudication as to the joint custody of the trust funds, has gone much further, and held that, independent of such decree, the trustee Thomas Rogers is liable for the devastavit of the estate by his co-trustee. In this respect we think the learned surrogate is in error. We think the undisputed facts fairly show that prior to the 8th day of December, 1895, Thomas Rogers is not chargeable with the misapplication of the funds in the hands of his co-trustee, and is not responsible therefor. It ap

“Between 1876 and June 7, 1886, Thomas Rogers Was to some extent excluded from control of the funds and securities of the estate by Columbus B. Rogers, and against his own will.” “After 1870, and until June 7, 1880, all checks drawn upon the bank accounts of the estate were signed by Columbus B. Rogers alone. At about the same time when he deposited the cash in the Hanover National Bank, as aforesaid, Columbus B. Rogers placed the securities of the estate in the safe-deposit vaults of the New York Stock Exchange, and kept them there during his administration, during which time Thomas Rogers did not visit said vaults.”

The surrogate was requested to find that Thomas Rogers’ exclusion was absolute as to the cash and securities of the estate and against his will. This request was refused. We think it should have been found. After 1876, Thomas Rogers, for a period of It) years, and until 1886, when Columbus B. Rogers resigned as trustee, had no charge of the funds of the estate nor the control of its securities. He signed no checks, and did few acts in connection with the estate. The letters which he wrote, one of which appears in the

It is not contended but that the management of the estate by Columbus B. Rogers was prudent and successful, and at no time was there any reason to suppose that it was otherwise. Under such circumstances, the only right that Thomas Rogers -would have had was to see and examine the books, securilies, and the cash account. Ho could not have obtained possession either of the securities or the

Such was Thomas Rogers’ relation to this estate down to the time when Columbus Rogers sought to be relieved as trustee. Thomas Rogers then desired, as the proof shows, to be admitted to the active management of the estate. It is evident that his desire in this respect was not approved by Columbus, and was resisted by the petitioners themselves. In this matter Thomas was powerless. By the terms of the will, the right to appoint a trustee was vested in the widow of Jason Rogers, and the selection of the successor to Columbus Rogers became the subject of serious consideration. It does not seem that any reflections were cast upon the integrity of Thomas Rogers. On the contrary, all expressed confidence therein, and such confidence seems to have been justified;' for it does not appear, so far as he had dealings with the estate, but that he accounted for all the moneys which he ever received, and charged the estate no more than the law. permitted him to charge. But that the cestuis que trustent opposed the delivery of the estate to him is clear. At one time the appointment of Judge Gifford seems to have been agreeable, and papers were drawn to accomplish that end, when Mrs. Westerfield, the petitioner, objected, and Judge Gifford refused to act. Mrs. Westerfield desired to be appointed herself, but this did not seem to meet with favor. Finally William Cauldwell was se

It is therefore evident that the purpose of all the parties was to vest in Cauldwell the control of the securities and funds and the active management of the estate, and to continue in this respect the same course that had been previously adopted by Columbus B. Eogers. The checks drawn by the Eogers Locomotive Works were delivered to Cauldwell, who deposited the same in his account, and receipted for them in his own name; and this method was continued during the period of Cauldwell’s administration, down to the 8th day of December, 1895. During this period the amount of dividends paid to Cauldwell by the Eogers Locomotive Works was upwards of $170,000; and during this time Cauldwell paid to the petitioners, by his check as trustee, an income to which they were entitled from the estate, and this involved upward of 40 payments. The petitioners also communicated with Cauldwell personally in respect to the payment of income, and several letters from both appear in the record. It does not appear that they ever at any time applied to Thomas Eogers or held any consultation with him upon this subject, or any other connected with the estate. It therefore satisfactorily appears that, so far as the adult cestuis que trustent are concerned, as well, as Cauldwell, the co-trustee, it was known by a uniform course of

The surrogate has found most of these facts, and as to those not found the evidence satisfactorily establishes them. In 1888, as the surrogate has found, William Gauldwell began drawing from the account, upon checks signed by himself, moneys which he applied to his own use. These withdrawals of money were not entered in the ordinary books of account kept by him as trustee, but were indicated on the stubs of the bank check books, either as payments to Gauldwell or as “call loans.” As to most of these transactions, the moneys thus withdrawn were paid back by Gauldwell into the trust fund. But on September 1,1893, when the account of William Cauldwell and Thomas Rogers was presented to the surrogate for settlement, these call loans amounted to the sum of $20,000, which was then outstanding, and to that extent there was a deficit in the account of that sum, which was represented as cash on hand and in the possession of the said trustees. Thereafter William Gauldwell continued to draw, in like manner and in like sums, until such withdrawals, up to about the 8th day of December, 1895, amounted to the sum of $133,000. The surrogate has also found, upon evidence sufficient for that purpose, that upon the 8th day of December, 1895, Thomas Rogers was informed of the misapplication of these moneys, and substantially of the true condition of the fund. Gauldwell was at this time possessed of certain real 'property known as the “Empire Hotel,” upon which there was a first mortgage of $450,000, and a second mortgage .of $60,000; and also of certain lots known as the “Jerome Avenue Lots,” unimproved, and subject to a mortgage of $10',000. It does not appear what the value of this hotel property and the lots was. Gauldwell was questioned in this respect, but was not permitted to state his opinion thereon. It did, however, appear from his testimony that the valuation which he placed on the Empire Hotel property was between $800,000 and $900,000, .and upon the Jerome avenue lots, above incumbrance, $50,000. Rogers never had any appraisal of these properties made, and seemed to have accepted Cauldwell’s statement of their value. Immediately after the interview with Gauldwell, Thomas Rogers applied to counsel for advice. He made no disclosure of the true state of affairs to his cestuis que trustent, and they remained in ignorance of the true condition of the accounts until after the 16th day of March, 1897. Under the advice of counsel, Thomas Rogers consented to the conversion of certain mortgages of the estate into money, and to advances to Cauldwell therefrom, on the 3d and 6th of January, 1896, of $18,202.42 and $35,000, respectively. Gauldwell, without, consultation with Thomas Rogers, had previously, and on December 11th, appropriated' $10,000 of the trust funds for the payment of interest upon the $450,000 mortgage. Subsequently, and in the latter part of 1896, Gauldwell and Rogers, acting together, negotiated for the purchase of the $60,-000 mortgage, and purchased the same with the funds of the estate for $52,000. The moneys which Rogers permitted Gauldwell to take, and which were used to purchase the second mortgage, were pro

It does not appear that in any of these transactions Thomas Rogers was actuated by any dishonest motive, and evidently intended to secure the estate from loss on account of the misapplication of the money by Cauldwell. He took no steps that he was not advised by counsel to take, and the advance of the moneys and the securities which were taken were the result of advice received. It is doubtless the fact that Rogers was not only actuated by a desire to save the estate, but at the same time was willing to do all in his power, which he might legitimately do, for the protection of Cauldwell.

It is upon substantially these facts that Thomas Rogers’ liability has been determined to be co-extensive with the amount fixed by the decree of March 16, 1897, the misapplication of the funds by Cauldwell, and the subsequent advances made to him, and paid out, in an about securing the hotel and other properties, which sums amount, in the aggregate, to about §254,000. We are therefore brought to consider whether the legal relation which Thomas Rogers bore to this estate charges him with liability for the misapplication of the funds by his co-trustee. It is said that he is so bound, for the reason that he joined in the accounting with Columbus B. Rogers as trustee. But, as to this circumstance, it is undisputed that his joinder was a mere formality, and for the facts contained in the account he relied upon the attorney and his co-trustee. While it is true, as we have seen, that he is doubtless estopped by the decree entered thereon, yet he is not precluded from showing, as to subsquent transactions of his co-trustee, what the true status of his position was as a trustee, even though he may be technically bound by the recitals in the petition and the decree entered thereon. And the' undisputed facts which upon this hearing, were received in evidence, both from the lips of Thomas Rogers, and Levy, the attorney who drew the account, show that the account was made up by Levy, and Rogers testified to what is undoubtedly the truth, known

The further ground upon which he has been held liable is that he was guilty of gross negligence in the management of the trust estate. This only has practical force in the present application- when applied to his acts after the appointment of Cauldwell as trustee. As we have already seen, it was the purpose of all concerned, except Thomas Rogers, that Cauldwell should step into the shoes and occupy the place and perform the duties which had theretofore been performed by Columbus B. Rogers; and we think it a necessary presumption, based upon the proof, that it was the expectation of the new trustee, and of all the persons interested, that Thomas Rogers should perform no other or different acts in connection with the estate than he had been permitted to perform since 1876. It is quite as evident that he could have enforced no more legal remedies against Cauldwell prior to his deficits than he could have enforced, against Columbus B. Rogers, and it seems equally certain that the position of the petitioners and the other cestuis que trustent interested would have been the same, as we have already observed, in relation to Columbus B. Rogers. It is said that he did nothing. The answer is that he was expected to do nothing, and the custody of the estate was purposely so placed that he should not be able to do anything, except as necessity required his joining in some act. What could he have done? It is said that he could have examined the securities. But up to December, 1895, there had been no change in them, and, had he examined, he would have found them intact. It is said that he should have examined the books. Had he been permitted, and done so, aside from the check books they would have been found correct, representing the true state of the securities on hand and moneys received and their disposition. There was nothing about them which would have excited suspicion. Had he examined the check books, he would, have found therein the account of “call loans.” This, of itself, was not calculated to arouse suspicion. The will under which the trustee was acting authorized loans of such character; and, in the account rendered in 1893, “call loans” was therein set out to the amount of $20,000, and seems to have excited no suspicion upon the part of any person interested in the trust funds, and was passed without comment. The only matter which an examination of the check books would have disclosed was that in some instances the transaction appeared as between Cauldwell personally and the estate; and from that, by tracing up the amount on hand, there would have been disclosed the dealing of Cauldwell with the estate. But nothing short of that would have disclosed the character of the transaction, or the misapplication of funds by Cauldwell. To have made

One other circumstance requires attention. In 1892 Thomas Rogers, desiring money, applied to Cauldwell to obtain it, and Cauldwell consented to the sale of certain United States bonds, which were taken from securities belonging to the estate of Flora E. Rogers and sold, producing the sum of $26,000. This sum was delivered to Thomas Rogers, and in return he gave a mortgage upon his share of the estate for a corresponding amount. This transaction was not entered in the books, and was treated practically as a substitution of securities. There was no attempt at concealment of the matter, as the mortgage was reported in the account of 1893, and received the sanction of the parties interested, and the decree of the surrogate sanctioned the transaction. It was an undoubted security, for the amount drew 5 per cent, interest as against a lesser sum for the bonds, and the parties interested were quite willing it should remain. The inference, however, which is sought to be drawn from this transaction, is that, as it was an improper use of the securities of Flora E. Rogers, it should have put Thomas Rogers upon his guard against the administration of the estate by Cauldwell. While it was not a prudent act upon Cauldwell’s part, yet no amount of reasoning can produce a condition from which it may be said that the estate was less secure after the transaction than it was before, and we are not able to see that thereby Thomas Rogers ought to have taken notice that Cauldwell was abstracting money from the estate • without security. At the most, it only showed a willingness to accommodate, so long as the estate was secure, and in fact it was not thought to be wrongful by any one else, although all had notice of the substituted security. Upon this subject the surrogate finds a

“The general rule Is that the executor is responsible for his own acts, and not for those of his associate; so that if he receives and misapplies the money r or does any act by which it gets to the hands of the other, who diverts or wastes it, and but for which act the latter would not have had it, a liability to make good the loss results. * * * If the executor is merely passive, and simply does not obstruct the collection or receipt of assets by his associate, he is not liable for the latter’s waste; but where he knows and assents to such misapplication, or negligently suffers his co-executor to receive and waste the estate when he has the means of preventing it by proper care, he become» liable for a resulting loss. Sutherland v. Brush, 7 Johns. Oh. 17; Adair v. Brimmer, 74 N. Y. 566 . Mere assent to the co-executor’s receipt of the funds-is not enough. In the case last cited all the money of the estate was received and disbursed by the common agent of all the executors, and advance» were made to a co-executor for his personal use, with the knowledge and express assent of his associate. Ordinarily, in the collection of assets, the rights of each are alike, and one has not control or supremacy over the other. One, therefore, may sit passive, and see the other receive funds of the estate, and, making no objection, be deemed to assent, but that does not make kirns responsible for what has been received. He must in some manner know and assent to the misapplication. He must be” a consenting party to the waste, or neglect some duty consequent upon his knowledge of a misapplication intended or in progress. Williams v. Nixon, 2 Beav. 472. A wrong done or a duty omitted must lie at the foundation of his liability.”

In all of the cases cited by the learned surrogate to support the conclusion which he reached, or relied upon by the respondent to uphold the decrees and orders made, not one in any sense limits the force of the language used in this case, or weakens its vigor as a living authority. Many cases before and since abundantly support its doctrine. Cocks v. Haviland, 124 N. Y. 426 , 26 N. E. 976 ; Bruen v. Gillet, 115 N. Y. 10 , 21 N. E. 676 ; Monell v. Monell, 5 Johns. Ch. 283 ; Banks v. Wilkes’ Ex’rs, 3 Sandf. Ch. 108 . Within the above authorities, it seems clear that as the purpose had been for 14 years to remove the active management of the estate from the control of or participation in by Thomas Rogers, and as such fact was well known to all parties in interest, acquiesced in, and approved of, by the petitioners, neither obligation nor duty to the estate required that he should make active effort in and about finding out the state of the trust thus committed to the management of the trustee, who was in fact selected by the voice of all. Thomas Rogers could only be held liable provided he in some manner knew of the misappropriation of the funds in such sense that he could be regarded as a consenting party thereto. Or he must have had such knowledge of the waste, or of matters connected therewith, as devolved upon him a duty of inquiry and active exertion to prevent loss. But so long as the affairs of the estate were apparently being conducted by the same methods and in the same manner as they had theretofore been, in the absence of some circumstance, act, or condition which would naturally excite

“He who fills a position of trust conjointly with others cannot remain passive, when he knows of irregular acts by his associates, without coming squally under the judgment of the law for the consequences. Mrs. Miller was bound to inform herself with respect to the affairs of the estate, and to inquire as to the use which was made of its assets.”

In that case Mrs. Miller was associated with Niles, who undertook to make loans and investments of the funds of the estate. Some were irregularly made, and were improperly taken in the name of Mrs. Miller, during the lifetime of her mother. But Mrs. Miller was informed of such fact, and of the investments, and the finding was that Niles informed her concerning the investments, upon her request for information, and she assented thereto, and stated that she •did not object to any one of the investments when she heard of it. Niles having failed, attempt was made by Mrs. Miller to charge all the losses upon him, and it was held that she was bound by the acts to which she had assented and as to those in which she passively acquiesced. This is quite a different case from the one now before ■us. Mrs. Miller knew, or had the means of obtaining information by mere inquiry. She was consulted, and expected to express approval or disapproval. She possessed all opportunity, and was expected to keep herself properly informed. Under such circumstances, she became bound to seek for such information, and could not lie passive without acquiescence, in the absence of fraud or deception by her co-executor. In the present case, Thomas Rogers neither knew, nor had the means of knowing, the state of the accounts, unless he applied for such information, and, unless he met with better success in this respect with Cauldwell than he did with Columbus B. Rogers, he was not likely to obtain information upon request. If he could have so obtained it, yet he had no reason to suppose that it was essential to the preservation of the estate. Cauldwell, as we have seen, was a man of high standing, and of approved integrity and business capacity. Under similar circumstances, Mr. Justice. Bradley said:

“When it was established that without aid of the defendant the two executors, Harrison Cocks and Barlow, took the property of the estate into their bands, and assumed the active duty of its management; that none of it came to her possession; and that she was merely passive in respect to it,—the burden was cast upon the plaintiffs to prove some facts or circumstances having relation to the character or habits of those persons, or to the manner they apparently were executing-the trust, which would fairly justify suspicion that they w.ere or might be chargeable with its mismanagement. In that case

it may be that their co-executor would be called upon to investigate, and, if necessary, to cause them to render an account, and thus present the condition of the fund, with a view to such direction as the situation should require for its protection and the proper disposition of it. There was no fact found, nor does there appear to have been any evidence, to permit the conclusion that Mrs. Haviland, before the failure of the firm of Cocks & Barlow (composed of the two acting executors), had any reason to suppose or apprehend that they would divert the fund set apart for David’s family from the purpose directed by the will.” Cocks v. Haviland, supra.

The learned counsel for the respondents relies upon Earle v. Earle, 93 N. Y. 104 . In that case there was no exclusion of the executor sought to be charged from the management of the estate. He simply chose to permit his co-executors to manage the same, collect the assets and disburse the moneys, and by so doing constituted such co-executors his agents. This he did voluntarily, making no effort to inform himself of the acts of his co-executors, or in any manner to look after the estate; and it was held that he could not accept such a trust, and remain supinely indifferent to the duties which it imposed, but that he must act with due caution and vigilence. There was no circumstance in that case showing, or tending to show, that, by the common consent of all the adult parties in interest, a trustee • had been selected who was expected to manage the whole estate. Indeed, the case was disposed of upon the assumption that the trustee might have acted in respect to all the matters connected with the estate as freely, fully, and without hindrance as could any other executor. His indifference to the trust-estate matters was therefore held to constitute gross negligence, as thereby the estate was lost. The rule, however, was therein recognized that an executor is not liable for acts of a co-executor which he has not the means of preventing or guarding against, or from which he has no reason to fear a loss to the estate. Under such circumstances he is only required, where he may exercise the means, to observe some degree of watchfulness and care over the acts of his co-executor. It is evident that we have quite a different case now before us than the court was considering in the Earle Case. The points of difference are readily apparent from the facts which we have before recited, and do not call for further comment. We shall be quite ready to uphold the doctrine in the Earle Case upon facts warranting its application, and we do not now, by this decision, extend the rule a hair’s breadth beyond the doctrine which holds trustees to a rigid accountability for their acts.

It is also asserted that liability attaches to Thomas Rogers by reason of his ¡having joined in the accounts rendered, and accepting commissions for administration. As to the first consideration, we have seen that in fact Thomas Rogers knew nothing about the matters stated in the account, except as he was informed. It was not expected that he should; and, while he was bound by the decree, he is not precluded from showing facts in exoneration, upon the same being opened for that purpose. In adddition to this, he did "look after some small matters connected with the real estate, and the case presented was, therefore, in some sense, a division of duty in administration; and, where such condition exists, one trustee is not

The trustee is entitled to his fees as a matter of right, and he is not deprived of such fees by reason of the fact that his co-trustee does the greater share of the work while he remains passive. The basis of liability is founded .in a wrong done or a duty omitted, and this must be in respect of some act of administration. The mere acceptance of commissions does not establish either. Liability must lie in other considerations, and, when found to exist, charges the party; but he is not even then deprived of his commissions, as appears from allowances made in Bruen v. Gillet, supra, and Adair v. Brimmer, supra. We are therefore unable to find in any act sufficient from which it may be said that Thomas Rogers was guilty of any wrong or neglect sufficient to make him liable for the misapplication of funds by Cauldwell. A different condition at once arose when Thomas Rogers was informed by Cauldwell of his dereliction of duty. That moment he became charged with an active, affirmative duty, which he was required to discharge. This imposed upon him immediate action to prevent Cauldwell from further continuing in the management of the estate. It was then the duty of Thomas Rogers to communicate with his cestuis que trustent, and, while his failure to so communicate does not have the effect of charging him with the prior misappropriation of moneys by Cauldwell, yet it does have the effect of making him liable, when taken in connection with his subsequent acts, for the investments which he thereafter made, and for the disposition of the securities of the estate. The cestuis que trustent became entitled to know and be consulted as to the steps to be taken to prevent further loss, and to secure such as the estate had already suffered. Thomas Rogers became personally liable in all of the matters in which he thereafter acted. He knew that an investment by third mortgage was not a proper investment for the trust estate, as he so stated; and further advances to Cauldwell were so evidently improper, unless deemed by all interested as being necessary to preserve the estate, that Rogers must be held to have acted upon his own responsibility, and became, therefore, personally liable to justify the disposition made of such property and funds. It is undisputed that in all of these matters Rogers acted under the advice of counsel, and took no step without consultation. Indeed, the written evidence shows that the counsel originated for the most part the course of dealing with the property transferred by Cauldwell, and advised that it was proper to make the payments which were made. Advice of counsel, however, cannot be held to protect. It still remains that the questions presented were to be solved by business judgment. It was known that the- security received was not proper security for the investment of trust funds, and good faith in action, or poor judgment in determining, cannot avail as an excuse, for it must be treated as a misapplication of the funds; and as the responsibility rested with Thomas Rogers, and he assumed it, liability for the act must follow- as a consequence. He was

We come now to the proceedings by which Thomas Eogers was punished for contempt and committed to- jail. It seems incongruous that the motion to punish Cauldwell, confessedly the person who has caused all the trouble, should be denied, and that Eogers should be. made subject to the extreme rigor of the law. However, Thomas Eogers may not complain, as he is only to answer for his own wrong, and his plea is not available that another should also suffer. It seems that the moving cause which conduced to this result was the consideration that Cauldwell had turned over all his property, and that Eogers had not. But Rogers was the moving cause which procured title to all of Cauldwell’s property to be vested in the estaté, and, if it produce anything like the value which Cauldwell placed upon it, there would seem to be no prospect of a.loss to the estate. In any event, we think that in respect of this property Rogers’ position should be regarded quite as favorable as that of Cauldwell. This property should be directed to be sold, and its proceeds be applied to the credit of the estate, and the contempt proceedings be held to await the result. It should be, borne in mind that the whole of Rogers’ interest in the estate is covered by the lien of this decree, and that the property which Cauldwell deeded went to the estate. If Rogers possesses any personal property, it may be reached by process, but it would seem, from the record, that he does not possess any. His position, therefore, is that the estate is protected by all of the real property which he owns or in which he has an interest. The estate also holds the property in which he made the improper investment. He is therefore in no position to raise money upon his estate to meet the amount of the fine imposed. We think, under such circumstances, that the decree operates with unnecessary harshness, and that relief for this estate will come quite as readily and as speedily by ordering k sale of the property transferred by Cauldwell, and applying its proceeds; and if then there be any deficiency, and such deficiency be not promptly paid, proceedings can be renewed against both trustees.

The order removing the trustees was proper, and was a just exercise of power. Such order does not rest upon any of the decrees especially, but upon the facts appearing in the record.

Our conclusion, therefore, is that the order denying the motion to open the decree of March 16, 1897, be reversed, and said decree be opened so far as to permit Thomas Eogers to give proof in exoneration of his liability for the $20,000; that the decree of February 21, 1898, so far as it charges Thomas Eogers with liability for the misapplication of funds of the estate by William Cauldwell, prior to the 8th day of December, 1895, is reversed, and in all other respects it is affirmed; that the order adjudging Thomas Eogers guilty of contempt, and imposing a fine of $60,000, and for omitting to pay