Purdy v. Lynch — 55 N.Y. St. Rep. 360

Majority

p. 360

Randolph F. Purdy, Resp’t, v. Agnes Lynch, Ex’rx, et al., App’lts.

(Supreme Court, General Term, First Department,

Filed October 13, 1893.)

Headnote

1. Trustees—Conversion.

Where trustees have once obtained joint possession of a trust fund, and thereafter two of them turn over the fund to their co-trustee, they will be liable for a conversion of the money by him.

2. Same—Estoppel.

The fact that a person entitled to the reversion in certain trust property knew that moneys had been turned over to one trustee by the others, and made no objection, does not, in an action against all the trustees for an accounting, estop him from claiming that they were all guilty of a breach of trust, where it appears that he was never consulted about the matter, and did not know that the two trustees intended to leave the matter entirely in the other’s hands.

3. Same.

Shortly after there trustees had entered upon the execution of their trust they appointed an agent to collect the rents from the' trust property, and such agent turned the money over to one of the trustees, who misappropriated it. Held, that the trustees were chargeable with having joint possession of such money while in the agent’s possession, and his‘ subsequent payment to one must be deemed to have been done under the direction of all.

Appeal from judgment in favor of plaintiff entered on report of referee. -

Charles E. Miller and Henry H. Anderson, for app’lts; Foster & Thomson (James Thomson, of counsel), for resp’t.

After the appointment of a receiver for the Guardians’ Savings Institution, in November, 1871, one of its officers, Walter Roche, conveyed all his real estate to three persons, in trust to sell, and with the proceeds pay the creditors of the Guardians’ Savings Institution the several amounts due them on the 1st day of July, 1872, after which to reconvey the remaining property to the trust maker. It was further provided that pajnnents should

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not be made to creditors except on the delivery of a subrogation by them to Walter Roche of their claims against the bank. Jeremiah Quinlan, the receiver of the savings institution, and James Lynch and John E. Develin, were named as trustees. All of them qualified and entered upon the discharge of the duties of such office. Afterwards Roche conveyed to John T. McGowan, the original plaintiff in this suit, the reversion in the real estate described in the deed to Quinlan and others, in trust to pay his personal indebtedness to certain creditors named, and to reconvey the remaining property to Roche, after payment of the expenses of executing the trust. In March, 1875, McGowan instituted this suit, which resulted in a judgment directing a conveyance to him by Quinlan and his cot'rustees of such of the real estate as remained unsold, and awarding to the plaintiff, as against all the trustees, a judgment in the sum of $53,480.58.- There was actually received from rents and sale of real estate a sum exceeding that paid out by the trustees, either to creditors or as expenses of administration, $43,577.94, which the referee found to be the principal sum due. But the trustees Develin and Lynch insisted on the trial, and their personal representatives still insist, that they ought not to be charged with that sum, or any part of it, because it was wholly wasted by their cotrustee Quinlan, without fault on their part. The trustee Quinlan, as the receiver of the savings institution, was in possession of the books of the institution, and therefore in a position to more conveniently pay and take subrogation from depositors than his associate trustees, and for such reason, doubtless, that portion of the work devolved upon all of them by the trust deed was intrusted to him. The other trustees took part with Quinlan in most instances in selling the real estate, the proceeds of which were in the main deposited in a trust company to the credit of all the trustees. Subsequently it was withdrawn and turned over to Quinlan, who failed to apply the sum with which the referee charged the trustees in the manner required by the trust instrument.

The general rule is, both in England and this country, that where trustees have once obtained joint possession of a trust fund, and thereafter one of them turns over the fund to his cotrustee, he will in case of a misappropriation by his associate be held responsible for it. Sadler v. Hobbs, 2 Brown Ch., 114; Curtis v. Mason, 12 Law J. (N. S.), 442 ; Brumridge v. Brumridge, 27 Beav., 5 ; Adair v. Brimmer, 74 N. Y., 539 ; Earle v. Earle, 93 id., 104 ; Croft v. Williams, 88 id., 384; Bruen v. Gillet, 115 id 10; 23 St. Rep., 780 . The reason for the rule is apparent,” and has been often stated. ..As to the fund reduced to joint possession, all the trustees are in a situation to see to it that it is applied in the manner provided by the trust maker, and it is the duty of each to take care that it is so applied. The trust maker having elected not to. permit a distribution of the fund by one trustee, any attempt to thwart his wish by an arrangement between the trustees must betaken on their own responsibility, blot the cestui que trust, but the trustees, assume the burden which may result from their fail

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ure to perform the obligations of a trust because of a confidence •which they, and not the trust maker, saw fit to repose in a single trustee. The rule being founded upon a neglect of duty on the part of a cotrustee to see that a proper application is made of the trust funds, it is urged that it should not be held applicable here, where, as the appellants allege, there was no such neglect; their contention being that it was impossible to pay and take subrogation from six or seven hundred depositors without the presence of the books of the bank, which were necessarily in the possession of trustee Quinlan in his official capacity as receiver. If that were so, there was nothing to prevent the associate trustees from being present at the bank, except their personal and business engagements, and the personal convenience and comfort of a trustee cannot be accepted as an excuse for a failure to perform a duty. If it be not convenient for him to perform the obligations of the trust, he must not assume them, but give way to another in abetter situation to discharge them. But there were other ways in which the payments could have been made and subrogations taken without the presence of all the trustees at the bank. Every payment could have been made by means of a check bearing the signatures of all the trustees. It'would likely have necessitated a second visit by the depositors, and occasioned more trouble on the part of the trustees, but it could have been done, and without great difficulty. Had it been1, the question would not now be presented whether the beneficiaries under the second trust deed, or the estate of the solvent trustee*, shall bear the loss.

If the trustees Develin and Lynch had turned over the moneys in small amounts, as it was required in the payment of depositors, and had from time to time examined the subrogations for the purpose of ascertaining whether they represented the sums which Quinlan claimed to have paid to depositors, the amount which Quinlan could have misappropriated, if any, would have been small. But no such precaution was taken. Indeed, in all this large record there is not a suggestion of an attempt on the part of either Develin or Lynch to ascertain whether their associate was faithfully distributing the two hundred and forty odd thousand dollars which came into his hands. No precautions whatever were taken by them to assure such an application of the funds by them turned over to Quinlan as the trust required. Undoubtedly, it was because of their great confidence in the personal integrity of Quinlan, but that does not present a legal excuse. „

It is further contended that the plaintiff is estopped from asserting that the trustees are guilty of a breach of trust because, with knowledge that the trustees "were paying over moneys to Quinlan for distribution among the creditors, he did not object. The facts found by the referee which have a bearing on that question were, in substance: Plaintiff was, from the beginning of the trust, familiar with the action of the trustees, and knew that the money had been turned over to Quinlan by the other trustees for the purpose of making payments and taking subrogations. Plaintiff, in behalf of one of his clients, received a payment from, and gave a subro

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gation to, Quinlan alone. A petition was served upon Boche, for whom the plaintiff was attorney, in which it was asserted that the trustees were about to pay over the moneys to Quinlan, and asked that commissions be allowed upon such sum, after which Boche and the plaintiff signed a consent that the trustees retain the sum of $6,000 for their commission. There is nothing in the facts found or in the record which tends to show that the trustees were in any manner misled by the silence of the plaintiff. It is not suggested that their action was in any wise influenced by the omission of the plaintiff to speak. Nowhere is it asserted that Devlin and Lynch, in that which they did, supposed that their action was understood and approved by the plaintiff. He was not consulted by the trustees about the matter at all, and, so far as their conduct is concerned, it does not appear that they in the least desired to know whether he or Boche approved of their plan of selecting one of their number to distribute the funds. It is not found, nor does it appear from the evidence, that the plaintiff knew that the trustees neither paid, nor intended to pay, any further attention to the matter, after turning over the moneys to Quinlan. If he did know (as we shall assume that he did, because the fact is so found) that all of the money was turned over to Quinlan, it cannot be assumed, in the absence of any evidence whatever on the subject, that he also knew that, when the money was so turned over, Develin and Lynch regarded their responsibility at an end, and had determined, not to inquire further whether the money should be properly applied. On the contrary, for aught that the record discloses, plaintiff was justified in assuming that the trustees understood the personal risk undertaken when they paid over the money, and had accordingly taken suitable precaution to assure its proper disposition.

It is difficult to discover from these facts any foundation upon which to rest an estoppel, which would deprive the cesiuis que trustent under the last trust instrument from receiving the moneys which of right belonged to them. Assuming that the trustee under the second trust deed might have so conducted himself as to estop him from recovering from those who, by a breach of their trust, had permitted the moneys belonging to his cesiuis que trustent to be wasted, the facts do not exist here upon which to predicate it. The cases cited by the appellant are not applicable to this situation. In Erie Co. Savings Bank v. Roop, 48 N. Y., 293 , S. allowed R. to make certain payments under a mistaken belief as to the facts, by which S. derived an immediate and direct advantage over B., and it was held that S.’s silence, under such circumstances, was deceitful and fraudulent. Sherman v. Parish, 53 N. Y., 483 , was a suit instituted against a passive trustee, based upon an alleged breach of trust in permitting the active cotrustee to invest a portion of the trust funds in other securities than authorized by the trust instrument It was found as a fact that the plaintiff fully assented and acquiesced in the exclusive control and management of the cotrustee, and especially with the disposition made of the fund which was the subject of the controversy, and that she did this with knowledge of all the important and material facts and

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circumstances. This was held to relieve the defendant from any personal liability to the plaintiff on account of the acts of his co-trustee. In this case there is neither a finding, nor evidence upon which to base one, to the effect that the plaintiff assented to the exclusive control and management of Quinlan in the disposition of the funds turned over to him.

In Butterfield v. Cowing, 112 N. Y., 486 ; 21 St. Rep., 500 , the trustee omitted to follow the terms of the mortgage, by which he had agreed to be bound, and thus became liable to respond to those suffering damage. Plaintiff was, however, denied relief, because with full knowledge of the facts he first instituted a suit to prevent the carrying out of the plan, afterwards fully accomplished, and then withdrew his suit, uniting in a stipulation in which he formally withdrew all opposition to the scheme, and was given permission to unite with the other bondholders in the new organization, which he promised to do. He desired to obtain a benefit by withdrawing the suit and making the stipulation. His act, in some measure, at least, induced the action of the trustee of which he complained in his subsequent action, and his conduct was properly held to deny him the right of recovery against the defendant, for a breach of trust. A portion of the sum with which the trustees Develin and Lynch are charged by the referee, amounting to-$17,040, never came into their hands. The learned referee based the refusal to so find upon the ground that it was paid to the-counsel for the trustees. In this respect we think he was in error. While the deeds were prepared by their counsel, it does not appear that the payments aggregating such amount were made by or through him. On the contrary, the evidence seems to establish that such was not the fact. Two of the four checks representing such amount were made payable to the order of the attorney of the purchaser and by him indorsed directly to Quinlan. The other two were indorsed in blank, and Quinlan testifies that these checks were received and deposited by him, and that the other trustees never received any portion thereof. It does not appear that Develin and Lynch, or either of them, consented to the receipt of these moneys by Quinlan and their deposit to his individual account, or that they had knowledge of it at the time; and it is not hinted that they were in possession of any facts which should have excited their suspicions, touching either the integrity or responsibility of Quinlan.

These facts bring this case, so far as this item is concerned, within the rule asserted in Wilmerding v. McKesson, 103 N. Y., 329 ; 3 St. Rep., 108 , and Bruen v. Gillet, 115 N. Y., 20 ; 23 St. Rep., 780 . In the latter case the court said: “ We have lately held that one executor (and I think the rule is the same with other trustees) is responsible for his own acts, and not for those of his associate; and, if the latter collect and misapply the money, the executor who has not received it is not liable for the waste. H he is merely passive, and simply does not obstruct the collection by his associate, he is not liable for the latter’s waste, if guilty of no negligence himself.”

In Wilmerding’s case the same general rule was laid down.

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• J udge Miller, speaking for the court, said : “ Where the funds of the estate were lawfully received by one of the executors, or were originally in liis hands, or properly paid to him in the due course of administration, and there is nothing to excite suspicion as to the integrity or responsibility of such trustee, or to create a belief that the funds have been improperly used or invested, in violation of the established rule, there is no rule which charges the executor or trustee, who has not control of the fund, with the wrongful acts or misconduct of his associate.”

It follows that the sum paid to Quinlan individually, with the interest thereon, which amounted to $3,143.89, should not have been included in the judgment.

The further point is made that Develin and Lynch are not chargeable with certain rents, amounting to over $18,000. Shortly after the trustees had entered upon the execution of the trust, a meeting of all the trustees was held, at which one Walsh was unanimously chosen as their agent to collect the rents and take charge of the real estate until it should be sold. This selection was suggested by Mr. Develin, who subsequently informed Walsh of the action of the trustees. Thereafter Walsh acted as their agent, and turned over the net rents to Quinlan. These facts support the conclusion of the referee that all of the trustees are chargeable with having had joint possession of the rents while they were in Walsh’s hands, and that his subsequent payment must be deemed to have been done by their direction.

The judgment should be reversed, anda new trial granted, with costs to the appellant to abide the event, unless the plaintiff, within twenty 0 days, stipulate to deduct from the judgment the sum of $20,183.98, in which event the judgment must be modified accordingly, and, as so modified, affirmed, with costs of this appeal to the appellant.

O’Brien and Follett, JJ., concur.