Hyperlawhypertext legal database In re the Final Accounting of Barnes 55 N.Y. St. Rep. 790

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In re the Final Accounting of Barnes

55 N.Y. St. Rep. 790 Court N.Y. Decision date 1893-12-19 English

Delivered by Maynard, J.

Contents

Majority

p. 790
In the Matter of the Final Accounting of Frederick E. Barnes, Assignee.[1]
(Court of Appeals,
Filed December 19, 1893.)

Headnote

1. Assignment fob creditors—Liability of assignee fob interest on FUNDS DEPOSITED IN INDIVIDUAL BANK ACCOUNT.
The mere deposit by an assignee for creditors of the fund to his individual credit pending an action to set aside the assignment is not per se such a misappropriation as to subject him to a charge for interest greater than the possible loss by his omission to deposit it where some rate of interest might have been allowed ; he cannot in such case be charged the full legal rate.
S'. Same—Taxable costs collected.
The taxable costs collected by the attorney in suits brought against the assignee cannot be charged against the assignee on his accounting, although a gross sum was allowed for services as counsel; such costs belong to the attorney when collected.
Appeal from order of the New York common pleas, general term, affirming order directing that the assignee be charged with interest on the moneys of the estate in his hands, and with the amount of taxable costs received in an action affecting the estate.
Howard Y. Stillman, for app’lt; Winthrop Parker, for resp’t.

The appellant, as assignee for the benefit of creditors, has been charged by the court below with interest upon the trust funds in his hands at the rate of six per cent per annum. He deposited the moneys in a national bank where he kept an individual account, and they were credited to him in this account as deposited. The assignment was executed March 2, 1887, and on January 8th, 1888, an action was brought to set it aside, which was pending for upwards of three years. A reference to take and state his account was ordered, and the referee reported in favor of charging him with two per cent interest upon the balance in his hands from time to time from the commencement of the action to the date of the report. The referee held that, as it must have been apparent when this litigation began, the distribution of the fund would necessarily be delayed, it was the duty of the assignee to have deposited the money in a trust company where it could have earned at least two per cent intei’est and been withdrawn on demand; and his account was surcharged accordingly. The special term, upon the motion to confirm the referee’s report, increased the interest charge to six per cent, the general term affirmed the order, and the assignee brings this appeal. _

_ This is not a case where the trustee held a fund for investment. In such cases if he fails to invest in such securities or in such manner as the law authorizes or the terms of his trust require, when he has the opportunity to do so, or might by due diligence make a proper investment, he is responsible to the beneficiaries for the loss they may sustain by his neglect of duty. Here the law neither authorized nor permitted the assignee to make any investment of the moneys received by him in his trust capacity. It was his -duty promptly to convert the assets of the insolvent’s

p. 791
estate into money; to keep the funds securely, and' at the time and in the manner required by law to distribute them among the creditors and other persons entitled to them.

The authorities, therefore, which hold that under certain circumstances a trustee may be liable for loss of interest because of an omission to invest, have no application. It may be that if he perceived that the fund must lie idle for a long period of time on account of the pendency of a suit which involved the validity of the trust, and he kept the money in bank, and there were solvent financial institutions known to him in the same city where it might be deposited subject to withdrawal on demand and interest be allowed, he should deposit it there, and if he failed to do it, he might be charged with the rate of interest which the fund might have earned. That question is not before us, for the appellant is satisfied with the account as stated by the referee. What he objects to is the difference between two and six per cent, with which he has been charged by the court below, not upon the ground that by any lawful use which he could have made of it, the fund could have earned six per cent., but because he deposited in a bank to his individual credit and not to his credit as assignee.

Except where there is a loss of interest by a failure to make an authorized investment we do not think a trustee can properly be made liable for interest not earned, and which could not have been earned by the exercise of diligence, unless there has been a misappropriation of the fund, or some misfeasance of the trust equivalent to it. If the trust moneys have been misappropriated, the trustee becomes the debtor of the estate to the extent of the misappropriation, and the law prescribes the rate of interest upon every indebtedness, where it is fixed by the agreement of the parties. Matter of Myers, 131 N. Y., 409 ; 43 St. Rep., 265 . In the present case the assignee made no use of the trust funds in his business, or otherwise imperilled them. He always had on deposit to his credit at the bank, an amount in excess of the balance in his hands belonging to the estate; and we are asked to hold that the mere act of depositing the moneys in his individual name, with■out adding his title as assignee, was per se such a misappropriation of the funds as would subject him to a charge for the full rate of interest.- It is difficult to see upon what principle of justice such a claim can be founded.

The fund was not subjected to any greater peril than if it had been deposited in his name as assignee. In either case it might have been drawn out at his pleasure, and for such purposes as he might designate. The bank would not be responsible for the proper use of the moneys by the trustees. Mor was it, correctly -speaking, a commingling of trust moneys with his own. When deposited the identity of the money was lost and its ownership ■changed. Thereafter the relation of the bank to the depositor was that of debtor and creditor. The moneys were as secure against misappropriation as if they had been kept in his own safe or -strong box. Wherever they were they were necessarily under his •control and subject to his disposition. A dishonest trustee always las it in his power to misappropriate the trust funds. The appel

p. 792
lant cannot be so classed for he preserved the fund in its integrity. Unquestionably it was his duty, if he deposited the funds in bank, to make the deposit in his name and to his credit as assignee of the insolvent debtor. A deposit of trust moneys should always-be in the name and to the credit of the trustee and not in his individual account. The condition of the fund will then, at all times' and in all contingencies, be more readily ascertainable and the temptation to use it for private purposes less. If the trustee omits his duty the risk is his own. But if there is no loss to the fund, the mere deposit to his individual credit will not subject him to a charge for interest, for this court has very recently held that where an investment of the fund is not permissible the trustee cannot be charged with interest which has not been earned unless there has been an actual misappropriation of the fund. Price v. Holman, 135 N. Y., 124 , 134; 48 St. Rep., 381 ; Beard v. Beard, 140 N. Y., 260 ; 55 St. Rep., 408 .

Upon the facts appearing in this case there was no conversion of the fund by the trustee to his private use, and it is not just that he should be charged with any greater amount than the possible loss to the fund by his omission to deposit it where some rate of interest might have been allowed. Matter of Cornell, 110 N. Y., 357 ; 18 St. Rep., 200 .

The appellant has also been charged, and, as we think, erroneously, with $100, the amount of costs collected by his attorney in suits brought against the assignee which were unsuccessful These costs belong to the attorney and not to the estate. Wherever the legal title to costs may be as between attorney and client before collection, after they have been collected by the attorney his lien upon them has been reduced to possession and the client cannot ihsist upon their payment to him in the absence of aspecial agreement entitling him to receive them. The attorney was allowed for his services as counsel,in the litigation to which the assignee was a party a gross sum by the referee and the court below ; but it is very clear that this sum did not include, but was intended to be in addition to the costs collected. As the order stands the assignee will be compelled to pay the attorney the full amount allowed. He cannot deduct from it the costs collected by the attorney or require him to refund them. As the order stands the assignee is in effect required to pay $100 out of his private funds.

The orders of the general and special term must be reversed, with costs in all courts to the appellant, to be paid out of the estate, and the report of the referee confirmed and decree modified in accordance with this opinion.

All concur.