Purdy v. Lynch

This action was brought to obtain an accounting from the defendants Quinlan, Lynch, and Develin, as trustees under a deed of trust executed by Walter Roche to them in 1872. The action was commenced in 1875, and John T. McGowan, who subsequently died, was at that time plaintiff. The defendant John Develin died February 23, 1888, and the defendant James Lynch •died August 5, 1888. The action was continued against the respective executors of the deceased defendants.

The material facts in regard to the action are these: For some time prior to November 17, 1871, Walter Roche had been vice-president of the Guardian Savings Institution. The bank was doing business in the city of New York, and on the date mentioned it was insolvent. Mr. Roche had been one of the managing officers of the bank, and through his influence quite a number of individuals and institutions had become depositors therein, among them being the Foundling Asylum, which had a deposit of nearly $100,000 on that day. Mr. Roche being desirous of securing, as far as possible, the depositors in the bank, went, in company with a friend, to the office of the defendant Develin for the purpose of consulting as to the course to. be pursued. Upon such consultation it was decided that a receiver ought to be appointed at once for the savings bank, and it was the subject of discussion as to who should be chosen. Finally it was determined that Jeremiah ■Quinlan, a friend of Mr. Roche, should be the receiver, and then the question of Mr. Roche’s individual action was discussed. Ultimately he decided to execute a trust deed to the defendants Develin, Lynch, and Quinlan, by which a large amount of real property owned by him was to be conveyed to the trustees, who were to sell the same and with the proceeds pay the depositors of the savings bank that proportion of their deposits which might be Owing to them and which would not be paid by the receiver of the bank. Payments were only to be made to those who would execute subrogations to Mr. Roche of their rights against the bank

The present plaintiff, Bandolph F. Purdy, is the successor of McGowan, the original plaintiff, who was made the grantee under a deed subsequently executed by Boche, conveying to McGowan his remaining interest in the property conveyed to these three trustees and which might remain after their performance of the duties devolved upon them by that deed. The plaintiff claims a right to call these trustees to an account, because by the terms of the trust deed to them they were to pay only such depositors as gave subrogations within the time limited in the trust deed, and after such time no payments could be made and the property was then to be conveyed back to the grantor whose1 residuary interest the plaintiff represents. We do not deem it necessary upon this appeal to decide upon the objections raised by the defendants as to the right.of the plaintiff to maintain this action for an accounting. We assume he has such right, and the question remaining is whether any cause of action has been proved against the defendants Develin and Lynch to account for moneys which were turned over to Quinlan under the circumstances hereinafter referred to.

.The trustees sold a large amount of real property and realized large sums from such sales. Part of the proceeds of the sales they deposited with a trust company in the city of New York, but subsequently and from time to time drew it from such company and transferred it to Mr. Quinlan for the purpose of having him at once proceed and pay the depositors and take the subrogations as provided for in the trust deed. The trustees also appointed an agent for the purpose of collecting the rents of the real estate while it was in their hands' and before it was sold by them, and such agent collected a little over $18,000, and turned it over

The referee to whom the action was referred found these facts •and charged all three of the trustees with the total amount that had come into Quinlan’s hands, and credited them with the amount paid out by him, and charged them with the balance as dire by reason of their position as trustees. The referee charged the trustees with interest on the balance unaccounted for from the time when the demand was made for it up to the date of his report, in January, 1880, which interest amounted- to a little over $10,000, and upon the whole sum, amounting to over $43,000, interest was cast from the date of the report until the day of the entry of judgment, February 10, 1883, amounting to-over $8,000, and these items, together with over $1,800 costs, made a total of $53,420.58, for which judgment against these defendant trustees was entered February 13, 1883. The ground of liability upon which the referee proceeded was that the defendants Develin and Lynch were guilty of negligence in transferring to their co-trustee, Quinlan, the moneys arising from the sales of the real estate, wrhich had come into their hands and which had been deposited in their names to their joint credit with a city trust company, although such transfer was made for the purpose of immediate distribution by Quinlan; and the referee held that such act was a negligent one, and on account of such neglect the two trustees were liable for the failure of Quinlan to account for the whole of the trust moneys that actually came into his hands.

Upon appeal by Develin and Lynch to the general term that court held that the $17,000 item above referred to, being the proceeds- of the sales of real estate which never had come into the actual possession or control of the two trustees, but which had been paid directly to Quinlan, ought to be deducted from the amount of the recovery, and it directed that such sum, with interest, amounting in all to over $20,000, should be deducted from the judgment with the consent of the plaintiff, or else that the judgment should be reversed and a new trial granted. The plaintiff consented and the amount was deducted from the judgment in the action, and the defendants Develin and Lynch appeal to this court.

The learned judge at general term who delivered the opinion of that court stated with his usual accuracy and clearness the general rules governing the liability of trustees in cases of this nature. We fully agree with that court as to the rules which usually obtain regarding the liability of trustees in such cases. It is exceedingly important that they should not be relaxed in any case where

When the first trust deed was executed Mr. Quinlan was to be the receiver of this savings institution. This fact was known to Mr. Boche, and, indeed, the designation of the receiver may be said to have been liis own. Aside from that Mr. Quinlan was a business man whose capacity and judgment were well known and whose character and integrity were unblemished. The evidence would seem to show that he was probably named as one of the trustees in this trust deed because of his being also named as receiver. The fact was also patent that some office would be necessary for the receiver in which to discharge his duties. He would necessarily have possession of all the books and papers belonging to-the bank and it would be necessary to refer to them in making up a list of- its depositors and the amount due each respectively. Most of the depositors it may be assumed were personally unknown to the trustees and in many instances it would be necessary to resort to the identification book in order to determine the fact of identity of depositor and claimant. Ho. payment could properly bp made on the part of the trustees to any depositor until reference had been made to these books, and the amount of the payments by thé receiver, if any, had been ascertained. Under these circumstances what would be more natural than to select that trustee who was also receiver as.the proper party td make those payments ? There were over 700 depositors.* Their debts were due at once, and it could not be accurately .known what amounts ought to be in the hands of the paying trustee at any one time in order to permit him to meet all demands. Mr. Quinlan was known and respected for his ability and integrity. He was. the receiver, and he alone had all conveniences for ascertaining the depositors and the amounts due them. There was absolutely no reason to fear or suspect him, and the payments were to be made at once as the creditors should appear. Taking all these circumstances into consideration, we are unable to see that the-defendants Develin and Lynch were guilty of such negligence in transferring these funds as to make them liable for the failure of Quinlan to account for all the money that came into his possession as one of such trustees. There is no evidence and no claim that the trustees were guilty of any neglect in the management of their trust,

We have read many of the authorities on this branch of the law. They are numerous and the courts have said that if the trustee unnecessarily do an act by which the funds are transferred from the joint possession of all to the sole possession of one, the trustee who does this unnecessary act must be held liable for the due application of the fund by his co-trustee. The question is what is meant by the word “ unnecessarily,” and it would seem to be that an act is unnecessary when done outside of the usual course of business pertaining to the subject. In Bruen v. Gillett, 115 N. Y. 10 ; 23 St. Rep. 780 , the funds were turned over to one of the

In this case we must say that it was within the fair meaning of the word a necessity; that is, it was an usual, proper and ordinary way to make payments to these 700 odd creditors under the circumstances above detailed, through the hands of one who was acting in the double capacity of trustee and receiver, and who in his latter character had all the data requisite to make the payments and to obtain accurate information as to the amount of the indebtedness in each case. And we do not think it -was necessary for each trustee to attend and sign each check and make such payment instead of placing sums from time to time in the hands of the trustee-receiver and permitting him to make the payments.

Although these general views lead to a reversal of this judgment, yet we desire to say that we agree with the general term that the $17,000 received by Quinlan directly from the sale of some portion of the real estate was a sum which he had the right to collect as trustee, and, having collected it, his co-trustees, under the circumstances of this case, were not responsible for the proper distribution of such fund by him. On the other hand, we think the general term and the referee have held the defendants Develin and Lynch to a liability based upon a presumption untrue in fact with regard to the item of about $18,000, rents received by the appointed agent of the trustees and paid by him over to Quinlan. They have held the two trustees chargeable with this sum on the ground that, as this agent to collect the rents had been appointed by all of the trustees, such rents, when collected by that agent, were legally in their joint possession, and that when the agent paid them to Quinlan it must be held that they were paid by the direction of Develin and Lynch, and hence those defendants are liable to account therefor. We do not think that this is a solid ground of liability in this case, even if we assumed they would be liable if they directed the payments. Upon a question of title, the moneys as soon as they came into the hands of the agent became the property of the trustees, but in this case it is not a question of title. The" ground of liability is personal neglect, and it must be remembered that the joint appointment of the agent to collect the rents and his collection of them did not, in point of fact, bring those moneys into the actual possession of either Develin or Lynch. The title was in all three trustees; the actual physical possession was in the agent; and when that agent paid them over to one of the trustees without in fact any direction from either of the others, such direction ought not to be imputed to them by a legal fiction when in truth it was not given. The agent, under the circumstance of this case, might naturally pay the rents over to Quinlan, because the latter was at

If this item of $18,000 were added to the $17,000 item deducted by the general term, the total of these two sums would be greater than" the amount which the referee found had not been accounted for out of the whole amount that had been received by Quinlan, and so there would be nothing due the plaintiff for which Develin and Lynch could be held liable.

We think, upon a careful deliberation over this unusual and exceptional state of facts, that the plaintiff failed to make out a •cause of action for negligence against the defendants Develin and Lynch; and while, as we said before, the rules governing the liability of trustees should be strictly maintained,.and they should be held to the most rigid accountability for the performance of all their duties as such, yet in all cases the true question is, taking into consideration all the facts and circumstances, has the trustee employed such prudence and diligence in the discharge of his duties as in general men of average prudence and discretion would under like circumstances employ in their own affairs, and in determining the proper answer to be given to that question we are to look at the facts as they exist at the time of their occurrence, not aided or enlightened by those which subsequently take place by reason of which the loss has occurred.

Judged by that standard we think the conclusions of law of the referee holding these defendants Develin and Lynch liable are erroneous, and the judgment as to them should, therefore, be reversed and a new trial granted, with costs to abide the event.

All concur.

Judgment reversed.