156 N.Y.S. 935 | N.Y. Sup. Ct. | 1916
This action was, by consent of counsel, tried without a jury, the facts being submitted upon oral admission or written stipulation. The plaintiff corporation, which was surety upon the bond furnished by a general guardian, and which has made good to the ward’s estate certain sums of money with which the account of- the guardian has been surcharged, sues the defendant to recover the sum of $5,750, with interest, alleged to have been wrongfully paid to the defendant by the guardian. The ward recovered, in August, 1905, in an action for personal injuries due to negligence, a judgment for upwards of $19,000, out of which his general guardian made various payments, the greater part of which was authorized by the Surrogate’s Court and which amounted to about $10,000', so that the general guardian, on or about January 1, 1906, had on deposit, in a trust company a balance belonging to the ward amounting to some $9,500.
Out of the funds of the ward the guardian drew two cheques to the defendant’s order, one dated on January 15, 1906, for $1,000, the other dated on February 15, 1906, for $4,750. These cheques were signed by him as guardian of the ward. It is not disputed that the defendant received these cheques knowing they were drafts against the minor’s funds in the trust company, and that for them he executed a conveyance to the guardian, as such, of two parcels of real property known as Nos. 15 and 17 West One Hundred and Seventeenth street, New York city, for an expressed consideration of $100, and other valuable consideration, but in reality conveying the equity in said property over mortgages aggregating $52,000 in amount. In this conveyance the defendant’s wife joined. Subsequently, the property so acquired was wasted by the guardian in various consecutive exchanges and finally
That a person having knowingly received the funds of an infant in payment of an unlawful purchase by the guardian is liable to the infant in an action at law is too well established to admit of doubt; and that the form of the cheque or draft may, of itself, be sufficient to put him upon inquiry as to the infant’s ownership of the money is well established, and is not disputed by the defendant here. Empire State Surety Co. v. Nelson, 141 App. Div. 850; English v. McIntyre, 29 id. 439; Squire v. Ordemann, 194 N. Y. 394; Cohnfeld v. Tanenbaum, 176 id. 126; Boisseau v. Boisseau, 79 Va. 73, 52 Am. Rep. 616.
It appears from the evidence that in a certain proceeding in the Surrogate’s Court in New York county the guardian was, by a decree entered on April 4,1910, removed from office and his letters were revoked, and by a further decree of said court dated July 11, 1911, his account was surcharged with the sum of $6,981.03 by reason of such unauthorized investment. It also appears that the plaintiff, as surety on the bond of such guardian, was obliged to pay said sum to the persons who were appointed guardians in the place of the guardian so removed; and also that the plaintiff received an assignment from the new guardians of their,
In the first place, the defendant contends that, even admitting the general proposition to be true that one who receives moneys belonging to an infant, with knowledge or notice of their ownership, is obliged to restore such moneys to the infant if they have been used by the guardian to pay his personal debt or obligation, there is no such obligation in the present case, because, he urges, the proofs show that the moneys were invested in certain real property for the infant’s benefit, and not, as alleged in paragraphs XII and XIX of the complaint,, to pay the personal debt of the guardian. But this contention rests upon too restricted a view of the relations between the parties. Such a diversion of the infant’s property from its lawful use by the fiduciary renders the third party receiving it with knowledge or notice equally culpable as the trustee, and equally liable to the infant for any resulting loss, even though such diversion were intended to benefit the trust estate. Boisseau v. Boisseau, supra; English v. McIntyre, supra. The plaintiff is entitled to such a judgment or to such relief as the infant himself would be entitled to upon the admitted facts, and its claim rests, not only upon the principle
Apart from these considerations, it may also be said that the guardian, at least so far as the second payment was concerned, was discharging his own obligation. He undertook to buy the property, not in his ward’s name, but in his own as guardian. His ward was clearly not liable for the purchase price under the executory contract. That could not have been enforced against the ward. The guardian assumed the obligation to the vendor (this defendant); and he could not have evaded that liability upon the principle of an agent acting for a disclosed principal. He personally undertook that his ward—admittedly incompetent to contract on his own behalf — would pay the whole or the balance of the purchase price, and thus he himself become liable as the principal debtor. See Sherman v. Wright, 49 N. Y. 227, 231.
As the proof shows that the guardian handed over his ward’s moneys to the defendant in known violation of his duty as guardian, because he did not first obtain the authority of this court before using the ward’s personal estate for the purchase of real property, and did not even take the deed to the property from the defendant in the ward’s name, he was properly compelled by the decree of the Surrogate’s Court to make good the deficiency caused by Ms departure
Secondly. The defendant next contends that, notwithstanding the real property was purchased by the guardian from him and the infant’s funds were paid over to him by the guardian without first obtaining leave of the Supreme Court, yet that, court ratified or sanctioned such unauthorized purchase by subsequently giving leave to the guardian to sell the property so purchased. The facts are, that after the defendant had conveyed the real property by deed to the guardian as such the guardian presented his petition to the Supreme Court, in the first judicial district, in March, 1908, praying for leave to exchange the said real property Nos. 15 and 17 West One Hundred and Seventeenth street for other real property owned by one Miller. In this petition the infant joined. The petition did not disclose to the court the manner in which the infant had acquired an interest in defendant’s property, and the proceeding was conducted as if the infant were seized in fee of the real property referred to. Upon the petition so made by him, the father and guardian of said infant was appointed special guardian for the infant in such proceeding, and gave a surety company bond to the infant therein in the penal sum of $20,000. Thereafter a reference was had to
As a matter of fact, it appears that the second proceeding was a mere pretense by which the guardian misled the court as to the real situation. The transaction was not a valid sale by the special guardian at all, but an exchange of the property for other real property, the title to which, likewise, was not taken in the infant’s name but in the name of a son of the guardian, and the guardian received only a small fraction of the cash consideration mentioned in his contract and specified in the order of confirmation.
It is upon this state of facts that the defendant claims that the Supreme Court ratified or sanctioned the original unauthorized act of the guardian in im
This contention makes it necessary to consider two questions.
First. Has this court, as the successor of the Court of Chancery of this state,' the power to sanction or ratify by subsequent order, made during the infant’s minority, the unauthorized. act of the guardian in respect of such an investment! There seems t,o be some difference of opinion in different jurisdictions upon this subject. The earlier English rule seems to have allowed such sanction,- where it was shown to have been for the advantage of the infant’s estate (see 2 Eden, 152, 153; Ambl. 419); but in Perry on Trusts (6th ed., § 605) referring to the English rule the writer says: “In other and later cases the jurisdiction and power of the court to change the nature of an infant’s property have been denied, and it seems now to be the established rule that such change cannot be made even for the advantage of the infant.” In section 606, he says: “In the United States, a guardian or trustee cannot convert an infant’s personalty into real estate;” and, further on, he says: “But a trustee or guardian should not venture to expend the ward’s personalty in that manner without first obtaining the sanction of the court; for if an unauthorized act is first done, the court will not sanction it, though in the particular case it might he proper if first sanctioned by the court; for the principle is that trustees and guardians of infants should take no important step without leave of the Court, and the Court will punish such action taken on their own responsibility, by refusing to sanction the expenditures.” Citing 3 Shep. Me. 228; 1 Penn. St. 326; 4 Scam. (Ill.) 127. In Millers Estate, 1 Penn. St. 326, the court said that the judge in the Orphan’s Court was wrong in
The same doctrine was applied by the Supreme Court of Virginia in the case of Boisseau v. Boisseau, supra, and other authorities can be found in the notes in Cyc, and the American and English Encyclopaedia of Law; but in the state of New York the current of authority is clearly in favor of the right of sanction, although the necessity for exercising the right in the most careful and guarded manner and solely for the benefit of the infant is pointed out.
Surrogate Comstock in Matter of Bolton, 20 Misc. Rep. 532, affd., 159 N. Y. 129, says, at page 538: “ In the broadest sense the old Court of Chancery possessed and exercised jurisdiction over the person and property of infants, they were its wards, and in the exercise of its equity power, as we have seen, it could, and often did, direct such uses of the infant’s funds, or sanction it after it was done, provided the infant had not attained his majority. This power was transf erred to the Supreme Court and .is now held by it, even over guardians appointed by the Surrogate’s Court. Dayton on Surrogates (5th Edition) 819, and cases cited.” See also Matter of Decker, 37 Misc. Rep. 527.
Dayton refers to Kent as authority for his state'-' ments and the latter states (2 Kent’s Comm. 230): “ The guardian must not convert the personal estate of the infant into real, or buy land with the infant’s
In Eckford v. DeKay, 8 Paige, 89, Chancellor Walworth said (p. 95): “As the guardians had vested the fund, in which this infant daughter had an interest, in the purchase of this real estate without the previous sanction of the Court, she would, of course, have the right, when she became of age, if this Court in the meantime had not made the election for her, to repudiate the deed; and to claim her share of the $27,000 and interest from the estates of her guardians, or from their sureties.” This case was affirmed on appeal in 26 Wendell, 29.
In Sherman v. Wright, supra, the court, in an action for specific performance of a contract for the lease of property belonging to an infant, says: “ It was incumbent upon the plaintiff to show affirmatively that the contract sought to be enforced was such a contract as the guardian acting for the best interests of the infant might properly have made, and such as the court would have approved and authorized to be made, had authority to make it been asked.”
I conclude, therefore, that the right of sanction exists; and the next question to be considered is
Hence, even assuming that the proceeding had been taken in good faith and not, as a deception upon the court, I think it would not support the contention. Sanction, either actual or inferential, cannot be conclusively assumed against the infant under such circumstances; it must be the result of a judicial determination in a proceeding where the question is necessarily involved and where the court is truthfully advised that the question is before it. Any other doctrine, or less rigid rule, would result in obvious danger to the interests of infants, and place them at the mercy of unscrupulous guardians who might, by subterfuge, succeed in obtaining from the court judicial sanction
The third contention of the def endant is that the plaintiff was guilty of laches, in that it. did not require the guardian to file annual accounts, whereby the wrongful use of the ward’s property would have been disclosed, and that for some time- after actual notice came to plaintiff of the diversion of the sum in question plaintiff took no steps to protect itself. It is claimed that such delay should preclude the plaintiff from recovering in this action because, had the plaintiff proceeded promptly on discovering the maladministration to have the letters of guardianship revoked and to compel the guardian to account, the claim now made against defendant might have been made before the property bought from the defendant had been disposed of; and defendant, if compelled to refund the money received, would have been entitled to a reconveyance of the premises. Such reconveyance is, of course, now impossible by reason of the guardian’s subsequent transactions hereinbefore referred to. If the plaintiff’s claim depended wholly on the doctrine of subrogation, there would be some force in this contention upon general equitable principles — although no authority in point is cited, nor have I been- able to find any such—were it not for the fact that the -defendant himself was a party to the wrongful or unauthorized act, and, as such, liable for the consequences thereof. But, in addition to this, the plaintiff claims under an assignment from the -substituted guardians of the ward, and thus its case is brought within the doctrine laid down in Empire State Surety Co. v. Nelson, supra. The right of the ward, or his substituted guardians, to recover of defendant was, of course, not prejudiced by plaintiff’s laches if any ex
The guardian was trustee of the ward’s property and so long as the property remains- in his possession as guardian and unaccounted for he must remain liable to account. Matter of Camp, 126 N. Y. 377, 389. And the trust is an express trust. Mitchell v. Mitchell, N. Y. L. J., Jan. 6, 1916.
It remains to consider -only the last -contention, of defendant, which is, whether the loss to the estate of the infant was the result of the wrongful diversion of the funds paid to defendant for the equity in his property. To determine this question, it is necessary to refer again to- the- subsequent dealings of the guardian with the property bought from the -defendant. The details of the first exchange have already been set forth. After this, there were several -exchanges, and finally a foreclosure which -swept away the equity, if any, in the property last acquired as the result of the several exchanges. I think that, notwithstanding, the loss to the -estate did not become apparent until after the later transactions referred to, the defendant is nevertheless liable. In Snares v. De Montigny, 1 App. Div. 494, affd. on opinion below, 153 N. Y. 678, it was held that the purchaser of a mortgage from a trustee without the consent of the beneficiary, which .was required by the terms- of the trust instrument, was not entitled to foreclose the -same, although he had paid full value, and the money received was afterwards misappropriated by the trustee. In the eas-e at bar, the purchase -of this property was the beginning"-of a period of unlawful investment. The money was never restored to the infant’s estate, but was continuously invested in unauthorized- property. Defendant seeks
Under the circumstances shown by the evidence, I conclude that the plaintiff is entitled to the judgment prayed for, with costs.
Judgment for plaintiff, with costs.