101 F. 167 | 2d Cir. | 1900
By the will of Mrs. Andrews, who died in 1883, the executor was empowered to sell and convey the ■ real estate of the testatrix, and became a trustee to receive the rents ! and income of the whole estate, and apply the same first to the pay-ment of annuities aggregating $3,490 given by the will to several legatees, and thereafter to the payment of various residuary legatees. In 18S5 the executor applied to the surrogate’s court for a judicial settlement of his account, and had an accounting, and to that proceeding every person interested in the estate was a party. .By the decree of the surrogate the executor was authorized to retain in his hands certain specified real and personal estate, or the investments arising from the conversion thereof into other assets, as a fund for producing the annuities. The decree also provided that out of the residue of the estate then remaining in his hands the sum of $65,376 be appropriated as the amount to be divided among the residuary legatees, and that the executor also pay to them ■'annually the net income from the annuity fund in excess of the annuities. Until September, 1894,- he administered the estate; collect- . ing the income of the annuity fund, and discharging the annuities in full. In 1894 he. commenced an action in the supreme court of - the state of New York against the legatees named in the will, other .than the annuitants, for a judicial settlement of his accounts as trustee. By the decree in that action his account was stated, he .-.was permitted to resign his trust, the New York Life Insurance & ■ Trust Company was appointed trustee in his place, and upon transferring to the new trustee the estate of the testatrix in his hands he .was to be discharged from all liability arising from its manage- . ment and'his acts in relation thereto. In the accounting, as stated : by the decree, it appeared that he had made payments to residuary legatee's amounting to $30,000 out of the annuity fund constituted by the decree of the surrogate, and that there remained in his hands (of that fund $i22,211. invested in specified securities; and it also '¡appeared,that there remained in his hands of the residuary legatees’
Unless the original trustee was discharged by the decree of the supreme court from further liability to the annuitants, it is plain that he still remains liable to them for any breaches of duty in his dealings with the annuity fund. He remained their trustee until his successor in the trust was appointed, and, if he diverted any part of the fund consisting of the assets assigned to it for their benefit by the surrogate’s decree, he is responsible to them to the extent of their losses. As they were not parties to the action, the decree of the supreme court was ineffectual to foreclose or affect their rights to an accounting. If it had been a proceeding merely for the ap-' pointment of a new trustee, the presence of the annuitants as parties would not have been essential, and might have been dispensed with at the discretion of the court; the appointment being always open to review upon the application of any person interested. In re Robinson, 37 N. Y. 261; Smith v. Trust Co., 154 N. Y. 333, 48 N. E. 550. But the action was one for an accounting, and those persons only were concluded by a decree purporting to adjudicate their rights that were afforded an opportunity to be heard. Williams v. Gibbes, 17 How. 239, 15 L. Ed. 135; In re Howard, 9 Wall. 175, 19 L. Ed. 634. It appears by the proofs that the assets of the annuity fund amounted to about $154,000. The fund was apparently ample to produce the annuities, and the trustee doubtless acted in good faith, and from commendable motives, in appropriating from it $30,000 for the benefit of the residuary legatees, as in the meantime some of the annuitants had died. But he acted at his peril in thus depleting the fund, and, as the decree of the supreme court does not protect him, he must be deemed, in equity, to hold the amount still in his hands, as part of the fund. The fund, while in his hands, was further depleted to the extent of the $10,000 paid from it, under the decree of the supreme court, for commissions, and the costs and counsel fees of the action; and for the same reason he must be deemed to have that amount still in his hands, as part of the fund. His responsibility in respect to the future management of the fund ceased upon the appointment of the new trustee, and, if he turned over to his successor the whole fund then in his hands, he remained
The new trustee became responsible to the annuitants only'to the extent of the producing capacity of the fund which came to its hands, unless it neglected to procure the delivery of assets by the original trustee which by the decree of the supreme court should have been turned over to it; but to that extent it became liable to respond to them, and if, in consequence of its own breaches of duty, the fund has not produced the income which should have been realized, it is accountable to them.
In turning over the assets to the new trustee, the original trustee scheduled, as belonging to the annuity fund, cash and securities to the amount of $80,798, and, as belonging to the residuary legatees’ fund, cash and securities to the amount of $65,430. Among the latter, however, were a mortgage of $5,000, and others for $27,750, which were enumerated in the decree of the supreme court as belonging to the annuity fund. Thus, the new trustee received assets amounting to about $113,500 belonging to the annuity fund. It had notice what securities belonged to that fund, because the decree by which it was appointed trustee recited and described them. As the successor in the trust, it assumed the duty of protecting these assets, realizing the income, and paying the annuitants in full if the fund was sufficient, or pro rata if insufficient to produce enough to pay them in full. Instead of treating the $113,500 of assets as belonging to, that fund, it treated only those as belonging to it which were recited in the schedule of the original trustee. Doubtless, it acted inadvertently in doing so; but, if it had compared the decree with the schedule, it could not have failed to observe that the Baier mortgage and the Wilckens mortgages belonged to the annuity fund, instead of the residuary legatees’ fund. In paying as it did the income derived from these securities to the residuary legatees, it diverted the trust moneys of the annuitants. If the decree had not specifically informed the new trustee that these securities were part of the annuity fund, it might be entitled to insist that as between it and the original trustee, upon the principle of estoppel, they should be treated as belonging to the residuary legatees’ fund. Being thus informed, however, it was not justified in relying upon the schedule, and, in a legal sense, could not have been misled by the recital. As between the two trustees, if the original trustee failed to turn over to the new trustee any part of the annuity fund specified in the decree of the supreme court, he is primarily liable for the income arising from that part.
We conclude that the court below correctly decided that the new trustee was liable to account to the annuitants for the income produced by the securities of the annuity fund which carne to its hands, and that the original trustee was liable to account to them for any deficiency of income resulting from the depletion of the original annuity fund. We are not advised , in the record , of any departure in principle between the interlocutory decree and the final decree of the court below, and the stipulation dispensing with the proofs taken before the master, and assenting to the accuracy of his com
It is insisted for hotli appellants that the residuary legatees who have received part of the annuity fund should have been made parties defendant to the action. There is no merit in this contention. The annuitants were entitled to look to their trustees, and were under no obligation to follow the funds wrongfully diverted by them into the hands of other parties. If the trastees have a remedy against the residuary legatees, they are not deprived of it by the decree in the present action.
The decree is affirmed, with interest and costs to the appellee.
