161 Misc. 51 | N.Y. Sup. Ct. | 1936
This action was tried by the court without a jury. The making of formal findings and conclusions was waived. The trial was reopened under stipulation dated June 19, 1936, additional evidence admitted over objection, motions considered renewed and the trial closed.
The plaintiff, as administratrix of Noah Stark, deceased, sues to recover the loss of the estate consisting allegedly of the value of twenty-four shares of stock of Bancitaly Corporation and thirty shares of Bank of Italy, plus $2,137, which belonged to the estate of Noah Stark, and were exchanged by plaintiff on September 20, 1929, for 192 shares of Transamerica Corporation.
Noah Stark died a resident of New York in June, 1928, letters of administration being issued to his widow, Anna Stark, the plaintiff, on July 3,1928. She is still acting as administratrix.
An. offer was made on stationery of Bancitaly Corporation, signed by A. P. Gianinni on October 24, 1928, to stockholders of Bancitaly and Bank of Italy, which informed them that Transamerica had bee n incorporated to acquire control of said corporations, invited them to participate by exchanging one share of Transamerica stock for each share of Bancitaly stock and one and three-quarter shares of Transamerica stock for each share of Bank of Italy stock and which requested such of said stockholders as resided in the Eastern States to deliver their stock “ to James F. Cavagnaro, Vice-President, Bank of America, 680 Broadway, New York City.” Gianinni was president of Transamerica Corporation and it may fairly be assumed the offer was made by it. On September 20, 1929, Gustavus height, an attorney representing the estate of Noah Stark, came to the office of Bank of America at 680 Broadway and discussed with the defendant Muldoon, who was in charge of the customers’ securities department, the question of converting twenty-four shares of Bancitaly stock and thirty shares of Bank of Italy stock into Transamerica Corporation stock. Muldoon in that conversation advised height that the exchange could be consummated by paying $2,137 in addition to the shares of Bancitaly and Bank of Italy stock.
Muldoon sent the stock certificates, together with the $2,055 check, by mail to Bank of Italy in San Francisco. The shares of Bancitaly and Bank of Italy stock were canceled by Bank of Italy and new certificates of Bank of Italy and of a new corporation, Bancitaly Company of America (organized to take over the assets of Bancitaly) were issued to Transamerica Corporation. Three certificates of 192 shares of Transamerica Corporation stock were thereupon issued in the name of Anna Stark, as administratrix, and sent to Muldoon, Customers Securities Department, Bank of America, which shares were in turn delivered by Muldoon to Leight.
The instruments delivered to Muldoon and those issued by Transamerica Corporation indicate that both defendant corporations and Muldoon were advised that the administratrix was obtaining the new shares for the estate and giving assets of the estate as payment at least in part. (Matter of Title & Mortgage Guarantee Co. of Buffalo, 246 App. Div. 436, 438, 439.)
Defendants Muldoon and Cavagnaro were employees of the Bank of America and their acts in respect of the transaction in suit were the acts of that bank. Cavagnaro was also a vice-president of Transamerica.
Neither Muldoon nor Cavagnaro was required to exercise any judgment or discretion in respect of stock surrendered, payments made or new certificates issued. Each of them followed a routine established by their superiors. The evidence in my opinion does not warrant a recovery by plaintiff against either Muldoon or Cavagnaro for the loss sustained by the estate.
It is conceded that defendant, the National City Bank of New York, has assumed any liability which may be established in this action against the Bank of America. Plaintiff’s claim is that the exchange transaction constituted an improper, imprudent and unlawful investment under section 111 of the Decedent Estate Law
Defendants, relying mainly upon the authority of Delafield v. Barret (245 App. Div. 33; modfd., 270 N. Y. 43), do not admit plaintiff’s responsibility for the loss incurred and assert they are not hable to plaintiff in any event. Briefly defendants’ main position, not passed upon above, is the following:
Investment of trust funds in “ non-legal ” stock is not ipso facto improper, but merely imposes upon the fiduciary an onus of explanation in case of loss.
The transaction here attacked involved merely an exchange of “ non-legals ” for other “ non-legals ” and not a new investment of trust funds. The acquisition of the new stock by such exchange was proper. The loss did not result from the exchange, but from the general financial depression.
Plaintiff can have no cause of action for damages, the right of an estate, if it exists in such circumstances, being limited to a return of the assets improperly exchanged by the administratrix.
In Delafield v. Barret (270 N. Y. 43, at pp. 48, 49) the rule is stated as follows: “ The result of the investment of trust funds in securities not within the classes specified in the statutes is suggested in Steele v. Leopold (135 App. Div. 247, 257; modfd., 201 N. Y. 518) in the following language: ‘ Such an appropriation of trust funds is regarded as a devastavit, and the funds are at once recoverable, but it does not follow that the act is in all cases regarded as corrupt or so contrary to the rules of public policy that it must necessarily be considered tortious.’ * * * If he invests in securities other than those of the permitted class, he cannot set up the statute as supporting either his good judgment or his good faith. If loss results he must bear the loss.”
There can be no question but that such rule applied here requires the plaintiff administratrix to bear the loss and make good the original assets or their value to the estate. Any person who knowingly deals with a fiduciary and receives property which he knows or should have known constitutes any part of the trust does so at
To the same effect are the following authorities: Steele v. Leopold (supra); Scully v. McGrath (201 N. Y. 61); Deobold v. Opperman (111 id. 531); Zimmerman v. Kinkle (108 id. 282); Wetmore v. Porter (92 id. 76); Moss v. Cohen (158 id. 240); English v. McIntyre (29 App. Div. 439); Squire v. Ordemann (194 N. Y. 394); Marshall v. De Cordova (26 App. Div. 615, 618); Clarkson Home v. Missouri, K. & T. R. Co. (182 N. Y. 47); Moore v. American Loan & Trust Co. (115 id. 65, 79); First National Bank of Paterson v. National Broadway Bank (156 id. 459, 467.)
It seems clear that the acquisition of the Transamerica stock was a new investment not permitted by the statutes and not such as diligent and prudent men of discretion would purchase with trust funds. The old non-legal stock was not alone exchanged, new avails were added to complete the transaction, which in effect liquidated the old stock and reinvested the total acquired avails in the new. Any contention that the exchange of Bancitaly and Bank of Italy stock for Transamerica Corporation stock was authorized by reason of identity of same or of the interests and holdings of the companies is without merit. The corporations were not substantially the same. Bank of Italy National Trust and Savings Association was a California bank and is still in existence under the name of Bank of America National Trust and Savings Association. Its stock had a definite market value and could be sold in 1928 and 1929. Bancitaly Corporation was a New York investment corporation dissolved in 1928, the certificate of dissolution being filed in June, 1929, with the Secretary of the State of New York. At the time of the transaction here involved in September, 1929, plaintiff was entitled to receive a proportionate distribution of its assets. The stock could also have been sold in the New York market. Transamerica Corporation is a New Jersey holding corporation organized to acquire the stock of the two mentioned corporations and stock of numerous other corporations. In September, 1929, it owned stock in Bank of Italy National
The old shares were trust property and the corporate defendants received it from the plaintiff as administratrix. She had no power to part with such shares for the purpose for which they received same. In seeking to recover back what she should not have delivered over, she is performing a duty of her office, as administratrix. The corporate defendants received the property knowing it was a trust and transferred by the administratrix in violation of her duty. They accepted such property subject to rights not only of those entitled to receive the benefit of same as an asset of the estate, but also of the trustee to reclaim possession or recover for any loss to the estate arising while such property was out of the administratrix’s possession. (Zimmerman v. Kinkle, supra; Wetmore v. Porter, supra.) Where loss occurs it amounts to waste and being a devastavit the trustee is liable therefor. Whether the corporate defendants may be held as purchaser or agent of the purchasers of the old stock, or as agent for the administratrix in acquiring the new or as knowingly aiding or abetting in the-unlawful use of the property by the administratrix, they are liable to her as the representative of the estate for the loss sustained. (National Surety Co. v. Manhattan Mortgage Co., supra.)
While there is no question that an action is equity will lie, and is, perhaps, the more appropriate to adjust the equities between the parties, there does not seem to be any valid objection, the damages being readily ascertainable, to an action at law for the loss to the estate. (Empire State Surety Co. v. Cohen, 93 Misc. 299.) In the present action a motion was made before trial to strike the cause from the law calendar on the ground that the relief sought by plaintiff was in equity. The motion was denied and no appeal
The value of securities, and the money in addition delivered by plaintiff to defendants on September 20, 1929, was $12,628. Of this amount $2,000, if the above opinion is correct, must be deducted. On the balance of $10,628 interest must be computed to date and added. Against this amount defendants are entitled to deduct the total dividends received by plaintiff on the Transamerica stock, which appear to amount to $552.56, and Transamerica is entitled to receive from plaintiff the stock certificates for 199 shares of its stock properly indorsed. These shares at the time of repudiation appear to be of the value of 5| or a total of $1,119.38. Judgment is directed to be entered accordingly.