Case ID: ad_146/html/0448-01.html
Source: Caselaw Access Project
Author: {"author": "Carr, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

M. Elizabeth Waydell, Individually and as Executrix, etc., of W. Anderson Waydell, Deceased, and Others, Appellants, v. Henry E. Hutchinson and Others, Respondents.
    Second Department,
    October 20, 1911.
    Public officers — investment of funds received from partition sale by county treasurer — investment in bond and mortgage made in 1895 .— ratio between value/of property and investment — negligence — principal and surety — liability of surety of county treasurer.
    When in 1895 a county- treasurer was directed by the court, pursuant to section 1583 of the Code of Civil Procedure, to invest funds resulting from.a partition sale ‘-‘in permanent securities at interest” there was no statute in force requiring that where the funds were invested in a bond-and mortgage qn real estate the value of the lands must be double the amount of the investment. At that date the. provision's of the Revised Statutes requiring the value of lands to be double the amount of the bond had been repealed, and section 21 of the Personal Property Law to the same effect had not yet been enacted.
    Hence, where said county treasurer invested such funds in a bond and mortgage on property having a greater value than the loan, but not twice the value, and a subsequent foreclosure resulted in a deficiency, the liability of the sureties of the treasurer to those entitled to the fund depends upon the equitable rule of due care and prudence, and is a question of fact to be determined by the jury. The sureties are not liable as a matter of law because the lands were not worth twice the amount Of the investment.
    Such investment was -not governed by rule 180 of the former Court of Chancery, even if applicable at that date, for the rule applied only where there was no direction in the judgment as to the investment of funds paid' into court, and the only provision regulating the ratio of value between the lands and the amount of the mortgage related expressly to moneys brought into court upon the sale of an infant’s real estate by a special guardian.
    The Sureties on the bond of said county treasurer are liable for his acts where the bond was required tobe filed before the investment, although it was not delivered to and approved and accepted by the board of supervisors until after the investment. By virtue of section 12 of the Public
    Where the suit of foreclosure was brought by the successor of the county treasurer, and there is no charge of negligence other than that of the treasurer who originally made the investment, the liability of his sureties must be determined by the circumstances existing at the time of the investment. It is error to charge in substance that the liability of the sureties could be determined in the light of -the value of the property at the time of the foreclosure sale. -
    
      Officers Law (Laws of 1893, chap. 681) the sureties were liable for the acts of the treasurer in the interval between the time that the bond was required by resolution of the supervisors and the time it was delivered.
    Appeal by the plaintiffs, M. Elizabeth Waydell, individually and as executrix, etc., and others, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Kings on the 12th day of January, 1911, upon the verdict of a jury dismissing the complaint upon the merits, and also from an order entered in said clerk’s office on the Yth day of January, 1911, denying the plaintiffs’ motion for a'new- trial made upon the minutes. .
    
      Joseph T. Brown, Jr. [Daniel D. Sherman with him on the brief], for the appellants.
    
      George V. Brower, for the respondents.
   Carr, J.:

In May, 1894, a final judgment was entered in the Supreme Court in Kings county in an action in partition entitled Waydell v. Waydell. This judgment provided for the distribution of the proceeds of sale made under the interlocutory judgment. It directed. the payment into court of certain moneys to be held for the benefit of a life'tenant, and it provided expressly that said moneys should be deposited “with the Treasurer of the County of Kings to be invested in permanent securities at interest,” and it made provision likewise for the payment of the income to the life tenant and the distribution of the fund at the ending of the life estate. Pursuant to such direction the sum of $14,942.96 was turned over to the county treasurer on May 31, 1894.. On May 13, 1895, the then county treasurer invested a part of those moneys on a bond and mortgage of one McLaughlin on improved real estate in the county of Kings, upon which the mortgage was a first lien, to the extent of the sum of $3,500, the amount invested. Several months thereafter the then county treasurer went out of office and the bond and mortgage in question passed over to his successor. In 1902 the chamberlain of the city of New York, who had succeeded to the powers and duties of the treasurer of the county of Kings, brought an action to foreclose the mortgage, and a judgment of foreclosure was entered and a sale was had under the direction of the sheriff of the county of Kings. The property was struck down for the sum of $1,000, and, the sale being confirmed by the court, a deed was delivered. The net result of the sale, after deduct- • ing accrued taxes, fees and costs, was but $190.35, thus leaving a.deficiency in the sum of $3,430.69. The plaintiffs in this action are the only persons interested in the fund which was paid into, court under the partition judgment above mentioned. They seek to charge the defendants as sureties on the official bond of the county treasurer, who made the investment on bond and mortgage, to the extent of the deficiency arising upon the foreclosure sale. Their theory is that the original investment was unauthorized by law and that the then county treasurer became liable for the money so invested, and. that this liability continued until the security so taken was converted back into cash.

In Matter of Foster (15 Hun, 387) a trustee under a will had invested, without specific authority, funds of the trust estate on promissory notes. He applied for his discharge as trustee, and a successor was appointed, to whom the notes'in question were passed over. A loss resulted from a failure to collect the amount of the notes, and the original trustee was held hable for the moneys so invested, on the authority of King v. Talbot (40 N. Y. 76). It is under the doctrine of these and similar cases that the plaintiffs assert liability against the defendants. This claim of liability must rest, therefore, upon the contention that the McLaughlin bond and mortgage was an unauthorized investment,. or that it was made negligently. The basis upon which the plaintiffs rest their claim that the investment was unauthorized and alsti negligently made, is that at the time of the investment the real property covered by the mortgage was not worth double the amount thereof, though it is conceded by the plaintiffs that it was then worth considerably more than the amount of the mortgage, that is, about $4,200. The proofs offered: by the defendants tend to show that the real property in question was then worth about $5,500. It becomes necessary to examine the basis of the plaintiffs’ claim that the investment was -unauthorized legally unless the value of the real property was worth double the amount of the bond and mortgage. As before stated, the judgment which directed the payment of the moneys into court provided for their investment by the county treasurer in permanent securities at interest.” This requirement was in compliance with section 1583 of the Code of Civil Procedure, where it is prescribed as follows: “ Where a portion of the proceeds representing an undivided share or interest, is invested for the benefit of a tenant. for life, or for years, or of a widow, * * * the court must cause it to be invested in permanent securities, at interest,” etc. This section of the Code of Civil Procedure was but a re-enactment of section 80 (old number 66) of title 3 of chapter 5 of part 3 of the Revised Statutes (2 R. S. 328; 3 id. [6th ed.] 594). Section 84 (old number 70) of the same title of the Revised Statutes (2 R. S. 328; 3 id. [6th ed.] 594) specified the securities in which investments of the proceeds of partition sales might be made, as follows. Securities of the United States, and of the State of New York, and bonds and mortgages upon unincumbered real estate worth at least double the value of the investment. It was declared in Chesterman v. Eyland (81 N. Y. 398) that the provisions of the Revised Statutes as to the nature of the investments applied only where the court had directed an investment, and that in the absence of such direction, rule 180 of the former Court of Chancery still applied. In the case at bar, however, the court made a direction for investment in permanent securities at interest.”

Nowhere in the Code of Civil Procedure is there any specification of what constitutes “ permanent securities ” in the meaning of that statute. Prior to the enactment of the Code of Procedure, the Revised Statutes contained a complete scheme of statutory regulation of actions in partition. The Code of Procedure not only made no change in the existing scheme, but continued it expressly.' (Code Proc. § 448 ) The Code of Civil Procedure contained a complete revision of the statutory regulations of actions in partition. In this revision most of the existing provisions of the former statutes were re-enacted, some, however, were omitted without express declaration of repeal. By chapter 245 of the Laws of 1880 the provisions of the Revised. Statutes relating to actions ’ in partition were repealed expressly. The situation left, by this repeal was that there was no longer any statutory provision defining the “permanent securities ” referred to in section 1583 of the Code of Civil'Procedure. At the time of the re-enactment' of this section, bonds and mortgages on "unincumbered real, property were permissible as investments of funds paid into court in actions of partition, as “permanent securities,” and, doubtless, the intention of the Code of Civil Procedure was to continue them as such* After the repealing act of 1880 there " existed no statutory regulation as to a required- ratio of value between the amount of the bond and mortgage and the value of the real property to be covered by.the lien. The result was that the acts of the county treasurers in making such investments were regulated by the. general rules of equity .governing the performance of the duties of trustees in investing trust. . funds. At the present time this matter is regulated largely by section 21 of the Personal Property Law (Consol. Laws, chap. 41; Laws of 1909, chap. 45). The power of trustees as to investments of trust funds on bonds and mortgages is now restricted by the statute just cited to loans ón unincumbered real property in this State worth fifty per centum more than the amount of the loan. . This provision, however, was not in- force in 1895, at the "time of the transaction involved in the case at bar, as it was first enacted by chapter 295 of the Laws of 1902 (amdg. Pers. Prop. Law [Gen. Laws, chap. 47; Laws of 1897, chap. 417], § 9). It is argued, however, by the plaintiffs that the transaction was governed by the provisions of rule' 180 of the former Court of Chancery. Assuming, but not deciding, that rule to have been in force at the time in question, 1895, it is apparent that it did not apply to- the facts at bar, for, as was said in Chesterman v. Eyland (supra), that rule applied only where -there was no direction in . the judgment as to the investment" of the funds paid into court, and, furthermore, the only provision "of that rule making any requirement as to a ratio of value between the. real property and the amount of the bond and mortgage relates expressly to moneys brought into court upon the sale of an infant’s estate by a special' guardian. It appears, therefore, that there was no absolute rule governing the act of the county treasurer in making this investment, which required the value of the real property covered by the mortgage lien to be double the amount of the loan. His conduct in making this loan is to be measured by the equitable rule of due care and prudence, and is a question of fact to be determined by the- jury, and not a question of law. The evidence before the jury on the part of the plaintiffs was that the real property was worth $4,200 at the. time of. the investment of $3,500 on the bond and mortgage. The evidence of the defendants was that the real property was fairly worth $5,500 at that túne. The case was submitted to the jury on the proper theory, that liability could be imposed upon the defendant sureties if the act of the county treasurer was negligent. The jury found • against the plaintiffs upon evidence which would justify their verdict upon this question, and, were there no other question in the case, there would appear no reason why this court should disturb the judgment . entered upon the verdict in favor of the defendants.

As above stated, when this bond and mortgage was foreclosed in 1902 the property was struck down to an outside purchaser for the sum of $1,000. There is no proof that the plaintiffs knew of the sale or had any opportunity of protecting their equitable interest in the land. There was, of course, no duty incumbent upon these defendants or their principal with regard to this foreclosure sale, as the action in foreclosure was conducted by the ultimate successor of the county treasurer who made the investment. There was no claim of negligence or illegality on the part of any person except in the original act of investment, hence the question of liability of the defendants was to be determined1 exclusively by the circumstances then existing. The learned trial court charged the jury as follows: “ I charge you that if you are convinced that, not? withstanding the sale at public auction after advertisement by the sheriff of the county, this property wás at that time worth money enough to cover the incumbrances that were on it, together with this mortgage, that, these defendants cannot be liable in this case.” To this part of the charge the plaintiffs excepted. It is not- clear what was in the mind of the learned court when it thus instructed the jury. It appears that the charges against the property when it was sold were as follows: Bond and mortgage and accrued interest, $3,621.04; 'taxes and. assessments, $474.14; sheriff’s fees, etc., $78.25; costs and allowances, $257.26; making in all.the sum of $4,430.69. If the learned trial court intended to include the costs and sheriff’s fees as “ incumbrances,” then its charge was equivalent to a direction that if the property was worth at the time of the sale $4,430.69, there could be no recovery against .the defendants as a matter of law. If the sheriff’s fees and. costs and allowances were- not intended to be. included as “incumbrances,” then, including the taxes as such, the value thus put before the jury would be the.sum of $4,095.18, which, if found' by the jury, would ás a matter of law exonerate the defendants from liability. On either theory as to the meaning which the court intended when it used the word “incumbrances ” in this part of its charge, the instruction was erroneous. The test of negligence- in the making of the investment Was the value of the land at the time of the original investment, under the circumstances of this case, and the introduction of a test as to its value at the time, of the sale in foreclosure as being conclusive- as a matter of law against the plaintiffs, was improper and necessarily confusing to the jury. The defendants and respondents contend, however, that in any event the judgment in their favor should be affirmed, because, as they contend, they were entitled to a direction of a verdict in their favor. The bond- of the county treasurer upon which the defendants were 'sureties is dated February 26, 1895. The investment on bond and mortgage.by the then county treasurer was made on May-13, 1895. The defendants gave proofs tending to show that,, notwithstanding the date of the official undertaking, it was not delivered to the. board of supervisors until May 24, 1895, and not approved and accepted by that body until June 17, 1895.' Hence, as they claim, the official bond in question was not in force as against them at the timé the plaintiffs’ cause of action arose, if one did arise.' It appears by the defendants’ proofs that the board of supervisors of Kings county adopted a resolution on February 4; 1895, requiring the county treasurer to file a further undertaking in the sum of $100,000. The bond in question here was filed pursuant to that resolution. Assuming that it was not delivered and accepted until the time claimed by the defendants, yet when it was delivered and accepted the sureties upon it became liable for the acts of the county treasurer in the interval between the time the bond was required and that when it was delivered. For it was provided by section 12 of the Public Officers Law (Gen. Laws, chap. 7; Laws of 1892, chap. 681) as follows : “ If a public officer required to give an official undertaking, enters upon the discharge of any of his official duties before giving such undertaking, the sureties upon his undertaking subsequently given for or during his official term shall be liable for all his acts and defaults done or suffered and for all moneys and property received during such term prior to the execution of such undertaking, or if a new undertaking is given, from the time notice to' give such new undertaking is served upon him.” Under the defendants’ own proofs on this point it . appears that while the undertaking in quéstion was a further or “new undertaking,” notice to give such undertaking had been served upon the county treasurer long before May 13, 1895, and that in fact he was endeavoring to comply with such requirement as early as February 18, 1895. Hence, the learned trial court did not err in refusing to direct a verdict in favor of the defendants, assuming they were entitled to all they claim as to the time of delivery of the -undertaking. However, for the reasons heretofore given, the judgment and order denying the motion for a new trial must be reversed and a new trial granted, costs to abide the event.

Jenks, P. J., Thomas, Woodwabd and Bich, JJ., concurred.

Judgment and order reversed and new trial granted, costs to abide the event.