Case ID: ad_47/html/0173-01.html
Source: Caselaw Access Project
Author: {"author": "Merwin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Phœbe M. Mann, an Infant, by Maria L. Mann, her Guardian ad Litem, Respondent, v. Elizabeth H. Benedict, Appellant.
    
      Trust fund — established as a lien on real property, towas:ds the purchase of which it was wrongfully diverted—party to an action to establish it;
    A complaint which alleges that the defendant conveyed property to one Nancy A. Mann and received in ..partial -payment therefor moneys diverted by the guardian of the plaintiff from the trust fund in his hands, with full1 knowledge • on the defendant's part of the character of such moneys; that .the defendant took a mortgage on the property,, given by Nancy A. Mann to secure the balance of the purchase price, which mortgage the defendant subsequently foreclosed, and on a sale thereunder purchased the property, and still holds the same, states a cause of action to establish an equitable lien upon the premises . for the amount of the trust fund thus wrongfully diverted.
    Nancy A. Mann is not a necessary party to the action, as her interest in the prem" ises was cut off by the foreclosure, and as the liability of the wrongdoers is several.
    Appeal by the defendant, Elizabeth H. Benedict, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the. county of Rensselaer on the 3d day of October, 1899, upon the decision of the court, rendered after a trial at the Greene Special Term overruling her demurrer to the complaint, and also from an order made at the Greene Special Term and entered in said clerk’s office on the 3d day of October, 1899, overruling said demurrer and directing the entry of said interlocutory judgment.
    The allegations in the complaint are substantially as follows :
    On or prior to December 31, 1892, Orvellas Mann, the father of .the plaintiff, she- being then, about seven years old, was duly appointed her general guardian and duly qualified and entered upon the duties of his trust. .As such guardian .lie received the sum of $5,000, the same being deposited in two savings banks in Albany.. About the 1st of August, 1893, the defendant entered into negotiations with Nancy A. Mann, an elder adult sister of the plaintiff, and Orvellas Mann for the sale of certain real estate owned by defendant, a specific description of which is set out. After negotiations,, an agreement was reached by the parties by which the defendant agreed to sell, and Orvellas Mann and Nancy A. Mann agreed to-purchase, said premises at and for the price of $10,000, the title to-the property to be taken in the name of Nancy A. Mann. By the terms of this agreement said Nancy A. Mann was to pay in cash the sum of $2,000, and Orvellas Mann was to advance and pay the sum of $4,000 of the trust funds of plaintiff in his hands as her-general guardian, and the balance of the amount of the purchase price,, being the sum of $4,000, was to be secured by a first .mortgage -ypon the premises to be given by Nancy A..Mann. This-agreement was to be consummated by the payment of the money,, including that of the infant, and the execution of the mortgage by Nancy A. Mann on or about the 15t'h of August, 1893. On or about that day the three parties went to Albany for the purpose of procuring the money of the plaintiff and of said Nancy, which was, deposited there in certain banks, blit they .were unable to procure the same b.y reason of certain rules of the banks, except that said Nancy obtained $1,500. By reason of the failure of Orvellas Mann to procure the moneys of the infant at that time, it was agreed • between the three parties for the purpose of carrying .into -effect, said agreement that said Nancy should pay to defendant the sum of $1,500, and the defendant should execute and deliver to her a deed of the premises, and she give back a mortgage in the sum of $8,500;. and that when and as soon as the money of the infant, the sum of $4,000, could be obtained from the savings banks, the same should be paid to defendant in part payment of the purchase price and in reduction of the mortgage to the .amount originally stipulated between the parties, namely, the sum of $4,000. Thereafter, and about the 1st day of November, 1893, the said. Nancy paid the sum of $500 to make up the $2,000 to be paid by her in pursuance ■of the original agreement, and on or about November 4, 1893,, Orvellas Mann advanced and'paid the sum of $4,000, the money of the plaintiff-in his hands as guardian, upon the purchase price of the premises, without receiving any security therefor and in violation of his trust. This sum of §4,000 was paid to defendant and invested by said Orvellas Mann in the property of. defendant with the full knowledge upon the part of the defendant ■ that the said moneys were trust' moneys, and of the diversion of the same by the guardian .from the proper uses and purposes of the trust. Subsequently, and on or about March 9, 1897, the said Nancy having failed to pay the interest upon the mortgage, the premises were sold under judgment for the foreclosure and sale thereof for the sum of $4,000, leaving a judgment for deficiency in the' sum of $220 against the said Nancy. The defendant was the purchaser at the sale and received the deed and entered into possession, and nowliolds the- same, together with the money which the guardian of plaintiff wrongfully and unlawfully paid to her.
    Judgment is demanded that the said sum of. $4,000, with interest from November 4, 1893, be adjudged a lien and charge upon the. premises in the. hands of the defendant, and that the premises be' sold for the satisfaction of the same, and for such other and further relief as may be just.-
    The defendant demurred to the complaint: 1. Upon the ground that there is a defect of parties defendant in the omission of Nancy A. Mann, mentioned in said complaint. 2. Upon. the ground that the said complaint does ñot state facts sufficient to constitute a cause of action.
    
      Henry J. Speck, for the. appellant.
    
      James Lansing, for the respondent.
   Merwin, J.:

Under the allegations of the complaint, the money of the plaintiff is traced into the-real estate therein described. It was delivered to the defendant and received by her as part of the purchase price. There being a misappropriation by the general guardian, the plaintiff had a right to look to the land for indemnity. She had an equitable lien thereon to the amount of the trust fund invested in it.. (Ferris v. Van Vechten, 73 N. Y. 113, 119; Holmes v. Gilman, 138 id. 369, 378.) In the Ferris case it is said (p. 119): “ It must be conceded that trust moneys may be followed into lands to the purchase of which they have been applied, and the cestui que trust may elect whether to hold the unfaithful trustee personally responsible, or' claim the lands, the fruits of the misappropriation of the funds, or cause the lands to be sold for his indemnity and look to • the trustee for any deficiency.” This lien was operative not only as against Nancy A. Maun, to whom the title was conveyed, but as to subsequent holders of the title who took with notice.. (2 Story Etp Juris. § 1258; 2 Perry Trusts [5th ed.], § 828; 27 Am. & Éng. Ency. of Law, 250; 2 Pom. Eq. Juris. § 1048.) The defendant n.ot only had notice, but herself received the trust fund with full knowledge of the diversion. She co-operated with the guardian to bring it about. . She is to be regarded as conniving with the guardian to work a devastavit. (Colt v. lasnier, 9 Cow. 320.) She is, therefore, not in a position to claim that, under the mortgage given for the balance' of the purchase money, she has a preference to plaintiff. If such -preference was allowable, it might operate to deprive the plaintiff of- any effectual remedy upon the land, and to that extent give to the defendant the benefit of her owir wrong. • The rights of the plaintiff were not bound or affected by the mortgage so far as the defendant is concerned. (1 Perry Trusts, § 458, note 4, citing Mathews v. Heyward, 2 S. C. 239.) The purchase on foreclosure did not enlarge the defendant’s rights. (2 Story Eq. Juris. § 1264;

Warner v. Blakeman, 4 Keyes, 508.)

If trust property is wrongfully converted by the trustee^ and constitutes, although in a changed form, a part of the assets of - an estate with which it is commingled, priority of lien will be adjudged in favor of the trust estate. (Matter of Cavin v. Gleason, 105 N. Y. 256, 262.) If, in the present case, only a contract for sale had been given, and the money of plaintiff had been paid thereon with -defendant’s knowledge, there cannot be much doubt that the equitable lien of plaintiff would be a charge on the whole property and overreach any interest of-defendant therein. The position, here is equitably no better for the defendant.

Sufficient facts were, I think, stated in the complaint to constitute - a cause of action.

It is claimed by the defendant that Nancy A. Mann is an indis- • pen sable party defendant. She has now no interest in the real •estate, as that was cut off by the foreclosure of the mortgage. The right of the plaintiff is not based on any contract between the plaintiff and" Nancy A. Mann, and, therefore, the views stated in Hovey v. Elliott (118 N. Y. 124), cited on the part of the defendant, do not apply. The right of the plaintiff is based upon the wrong committed by the guardian with the knowledge and co-operation of the defendant and Nancy A. Mann. The liability of the wrongdoers is several. (1 Hill Trustees, *520.) The plaintiff is not •concerned with any remedy that defendant may have against Nancy A. Mann. The right of the plaintiff" does not depend on whether the defendant has any remedy at all against Nancy A. Mann.

I fail to see how there is any defect of parties appearing on the face of the complaint.

All concurred.

Judgment affirmed, with costs, with usual leavé to answer upon payment of costs.