Case ID: ad_147/html/0494-01.html
Source: Caselaw Access Project
Author: {"author": "Sewell, J.: Betts, J. (dissenting):", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of the Judicial Settlement of the Account of John R. De Vany, as Executor, etc., of Harry S. Gordon, Deceased, Appellant. Carlo Gordon and Edith Gordon, Respondents
    Third Department,
    November 29, 1911.
    Decedent’s estate — power of " surrogate — executor — accounting — profit made by discounting legacy failure of legatee, to object. '
    A surrogate may on his own motion require an. executor or administrator 'to account, and, after obtaining jurisdiction of the person, may.examine and settle the account rendered.
    The passing of an executor’s account is a judicial act even where no objections are made.
    An executor or other trustee is prohibited from so dealing with the trust property as. to gain any advantage directly or indirectly, for himself beyond his lawful compensation. -
    An executor may not make any profit for himself by purchasing a legacy at a discount, and,' if he does, it inures to the benefit of the estate whether the legatee complains or not.
    
      Where an executor advanced $3,000 on a $3,500 legacy upon an -understanding with the legatee that he should have the balance as a consideration for the advance, Ms accounts will be surcharged with the profit he made less six per cent mterest upon the money advanced.
    'This is so although the legatee did not complain and there was no fraud in the transaction.
    Sueh a transaction cannot be sustained as a gift from the legatee to the executor, although he handed her the balance of the legacy and straightway received it back.
    JBbtts, J., dissented, with opinion.
    Appeal by John R. De Vany, as executor, etc., from so much of a decree of the Surrogate’s Court of the county of Ulster, entered in said Surrogate’s Court on the 14th day of November, 1910, as surcharges the account of the executor .with the sum of $381.
    
      John J. Linson and James Jenkins, for the appellant.
    
      Howard Chipp, for the respondents.
   Sewell, J.:

Harry S. Gordon died leaving a will which was admitted to probate by the surrogate of Ulster county December 15, 1908, .and on that day letters testamentary were issued to the appellant, the executor therein named. By the 5th clause of the will Edith R. Gordon was bequeathed $2,500. This legacy was subject to an inheritance tax of $118.70. On the 1.5th day of May, 1909, the executor advanced to the legatee $1,700 of his own money and took her receipt for $300, the price of a colt belonging to the estate purchased either by her or her husband. The executor testified that the legatee at that time offered to take $2,000 for the legacy, and that sometime thereafter she executed and delivered to him an assignment in blank of the legacy, and a power of attorney, authorizing him to pledge or transfer it for the sum of $2,000; that he did not assign or pledge the legacy, but returned the papers to her on the 20th day of January, 1910, when he went to Rope’s Creek, Md., where the legatee resided, and paid her the sum of $381.25, the balance of her legacy, and took her release. The surrogate found that at that time he had paid her $381.25 in cash, and that “Edith Gordon immediately handed back to said. executor $381.00 of the. same moneys so paid her, which said executor retained and still retains,” and That said moneys were so paid to and received and retained by said executor because, of his having advanced said legatee said sum of $2,000’ for her said legacy. ”

As a conclusion of law the surrogate found that the sum of $381 retained by the executor belonged to the estate and that he should be changed with that sum in the decree. The executor contends that if he is in the wrong in retaining the moneys, the wrong is against the legatee, and that in the absence of an objection by her the surrogate was hot called .upon to 'decide that question or to surcharge his account with the amount retained by him.

There is no statutory requirement or general rule requiring the filing of specific objection by a party contesting an account. The surrogate has. the power on his own motion, with or without a petition or suggestion from any one, to require a judicial settlement of the accounts of an executor or administrator, and after obtaining jurisdiction of the person, to proceed and examine into the account and to settle and adjust the same.

In Wigand v. Dejonge (8 Abb. N. C. 260) it was held that the act of passing the account of an executor is a judicial act on the part of the surrogate, even when no objections are made to the account, and in doing so he exercises that power over trusts formerly exercised by the old Court of Chancery, and where infants ate interested, in the accounts he is bound to investigate and take charge of their interests as their ultimate guardian.

The only question presented, therefore, is whether or not the account should be surcharged with the moneys which were paid or delivered by the executor to the legatee, and immediátely thereafter returned by her to him.

The appellant has cited cases which support his contention, that a voluntary gift is as much protected by law as is a transfer for a full consideration, and. that it can be assailed only by parties interested in a court of equity for fraud, undue influences or unfairness. This is, without doubt, the rule, but it is not applicable to the present case, because there was no evidence tending to show that the transaction between the legatee and the executor was a gift to the executor. On the contrary, the evidence was of such a character as to justify the surrogate in finding that the money was paid to and received by the executor on account of the advancement.

All the evidence as to the transaction between the executor and the legatee was given by the executor himself. He testified that he told the legatee “ at the time she was entirely too liberal and magnanimous, and offered to pay it back. She stated that was what she was willing to pay any one else; that I had befriended her and was glad that I got the benefit, and under those circumstances I accepted it. * * * I do not know what she paid me for: There were some other consultations and matters of importance I went over with her, but I did not charge her and never intended to, but she did what I have told you for my trouble, my expenses, my favor and by accommodating her by advancing this $2,000 myself and the trouble I had had * * *. It was paid to me as I understand. for the use of my $2,000, for the trouble and expense that I had been to at her request and for her accommodation, and for advice and information possibly, that I had given her in reference to the estate and its condition; what should be done or what she desired done in behalf of her children with the farm and matters of that kind.”

The question as to whether an executor is bound to account for money received under such circumstances is not an open one, and it matters not that no actual fraud was found. It was said in Fulton v. Whitney (66 N. Y. 555) that “The object of the rule which precludes trustees from dealing for their own benefit, in matters to which their trust relates, is to prevent secret frauds by removing all inducement to attempt them,” The rule prohibiting an executor or other trustee from managing the affairs of the trust or dealing with the trust property so as to gain any advantage directly or indirectly for himself beyond his lawful compensation is well supported by the decisions of the courts of this State. In the case of McClure v. Law (161 N. Y. 78) it was held that money received from an outsider by a director and president of an assessment life insurance company, for procuring the outsider and his friends to be elected directors and given the control and management, is money obtained by virtue of his office for which he must account to the corporation. The court there cited with approval Perry on Trusts ([4th ed.] § 427): “Trustees hold a position of trust and, confidence. The legal title of the trust property is in them, and generally its whole management and control is in their hands. * * * They cannot use the trust property nor their relation to it for their own personal advantage. All the power and influence which the possession of the trust fund, gives must be used for the advantage and profit of the beneficial owners and not for the personal gain and emolument of the trustee. * * * So, where a trustee retired from the office in consideration that his successor paid him a sum of money, it was held that the money so paid must be treated as a part of the trust estate^ and that the trustee must account for it as he could make no profit directly or indirectly from the trust property or from the position or office of trustee.”

The court also said: “In Cook on Corporations, section 650, it is said: It is a well-established principle of law that a director commits a breach of trust in accepting a secret gift or . secret pay from a person who is contracting or has contracted with the corporation, and that the corporation, may compel the director to turn over to it all the money or property so received. by him.’”

In the case of Carpenter v. Taylor (164 N. Y. 171) the Court of Appeals said: “ A trustee who holds the title to property for the benefit of others cannot use his position for his personal advantage. He cannot make profit for himself in the execution of his trust. He cannot ordinarily deal with the beneficiaries or parties interested in the estate so as to acquire the ownership of the trust property. * * * In such cases the trustee occupies the dominant position, and the beneficiary or person interested in the estate is, in some respects, subject to his power and influence. For obvious reasons the disability of the trustee to bargain with the beneficiary for a share or interest, in the property, whether in the: form of compensation or otherwise, is absolute in order to avoid the possibility of fraud. In such cases the law acts upon the principle that the temptation of self-interest is too powerful and insinuating to be trusted.”

In Matter of Schroeder, No. 1 (113 App. Div. 217) the court said that this rule is most salutary. Persons holding fiduciary positions in the many trust relations which modern society has produced, should he held to the" strictest accountability. The community should he given to understand that the courts of this State will hold trustees to the highest standard of straight conduct, and will not permit them to make hy virtue of their trusts a private and personal profit beyond the compensation allowed hy law.”

Any other rule would permit an executor to purchase legacies bequeathed by his testator at a discount, and profit by paying himself in full. Such a practice would open the door to the greatest fraud. The only proper and safe rule to follow is to hold that an executor shall not make any profit by the discount of a legacy and, if he does, it shall inure to the benefit of the estate whether the legatee complains of unfair treatment or not.

It is to he observed, however, that all of the $381 with which the executor was charged was not personal gain or profit. He was without the use of the $1,700 advanced by him from May 15, 1909, to January 20, 1910. We think that he had a right to receive the lawful interest thereon during that period, which amounts to the sum of $69.70. It follows that his account should have been surcharged with only the sum of $311.30, and that the decree of the surrogate should, therefore, be modified accordingly and as so .modified affirmed, without costs to either party.

All concurred, except Betts, J., dissenting in opinion.

Betts, J. (dissenting):

Harry S. Gordon died October 16, 1908, in Ulster county. His will was proved December 15, 1908. Amongst other provisions the will contained this: “Fifth. I give, devise and bequeath unto Edith Gordon, wife of William J. Gordon,, the sum of Twenty-five Hundred Dollars ($2,500.00).”

This legacy was properly payable to Edith Gordon, December 15, 1909. (Code Civ. Proc. § 2721.) Edith Gordon resided in Maryland, Some time prior to May 15,1909, her residence was burned at Pope’s Creek and she lost everything, escaping at midnight in hér night clothes from the fire. Shortly after the fire she met the executor and desired him to pay her legacy. This he could not do under the statute. It was then suggested that an effort should be made to raise money by an assignment or .pledge or hypothecation of the legacy for the sum of $2,000. Edith Gordon tried, unsuccessfully-to raise this amount. The executor did not succeed in raising the amount for her, but on the 15th of May, 1909, he paid said Edith Gordon $1,700 of his own money. She or- her husband had purchased for $300 a colt from the estate, which was unpaid for and which was at that time credited to her. Some time during the year such proceedings were had that the taxable transfer tax against this $2,500 was fixed at $118.75, which was paid by the executor, so that so far as Mrs. Edith Gordon was concerned she had received $2,118.75; $1,700 of it being the personal money of the executor. On or about January 20, 1910, the executor went to Maryland, where Edith Gordon resided, and paid her the balance of her legacy, which was $381.25, in cash, whereupon Mrs. Gordon gave that money back to the executor and he took it and still retains it. Mrs. Gordon executed a release on January 20, 1910, releasing the executor and the estate from any and all claims under the will of Harry S. Gordon. ‘ This was witnessed by W. J. Gordon, her husband, but was not acknowledged before a notary, public, and later a more formal release was filed. Upon the judicial settlement of the accounts of this executor in the Surrogate’s Court Edith Gordon was duly cited but. did not appear. Objection was made by a special, guardian for certain infant legatees that the $381.25 given by Edith Gordon to John R. De Vany, the executor, should be credited to the estate, and the executor’s accounts charged therewith. These infants are not shown to have any interest Whatever in the legacy to Edith Gordon, the Edith Gordon the infant being an entirely different person. Mrs. Edith Gordon, the legatee, filed no objections. The surrogate found ‘ ‘ That said sum of $381.00 so received and retained by said executor belongs to the estate of said Harry S. Gordon, and said executor should be and is charged with said sum in the decree entered herein.” The decree followed this finding, so that we have the executor charged with $381, which was given to him by one of the legatees under the will of his testator, and that amount is passed to the credit of some persons who are entire strangers to this, legacy.

The surrogate cites no authority for the action thus taken. The authorities cited by the attorney for the respondents on this appeal have no relation to the question that was before the surrogate. They are for the most part where a trustee of some kind has used the funds of the estate for Ms betterment. This executor did not do that; -he advanced his individual funds to the legatee at her request. There is no question of fraud, misrepresentation or deceit here and the surrogate has so found. “ Sixth. That no fraud, misrepresentations or deceit was made by the executor before or at the time of the said "payment, to the said Edith E. Gordon.”

He could not well find otherwise because it was apparent the legatee knew the amount of her legacy. She gave two releases therefor in full and she was cited to appear upon the final accounting and could make objection if she so desired.

The decree provides that the balance remaining in the hands of the executor, who continues as trustee, shall be by him invested according to the terms of the will and the net income received therefrom together with the net income from the balance of the residuary estate be paid to May K. Gordon. Thus by the decree ,as. entered May K. Gordon, the wife of the deceased, will receive during her lifetime the income from money that in nowise belongs to her and never did and it will eventually be paid to residuary legatees whom the testator did not give it to, instead of being disposed of by Edith Gordon as testator intended.

Fulton v. Whitney (66 N. Y. 548), which is quoted by the respondents, was a case where a trustee had purchased for his own benefit property belonging to the estate and it was held that he could not do so but that the purchase inured to the benefit of the cestui que trust. That is not this case nor like it but it does lay down the rule which precludes trustees from dealing for their own benefit in property of the estate and the reason for it.

This executor did nothing wrong. He did not use the funds of the estate for his own benefit. To accommodate Mrs. Edith Gordon he used $1,100 of his private funds to help her before he could pay her from the estate and she" made him a present and is not here disavowing it or complaining.

The decree proceeds on the theory that Edith Gordon did not receive all that she was entitled to and yet the balance which it is claimed belonged to her is by the decree given to other parties.

I think after the payment to Edith Gordon of the amount of her legacy it was hers to do with as she chose, arid until she makes some protest or expresses some dissatisfaction other parties cannot by judicial decree be j given any portion of her property which she saw fit to give to this executor. (Barr v. N. Y., L. E. & W. R. R. Co., 125 N. Y. 263, 215.)

It follows that the decree of the surrogate should be reversed, with costs payable to the executor out of the estate.

Decree of the surrogate modified las per opinion and as so modified affirmed, without costs.