Case ID: ny-st-rep_7/html/0632-01.html
Source: Caselaw Access Project
Author: {"author": "Follett, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John H. Bruen, Resp’t, v. Solomon L. Gillett, App’lt, impleaded with Francis G. Hall.
    
      (Supreme Court, General Term, Fourth Department,
    
    
      Filed April, 1887.)
    
    Assignment—Liability of assignee for losses incurred through misconduct of co-assignee.
    The defendants in this action were assignees under a general assignment for the benefit of creditors. The appellant intrusted his co-trustee with an almost exclusive control of the property assigned, and through this fact seeks to avoid liability for losses incurred by the misappropriation of the funds by the party conducting the management of them. Held, that his acts in placing it within the power of his co-trustee to use the trust funds in his private business constituted gross negligence, and that the assignees wore liable for the losses so incurred.
    
      Appeal from a judgment entered upon the report of a referee.
    
      Youmans, Moss & Knipp, for resp’t; J. McGuire, for appl’t.
   Follett, J.

March 22, 1878, Henry W. Beadle made a general assignment for the benefit of creditors to the defendants, who immediately accepted the trust and entered upon the discharge of their duties.

This action was begun January 2, 1882, to compel defendants to distribute the assets among the creditors and close the trust. Previous to the commencement of the action the defendants had paid one dividend of $49,033.31, and after the commencement of the action, a second dividend of $16,018.20.

By an account, verified by both defendants January 12, 1883, they admit the receipt of $106,085.69, and charge the trust with $88,992.86, leaving a balance in their hands, at that date, of................................. $17,092 83

The referee charged to this balance, the following sums:

Interest collected prior to April, 1879, $332 90

Rents collected from June, 1880, to January, 1881................... 2,332 95

Collected on Snyder’s note.......... 128 47

Collected since January 12, 1883____ 1,254 00

Improperly paid Emma Fountain (Eleventh finding)............... 18 07

Improperly paid divers persons (Thirteenth finding).............. 332 35

Improperly charged as “Collection account”........................ 564 13 '

Commissions taken by assignees, September 18,1878 (Tenth finding), 6,000 00

Interest on moneys used (Ninth finding)......................... 11,401 65

--$22,364 52

Total balance ............................ $39,457 33

Cr.

By expenses since January 12, 1883, $873 25

Due Elmira Water Works (Fifthteenth finding).................. 97 05

Commissions on receipts, 5 per cent., 6,076 26

---$7,046 58

$32,410 7T

- The balance shown by the above statement exceeds, by fifty cents, the balance found by the referee.

• The appellant excepted to being charged with any of the items added to the balance of $17,092,83 by the referee, but in the brief presented in his behalf, the only item challenged is interest, $11,401.65, though the appellant also insists that he is not liable for principal or interest, because the fund was lost by the failure of his co-trustee, Hall.

The appellant seeks to avoid liability for any part of the balance found due, upon the ground that he intrusted his co-trustee, Hall, a man ,in good credit, with the management of the trust estate.

It appears that Hall was a banker at the city of Elmira at the time of the assignment, and continued in that business until July 22, 1884, when he was found insolvent and made a general assignment for the benefit of creditors. Hall managed the assigned estate substantially to the exclusion of Gillett, and he, Hall, testified that he used the trust funds in his private business.

He also testified; “I am only an individual banker; as such banker I kept an account with Hall and Gillett, as assignees; credited these moneys collected; was with Gillett’s knowledge.” Hall also testified that a large portion of the moneys was at first deposited to the credit of the assignees in the Chemung Canal Bank and in the Second National Bank, but it was shortly drawn out by the joint checks of the assignees and deposited with the defendant, Hall. By signiifg these checks, the appellant, Gillett, voluntarily placed this money in the sole custody of his coassignee. He knew that Hall was a banker, and must have known, from the course of business, that it was being-used by Hall individually; but if he did not know this, he did know that he was placing the money within the power of his co-assignee to so use it. This was gross negligence. The appellant was not examined in his own behalf before the referee, and made no attempt to show that he acted in good faith or diligently. Under the well-settled rules of law relating to the liability of trustees for their conduct, both defendants were properly held liable for the loss of this sum. Duffy v. Duncan, 32 Barb., 587; aff’d, 35 N. Y., 187; Berwick v. Halsey, 4 Redf., 18; 3 Will. Ex. [6 Am. ed.], 1827.

The rule measuring the liability of a trustee for the devastavit of a co-trustee in a continuing trust, is not quite applicable to this case. In contmuing trusts it may not, under some circumstances, be actionable negligence for a trustee to intrust his co-trustee with the securities of the estate, even though by such action loss accrues. The trust in question was an active one, and these assignees knew that it was their duty to speedily convert the estate into money, care for it with vigilance, and promptly distribute it among the creditors; and neither trustee can escape liability by intrusting the sole management of the estate to his co-trustee. No excuse is shown why this money was not promptly distributed, or for drawing it from banks and intrusting it to Hall.

This appellant took a sufficiently active interest in the management of this estate, to suppose himself to be entitled to a compensation of $3,000, which he paid himself September 18, 1878, less than six months after the date of the assignment.

These assignees were allowed by the referee the same commissions which the most vigilant trustees are allowed by law—$6,076.28, five per cent on the amount collected.

They might well have been charged with compound interest, but were only charged with simple interest. The defendants might well have been charged with the costs of this litigation, but, instead of that, they were charged against the fund These defendants have been most liberally treated by the court below; unless it should be held that such trusts are to be administered for the benefit of the assignees, instead of for the benefit of the creditors.

The judgment is affirmed, with costs, against the appellant personally.

Hardin, P„ J., and Boardman, J., concur.