Court Opinion

ID: 5253082
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:19:28.270187+00
Date Added: 2024-06-11T08:27:58.453596
License: Public Domain

Smith, J. (dissenting):
In August, 1912, the Mitchell-McDermott Construction Company, the owner of the real property No. 266 East One Hundred and Sixty-fifth street, employed one Sinske, a real estate mortgage broker, to obtain a loan of $20,000 upon the property. The broker applied to this defendant for such loan. The defendant refused to make a loan of $20,000, but said it would make a loan of $17,000 secured by first mortgage upon the property. The broker reported the respondent’s offer to the owner and was authorized by the owner to inquire whether respondent would consent to the participation of another party to the extent of $3,000 in a mortgage of $20,000. Respondent’s treasurer said respondent would consent,to such *252participation, the $3,000 to be loaned by such other party to be subordinate to the respondent’s loan of $17,000 upon the property. The said broker afterwards applied to one Patrick J. O’Beirne, an attorney, who agreed to procure the loan upon the payment of $450. O’Beirne procured the money from one Caragher, who was then the general guardian of the plaintiff, formerly Annie V. Reilly, the moneys being property which said Caragher held as such guardian.
The loans were closed at the office of the respondent’s attorneys. O’Beirne brought the $3,000 in the form of cash and check. The bond and mortgage executed by the MitchellMcDermott Company were executed and delivered to George H. Fitzgerald, who was a clerk in the office of the defendant’s attorney, and in this transaction was clearly the defendant’s agent. This was a bond and mortgage to secure the payment of $20,000, in which neither the interest of the defendant nor that of the guardian was in any way stated. Fitzgerald thereupon assigned the bond and mortgage to this defendant, reciting in the assignment that the same was in consideration of .$20,000, “ lawful money of the United States, to him in hand paid by Dollar Savings Bank of the City of New York.” There is no clear evidence as to whom this money was in fact paid by the representative of the guardian, except this statement in the assignment to the “ Dollar Savings Bank,” and also the evidence of O’Beirne, who acted for the guardian in closing the transaction in which he says: “At the closing Mr. Fitzgerald was the conduit or the person through whom the loan was made. It was explained by Mr. Sinske that he was the gentleman in the office of the attorneys for the Dollar Savings Bank and that they were making the loan through his name, and that the assignment would immediately and simultaneously take place, from the execution of the mortgage, right over from George H. Fitzgerald to the Dollar Savings Bank.” The trial judge in his opinion stated: “The bank at no time occupied any fiduciary relationship toward the then infant, unless its agent, the attorney’s clerk Fitzgerald, may be said to have been, for a brief period during the title closing, in the situation of a trustee. But it is plain that Fitzgerald was a mere conduit for the moneys that passed when title was closed.” It thus appears that the trial judge *253interpreted the evidence as showing, and assumed in his opinion, that these moneys were in fact paid to Fitzgerald, and by him paid to the Mitchell-McDermott Company.
At the same time this loan was closed, and as part of the same transaction, there was executed between Caragher, the guardian, and the defendant, what is called an ownership agreement which purported to state the rights of the parties in such bond and mortgage. It is provided in that agreement that the defendant was the owner of a $17,000 interest in the mortgage and that the guardian was the owner of the balance of said mortgage debt, “ but the ownership of the party of the second part [defendant] is superior to that of the party of the first part [the guardian], as if the party of the second part held a first mortgage for said sum of seventeen thousand ($17,000) dollars and interest thereon as aforesaid, and the party of the first part held a second and subordinate mortgage to secure the interest of the party of the first part in said mortgage debt.” The ownership agreement then further stated that the party of the second part, the defendant, was authorized to collect all the interest which was secured by that bond and mortgage and retain therefrom a sum equal to the interest then accrued upon the share of said bond and mortgage owned by the party of the second part, and then remit to the party of the first part any balance of the remaining interest, and in case of payment it was provided that the defendant should account to the party of the first part only for the excess over the moneys in said mortgage owing to the defendant. The right of the guardian to assign his interest was limited, and it was provided that no assignee of the said guardian should have any rights under this agreement or be entitled to any payment thereunder "until such assignment shall have been exhibited to the party of the second part, and it was further provided that “ whenever the proceeds of the ownership of the party of the first part in said bond and mortgage shall be paid to the holder of this agreement, this agreement and all assignments thereof shall be surrendered to the party of the second part.”
Thereafter, upon default of the makers of said bond and mortgage the mortgage was foreclosed and the property bid in by the defendant for the sum of $17,000, and a deficiency *254judgment entered against the mortgagor for a small amount owing to the defendant. The interest of the guardian of this plaintiff in the land was entirely wiped out in the foreclosure sale.
Upon April 13, 1915, this plaintiff became of age. Her guardian filed an account in which this investment appeared. The plaintiff was, at that time, living with her guardian and had been for upwards of fifteen years. She signed a consent to the passing of the account without reading the account and without having any knowledge of its contents and without any knowledge of the nature or circumstances of this investment, She afterwards left the home of her guardian and was married and then sought to have the guardian’s account opened so that she might hold the guardian responsible for this loss and, if need be, hold the surety upon the guardian’s bond. The application to reopen the account was denied. The plaintiff thereupon brought this action against the defendant, contending that the defendant participated in and aided and abetted in the guardian’s misapplication of the fund held in trust for her and was liable for the amount of her loss sustained thereby. The defendant defended upon two grounds, first, that it occupied no position of trust and was not responsible for this loss by reason of any act in connection with the loaning of these moneys, and, secondly, that after becoming of age the plaintiff had ratified the transaction so as to estop her from making any claim for reimbursement on account of the illegality of the investment. The trial court made no finding upon the question of ratification but held that the defendant had done no act which would make it liable to the plaintiff for the loss of these moneys. From the judgment, entered upon this decision this appeal has been taken.
It seems to me unnecessary to discuss at any length the question of ratification. A ratification of an illegal investment by a guardian can only be made upon full knowledge of the facts which would justify the infant in making complaint thereof.
Without any finding whatever upon the subject by the trial court, this court is without power to make a finding necessary to sustain the judgment, except possibly upon *255undisputed evidence. The case of Norris v. Norris (85 App. Div. 113), cited in the prevailing opinion, was a case in which the question arose between the guardian and the ward, and the case showed a clear disclosure by the guardian to the ward after becoming of age, a reading over of the account, item by item, and an express approval and ratification by the ward. Under the circumstances there disclosed, it was held that to allow the ward thereafter to hold the guardian for improper expenditures would be to deny the right of settlement between the guardian and the ward under any circumstances after the ward became of age. Under the evidence in this case this ward never had knowledge until September, 1916, of the nature of this investment and of the fact that it was an illegal investment. After acquiring this knowledge in September, 1916, she has done all within her power to seek reparation for the wrong done to her, both from her guardian and from the defendant. She first made application for a reopening of the account of the guardian, which was denied, and she now brings this action to recover from the defendant as one who aided and abetted in the illegal investment. The trial court could not have found under this evidence that the plaintiff ratified that illegal investment. Moreover, even if such a finding-had been made and was supported by the evidence, it would not affect this action. The question is not here between guardian and ward, but between a ward and a third party who unlawfully participated in the diversion of her funds.
Nor can the fact that the guardian had been released by the. accounting affect the plaintiff’s rights. It has taken from the defendant no right of indemnity which it could in any event have had, inasmuch as the guardian himself, or the surety upon paying for the defaulting guardian, could bring this action against this defendant, provided the defendant be legally liable for this misappropriation. The doctrine that a release of one tort feasor releases all rests upon the rule that one who is wronged can only have one satisfaction. There is no claim here that there was any compromise by the guardian or that there has been any satisfaction by any one of this claim. That doctrine, therefore, cannot apply.
The final and important question upon this appeal is as to the liability of the defendant for this illegal investment. In the *256case of National Surety Co. v. Manhattan Mortgage Co. (185 App. Div. 733) we held in a very similar case, where a guardian invested in a subordinate interest in one of these participating mortgages, that the guardian was hable for that improper investment, as it was clearly an investment in a second mortgage, and that the guardian’s surety, which was compelled to make good a charge against the guardian for such improper investment, might sue a mortgage company which had participated in the breach of trust by taking a superior interest in such a mortgage. It is true that there are some distinctions bet ween this case and the case of the National Surety Co. cited. If, however, these moneys were paid through the agent of the defendant to the Mitchell-McDermott Company, the two cases are very similar. In my judgment, however, even though the moneys did not pass through the defendant or its agents, nevertheless the defendant so far participated in and aided and abetted the misapplication of the funds as to become hable to the plaintiff for the loss sustained thereby. Plaintiff’s claim rests not alone upon a breach of trust by defendant in handling these trust moneys passing through its hands, but entirely apart from that upon the rule as well stated in Bank v. Byrnes (61 Kan. 459, 464): “ As a general principle, all «persons who knowingly participate or aid in committing a breach of trust are responsible for the wrong and may be compelled to make good the loss.” In the opinion in the case of the National Surety Co. (supra) numerous authorities were .cited to the effect that all persons who knowingly participate or aid in committing a breach of trust may be compelled to make good the loss. In Cooley on Torts (3d ed. 244) the rule is stated: “ All who actively participate in any manner in the commission of a tort, or who command, direct, advise, encourage, aid or abet its commission, are jointly and severally liable therefor.” Further, any one “ ‘ who does anything in furtherance of an act may be said to abet it.’ ” In Bowers on. Conversion (§ 306) the rule is stated: “ Every person who aids or assists in the conversion of property, whether with knowledge of the facts or in ignorance thereof, is responsible to' the owner for all the damages sustained thereby, although it was done by the direction of one whose command he was bound to obey, as a servant who takes *257property at the command of his master, or a soldier who takes property at the command of his superior officer.” It cannot be said that this defendant was not interested in the participation by the guardian in this mortgage, because, through the participation alone, did the defendant find opportunity to invest its money. But the fact of benefit received is not material, where the party actively co-operates, assists and participates in the conversion or misappropriation. It is only where the. party stands by and fails to dissent that the fact that he is to be benefited thereby becomes material, as in such case the failure to dissent makes him a party to the misappropriation. In Bowers on Conversion (§ 307) it is stated: “ And unless a person can be held to have adopted a conversion made by another, either in receiving the benefit of it or by aiding, encouraging or abetting it when made, he cannot be held answerable for it on the ground that he merely suffered it to be done and did not resist it.” (See, also, Bischoff v. Yorkville Bank, 218 N. Y. 112.) It is true that the defendant had no interest in choosing the party which should participate with it in this mortgage; nevertheless, the loan could not have been made without some party participating, and this particular loan could not have been made without this defendant’s participating with a trustee who was known to be acting unlawfully in the misapplication' of trust funds. The defendant is driven to the position that, although a party to this participation agreement, it did not participate therein. While the defendant did not participate in the original procurement of the consent of the guardian to invest in the mortgage, it did participate in the consummation of the devastavit, and without its participation such consummation could not have been attained. It is probably true that the defendant had no knowledge until the day of the final consummation that the mortgage was to be shared in by a guardian unlawfully using funds for that purpose. Before the act was completed, however, it had full knowledge of the fact that it was dealing with a trustee who was violating his trust. If the defendant had then halted, this trust would not have been violated, and the money would have been saved. Instead of halting, it proceeded and became a party to the very agreement. *258which unlawfully squandered the infant’s money. Not only did the act of defendant make possible this devastavit, but by this participation agreement the defendant acted as the trustee to collect the interest for this delinquent guardian and held the mortgage and collected the moneys thereon. For it to say, therefore, that the defendant did not participate in this devastavit, did not aid and abet the same, is, to my mind, to ignore a palpable fact. To hold the defendant liable for the loss sustained by this devastavit would be exacting no penalty which the defendant does not deserve. Any one who wrongfully deals with trust funds, either as a principal or as an abettor, does so at his peril, and within all the authorities that I have been able to find becomes subject to the penalty of being required to make good the loss sustained by the wrong which he has abetted.
The judgment should, therefore, be reversed and a new trial granted, with costs to appellant to abide the event.
Judgment affirmed, with costs.