Court Opinion

ID: 3584451
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:34:54.263298+00
Date Added: 2024-06-11T13:38:13.980238
License: Public Domain

In August, 1858, John Kellogg transferred to his wife, Paulina W. Kellogg, seventy-three shares of the capital stock of the Bank of Syracuse. In May, 1859, John Kellogg transferred in like manner to his wife 107 shares of the capital stock of the Tompkins County Bank. The transfers *Page 595 
were duly made on the books of the respective banks, and new certificates issued in the name of Mrs. Kellogg, which were delivered to her or her agent.
The defendants afterward advanced $21,000 upon the security of a transfer of these certificates, and an authority to transfer them to themselves on the books of the banks, viz., on the 30th of May, 1862, $11,000 upon the stocks first named, and on the 25th of March, 1864, $10,000 on the stock lastly described. The plaintiffs claim that the defendants obtained no title to these stocks, for the reason that John Kellogg held the same as trustee under the will of Daniel Kellogg for their mother and themselves, and that the transfers of the same by John Kellogg were in violation of his duty as trustee, and that in law the defendants had notice of the interest of the plaintiffs in the stocks. John Kellogg was, also, an executor under the will of Daniel Kellogg. An executor, it is not denied, may make a transfer of personal property which will give a good title to a bona fide purchaser, although the transfer is made in violation of the duty of the executor. The executor is the owner of the personal property of the testator; the absolute title vests in him, and he possesses the jus disponendi in its full force. The honest purchaser is under no duty to see that the moneys are faithfully applied by the executor. (Bogert v. Hertel, 4 Hill, 492; 2 Wms. Exrs., 838, 841.) Assuming it to be a trust, the argument, if I correctly understand it, in addition to the point of notice, is this, that the trust became executed, the absolute ownership vested in Mrs. Leitch and her children, and consequently John Kellogg had no title whatever, and none could be transferred by him. In this view, the question was presented prominently, was this specific stock held by John Kellogg as trust property under the will of Daniel Kellogg? It amounts to a claim that the stock is to be dealt with as if Daniel Kellogg, in creating the trust referred to, had, by his will, set apart and devoted this stock to the satisfaction of that trust.
Daniel Kellogg died in 1836, leaving a very large estate. *Page 596 
By his will, made ten years before his death, he made disposition of his property chiefly to his wife and his seven children. The will, in its first clause, appointed John Kellogg, George F. Leitch and David A. Comstock executors of the same. It also contained, among others, the provision following: "I give and bequeath unto the said John Kellogg, George F. Leitch and David A. Comstock, their executors and administrators, the sum of $25,000, upon trust, to pay the interest, at the rate of seven per cent per annum, of the said sum of $25,000, to my daughter, Catharine K. Leitch, for her sole and separate use during her life, exclusive of her husband, and for which her receipt alone shall be a sufficient discharge, and from and after the decease of my said daughter Catharine, then, as to the said sum of $25,000, in trust for her child or children living at her death; if more than one, equally to be divided between them; but if she shall not have a child living at her death, then my will is that $5,000 of said sum shall be paid to her husband, if any living, and the remainder of the sum of $25,000, being $20,000, shall sink into, and become and be part of the residue of my personal estate; and if she shall not have a child or husband living at her death, then my will is that the said sum of $25,000 shall sink into and become and be part of the residue of my personal estate."
The testator made a provision in the same language for his daughter, Mrs. Converse, and also for his unmarried daughter, Sally Maria Kellogg.
The executors took charge of all of the estate of Mr. Kellogg, and there is no evidence of any interference with them until the year 1848. In that year a bill was filed by Augustus Converse, as administrator of his wife, a daughter of Daniel Kellogg, the daughter having died in January of that year. After setting out the will of Daniel Kellogg, the complaint alleged, among other things, that the executors had taken upon themselves the execution of the will, that the personal estate was of the value of $450,000 dollars, and claimed to recover the distributive share of his wife in the *Page 597 
estate. The defendants answered, and a reply was put in. In May, 1850, a petition was presented in the same suit, in which the insolvency of each of the executors is alleged, and praying the appointment of a receiver to take charge of the property of the estate. It was ordered that Mr. Leavenworth be appointed such receiver, and that the executors transfer to him all the property and effects of the estate, under the order of Mr. Outwater, as referee. On the 10th of October, 1850, such conveyance and transfer was made by the executors, with certain exceptions. It is upon and by means of the effect of such exceptions that it is claimed that the stocks in question became impressed with the trust for $25,000, in favor of Mrs. Leitch and her children. The exceptions are as follows: "Excepting and reserving, however, from this assignment, a certain fund of $25,000, consisting of shares of capital stock in the Tompkins County Bank, amounting to $12,700, and shares of the capital stock of the Bank of Syracuse, amounting to $7,300, and shares of capital stock in the Onondaga County Bank, amounting to $5,000, making the said sum of $25,000, with the certificates and vouchers pertaining thereto, which fund has been set apart, designated and appropriated, by the said parties of the first part, as such executors and trustees as and for the sum of $25,000, given to them in and by the said will of Daniel Kellogg, in trust, to pay the interest thereof to Catharine K. Leitch, wife of the said George F. Leitch, during her life, and then in trust for her children, and which fund is not to pass under this assignment." The stocks described had not then been, and never were, in fact, set apart and appropriated by the executors for the purpose stated. The Converse suit was subsequently settled by the parties, and the assets and effects transferred to Mr. Leavenworth were by him so transferred to the executors.
I agree with the learned judge, who delivered the opinion in the court below, that a fair test to determine whether these stocks became specifically devoted to the satisfaction of this trust is this, if the banks had failed and the stocks become *Page 598 
worthless, would the loss have fallen upon Mrs. Leitch and her children? If yes, then are the stocks referred to impressed with the trust; if not, they are not.
In determining this question, certain further facts are to be considered:
1. That no order of the court directed this exception or reservation. The order was general, that the executors convey all the estate of Mr. Kellogg, in their hands, without qualification or limitation. The exception was voluntary, and the recital is the voluntary declaration of the executors.
2. There is no judicial recognition of this exception. There is no evidence that the document in which the statement is made was presented to or sanctioned by the court.
3. D. Kellogg Leitch, George F. Leitch and David H., the plaintiffs in the present suit, were neither of them parties to the Converse suit in which this action occurred. This exception was made in an instrument executed in October, 1850. At that time, D. Kellogg was of the age of fifteen; George F. of the age of seven, and David H. of the age of ten years.
4. The interest of these children in the $25,000 was a vested estate. Although they could not enjoy the fruits during the life of their mother, the title vested at once upon the birth of each, and the estate in the infant was as perfect in law as if there were no intermediate life interest.
5. At that time, the estate of Daniel Kellogg owned 127 shares of the Tompkins Bank stock, and ninety-nine shares of the Syracuse stock, and 105 shares of the Onondaga Bank stock, of the total value of $33,100, all of which were transferred by John Kellogg to Paulina W. Kellogg. What became of the remaining twenty shares of the Tompkins Bank stock, and the remaining twenty-six shares of the Onondaga Bank stock, does not appear. Whether these remaining shares are supposed to be impressed also with the trust — whether they have been applied to the discharge of the debts or other trusts of the estate, or whether they have been squandered, does not appear. The *Page 599 
aggregate value of these stocks was $8,100 more than the amount of the original trust. By Mr. Kellogg's will a trust was created, but no particular property was appropriated for its satisfaction. The interest on the same, given at seven per cent, was to be paid to Mrs. Leitch, $1,750. These stocks might yield more or might yield less, or might be lost by failure of the banks, still the full sum of $1,750 must be paid annually to Mrs. Leitch or to her children. I doubt not that, by the formal consent of Mrs. Leitch, certain property might be set apart and appropriated by the executors to the satisfaction of the trust. (Wood v. Wood, 5 Paige, 596.) Surely no such appropriation could be made by the executors without her consent, which should have the effect to release the residue of the estate from its liability to perform the trust. I do not find any evidence in the case that Mrs. Leitch consented to accept these stocks for that purpose. The Converse suit was settled and was discontinued — Mrs. Leitch's attorney assenting. This was, doubtless, an assent on her part to everything necessarily dependent upon such settlement. What the terms of that settlement were is not shown by the case. Mr. Converse obtained such satisfaction of his wife's interest in the estate as he was willing to accept. There is nothing to indicate that the exception and declaration of trust referred to was an essential part of the judgment, or that it was communicated to or understood by Mrs. Leitch. The contrary plainly appears by the statements in the original bill filed by her in March, 1862, and the supplemental bill filed in November, 1863. If there had been a failure of these banks, Mrs. Leitch would have still been entitled to the annual sum of $1,750 from the estate. Mrs. Leitch's life interest being at an end, her children, who were minors during the pendency of the Converse suit, now claim the $25,000. It has been decided by the Court of Appeals, in King
v. Talbot (40 N.Y.R., 76), that it is a violation of duty in a trustee or executor to invest the funds under his control in bank stock. If he assumes to do so, the investment is at his risk, and the ward or infant can repudiate it on reaching his *Page 600 
majority. If the $25,000 had been invested in 1858 by the trustees specifically in these bank stocks, such investment could not have been valid, much less can it bind the infants when it is a mere statement that there is a setting apart of such stocks already in their hands, and made without the knowledge or consent of the infants. An infant's consent cannot justify what would otherwise be illegal, but it certainly cannot relieve an illegallity that there is no pretense of such consent. (Hill on Trustees, 382 [585]). The form of property devised to infants cannot be changed even by legislative authority, although the same trusts are impressed upon the property, in its changed form, as originally existed. (Smith v. Brown, 35 N.Y., 83.)
It is my judgment that there was never a legal appropriation of the stocks in question to the satisfaction of this trust. They remained in the hands of the executors as assets in their charge.
There has been no acceptance by the plaintiffs, nor any assent by them to the appropriation by the executors of these stocks to the satisfaction of the trust, until after the defendants' rights had attached. New interests and new parties having intervened, the situation of the property at the time of such intervention must determine the rights of all who claim to be interested in it.
By the judgment upon the report of the referee in the suit ofD. Kellogg Leitch et al. v. John Kellogg and Paulina Kellogg,
dated July 22, 1864, it was adjudged that the stocks in question were impressed with the trust in favor of Mrs. Kellogg and her children, and that the transfer to Paulina Kellogg was void; that Mrs. Leitch and her children were entitled to all the dividends previously made upon the stocks. By the original complaint made in that suit, verified March 12, 1862, it was charged that John Kellogg had received into his individual possession 300 shares of the capital stock of the Bank of Syracuse, value $100 per share; 100 shares of Onondaga Co. Bank, value fifty dollars a share; 1,200 shares of Auburn Bank; 127 shares of the Tompkins *Page 601 
County Bank; that from time to time he made transfers to his wife which were fraudulent. It is alleged that the Tompkins Bank stock was set apart as a trust fund in favor of Mrs. Kellogg and her children. Nothing was said in the complaint about the stock in the Bank of Syracuse.
Unlike trustees, who must act unitedly, one executor may effectually bind or dispose of the assets of the estate by his single act. (Hill on Trustees, 306 [466]; 2 Wms. Exrs., 620.)
The stocks in question were transferred by John Kellogg to Paulina W. Kellogg. By her they were transferred to the defendants, who advanced their money on the faith of the security, without knowledge that John Kellogg was executor, that Paulina was his wife, that there was any litigation or question from any source respecting it. Ordinarily this would give the defendants a right to hold the stocks to the amount of their advance. The executor has the right to sell and transfer, and one who buys of him in good faith, and pays in money the price agreed upon, is not responsible for the application of the purchase-money. (Authorities supra.) The same rule applies to one who loans money on the security of the property. (McNeil v.Tenth National Bank, 46 N.Y.R., 325.)
It is said that the commencement of the suit in December, 1861, by Mrs. Leitch and her children, was notice to all the world, the defendants included, of the claims of the plaintiffs upon this stock as cestuis que trust; that in the theory of law the defendants bought with notice of all the facts, and stand in the same position as if they had received actual notice of them. If I am right in my opinion, that these stocks were not specifically subject to a trust, this question does not arise.
It would then be the case of property held by an executor, and a claim for a legacy or a debt against the estate generally. This does not prevent a transfer of any portion of the estate to one aware of these facts. If it exists in the case, the question oflis pendens is an embarrassing one.
There is no doubt of the general rule, that a purchasependente *Page 602 lite does not vary the rights of the plaintiff in the suit, who is not to receive any prejudice in the suit from the alienation, and that, although he pays his money in good faith, the purchaser is bound by the judgment in the suit. The statute of this State makes a material alteration of this rule in regard to real estate, by enacting that the pendency of a suit is not notice to a stranger until the notice of lis pendens is actually filed in the clerk's office of the county where the land is situated, and that, as to one having no actual notice, he may, in good faith, and for a good consideration, acquire a good title, until such notice is filed. (Code, § 132.)
This relaxation of a rigorous rule applies to real estate only, and, as to personal property, the rule remains as at the common law. It is conceded to be a harsh rule, and one that sometimes operates unjustly. It was based, no doubt, upon the theory that the register's office, like the recording office now, was open to examination, and that the proper attention, in looking there, would protect the purchaser from injury. Hence it was established, as a part of the rule, that for this purpose a suit was not to be deemed as commenced until the bill was actually filed. A subpœna was the actual commencement of the proceeding, but, for the purpose of charging one not a party to the suit with notice of the proceeding, the suit was deemed to have been a suit commenced only from the time of the bill filed. Thus in Murray
v. Ballou (1 Johns. Ch., 566), cited in the opinion below, Chancellor KENT says: "Admitting that Ballou had no knowledge, in fact, of the suit of Mrs. Green against Winter, he is nevertheless chargeable with legal or constructive notice, so as to render his purchase subject to the event of that suit. The established rule is, that a lis pendens, duly prosecuted, and not collusive, is notice to a purchaser, so as to affect and bind his interest by the decree; and the lis pendens begins from the service of the subpœna after the bill is filed.
The chancellor says, this is no more than an adoption of the rule of the common law, where, if the defendant aliens after pendency of the writ, the judgment in the real action *Page 603 
will over-reach such alienation. It was one of the ordinances of Lord BACON, he says, laid down for the better administration of justice in the Court of Chancery, that "no decree bindeth any that cometh in bona fide by conveyance from the defendant before the bill exhibited, and so made no party, neither by bill nor order; but where he comes in pendente lite, and while the suit is in full prosecution, and without any color of allowance or privity of the court, then regularly the decree bindeth." (Bacon's Works, vol. 4, p. 511.) This the Chancellor declares to be the rule, and it makes the liability of the purchaser to depend upon the fact that the bill has been exhibited previously to the purchaser. The case of Culpepper v. Austin (2 Cas. in Ch., 115) is cited in the same book, where a testator had conveyed his lands to an executor, in fee, to pay his debts, and the defendant purchased of the trustee for a valuable consideration. The heir filed his bill to have the land, on the ground that it was not needed to pay debts. The defendant lost his purchase, having purchased and paid on the same day the bill was exhibited. (1 Johns. Ch., 578.) In the same opinion are cited: The Bishop of Winchester v. Paine (11 Ves., 194);Preston v. Tubbin (1 Vern., 286); Anon. (1 id., 318);Self v. Madox (id., 459); Finch v. Newnham (2 id., 216); in each of which it appears that the bill had actually been filed before the purchase was made.
In Hayden v. Bucklin (9 Paige R., 513), the chancellor says: "The only question, therefore, for consideration is, whether the mere issuing of the subpœna is to be deemed a lispendens in this court, so as to affect the validity of a transfer of the subject-matter of the litigation here as a purchaser pendente lite." It was held that it was not. There the transfer had been made intermediate the issuing of the subpœna and its service. (See also Hopkins v. McLaren, 4 Cowen R., 667.)
By the statute, 4 Anne (cited Hayden v. Bucklin, supra), it was enacted that no subpœna should be issued until bill filed, save in excepted cases. In other words, the filing of the bill was the commencement of the suit. Such was, for a *Page 604 
long period of time, the practice in this State, until the adoption of the new system of practice in 1848. (1 Barb. Ch. Practice, 1.) Under this practice, the rule was uniform that where a bill was filed and a subpœna served the suit was deemed to be commenced, and any subsequent acquisition of interest was subject to the decree to be obtained therein.
The rule that might be inferred from the expressions in some of the cases, that after bill was filed the commencement of the suit related back to the issuing of the subpœna, has not, for the purpose we are considering, been adopted as the rule in this State. It would be hard, indeed, where one honestly purchased and fully paid, there being no lis pendens, that a subsequent act, to which he is not consenting and of which he had no knowledge, should create a lis pendens retroactively, and thereby a purchase become invalid which was perfectly valid when made. It would be hard not only, but in violation of just principle.
By the practice in existence in this State, when the action of Mrs. Leitch against John Kellogg was commenced, it was not required that the complaint should be filed, nor even served, at the commencement of the action. The suit might be commenced by summons alone served upon the defendants, or by summons and complaint served upon the defendants.
In neither case was it required by law or by any rule of court that the complaint should be filed at the commencement of the suit. (Code, §§ 127, 128, 130, as amended in 1849.) When the judgment roll was made up and filed, it was required that the complaint should be therein incorporated as a part of the record. (Code, § 281.) This was indispensable to the making up of the record. By section 416, pleadings are required to be filed in ten days after service, or the opposite party might compel such filing on pain of its abandonment; this section was not imperative. If not filed, the opposite party could compel it to be done, or that the pleadings should be abandoned. As a matter of fact in practice, I believe the complaint was seldom filed or appeared in any other place than the judgment roll. *Page 605 
This practice and the rule of lis pendens, by which a purchaser is bound from the filing of the bill, must be adapted to each other. A summons issued and served, and a complaint filed in the clerk's office, by the examination of which a purchaser can ascertain that a claim is made upon the property which he intends to purchase, are necessary under the present practice to bind a purchaser pendente lite. In other words, to create thelis pendens, which will bind a purchaser to the judgment in such suit, there must be a first process, and a bill or complaint on file in which the claim upon the property is set forth.
So far as the case we are now considering shows, no complaint in the suit of Mrs. Leitch v. John Kellogg was ever filed until the judgment roll was filed.
This could not have been earlier than July, 1864, as the report of the referee, on which it is based, bears date of that time. The several advances and purchases upon the stocks in question were made by the defendants prior to that time, to wit, in May, 1862, and in March, 1864, respectively. My conclusion is that the rights of the defendants are not affected by the proceedings or by the judgment in that action.
By the instruments executed to the defendants by Mrs. Kellogg, the legal title to the stocks was transferred.
"For value received, I do hereby transfer, sell and assign unto the American Express Company," passes the legal title, although there be no transfer on the books of the bank. These are the apt words for a conveyance in presenti. The record at the bank is a formality which may make question with the bank, but is not important as between the vendor and the vendee.
The legal title is perfect without it. (Kortright v. Com.Bk., Buff., 22 Wend., 348; Bank of Utica v. Smalley, 2 Cowen R., 770; The Bank of Attica v. The N.  T. Bk., 20 N.Y.R., 50; Gilbert v. Manchester, I.M.C., 11 Wend., 626; see alsoMcNiel v. Tenth National Bk., sup., where all the authorities are reviewed.)
The transfer by John Kellogg to Paulina, his wife, was a *Page 606 
complete and executed contract. In any controversy involving an attack on this transfer it cannot be said that this transfer was absolutely void. It gave her the absolute possession and the legal title. It justified an action by her against any one who should interfere with that possession. (Savage v. O'Neil,44 N Y, 298; Hunt v. Johnson, id., 27), and a transfer to any one making a lawful purchase thereof. If there should be any question on this point, the defendant's claim under the transfer and pledge of the same certificates from John Kellogg himself, which is in evidence as a part of their title, would attach.
If the transfer to his wife is invalid, the title remains in him, and transfer from him to a bona fide purchaser is good upon the principles heretofore discussed.
I think there should be a new trial.