
    In the Matter of the Accounting of George Litzenberger, as Trustee, etc., of John Litzenberger, Deceased.
    
      (Supreme Court, General Term, Fifth Department,
    
    
      Filed April 12, 1895.)
    
    Tbustee—Liability fob co-trustee.
    Where the trust funds are, hy the act of an executor or trustee, placed in the hands of the co-executor or co-trustee, without which the latter would not have had them, the former is responsible for the latter’s devastavit as to the funds so handed over to him.
    Appeal from a decree settling the accounts of the trustee.
    
      Hammond & Hammond, for app’lts; G. M. Wilcoxen, for resp’t.
   Bradley, J.

This proceeding was instituted on the petition of the appellants, who were beneficiaries of the income of a trust fund, pursuant to the will of the decedent, and they seek to charge-the surviving trustee with the amount of such fund. The testator died in April, 1882. By his will, which was admitted to probate, he named his sons, George and Levi Litzenberger, as executors and trustees.. Letters were issued to them, and they entered upon the execution of their trust Among other things, the will provided that his residuary estate should be equally divided among his children; that the shares of his two daughters, Sarah Ann and Mary Jane (the petitioners), should by the executors be invested, the interest be paid to them annually, and at their death the remainder go to their children; and that his son Levi, if he so elected, should become the purchaser of a certain farm (of which the testator died seised) at the price of $6,600, to be conveyed to him by the executors. In April, 1884, the farm was conveyed by George Litzenberger, as executor, to Levi. By the decree of the surrogate’s court, made on an accounting of the executors in April, 1884, the amount of the residuary estate for each of the children then was $1,995.26; and the executors were charged with and directed to invest such sum for each of those daughters, and pay the income of it to her annually during her life. A like sum as the share of Levi was taken as part of the purchase money of the farm so conveyed to him; and until his death, in 1890, he paid to the petitioners inter•est upon the funds which by the decree of 1884 the executors were directed to invest for them. In March, 1885, Levi made a mortgage upon the farm to one Willers, to secure the payment of $2,316.66, which remained unpaid at time of his death. After-wards George Litzenberger individually took an assignment of the mortgage, foreclosed it by action, and the sale resulted in a surplus of $2,245.65, which, less, $22.46, treasurer's fees, came into his hands as surviving trustee. That sum, a mortgage of $800, and .$248.25, interest received by him, constitute the trust fund for which he accounts, and from this he deducts $426, costs in an ac-. tian brought by him against the personal representatives, widow, widow, and children of Levi Litzenberger, who died insolvent, to recover the amount of the trust fund in the unpaid purchase money of the farm, and he deducted the amount paid by him to the petitioners after the death of Levi; thus reducing the trust fund for both of them in his hands to $1,599.84. This is the amount for which he was charged by the decree of the surrogate’s court, and he was directed to pay to his successor that amount, less $66.04, his commissions. The payments made by the surviving trustee to the petitioners, and which were applied in reduction of the fund in his hands, were annually made, in the amounts equal to the interest upon the trust funds, after the death of Levi, and up to April, 1893.

The questions presented are: (1) Was the surviving trustee entitled to credit for the deficiency, so far as it may be attributable to the consequences of the mortgage made by Levi on the farm ? (2) Was he entitled to have allowed to him, in reduction of the principal sum of the fund, the amount of the payments so made by him to the petitioners annually ?

Both of the trustees were by the decree of April, 1884, directed to make the investment, and such was their duty under the will. Ko investment was made. The fund was treated as in the consideration for the conveyance of the farm to Levi. For this he was personally liable, And, as evidence that the fund was in his hands, he, in March, 1885, delivered to his co-trustee the following memorandum:

“This is to certify that I have in my hands the balance of the trust funds belonging to Mary Jane Stahl and Sarah A. Deal from the estate of John Litzenberger, late of Varíele, deceased.
Levi Litzenbegeb.
“Dated March 28, 1885.

This, evidently, was not the investment contemplated by the testator. Nor was the purchase money of the farm secured, as it usually is when real property is sold on credit. If the sale had been, made by the executors to any other person, and collection of the purchase money had been defeated wholly or partially by an incumbrance created by him upon the property, it would seem clear that the executor’s would have been responsible for their failure to take security. But the case here was rendered somewhat different by the fact that the purchaser was one of the executors and trustees, and had by the will been given the option to make the purchase. But he could not accomplish it without the conveyance of the other executor. It was by the act of the latter that the title was vested in him. The trust fund in question existed only in the farm, and never was otherwise in the hands of Levi Litzenberger, and that was placed there by the conveyance made by the respondent.

No liability arises against one of two executors for passively permitting the other to collect or receive the funds and assets of the trust estate, although they are wasted by him, unless he has reason to apprehend such consequence and takes no measures to prevent it. Ormiston v. Olcott, 84 N. Y. 339; Wilmerding v. McKesson, 103 id. 329; 3 St. Rep. 108; Cocks v. Haviland, 124 N. Y. 426 ; 36 St. Rep. 408. It. is otherwise when the trust funds are by his act placed in the hands of his co-executor or trustee, and without which he would not have had them. Then he may be responsible for the devastavit of the latter as to the funds so handed over to him. Croft v. Williams, 88 N. Y. 384 ; Bruen. v. Gillet, 115 id. 10 ; 23 St. Rep. 780. It was the duty of the respondent, as well as of Levi, to see to it that the trust fund which was to furnish the income for the petitioners was invested so as to render the purpose of the testator effectual. This trust was to be continued during the lives of the beneficiaries of the income, and that might embrace a long period of time. The respondent, being advised of this, conveyed the property to Levi, and relied wholly upon his personal responsibility and ability for the time the trust might continue to pay the interest upon the fund, and finally to pay the principal sum of it, to the children of the petitioners. He knew that there was no investment of it as. contemplated by the testator, and, therefore, that the trust in that respect was not duly executed. It would have been only ordinary prudence to have secured the purchase money by mortgage on the farm, and thus an investment of the trust fund would have been created. It is difficult to see why he should not be responsible in the duty assumed by a trustee who undertakes the execution of a trust. The fact that he did not suppose that his grantee would impair the fund by mortgage, or that he did not, until after his death, learn that he had, does not exonerate him from the charge of negligence in giving him the opportunity to do it. This, under the circumstances, was nothing less than culpable negligence on his part, and by reason of it he should be held responsible for the-deficit so occasioned in the trust fund. Earl v. Earle. 93 N. Y. 104. It is very likely that the application of that proposition to the accounting of the respondent may remove the deficit from the trust funds of the petitioners. However that may be, no reason appears to justify the reduction of the principal of the trust funds by application of the payments made to the appellants by the respondent annually as of the interest upon the funds. The recipients understood the payments to be of interest, and received them as such, and the surviving trustee was so advised when he made them. As the terms of the will are represented by the record, the petitioners were entitled to none of the principle sums of the trust. The payments' so made by them to the respondent were not applicable to the reduction of the principal, and should not have been so applied. Nor should the costs in his action against the personal representatives of Levi and others be applied in reduction of the fund in question, to the prejudice of the petitioners. They were not parties to the action. Nothing was realized from the judgment other than the surplus money before mentioned, which had been deposited with the county treasurer.

For these reasons, the decree of the surrogate’s court settling the accounts of the respondent as surviving trustee should be reversed, and a new accounting be had by him in that court, with costs to the appellants.

All concur.  