
    John H. Bruen Resp’t, v. Solomon Gillet Impleaded, etc., App’lt.
    
    
      (Court of Appeals,
    
    
      Filed June 4, 1889.)
    
    1. Executor—Liability of—For acts of co-executors—Trustees.
    One executor, and this rule is applicable to other trustees, is responsible for his own acts, and not for those of his associate; and if the latter collect and misapply the money, the executor who "has not received it is not liable for the waste. If he is merely passive and simply does not obstruct the collection by his associate, he is not liable for the latter’s waste, if guilty of no negligence himself. But while one executor or trustee receives the funds of the estate, and either delivers them over to his associate, or does any act by which the funds come under the sole possession and control of the latter, and but for which he would not have received them,the executor or trustee is liable for the loss which is sustained in consequence of such action.
    2. Trustee—Effect of receipt of—Who not bound by.
    In cases where a debt due to the trust estate by a debtor has been paid to one of two or more trustees, and the debtor has required, as a condition ■ of such payment, that a receipt should be joined in by all the trustees, in such case the signing of a receipt hv the trustees who did not personally receive the money has been held to be merely formal or necessary for the purpose of obtaining the money from the debtor, and that they who did not receive the money in fact were not hound by their written omission of its receipt for the purpose named, and were not liable for the failure of the one who did in fact receive it, to properly apply it.
    3. Same—Responsibility of assignee for misapplication of funds by co-assignee.
    The action was brought to compel the defendants, as assignees under a general assignment for the benefit of creditors, to distribute the assets among the creditors. The defendant Gillet seeks to avoid liability for any part of the balance found due, upon the ground that he entrusted his co-trustee, one Hall, with the management of the trust estate. Hah was a private banker. The funds were drawn out of the bank where they were deposited by the joint checks of the assignees,and deposited with the defendant Hail, and used by him in his private business. Held, that inasmuch as the funds were under the defendant’s control, and in his possession jointly with his co-assignee, and he assisted in drawing them out and placing them in the individual custody of his co-assignee, he is responsible for their due application, and such responsibility is none the less because his co-assignee happens to be a private banker.
    Appeal from a judgment of the supreme court, general term, affirming judgments entered upon the report of a referee.
    The defendants were assignees under a general assignment for the benefit of creditors. This action was begun to compel them to distribute the assets among the creditors and close the trust. The appellant seeks to avoid liability for any part of the balance found due, upon the ground that he entrusted his co-trustee, one Hall, with the management of the trust estate. Hall was a private banker at the time of the assignment; subsequently, he became insolvent, and made a general assignment for the benefit of creditors. Hall managed the estate to the exclusion of Gillet, and used the funds in his private business. Hall testified that the funds were first deposited to the credit of the assignees' in the Chemung Canal Bank and the Second M ational Bank, but were shortly drawn out by the joint check of the assignees, and deposited with the defendant, Hall,
    
      Louis Marshal, for appl’t; Roswell R. Moss, for resp’t.
    
      
       Reversing 7 N. Y. State Rep., 632.
    
   Peckham, J.

We have lately held that one executor (and I think the rule is the same with other trustees) is responsibb for his own acts and not for those of his associate, and if the latter collect and misapply the money, the executor who has not zeceived it is not liable for the waste. If he is merely passive, and simply does not obstruct the collection by his associate, he is not liable for the latter’s waste, if guilty of no negligence himself. But, where one executor or trustee receives the funds of the estate and either delivers them over to his associate or does any act by which the funds come under the sole posession and control of the latter, and but for which he would not have received them, the executor or trustee is liable for the loss which is sustained in consequence of such action. Croft v. Williams, 88 N. Y., 384; Adair v. Brimmer, 74 id., 539 at 564; Monell v. Monell, 5 Johns. Chy., 283; Langford v. Gascoyne, 11 Ves., 333; Underwoods. Stevens, 1 Mer., 712; Williams v. Nixon, 2 Beavan, 472.

In Langford v. Gascoyne (11 Ves. Chy., 333), it was laid down by the* master of the rolls, that where a trustee was merely passive by not obstructing the reception of the money by his co-trustee, he is not liable; but if he contribute, in any way to enable the other to obtain possession, he is answerable, unless he can assign a sufficient excuse. In that case the money of the estate had been delivered to one of the executors, and he delivered it to his co-executor who converted it, and he was held liable for such conversion, notwithstanding it was what the master of the rolls called a very hard case.

In Williams v. Nixon (2 Beaven, 472), two executors sold out stock belonging to the estate, and the proceeds were received by one. It was held that the other was responsible for its misapplication, because the stock had been in their joint possession, and each was responsible for the proper application of the funds arising from the sale. The principle upon which the liability of one trustee for the act of his co-trustee, under these circumstances arises, is that the property, the fund, the assets of the estate having once come into the joint control or the joint possession of the trustees, it is the duty of each trustee to see to it that the fund does not go out from under his control or possession, excepting as it is applied to the fulfillment of the trust Thus says Lord Rebesdale, in Joy v. Campbell (1 Sch. and Lef., 341): “If a receipt be given for the mere .purposes of form, then the signing will not charge ■ the person not receiving; but if it be given under circumstances purporting that the money, though not actually received by both executors, was under the control of both, such a receipt shall charge, and the true question in all those cases seems to have been whether the money was under the control of both executors. If it was so considered by the person paying the money, then the joining in the receipt by the executor who did not actually receive it, amounted to a direction to pay his co-executor, for it could have no other meaning; he became responsible for the application of the money, just as if he had received it.”

In Adair v. Brimmer (supra), Judge Rapallo treats the principle as well settled, that where the funds have come to the joint possession of the trustees, all are bound to see to their proper application, and are responsible for a misapplication by a common agent, even without their express consent.

In Croft v. Williams (supra), it was stated that if an executor do any act by which the funds should come to the hands of his co-executor, and but for which he would not have received them, and he diverts or wastes them, the executor is liable for the loss.

In this case there can be no question but that the funds which were deposited in the two banks to the joint credit of the assignees, thereby came under their joint possession or ■control. No disposition could have been made of them without the active interference of Gillet, whose signature was necessary, not for the purpose of enabling his co-trustee to obtain from a third person a debt due the estate, but to enable such trustee to obtain and deposit with himself the money already collected, and in their joint possession and control. This was a proceeding in no wise necessary for the due and orderly administration of the estate.

In cases where a debt due to the trust estate by a debtor has been paid to one of two or more trustees, and the debtor has required, as a condition of such payment, that a receipt should be joined in by all the trustees, in such case the signing of a receipt by the trustees who did not personally receive the money has been held to be merely formal, or necessary for the purpose of obtaining the money from the debtor, and that they who did not receive the money, in fact, were not bound by their written admission of its receipt for the purpose named, and were not liable for the failure of the one who did, in fact, receive it, to. properly apply it. Of this class is the case of Paulding v. Sharkey (88 N. Y., 432). There the three executors were empowered to sell the real estate, and, acting under such power, it was sold, and all the executors joined in the conveyance. But the price was paid by the purchaser by check, payable to the order of one of the executors, and delivered to him. He endorsed, and delivered it to his co-executor who also endorsed it and received the money; and the court held that the endorsement by the executor, to whose order the check was payable, was a mere formal matter, necessary for the purpose of obtaining possession of the purchase money from the purchaser; and, as matter of fact, the possession did not come into the hands of that executor, to whose order the check was payable, but that it did come into the hands of that one of them who immediately drew the money upon the check, after it was endorsed.

This is not such a case. The act of Gillet, in signing the checks, by which these moneys, then under their joint control, were drawn from the banks and transferred to the individual and separate control of Hall, was an act, but for the doing of which, the moneys would not have been received by Hall, and Gillet must be held responsible for any amount which was lost in consequence of such act. It is not in the least material that Hall had originally collected these moneys and had then voluntarily deposited them to the joint credit of Gillet and himself. It is enough that Gillet had The joint control of them after such deposit, and it was his act which substituted the separate possession of Hall for such joint control, and he must take the consequences.

W e do not think the case of The People ex rel. Nash, Surrogate, v. Faulkner (107 N. Y., 477; 11 N. Y. State Rep., 879), has any application to this case. There we held that a surrogate, to whom moneys had been paid belonging to-an estate, and which had been by him deposited in good faith with a private banker, in good standing and credit, doing a general banking business, pending proceedings to determine the parties entitled to such moneys, was not responsible for the failure of the banker and consequent loss of the fund before the determination of such proceedings and while the moneys remained with him. It appeared that there was no negligence on the part of the surrogate-in making the deposit, and the sureties upon his official bond were held not to bé liable for the loss.

In the case at bar, the assignee is held liable for the proper application of the funds, not because he assented to-their deposit with a private banker, but because such funds, being under his control and in his possession jointly with his co-assignee, he assisted in drawing them out and placing them in the individual custody of his co-assignee, and, therefore, within all the cases, he must be held responsible for their due ■ application. Such responsibility, we think, is none the less clear, because the co-assignee happens to be a private banker. The deposit was nevertheless with him individually, and it still remains true that his exclusive possession of the funds was obtained by the-act of his co-trustee, who, before that, had joint, control and possession of the funds with him.

It is clear that in the Faulkner Case (supra), if the surrogate had also been a private banker, he would have been liable for the loss of the funds, if he had deposited them in his own private bank to his credit as surrogate, or to the-credit of the estate to which they belonged. ■ There would have been no change of liability in such a case, because-there would have been no change of possession, for the moneys would have been in his possession just the same-, after the deposit as they were before.

In the case at bar no escape from liability can be properly founded upon the mere fact that Hall was a private banker. When the money, through the active assistance of Gillet, passed from their joint control into the possession of Hall, the liability at once arose on the part of Gillet to see to it, that those funds were properly applied by Hall, and that liability could not be lessened or extinguished upon any principle, simply because Hall was engaged in the business-of a private banker. Nowhere in the books, that I have-found, has the liability of a. trustee been made to depend. upon the good credit of the co-trustee under such circumstances.

In 3 Williams on Executors (6 Am. ed., from 7th Eng. ed., 1930), it is stated in the text that one executor placing the property of a testator in the hands of the other, who is a banker, in good credit, the executor so depositing was not to be charged in case of loss, for if he had been the sole executor, he would have had under the same circumstances the right to place the money in the banker’s hands, and he has the same right although the banker happens to be his co-executor. But the cases ■ cited to support that proposition do not, as I think, sustain it. They are Churchill v. Hobson (1 Peere Williams, 241); Chambers v. Minchin (7 Ves., 198, and 21 Viners Abridgment, 534, Title “ Trust,” N. a 9).

In Churchill v. Hobson the testator had made the executor, Goodwyn, his banker during his life, and had entrusted large sums of money to him, and at his death made him and the plaintiff, Churchill, executors of his estate. Churchill paid 500 pounds of the funds of the estate to Goodwyn, who afterwards became insolvent, and Churchill commenced the action, to be discharged of the executorship and to be indemnified against the insolvency of Goodwyn.

It was claimed that Churchill ought to be responsible for the 500 pounds, because it was by his special- act that Goodwyn had received it. But Lord Chancellor Harcourt held otherwise, upon the ground that Goodwyn had been chosen a confidential cashier of the testator for large sums of money in his lifetime, and that the executor ought not to suffer for trusting him, after his death, who had been . made by_ the testator one of his executors. The case was decided in 1713, and the judgment cites no authority for the proposition, and is not entitled to much weight as against other later and much better- considered cases. It is founded, however, upon the trust which the testator himself, in his lifetime, put in the cashier. Even then we do not think it can be reconciled with the general principle which is so well established by the later cases already referred to, and which principle establishes that one trustee should be answerable for the acts of another when he places the funds of the estate in such others hands, or does some act but, for the doing of which, such trust property would not have been received by the co-trustee. What a testator in his lifetime may do with his own can form no proper criterion or test as to the propriety of the same-action by trustees or executors. A man has the right to do wdiat he will with his own, and may run such risks and take such chances as seem to him good. The liability of one trustee, under the circumstances herein spoken of, is wholly different, and cannot be determined by reference to the conduct of a testator in his lifetime, and I can see no reason for abrogating such liability in a case where the trustee happens to be a private banker, any more than in any case where such trustee is in good financial credit. This latter fact has never, so far as I can find, been regarded as the least' reason for modifying or extinguishing the duty of a trustee, who has once obtained joint control of any property of the. estate, to see to it that such property is applied in a due course of administration of the trust.

In Chambers v. Minchin, the subject is merely touched upon by the lord chancellor, in passing. The question was ■not involved, and no decision made in regard to it.

The manuscript report of the case of Attorney-General v. Randell (Trinity Vacation 1734, contained in Viner’s Abridgment, supra, page 534) is not in point. That was a case where the receipt given by the two trustees was formal only, and for the purpose of obtaining from the executors the moneys bequeathed to the trustees, and which moneys the executors would not pay to a third trustee unless the others joined in the receipt, which they did The money was, in fact, received by the third trustee, and a large part of it was by him legitimately expended for the purposes of the trust, and the balance was lost by his insolvency. The court declined to hold the two trustees who never, in fact, received the fund, responsible for its loss.

But, although the defendant Grillet is responsible for the proper application of the funds which came into‘the hands of Hall, by reason of Gillet’s act in signing the checks, yet it by no means follows that he is to be held responsible for the full amount of Hall’s deficit. It was so held by the courts below, and, as we think, erroneously. It was a less sum than $50,000 that was drawn from these banks by the act of Gillet, and placed in the separate custody of Hall, and in the course of the proper administration of the trust, Hall paid out nearly $90,000. He may, therefore, have paid out every dollar drawn from the banks, through the aid of Gillet, in the proper cqurse of administration, and in that event he ought not to have been held liable for any loss of other assets collected by Hall, and which never came into his possession or control. Shipbrook v. Hinchinbrook, 11 Ves., 252a; Underwood v. Stevens, supra; Wilmerding v. McKesson, supra.

We think the exception taken to the referee’s report are sufficient to raise the questions here discussed. The admission of the receipt of assets, in the written account presented to the referee, is not conclusive here as to the amounts actually received by defendant Gillet. The proof is, and so, too, is the finding, that he collected and received nothing. At the time when the accounts were made out, there was no question of separate liability, as Hall was still in first-class financial credit, and the account was evidently a mere statement of the total amount of the trust received, and of the total amount of expenses, while the question of separate receipt or disbursement, as between the assignees themselves, was never thought of.

Upon the question of interest, we think the court below proceeded upon an erroneous theory. The ground of liability of Gillet in this case, rests upon a neglect to fully perform the duties of his trust, in failing to see to the proper application of the moneys entrusted to Hall through his act. But there is no allegation or proof of any affirmative wrongdoing on the part of Gillet, or of the use by him of any funds, from which the slightest benefit to himself arose. Both the evidence and finding are the other way.

Under these circumstances we think that interest at the rate of five per cent upon that portion of the fund drawn out from these banks which the defendant Gillet may fail to show was properly applied to the purposes of the trust, would make a fair rule in making up the account.

It may be that on the new trial which must take place, it will be found that the defendant, Gillet, is not responsible for any portion of the loss occasioned by the failure of Hall. The burden is on him to show a proper application of the funds which came to Hall’s hands through his act.

The judgment should be reversed, and a new trial ordered, costs to abide event.

All concur, except Huger, Ch. J., and Andrews, J., absent.  