
    Carl Vohmann and Others, as Executors and Trustees under the Last Will and Testament of Louise Pommer, Deceased, Appellants, v. John Michel and Minnie Michel, His Wife, Respondents, Impleaded with Carl Coenen, as Executor and Trustee under the Last Will and Testament of Louise Pommer, Deceased, and Others, Defendants.
    Second Department,-
    December, 1905.
    Satisfaction of mortgage securing sums due trust estate forged by one" trustee does not release mortgagor — when trustees not estopped to foreclose such mortgage.
    The defendant accepted a loan of trust funds and secured the payment thereof by a bond in terms payable to the trustees individually and by a mortgage payable to them as “ executors and trustees.” He paid the loan before due to one trustee by checks payable to him “as trustee.” Said trustee executed a satisfaction of the mortgage purporting to be signed by all the trustees, but the signature of one of them was procured by fraud and that of the other was forged. Subsequently he absconded with the proceeds of the checks. In an action by the other trustees to cancel said satisfaction piece and to foreclose the mortgage,
    
      Held, that as a matter of law the discharge Of a mortgage securing, a loan of trust funds requires the united action of all-the trustees, the mortgagor was not discharged by such forged satisfaction piece;
    That, though, on learning of the forgery, the remaining trustees had not notified the mortgagor thereof, they were not estopped to foreclose the mortgage, either as against him or as against a subsequent mortgagee who had taken his mortgage,’ relying on the apparent discharge of the' prior mortgage by said forged satisfaction piece, when it appears that the absconding trustee had no property to which the mortgagor could 'have looked, and that his failure to cause an arrest of such trustee was not due to .reliance on any duty he could expect, the other trustees to perform;" ,
    That the fact, that, two of the beneficiaries who were of age had released the trustees from liability to them without consideration, could not be taken advantage of by said mortgagor as he was a stranger thereto and there were other beneficiaries still minors;
    That the act of the trustees in accepting the mortgage was done as trustees and not as executors, for the estate, by the terms of the will, was devised directly • to them as trustees, though' they were also named executors, which fact was recognized by the mortgagor, by making payment to one of them “ as trustee.” \
    Appeal by the plaintiffs, Carl Vohmann and others, as executors and trustees under the last will and testament of Louise Pommer, deceased, from a. judgment of the Supreme Court in favor of certain of the defendants, entered in the office of the clerk of the county of Richmond on the 16th day of November,. 1904, upon the decision of the court, rendered after a trial at the Richmond Special-Term, dismissing the plaintiffs’ complaint upon the merits as to the said defendants.
    
      Frederic W. Hinrichs, for the appellants.
    
      J. Culbert Palmer, for the respondents.
   Miller, J.:

We have to deal only with the first cause of action alleged, as it was conceded on the argument that the dismissal of the complaint as to the second cause of action was proper. By the will of Louise Potm mér, who died March 12, 1897, her residuary estate was devised in .express terms to three trustees in trust to invest and keep invested, to collect the income, -issues and profits thereof, and to. apply the same . to the use of four children in. equal proportions until they should respectively attain the age: of twenty-five years. Carl Coenen and the plaintiffs Carl Yohmann and Hermann Mecke were appointed executors of said will and trustees of the. trusts therein created, and . duly qualified both as executors and trustees. On the 15th day of February, 1899, said Coenen, Yohmann and Mecke loaned the defendant Michel from said residuary estate the sum of $6,500, and took the bond of said Michel, in terms payable to said Ooenen, Vohmann and Mecke, individually, but secured by a mortgage payable to them as “ executors and trustées of the last will and testament of Louise Pornmer, deceased.” The principal sum thus secured did not become due according to the terms of said bond and mortgage until the 15th day of February, 1902. In November, 1900, said Ooenen, acting through one Oossmann, who appears to have been the agent of both parties, procured said Michel to make a payment of $1,500 on the principal sum thus secured, which payment was made by a check payable to the order of “ Carl Ooenen, Trustee,” and on November 23, 1900, he likewise obtained the payment of the balance of said principal sum by a check payable to his order “ as Trustee of Louise Pornmer,” and caused to be delivered to said Michel a satisfaction piece of said mortgage, dated November 3, 1900, purport-, ing to be signed and acknowledged by each of said three trustees. The signature and acknowledgment of said Mecke were obtained by said Ooenen by false representations, and the signature of said Vohmann was a forgery, and the certificate of acknowledgment false. The money thus obtained by Ooenen was stolen by him. Upon the faith of said transaction the mortgage was discharged of record and a new loan was made by the defendant Horrmann to said Michel to whom said Michel gave a new bond and mortgage covering the same property. The theft and forgery of Ooenen were not discovered by his cotrustees until September 20, 1901, and on the 5th day of October, 1901, said Ooenen absconded and has since resided in Germany. Shortly after said discovery two of the eestuis que trustent, who were then of age, executed a release to said Vohmann and Mecke of all claim against them by reason of said transaction, and signed receipts to said Ooenen, each acknowledging the payment to him of his distributive share of his mother’s estate. Only one of said eestuis que trustent had then arrived at the age of twenty-five years, and the other two were still infants. Nothing, however, was paid to the two executing releases and receipts as aforesaid, and nothing was said to the defendants Michel and Horrmann in reference to the discovery of said forgery and theft. Said Ooenen appears to have had the bond and mortgages in his possession and to have been the most active of the three trustees in the management of the estate, as said Mecke resided in North Carolina and said Vohmann was in Staten Island, where said transaction occurred, only at intervals. The plaintiff Frank 0. Fomin er has- been substituted as trustee' in place of said Carl Cbenen. This action is- now brought by the trustees to obtain a cancellation-of the satisfaction of said mortgage and the record thereof, and a foreclosure, and from the judgment of the Special Term in favor of the defendants plaintiffs appeal.

It is conceded that if the bond and mortgage were held by Cbenen, Vohmann and Mecke as trustees the satisfaction and discharge thereof before due required the united action of the three trustees, and this is so clearly the correct rulé as to require no discussion, but it is urged on behalf of the respondents in support of the-judgment that they held the bond and mortgage as executors and riot' simply as trustees, and that, therefore, the act of one in accepting payment and executing á discharge was valid, and that in any event the plaintiffs are estopped from now asserting ■ the invalidity of the discharge- by reason of their failure to: inform the defendants Michel and Horrmann of,the forgery immediately upon, the discovery thereof. 'The decision of the learned court at Special Term, appears to have been rested principally upon the claim of estoppel, but it is very difficult to find, in-this record all the elements, essential to establish an estoppel in pais even though we overlook the fact that such estoppel is asserted against trustees in their representative Capacity. The defendants do not. assert that said C’oehen had any property from -which they could have recovered any portion of the amount stolen by him, and' it is entirely probable that had -they been informed immediately of the facts they would have rested upon the assertion now made that the satisfaction was valid, but it is claimed that the right to resort to the criminal law was a .valuable right the loss of which -even without any other damage was sufficient injury to uphold the claim of an estoppel, and as there are authorities to that .effect,’ we may assume, without, deciding, that such is the law, and still the evidence fails to establish an estoppel. It is not claimed, that the defendants were actually misled or that they did anything, or failed to do anything because of actual reliance upon any conduct of the plaintiffs. . They possibly might have- had Cbenen arrested had they been informed promptly of the forgery, but their failure to have him arrested was not due to their reliance upon the performance of any. duty which they assumed would be performed. This is not like the case of the return of vouchers by a bank to a depositor, and kindred cases relied upon by the respondents. In such cases it is held the depositor owes a duty of examination within a reasonable time, and, in case of detected forgery, of imparting information thereof to the bank, which relies on the assumption that after a reasonable time such duty has been performed and such vouchers found correct. In this case the defendant Michel dealt exclusively with said Ooenen, made the cheeks payable to him as trustee and, of course, believed that the signatures and acknowledgments to the satisfaction piece were genuine, but he did not expect that the other two trustees would do anything further in the matter and, of course, did not refrain from doing anything, relying upon a belief that they would. Can it be said that the plaintiffs were “ consciously in the wrong,” as was said by Judge Finch in Collier v. Miller (137 N. Y. 332, 341), that they supposed the defendant was being injured by their silence, or that he was in any way relying upon such silence. I think the case last cited and the case of Vide v. Judson (82 N. Y. 33) are against the respondents’ contention. Certainly the defendant can claim nothing by reason of the releases and receipts executed by the two adult eestuis que trustent which were without consideration, did not in the slightest affect or prejudice his rights, and to which he Was a total stranger. But independently of the foregoing, no case is called to our attention similar to the case at bar in which trustees are held to have been estopped in their representative capacity; on the contrary, authority is abundant for the proposition, not only that a person dealing with a trustee is chargeable with notice of the trust conditions, but that he who takes trust property in violation of such conditions takes it subject to the right not only of the cestui que trust but of the trustee as well to reclaim possession. This proposition was so recently decided by this court as to require no further discussion here. (Ludington v. Mercantile National Bank, 102 App. Div. 251; affd.,'on the opinion of Mr. Justice Bartlett, 182 N. Y. 522.) If trustees who convey trust property in violation of the trust conditions can reclaim the same, they certainly cannot he estopped by mere silence under the circumstances disclosed in this case, particularly where two of the eestuis que trustent are still infants.

If, therefore, the bond and mortgage were owned by trustees and \iot executors, the judgment must be reversed, because' the defendants: can claim nothing by reason of a void instrument from which-the estate derived no benefit.

■ The respondents rely upon the fact that the executors had never accounted or been discharged as such and that there-never had been any formal' transfer of the estate from themselves as’ executors to • themselves as trustees. The act itself, when viewed in the light' afforded by the will,, leaves .no room for doubt as to its character.' The money Was paid by the defendant Michel more than three years :after the death of the testatrix. As expressly found by the court at Special Term, this money was a portion of the residuary estate;. it had been invested by said Ooenen, Vohmann and Meche, and the investment in bond and mortgage of a residuary estate devised to trustees is- not an executorial act. . Where the same persons are appointed executors and trustees and their duties in both capacities coexist and the will does not sharply define the limitations of each,it may be difficult always to determine whether a precise act is that, of an executor or trustee, although even -then it would seem that the character of the act would ordinarily determine whether it was executorial. But it is unnecessary to review the authorities bearing upon the .question under the conditions referred to for the , reason that the will in the case at bar clearly defines the act in qüés•tion as that of a trustee.. The residuary estate, was devised, not to executors and trustées, but to her trustees in trust; the testatrix carefully limited the investment, and management of her-residuary estate to trustees and appointed the persons named executors of her will and trustees of the trust therein created. The defendant. Michel was not misled as to, the representative character of the persons with whom he was dealing. He knew, or was .chargeable with knowledge, that by the terms- of the will'the investment of the residuary estate was the act of trustees-; he knew, or was presumed to .know,- that a valid discharge of the mortgage before it was due could only be given by the three trustees. He in fact recognized the . character of the persons with' whom he was dealing because-'the checks in payment of the mortgage were payable to Ooenen as trustee. As the result of Coenen’s forgery the defendant Michel supposed that, he was getting a discharge of the mortgage executed. by all three trustees; the instrument Which he got was in fact a nullity, and there is no principle of law or equity which requires the estate to bear the loss even though Michel may not have been negligent. Of course, Horrmann made the new loan upon the faith of the record resulting from the forged satisfaction piece and is in no better position than his mortgagor.

The judgment, so far as it awards costs to the defendants and dismisses the complaint respecting the first cause of action alleged, must be reversed- and a new trial granted, costs to abide the final award of costs.

Hirsohbebg, P. J., Bartlett, Woodward and Hooker, JJ., concurred.

Judgment, so far as it awards costs to the defendants and dismisses the complaint respecting the first cause of action, reversed and new trial granted, costs to abide the final award of costs.  