In re Heinze's Estate

• Decision Date: 28 May 1918
• Citation: 120 N.E. 63,224 N.Y. 1
• Parties: In re HEINZE'S ESTATE. In re FULLERTON.
• Court: New York Court of Appeals Court of Appeals

224 N.Y. 1

120 N.E. 63

In re HEINZE'S ESTATE.

In re FULLERTON.

Court of Appeals of New York.

May 28, 1918.

Appeal from Supreme Court, Appellate Division, Third Department.

Proceedings in the matter of the estate of F. Augustus Heinze, deceased, wherein Walter A. Fullerton, administrator, made application to recover possession of certain corporate stock. From an order of the Appellate Division (167 N. Y. Supp. 1104), reversing an order of the surrogate directing the delivery of the property to the administrator, the administrator appeals. Affirmed.

James A. Leary, of Saratoga Springs, for appellant administrator.

Ralph Royall, of New York City, for appellant Gould.

Walter H. Dodd, of New York City, for respondent Empire Kaolin Co.

Franklin Bien, of New York City, for respondent Madison Real Property & Security Co.

Emil J. Villanyi, of New York City, for respondent Mutual Bank.

CARDOZO, J.

F. Augustus Heinze was the owner at the time of his death of 450,000 shares of the stock of the West Dome Company, a mining corporation. On December 31, 1915, his administratrix, Ida M. Fleitmann, made a contract to sell these shares to the Empire Kaolin Company, a corporation controlled by her brother, Otto C. Heinze. The price was to be 20 cents a share. Fifty thousand shares were delivered at once upon payment of $10,000. Four hundred thousand shares were deposited with the Mutual Bank, to be delivered from time to time as demanded and paid for by the buyer. The payments were to be completed, however, within three years. The Empire Kaolin Company assigned to another corporation its rights in half the shares deposited. Since then 30,000 shares have been delivered by the depositary. Three hundred and seventy thousand shares remain.

In August, 1916, Mrs. Fleitmann was removed as administratrix, and the petitioner, Mr. Fullerton, was appointed in her place. He gave notice to the depositary, to the buyer, and to the buyer's assignee, that he disaffirmed the contract. He charged the administratrix with fraud and abuse of power. Buyer and assignee thereupon tendered the full price, and demanded delivery. On the depositary's refusal, they brought actions in the Supreme Court for specific performance joining the administrator as a party. Those actions are still pending. The administrator now seeks to supersede them by a summary proceeding. He has filed in the Surrogate's Court a petition that the depository be directed to return the certificates of stock remaining on deposit. The surrogate has held that the price was inadequate to the knowledge of the buyer; that Otto C. Heinze, who was the agent for the buyer, was also the agent for the seller; and that his concealment of the true value was an abuse of a confidential relation, which stamped the sale as fraudulent. An order was made that the depositary return the shares to the petitioner. The Appellate Division reversed the order on the ground that the surrogate was without jurisdiction to make it. In that view we concur

[1] Two statutory remedies are invoked the petitioner. Sections 2675 and 2676 of the Code of Civil Procedure are the source of one; section 2734 is the source of the other. We think that neither remedy is applicable here

1. Section 2675 was formerly section 2707.Asamended in 1914 (Laws 1914, c. 443), it provides that:

‘An executor or administrator may present to the Surrogate's Court from which letters were issued to him, a petition setting forth on knowledge, or information and belief, any facts tending to show that money or other personal property which should be delivered to the petitioner, or included in an inventory or appraisal, is in the possession, under the control or within the knowledge or information of a person who withholds the same from him; or who refuses to impart knowledge or information he may have concerning the same, or to disclose any other facts which will and such executor or administrator in making discovery of such property, and praying an inquiry respecting it, and that the respondent may be ordered to attend the inquiry and be examined accordingly, and to deliver the property if in his control. The petition may be accompanied by an affidavit or other written evidence, tending to support the allegations thereof. If the surrogate is satisfied, on the papers so presented, that there are reasonable grounds for the inquiry, he must make an order accordingly.’

Section 2676 provides that:

‘If the person directed to appear submits an answer denying any knowledge concerning, or possession of any property which belonged to the decedent in his lifetime, or shall make default in answer, he shall be sworn to answer truly all questions put to him touching the inquiry prayed for in the petition. If it appears that the petitioner is entitled to the possession of the property, the decree shall direct delivery thereof to him. If such answer alleges title to or the right to possession of any property involved in the inquiry, the issue raised by such answer shall be heard and determined and a decree made accordingly.’

The right of an executor or administrator to compel discovery of the decedent's property is not a new one. It has a history recorded in legislation and decision. For many years the law was that in such a proceeding there could be no trial of title. If an opposing claim of title was put forward by sworn answer, the proceeding was dismissed. Matter of Walker, 136 N. Y. 20, 29,32 N. E. 633; Matter of Gick, 49 Misc. Rep. 32,98 N. Y. Supp. 299, and cases there cited. An amendment of the statute in 1903 (Laws 1903, c. 526) empowered the surrogate to determine whether the adverse claim had a substantial basis. Unless he found it frivolous, he left the parties to an action. Matter of Gick, 113 App. Div. 16,98 N. Y. Supp. 961; affirming 49 Misc. Rep. 32,98 N. Y. Supp. 299. The last amendment in 1914 permits a trial of title. If necessary, a jury may be summoned. Code Civ. Proc. § 2538. Delivery may then be decreed as the title may be found.

This remedy, even in its broadened form, is without application to the case before us. Its primary purpose is still inquisitorial. Matter of Silverman, 87 Misc. Rep. 571, 573, 574,151 N. Y. Supp. 382;Matter of O'Brien v. Baker, 65 App. Div. 282,72 N. Y. Supp. 1001. Its aim is a discovery which will bring the decedent's assets within the executor's dominion. It does not reach a case where the executor has gained dominion, and the only question is whether he has exercised his dominion rightfully. That is the situation here. No one denies that these shares were part of the estate. The administratrix received them, controlled them, and then agreed to sell them. The question at issue is not the extent of the assets that were left by the decedent. The question is the propriety of the disposition of admitted assets by the decedent's personal representative. That is not an issue to be litigated in proceedings to discover the extent of the estate. It happens that a successor of the administratrix challenges her contract. If what she did was wrongful, she could with equal right have repudiated it herself. Wetmore v. Porter, 92 N. Y. 76;Moss v. Cohen, 158 N. Y. 240, 53 N. E. 8. Such contests must be waged elsewhere.

[2] This conclusion makes it needless to consider other objections urged to the jurisdiction of the surrogate. Finding that the legal title to the chose in action passed to the depositary, the surrogate exercised the powers of the chancellor, and set the title aside for fraud in its procurement. Whether that assumption of jurisdiction may be sustained, we need not now inquire. Code Civ. Proc. § 2510; Matter of Kent, 92 Misc. Rep. 113,155 N. Y. Supp. 383;Matter of Kenny, 92 Misc. Rep. 330,156 N. Y. Supp. 827;Fribourg v. Emigrants Ind. S. Bank, 168 App. Div. 816,154 N. Y. Supp. 532;Matter of Hermann, 178 App. Div. 182,165 N. Y. Supp. 298, affirmed, 222 N. Y. 564, 118 N. E. 1062;Matter of Schnabel, 202 N. Y. 134, 95 N. E. 698;Matter of Watson, 215 N. Y. 209, 109 N. E. 86. The proceeding for discovery failed, and with it failed the right to any relief, whether equitable or legal.

[3] 2. Section 2734 is also inapplicable. It provides that the surrogate shall have jurisdiction ‘...