Deobold v. Opperman

• Decision Date: 11 December 1888
• Citation: 111 N.Y. 531,19 N.E. 94
• Parties: DEOBOLD, v. OPPERMAN, et al.
• Court: New York Court of Appeals Court of Appeals

111 N.Y. 531

19 N.E. 94

DEOBOLD,

v.OPPERMAN, et al.^*

Court of Appeals of New York.

Dec. 11, 1888.

Appeals from supreme court, general term, First department.

Actions by Philip Deobold, executor of the will of Maria Deobold, deceased, against Frederick Opperman, Jr., and another, sureties on the bond of Louisa Deobold, (now Rausch,) administratrix of Henry Deobold, deceased. In both cases judgments were rendered for plaintiff, and affirmed on appeal to the general term. Defendants again appeal.

Ashbel P. Fitch, for appellants.

Langbein Bros. & Langbein, (George F. Lanbbein, of counsel,) for respondent.

RUGER.

This action was brought by the plaintiff as executor of the estate of his mother, Maria Deobold, to recover from the defendants as sureties upon the bond of Louisa Deobold, given upon her appointment as administratrix of the estate of her husband, henry Deobold, a sum of money ordered by the surrogate to be paid to Maria Deobold as mother and next of kin to the intestate, but which the administratrix refused or neglected to pay. The trial court directed a verdict for the plaintiff, and the judgment entered thereon was affirmed upon appeal. The supreme court having granted leave to appeal to this court, the matter comes here for review. The record presents the following facts, the evidence being practically undisputed: Prior to January 16, 1880, Henry Deobold, a resident of the city of New York, died possessed of personal property of about the value of $3,300, and leaving him surviving his widow, Louisa Deobold, his mother, maria Deobold, and brother, Philip Deobold, next of kin. On that day the surrogate of New York issued letters of administration upon the estate of the widow, Louisa Deobold, and the defendants became sureties upon her bond for the faithful performance of her duties as such. On December 8, 1882, upon a general accounting before the surrogate by the administratrix, he made a decree finally adjusting her accounts, and discharging the administratrix and her sureties from their bond. This decree purported to have been based upon a written waiver of notice of the settlement of the estate, signed by Maria and Philip Deobold, and a written assignment by them to the administratrix of all their right, title, and interest in the estate of the deceased. Proceedings were thereafter begun by Maria and Philip, in the surrogate's court, on January 9, 1883, to set aside the decree rendered on final accounting, upon the ground that it was fraudulently obtained, and that the assignment and waiver of citation were procured from them by the administratrix through fraud and misrepresentation. Such proceedings were thereupon had that the surrogate, on February 20, 1883, made an order vacating, and in all respects setting aside, the decree, and the defendants were immediately thereafter served with a copy of such order. Subsequently, upon a further accounting, the surrogate made an order directing the administratrix to pay to Maria Deohold the sum of $200, and, she refusing to pay the same, the surrogate made a further order directing the prosecution of the defendant's bond for the recovery of the amount so ordered to be paid. This suit was brought in pursuance of the latter order.

It further appeared that, before consenting to act as sureties upon the bond of Louisa Deobold, the defendants required her to deposit with them the entire proceeds of the estate, to be retained until they were discharged from liability upon the bond, and an agreement to that effect was made between her and the defendants. No security was given to the administratrix for the repay meat of these moneys by the defendants, and by the understanding of the parties they were to pay interest thereon, and were authorized to use them in their business as brewers. Under this arrangement the administratrix, at the time of the execution of the bond, deposited with the defendants the sum of $3,300, the funds of the estate, which they employed in their business until January 16, 1883, when it was repaid by them, together with a loan of $2,900, and interest, to Louisa Deobold. This payment was made by the defendants after an examination of the decree of the surrogate of December 9, 1882, discharging them from liability on the bond, and after an inspection of the papers upon which such decree was founded. It did not appear that the defendants had actual notice of the proceedings previously instituted by Philip and Maria Deobold to set aside such decree for fraud, or that they were made parties thereto. It further appeared that, in actions instituted on behalf of Philip and Maria Deobold against the administratrix in the court of common pleas of New York, judgments had been obtained by the plaintiffs, respectively, vacating and setting aside the assignments before referred to as fraudulent and void.

Two questions are presented by the appellants as grounds for the reversal of the judgment below, which may be briefly stated as follows: (1) That the surrogate could not reinstate the defendants in their liability as sureties upon their bond in proceedings to which they were not parties; and (2) that the agreement by which they were made the custodians of the funds of the estate was binding and lawful, and authorized them to retain them until after the discharge of such bond. As the corollary of the latter proposition, it is urged that, having the right to retain them, and having paid them out relying upon the assignment, and decree of the surrogate based thereon, the defendants were relieved from the obligation of repaying the same moneys in this action.

We are of the opinion that the claims of the defendants are not maintainable. No question is made but that the surrogate had ample power to set aside his decree for fraud, and require a further accounting by the administratrix as to the estate, (section 1, c. 359, Laws 1870;) but the claim is that the sureties were not bound by the subsequent adjudications of the surrogate, for the reason that they did not have notice of the proceeding. This claim is clearly untenable. The decree discharging the administratrix and her sureties was, when made, assailable by any party thereby aggrieved, either by motion to set it aside or by proceedings on appeal. In neither case was it necessary that the sureties should have notice of the proceeding. The sureties are the privies of the administratrix, and are precluded from questioning any lawful order made by the surrogate in a proceeding wherein she is a party, if obtained without collusion between such administratrix and the next of kin or creditors of the estate. Scofield v. Churchill, 72 N.Y. 565;Gerould v. Wilson, 81 N.Y. 583. Their bond contemplates that they shall remain sureties as long as the surrogate retains jurisdiction of the proceedings in administration of the estate. and has power to make valid orders therein affecting the property administered upon.

Of course, the sureties would not be bound by an order which the surrogate had no jurisdiction to make; but so long as his jurisdiction continues the liability of the sureties remains. The very language of the bond provides for orders made in proceedings inter alios, and for the liability of the sureties for a non-performance by the administratrix of any decree or order made by the surrogate's court. The condition of the bond is that liability shall follow her infidelity to her trust, or disobedience of any lawful order or decree, whenever made In the proceedings. It was, we think, never heard of in practice that sureties on an administrator's bond should have notice of proceedings in the administration of an intestate's estate. It could not be claimed that these sureties were entitled to notice of an appeal from the surrogate's decree, or that if an appeal was taken from a decree in favor of an administrator, and the decree should be reversed, they would not still remain liable upon their bond. Such bonds are similar to those given in civil actions upon appeals and otherwise, and have always been held to abide the result of the action.

The real question, therefore, is as to the legality of the arrangement made with the defendants in respect to the custody and use of the funds of the estate during the pendency of proceedings in administration, and the effect of the repayment of such moneys by the defendants to the administratrix under the circumstances disclosed in the case. We are of the opinion that any employment of trust funds for the individual benefit of a trustee is forbidden by the rules of equity, and constitutes a devastavit authorizing the removal of the trustee, and the reclamation of such funds from any one receiving them with knowledge of their character. The employment and use of such moneys by executors, administrators, and other trustees, during the continuance of the trust, has been from the earliest times the subject of frequent consideration by the courts, and their decisions have displayed a uniform tendency towards that mode of use which should afford the greatest security to the fund. Their employment by the trustees in trade, or as loans to persons engaged in such business, or in the prosecution of mercantile, commercial, and manufacturing enterprises or speculative adventures, has been uniformly condemned as illegal, and as constituting a devastavit of the estate. Wilmerding v. McKesson, 103 N.Y. 336, 8 N.E. Rep. 665; King v. Talbot, 40 N.Y. 90;Fellows v. Longyor, 91 N.Y. 324;Wetmore v. Porter, 92 N.Y. 76. So, too, it is the uniform doctrine of the cases that trust...