Stark v. Nat'l City Bank of New York

• Decision Date: 07 July 1938
• Citation: 16 N.E.2d 376,278 N.Y. 388
• Parties: STARK v. NATIONAL CITY BANK OF NEW YORK et al.
• Court: New York Court of Appeals Court of Appeals

278 N.Y. 388

16 N.E.2d 376

STARK

v.NATIONAL CITY BANK OF NEW YORK et al.

Court of Appeals of New York.

July 7, 1938.

Action by Anna Stark, as administratrix of the goods, chattels, and credits of Noah Stark, deceased, against the National City Bank of New York and others, to recover certain losses sustained by the estate. From a judgment of the Appellate Division, First Department, 253 App.Div. 801, 1 N.Y.S.2d 738, which modified a judgment of the Trial Term without a jury in favor of plaintiff, defendants appeal, leave to appeal having been granted, 254 App.Div. 558, 3 N.Y.S.2d 898.

Judgments reversed, and complaint dismissed. Appeal from Supreme Court, Appellate Division, First Department.

Carl A. Mead, of New York City, for appellant National City Bank of neW york.

William D. Whitney, of New York City, for appellant Transamerica corporation.

Saul J. Lance, of New York City, for respondent.

LEHMAN, Judge.

Noah Stark died in June, 1928. His widow was appointed administratrix of his estate. Among the assets of the estate were twenty-four shares of Bancitaly Corporation and thirty shares of Bank of Italy. In October, 1928, notice was sent to the stockholders of these corporations that Transamerica Corporation had been formed for the purpose of acquiring control of Bancitaly Corporation and of the Bank of Italy and that one share of Bancitaly stock might be exchanged for one share of Transamerica stock and one share of Bank of Italy stock for one and three-quarters shares of Transamerica stock. The notice stated that the stock might be delivered for exchange to ‘James F. Cavagnaro, Vice-President, Bank of America, 680 Broadway, New York City.’ In September, 1929, an attorney representing the estate of Noah Stark went to the Bank of America at 680 Broadway and received there the information that the Bancitaly and Bank of Italy stock belonging to the estate might be exchanged for 192 shares of Transamerica stock upon payment of $2,137 exacted to adjust rights or equities which had arisen since the original offer. Upon those terms the exchange was consummated. Five years later when the market value of Transamerica stock was only a fraction of its value at the time the exchange was made, the administratrix brought this action to recover the value of the securities belonging to the estate and also the money deliveredby the plaintiff as administratrix to obtain the Transamerica stock.

An administratrix is under a duty to distribute the assets of the estate of their proceeds after payment of taxes, administration expense and debts. The plaintiff, as administratrix of the estate, might hold the assets of the estate for the time reasonably required for administration of the estate. Pending such administration she might, we assume, invest moneys in the estate in the ‘kind of securities' in which fiduciaries are authorized to invest trust funds. Decedent Estate Law (Consol.Laws, ch. 13), § 111. If an administratrix invests the assets of the estate in other ‘kind of securities' she may be held to account for the consequent loss to the estate. The stocks of the Bank of Italy and of the Bancitaly Corporation which belonged to the estate, like the stock of Transamerica Corporation received in return for that stock and an additional payment in cash, are not the kind of securities in which trust funds may be invested. The plaintiff, as representative of the estate, now asserts that through that transaction she wasted the assets of the estate and that the defendants National City Bank, as successor in interest of Bank of America, and the Transamerica Corporation wrongfully aided and abetted her in such waste and that they and the agents through whom they acted are liable to her, as the representative of the estate, for the consequent loss.

The trial court has granted judgment in favor of the plaintiff against the corporate defendants, who are required to take back the Transamerica stock transferred to the estate and to pay to the plaintiff the value of the stock which they received from the estate in the exchange. The court did not require the defendant to return to the plaintiff, in addition, the moneys paid to the corporations as part of the consideration for the exchange. These moneys did not belong to the estate, but were borrowed by the administratrix. The court held that the administratrix cannot be allowed on her accounting any credit for moneys borrowed by her for investment or other unauthorized purpose and that, therefore the waste of these moneys would cause no loss to the estate. The court dismissed the complaint against the individual defendants who acted as agents of the corporate defendants. It also dismissed various cross-claims for indemnity which the defendants made against each other and against Anna Stark individually. The Appellate Division affirmed the judgment with the modification, only, that the dismissal of the cross-claim of the defendant National City Bank against Anna Stark individually should be ‘without prejudice’ instead of ‘upon the merits.’

Since no appeal was taken by the plaintiff, the dismissal of the complaint against the individual defendants is not subject to review now; nor is the refusal of the trial court to include in the judgment a provision for the return of the money paid as part consideration for the stock of Transamerica Corporation. The question is, however, properly raised by the defendant corporations whether a judgment on the merits in favor of the officers or agents through whom the corporate defendants acted does not destroy the foundation of the claim of liability asserted against them for loss resulting from these acts. Cf. Pangburn v. Buick Motor Co., 211 N.Y. 228, 105 N.E. 423;Schubert v. August Schubert Wagon Co., 249 N.Y. 253, 164 N.E. 42, 64 A.L.R. 293. Questions of who may be held responsible for wrong committed and the extent of the responsibility are, of course, subordinate to the question of whether there has been any wrong. If upon the undisputed evidence it appears as matter of law that these defendants did not participate in any wrong to the estate, no other question need be decided. We pass first upon the fundamental problem presented by the appeal.

Liability, if any, must rest upon proof, first, that the administratrix wasted the assets of the estate by investment in common stocks, and, second, that the corporate defendants wrongfully participated in such waste. We have said recently that though investment of trust funds in a kind of securities not authorized by the statute is not forbidden by statute and is not tortious at common law, yet ‘public policy requires * * * that, where other than permitted investments are made, the estates shall be reimbursed in the event of loss.’ Delafield v. Barret, 270 N.Y. 43, 49, 200 N.E. 67, 69, 103 A.L.R. 941. Those who knowingly assist a trustee in making such investments may subjectthemselves to similar liability. National Surety Co. v. Manhattan Mortgage Co., 185 App.Div. 733, 174 N.Y.S. 9, affirmed, 230 N.Y. 545, 130 N.E. 887. In those cases the fiduciary was under a duty to invest the trust fund prudently and in suitable securities, in order that the beneficiary might enjoy the income, but the fiduciary caused a loss to the trust fund by investments in securities which were not of the ‘kind’ in which, by statute, the fiduciary was expressly permitted to invest trust funds. In the instant case securities belonging to the estate, which were not ‘permitted investments' and which it was the duty of the administratrix to sell within a reasonable time, were converted into securities which, like the original securities, were not ‘permitted investments' and which again it was the duty of the fiduciary to sell.

Did that transaction constitute an investment within the meaning of the statute and the cases where liability for loss sustained was imposed upon a fiduciary? The plaintiff in her complaint described the transaction as an ‘exchange or conversion’ of shares of stock of Bancitaly Corporation and of Bank of Italy into shares of stock of defendant Transamerica Corporation. The trial court has found that the transaction was a purchase or investment. Description of the transaction by the plaintiff or by the court does not change its character or give rise to rights and liabilities. There is no substantial dispute between the parties as to what the plaintiff and the defendants did. The court must determine whether there is any evidence which shows that what they did constitutes a wrong or neglect of duty owed to the estate. Without wrong or neglect there can be no liability.

The complaint alleges, and the defendants have by stipulation admitted, that at the time of the delivery to the defendants of the stock of the Bancitaly Corporation and the stock of Bank of Italy which belonged to the estate, the Bancitaly stock had ‘a market value of One Hundred and Sixty-four Dollars per share’ and the Bank of Italy stock ‘a market value of Two Hundred and Eighteen and 50/100 Dollars per share.’ It was the duty of the plaintiff as administratrix to sell or dispose of that stock within a reasonable time and at the best price she could obtain by the exercise of reasonable diligence. Within those limits the time and manner of such sale rested within the discretion of the administratrix. If the administratrix, disregarding her duty, made no effort to sell the stock but chose to hold it for years in the hope of gaining profit or other advantage, she would doubtless be chargeable with the resultant loss if the stock declined in value. She would have no greater right to hold the Transameria stock which she received in exchange for the original stock than to hold the original stock. We assume, then, that the plaintiff might be charged by the estate with the loss resulting from her failure to sell, within a reasonable time, the stock belonging to the estate or the stock for which that stock was exchanged, regardless of...