M. ELIZABETH WAYDELL, Individually and as Executrix, etc., of W. ANDERSON WAYDELL, Deceased, and Others, Appellants,
HENRY E. HUTCHINSON and Others, Respondents.
APPEAL by the plaintiffs, M. Elizabeth Waydell, individually and as executrix, etc., and others, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Kings on the 12th day of January, 1911, upon the verdict of a jury dismissing the complaint upon the merits, and also from an order entered in said clerk's office on the 7th day of January, 1911, denying the plaintiffs' motion for a new trial made upon the minutes.
Joseph T. Brown, Jr. [ Daniel D. Sherman with him on the brief], for the appellants.
George V. Brower, for the respondents.
In May, 1894, a final judgment was entered in the Supreme Court in Kings county in an action in partition entitled Waydell v. Waydell. This judgment provided for the distribution of the proceeds of sale made under the interlocutory judgment. It directed the payment into court of certain moneys to be held for the benefit of a life tenant, and it provided expressly that said moneys should be deposited 'with the Treasurer of the County of Kings to be invested in permanent securities at interest,' and it made provision likewise for the payment of the income to the life tenant and the distribution of the fund at the ending of the life estate. Pursuant to such direction the sum of $14,942.96 was turned over to the county treasurer on May 31, 1894. On May 13, 1895, the then county treasurer invested a part of those moneys on a bond and mortgage of one McLaughlin on improved real estate in the county of Kings, upon which the mortgage was a first lien, to the extent of the sum of $3,500, the amount invested. Several months thereafter the then county treasurer went out of office and the bond and mortgage in question passed over to his successor. In 1902 the chamberlain of the
city of New York, who had succeeded to the powers and duties of the treasurer of the county of Kings, brought an action to foreclose the mortgage, and a judgment of foreclosure was entered and a sale was had under the direction of the sheriff of the county of Kings. The property was struck down for the sum of $1,000, and, the sale being confirmed by the court, a deed was delivered. The net result of the sale, after deducting accrued taxes, fees and costs, was but $190.35, thus leaving a deficiency in the sum of $3,430.69. The plaintiffs in this action are the only persons interested in the fund which was paid into court under the partition judgment above mentioned. They seek to charge the defendants as sureties on the official bond of the county treasurer, who made the investment on bond and mortgage, to the extent of the deficiency arising upon the foreclosure sale. Their theory is that the original investment was unauthorized by law and that the then county treasurer became liable for the money so invested, and that this liability continued until the security so taken was converted back into cash.
In Matter of Foster (15 Hun, 387) a trustee under a will had invested, without specific authority, funds of the trust estate on promissory notes. He applied for his discharge as trustee, and a successor was appointed, to whom the notes in question were passed over. A loss resulted from a failure to collect the amount of the notes, and the original trustee was held liable for the moneys so invested, on the authority of King v. Talbot (40 N.Y. 76). It is under the doctrine of these and similar cases that the plaintiffs assert liability against the defendants. This claim of liability must rest, therefore, upon the contention that the McLaughlin bond and mortgage was an unauthorized investment, or that it was made negligently. The basis upon which the plaintiffs rest their claim that the investment was unauthorized and also negligently made, is that at the time of the investment the real property covered by the mortgage was not worth double the amount thereof, though it is conceded by the plaintiffs that it was then worth considerably more than the amount of the mortgage, that is, about $4,200. The proofs offered by the defendants tend to show that the real property in question was then worth about $5,500. It becomes
necessary to examine the basis of the plaintiffs' claim that the investment was unauthorized legally unless the value of the real property was worth double the amount of the bond and mortgage. As before stated, the judgment which directed the payment of the moneys into court provided for their investment by the county treasurer 'in permanent securities at interest.' This requirement was in compliance with section 1583 of the Code of Civil Procedure, where it is prescribed as follows: 'Where a portion of the proceeds representing an undivided share or interest, is invested for the benefit of a tenant for life, or for years, or of a widow, * * * the court must cause it to be invested in permanent securities, at interest,' etc. This section of the Code of Civil Procedure was but a re-enactment of section 80 (old number 66) of title 3 of chapter 5 of part 3 of the Revised Statutes (2 R. S. 327; 3 id. [ 6th ed.] 594). Section 84 (old number 70) of the same title of the Revised Statutes (2 R. S. 328; 3 id. [ 6th ed.] 594) specified the securities in which investments of the proceeds of partition sales might be made, as follows. Securities of the United States, and of the State of New York, and bonds and mortgages upon unincumbered real estate worth at least double the value of the investment. It was declared in Chesterman v. Eyland (81 N.Y. 398) that the provisions of the Revised Statutes as to the nature of the investments applied only where the court had directed an investment, and that in the absence of such direction, rule 180 of the former Court of Chancery still applied. In the case at bar, however, the court made a direction for investment 'in permanent securities at interest.'
Nowhere in the Code of Civil Procedure is there any specification of what constitutes 'permanent securities' in the meaning of that statute. Prior to the enactment of the Code of Procedure, the Revised Statutes contained a complete scheme of statutory regulation of actions in partition. The Code of Procedure not only made no change in the existing scheme, but continued it expressly. (Code Proc. § 448) The Code of Civil Procedure contained a complete revision of the statutory regulations of actions in partition. In this revision most of the existing provisions of the former statutes were re-enacted, some, however, were omitted without express declaration of
repeal. By chapter 245 of the Laws of 1880 the provisions of the Revised Statutes relating to actions in partition were repealed expressly. The situation left by this repeal was that there was no longer any statutory provision defining the 'permanent securities' referred to in section 1583 of the Code of Civil Procedure. At the time of the re-enactment of this section, bonds and mortgages on unincumbered real property were permissible as investments of funds paid into court in actions of partition, as 'permanent securities,' and, doubtless, the intention of the Code of Civil Procedure was to continue them as such. After the repealing act of 1880 there existed no statutory regulation as to a required ratio of value between the amount of the bond and mortgage and the value of the real property to be covered by the lien. The result was that the acts of the county treasurers in making such investments were regulated by the general rules of equity governing the performance of the duties of trustees in investing trust funds. At the present time this matter is regulated largely by section 21 of the Personal Property Law (Consol. Laws, chap. 41; Laws of 1909, chap. 45). The power of trustees as to investments of trust funds on bonds and mortgages is now restricted by the statute just cited to loans on unincumbered real property in this State worth fifty per centum more than the amount of the loan. This provision, however, was not in force in 1895, at the time of the transaction involved in the case at bar, as it was first enacted by chapter 295 of the Laws of 1902 (amdg. Pers. Prop. Law [Gen. Laws, chap. 47; Laws of 1897, chap. 417], § 9). It is argued, however, by the plaintiffs that the transaction was governed by the provisions of rule 180 of the former Court of Chancery. Assuming, but not deciding, that rule to have been in force at the time in question, 1895, ...