Opinion
November Term, 1902.
George W. Van Slyck, for the appellant.
Francis Smyth, for the respondent.
The Lawyers' Surety Company, as surety for Ronald K. Brown and George Chesterman, who were duly appointed trustees under the will of George Chesterman, deceased, entered into an agreement with the trustees by which certain trust funds, the income of which the trustees were required to pay to the appellant and to George Chesterman, should be deposited with the Farmers' Loan and Trust Company on condition that they should be drawn only on the check of the trustees, countersigned by the surety company.
For many years the income has been paid to the beneficiaries monthly. Pursuant to the practice in that regard the trustees, on the 30th day of April, 1902, drew a check on the trust company to the order of the appellant on account of said income. The surety company refused to countersign the check, and consequently the trust company would not honor it. The agreement between the surety company and the trustees is not set forth in full, nor is it stated in the moving papers that it is therein provided that the funds should also be payable on the order of the court without the consent of the surety company. The surety company contends that, therefore, the agreement is not in accordance with the provisions of section 813 of the Code of Civil Procedure, and that the court has no jurisdiction over the fund or trust company. We are of opinion that it should be presumed that the agreement for the deposit of this trust fund with the trust company conformed to the provisions of this section of the Code. But even if it did not, the trust funds have been deposited with the trust company, which interposed no objection to the payment of the check, except that it is not countersigned by the surety company, and, inasmuch as the only authority for such an agreement between the trustees and their surety is to be found in this section of the Code, the provision of the Code to the effect that the agreement shall provide that the trust funds shall be payable on the check of the trustees, countersigned by the sureties, or upon the order of the court, should be read into the agreement.
The surety company further interposes in opposition to the motion two objections: First, that there has been a large loss of income through the defalcation of a clerk of the trustees, and that without notice of such loss, by checks drawn in payment of income, a large amount of the principal has been paid to the beneficiaries of the income; and, second, that the payment of this income will not leave sufficient funds in the hands of the trustees at the present time with which to pay the taxes upon the property from which the income arises, which have now become a fixed liability, but have not become a lien upon the property, and will not be payable until the 1st of October, 1902. So far as appears by the record, it was the duty of the trustees and of their surety to make good at once the loss to the estate through this defalcation. The appellant is an innocent party. She had no responsibility with reference to the collection or custody of the funds and is not responsible for their loss. As against her, therefore, the trustees would not be authorized to withhold payment of her proportion of the income for the purpose of making up the prior loss.
It satisfactorily appears that there is no necessity for withholding from the appellant the monthly income for the purpose of meeting the taxes which are not yet due or payable. It appears reasonably certain that even if the appellant be paid an income monthly in amounts as heretofore, there will still remain in the hands of the trustees income in amount ample to pay the taxes at the time the same become due. The taxes are assessed to the trustees as such, and, so far as there is any liability upon them, it only extends to the funds in their hands as trustees. There is no danger of their becoming otherwise personally liable which warrants their withholding this income.
The surrogate is given jurisdiction by subdivision 6 of section 3347 of the Code of Civil Procedure to make orders for the payment of trust funds deposited with the trust company pursuant to an agreement made between trustees and their sureties under section 813 of the Code of Civil Procedure, upon notice to the surety, which was given in this case.
It follows, therefore, that the order should be reversed, with ten dollars costs and disbursements, and the motion should be granted, with ten dollars costs.
VAN BRUNT, P.J., PATTERSON, INGRAHAM and HATCH, JJ., concurred.
Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.