Anderson v. Fry

The acceptance by John 0. Fry of the written instrument of July 18,, 1879, and the receipt by him of money thereunder created the relation. of trustee and cestui q%ie trust between him and said Mary Elizabeth (Day v. Roth, 18 N. Y. 448; Hamer v. Sidway, 124 id. 538, and see Sheldon v. Sheldon, 133 id. 1); this was an active, continuing, express trust and no citation of authority is required upon the proposition that mere lapse of time does not bar an action for accounting against a trustee of such a trust, but the learned justice at Special Term was of the opinion that the assignment of August 9, 1880, terminated the, trust and that from that time • the defendants and their testator to the knowledge of the plaintiff’s intestate held adversely the fund sought to be reached. The learned justice found as a fact that the plaintiff’s-intestate did not know the extent of the moneys so Jield by the defendants’ testator. The difficulty with this' position is that the termination of the trust depended entirely upon the validity of the assignment which the court has held to have been obtained by fraud. Of course the assignment was only voidable in the sense that the party defrauded could have ratified or confirmed it, but when it was set up as a defense to the accounting its effect could be overcome by showing its fraudulent character. (Kirchner v. N. H. S. M. Co., 135 N. Y. 182, 189 ; Wilcox v. Am. Tel. & Tel. Co., 176 id. 115.) When the effect of the instrument is thus overcome, unless something else has intervened to change the situation, it remains the same as though the instrument had never existed. Suppose the plaintiff were required in the first instance to bring an action to set aside the assignment on the ground of fraud, such action would not be barred by lapse of time until six years after the discovery of the fraud. (Code Civ. Proc. § 382, suhd. 5; Carr v. Thompson, 87 N. Y. 160; Bosley v. *743National Machine Co., 123 id. 550.) The defendants’ testator received the money in question as trustee; the trust was not created after the money came into his hands. An action at law could not, therefore, have been maintained for money had and received. (Husted v. Thomson, 158 N. Y. 328.) The • case is not one for the recovery of money “ merely ” in which the obtaining of preliminary relief is a mere incident, as was the case of Carr v. Thompson (supra), nor is it one in which the plaintiff has a concurrent remedy in a court of equity and in a court- of law, as was the case of Matter of Neilley (95 N. Y. 382). In that case it was held that there was no trust which survived the death of the husband of the cestui que trust for the reason that a f&me covert could not make a valid agreement constituting another her trustee in 1828, which was the date of the transaction involved. The cases of Kane v. Bloodgood (7 Johns. Ch. 90); Lammer v. Stoddard (103 N. Y. 672); Gilmore v. Ham (142 id. 1), relied upon by the respondents, are not in point, for the reason that they- do not involve cases of active, continuing, express trusts. It may be granted that where the trust is terminated-so that there is an immediate obligation to pay over, the statute begins to run immediately, likewise in case of repudiation of the trust by the trustee to the knowledge of the cestui que trust, but I fail to see any similarity between such cases and the case at bar. The defendants’ testator was trustee for the plaintiff’s intestate to receive, manage, invest and reinvest the moneys sought to be reached. If the instrument of August 9, 1880, was valid, she gave him these moneys; if it was not valid, she did not. The court has found it to have been invalid, and in order to sustain the judgment appealed from it is necessary to hold that the capacity in which a person holds funds may be changed by a void instrument, because, of course, the adjudication now that the assignment was fraudulent and void must relate back to the time it was given. The plaintiff brings this action for an accounting, and when the assignment of August 9, 1880, is set up as a defense, overcomes its effect by showing that it was procured by fraud. The situation is as though the action had been brought to set aside the assignment and for an- accounting. As the latter action could be brought any time within six years after the discovery of the fraud (see cases cited supra), it seems clear that the present action *744is in' precisely the same situation, and as it is expressly found that the plaintiff’s intestate never had knowledge of the fraud and as equity alone afforded a complete and adequate remedy, it seems clear that the Statute of Limitations is not- a bar to the action.

The' respondents ask "us to review the finding that the assignment of August 9, 1880, was procured by fraud, and for the purpose of sustaining the judgment to find that it was not so procured, hut we cannot do this. The finding is evidently based mainly on the presumption "which equity permits a cestui que trust to invoke respecting dealings, with the trustee for.the purpose of insuring honesty and fair dealing on the .part of the latter.. To wliat extent this presumption- will -be indulged in after, long lapse of time and the death of the parties is not now before us. '

The judgment must he reversed .and a new.trial granted, with costs, to abide the final award' of costs.

Hibschberg, P. j., Woodward, Hooker and Rich, JJ., concurred.

- Judgment reversed and new' trial granted, costs to abide the final award of costs.