James Mills, Appellant, v. Reuben W. Ross, Respondent

James Mills, Appellant, v. Reuben W. Ross, Respondent. Receiver of an insurance association — improper payment of a fund under an order of the court — a policyholder cannot pursue the party receiving it — extra, allowance in an action by the plaintiff for himself and others. The complaint in an action, brought by a policyholder of an insolvent insurance association, on behalf of himself and of all others similarly situated who might elect to become parties and contribute to the expense thereof, alleged that the defendant purchased with the funds of the association death claims against it, and induced the receiver of the association to make an application to the court, without notice to the plaintiff or the other policyholders, which resulted in an order, under which the receiver paid to the defendant a certain fund held by such receiver as such. It also alleged that, in a proceeding in the Supreme Court, it had been adjudged that the fund belonged to and should be distributed among the living policyholders, and it demanded, as relief, that the defendant be adjudged to be a trustee of the fund received from the receiver, and that he be required to pay to the plaintiff and the other living policyholders their pro rata share thereof. Held, that the complaint was demurrable; That it having been adjudged in a previous proceeding that, in paying the fund to the defendant, the receiver was not protected by the order obtained without notice to the policyholders, the receiver was liable to account to the court therefor, and that if the defendant had acquired the fund wrongfully, the right to compel him to restore it was in the receiver and not in the plaintiff, and that, if the receiver refused to exercise that right, he would be charged with the amount of the fund upon his accounting; That, while the fund was the subject-matter of the action, yet, as no other policyholder had elected to join with the plaintiff, an extra allowance granted to the defendant should be limited to five per cent of the pro rata share which the plaintiff sought to recover. Appeal by the plaintiff, James Mills, from a final judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 14th day of March, 1899, upon the plaintiff’s failure to amend his complaint as permitted by an interlocutory judgment; and also from the interlocutory judgment in favor of the defendant, entered in said clerk’s office on the 23d day of December, 1898, upon the decision of the court rendered after a trial at the New York Special Term sustaining the defendant’s demurrer to the amended complaint; and also from an order made at the New York Special Term and entered in said clerk’s office on the 2d day of March, 1899, granting the defendant an extra allowance of $250. The complaint prays judgment that the defendant he adjudged a trustee of a fund of $17,000 which was paid to him by the receiver of the Family Fund Society, and that he be required to distribute to the plaintiff and the other policyholders of said society their pro rata share of said fund. The plaintiff claims this fund for himself and others similarly situated under an agreement made on the 5th day of March, 1887, between the society and the Superintendent of the Insurance Department. It is alleged that the company ceased to do business after October, 1891, and was subsequently dissolved by the judgment of the Supreme Court; and that one Francis V. S. Oliver was appointed its receiver. Oliver thereafter received this fund as such receiver, and in May, 1894, paid it over to the defendant under an order of the court. The defendant claimed the money as the assignee of certain death claims. It is alleged that he induced Oliver to present the petition to the court which resulted in the order for payment, without giving the plaintiff or any of the persistent or living policyholders notice; and it is also alleged that in a proceeding in the Supreme Court it has been adjudged that this fund belonged to and should be distributed among the living policyholders. It is also alleged that the defendant purchased the death claims in question for account of the society and with its moneys; and that he concealed these facts from the court and the Attorney-General, and also concealed the fact that claims to the fund had been presented by the living policyholders. The complaint proceeds upon the theory that the defendant was not entitled to these moneys either in fact or in law, and that he obtained them from the receiver by concealing the real facts from the court which made the order for payment.' Raphael J. Moses, for the appellant. Wm. J. Leitch, for the respondent. [MAJORITY — Barrett, J.:] Barrett, J.: The demurrer which was sustained was to an amended complaint. The interlocutory judgment dismissed this amended complaint with costs, but gave the plaintiff leave to again amend by including the receiver of the Family Fund Society as a party defendant, on payment of the costs of the demurrer within twenty days. The plaintiff did not avail himself of this privilege, and thereupon final judgment dismissing the complaint with costs and an extra allowance of $250 was granted. The appeal from this final judgment brings up for review the correctness of the interlocutory judgment and of the order granting the extra allowance, as the latter is specified in the notice of appeal. (Code Civ. Proc. § 1316.) The learned judge assigned as his main reason for sustaining the demurrer that the receiver had not been made a party defendant. In his decision and judgment, however, he sustained the demurrer generally. We think he was right in the latter conclusion, though 'for a different reason from that assigned. The true ground upon which the demurrer should have been sustained is that the complaint does not state -facts sufficient to constitute a cause of action. It would have been equally bad had the receiver been made a party defendant. The action proceeds upon an inaccurate view of the status of the fund in question. The Family Fund Society was dissolved by the judgment of the Supreme Court and Oliver was appointed its receiver. The fund was paid over to this receiver for administration under the direction of the court. ITe did not take or hold it as an ordinary trustee. He took and held it as an officer of the court. In his hands it was in the hands of the law. If the receiver administered it improperly, he is - liable therefor. If the defendant was not entitled to the money, the receiver is liable to the parties who were entitled to it. We have already held that in making the payment the receiver was not protected by the permis■sive order which he obtained from the court without notice to the persistent policyholders. (People v. Family Fund Society, 31 App. Div. 166.) The plaintiff’s remedy, therefore, is to require the receiver in due course to account for the fund in question and to compel that officer to pay him his proper proportion thereof. He has no right of action directly against the defendant. If the latter is liable his liability is to the depleted estate. If he obtained the money from the receiver fraudulently or illegally, he can be required to restore it. Hltimately, however, the fund must be administered in the dissolution proceedings, and the plaintiff must look to the court’s representative therein for his proper share thereof. If the receiver shall compel restoration by the defendant, the plaintiff will then receive his share of the fund just as he would had it remained in that officer’s hands throughout. If, however, 'the receiver fails to compel such restoration, he will be charged with the sum improperly paid out; aud the plaintiff will then look to him personally and to his bond for satisfaction. The right off action to recover back the money paid to the defendant is vested solely in the receiver. It is not a case where a cestui que trust may maintain an ■action against the trustee and one who has defrauded the trust estate upon an allegation that the trustee was a party to the fraud, or that he, though not such a party, has refused to bring the action. The trust estate in that class of actions is not in the hands of a representative ■of the court. Even there the cestui que trust sues in the legal right of the trustee. Here the legal right is in the receiver, and there can be no equity in a cestui que trust to support an independent action based upon the refusal of such an officer to proceed. That would be equivalent to basing such an equity upon the indifference of the court to the cestui que fatost’s rights and its willingness to compel just activity on the part of its representative. If, then, the fund was paid out fraudulently, the court will require its restoration. If paid out innocently, but without proper authority, to one who was not entitled to it, the court will also require restoration. In the latter case, the court will instruct the receiver to proceed against the payee. In the former it may do likewise, or, if more appropriate, it may remove the receiver and appoint, some •one in his place who will be more likely to act effectively. In no aspect of the situation, however, can there be an independent accounting with regard to this fund, outside of or apart from the accounting in the pending dissolution proceeding. The defendant is liable either in that proceeding or in an action by the receiver appointed therein. He is thus liable, if at all, for the entire sum improperly paid to him, and that is his sole liability. When that liability has been enforced, he will have a right to present and prosecute his alleged claim thereto the same as the plaintiff and all others similarly situated. He and they can harmoniously exercise that right upon the accounting to which he and they will be entitled •—to be had where it properly belongs—in the pending dissolution proceeding. It follows that the plaintiff cannot maintain this action, and that the demurrer was properly sustained. We think, however, that the extra allowance of $250 should not have been granted. Nominally, the subject-matter of the action was the fund, as to which the plaintiff prayed that the defendant be adjudged a trustee. What the plaintiff sought to recover, however, was his pro rata share of this fund, which, upon' the undisputed proof, amounted to but $25.65. It is true that he brought this action on his own behalf and on behalf of all others similarly situated, who might elect to become parties thereto and to contribute to the expense thereof. It appears, however, that no other person had so elected ; and, consequently, when the allowance was granted, the plaintiff had complete control of the action and could continue, compromise, abandon or discontinue it at pleasure. (Hirshfeld v. Fitzgerald, 157 N. Y. 166.) We think the allowance should, at that stage of the action and under the circumstances then existing, have been limited to five per cent of the plaintiff’s real claim upon the fund. The judgment appealed from should be modified by reducing the allowance accordingly, and as thus modified affirmed, without costs of this appeal. Van Brunt, P. J., Rumsey, Patterson and O’Brien, JJ., concurred. Judgment modified as directed in opinion, and as modified affirmed, without costs of appeal.