Opinion
July, 1893.
James L. Bishop, for the administrator.
Robert Bonynge, special guardian, for John William Munzor and Jacob Frederick Munzor, infants.
Charles Putzel, for the contestants.
Exceptions to the report of a referee appointed herein to hear and determine. An account was filed by the administrator on June 5, 1891, by which, among other things, it appeared that the administrator, without having obtained the permission of the court or of the parties in interest, and without any express direction to that effect in the will of decedent, had continued the machinery business formerly carried on by decedent for several years after his decease. In said account the administrator set forth in detail the receipts and disbursements of said business. Objections were filed to the account; the matter was ordered to a reference. The testimony introduced amounted to some 600 type-written pages, when it became evident that the administrator could not produce vouchers for the greater part of the disbursements connected with his conduct of said business. His counsel thereupon moved before the surrogate for leave to file an amended account. This motion was denied on the ground that the motion should be made before the referee, who should fix the terms upon which the application should be granted, if it were granted. The motion was renewed before the referee, and leave to file an amended account was granted, an exception being taken to the ruling of the referee by counsel for the contestants. An amended account was then filed on June 4, 1892, which omitted all details as to the conduct of the business in question, merely setting forth as one item of administrator's amended account profits amounting to $1,223.43, with which he charged himself and credited the estate. Objections were then filed to the amended account and the proceedings continued before the referee. The referee, in his report, finds that the business so conducted by the administrator was his individual business, although he was obliged to credit the estate of decedent with whatever profit he derived therefrom, he having used the funds of decedent's estate for the purposes of said business; but that he was not bound to prove in detail the receipts and disbursements connected therewith, the burden of such proof being upon the contestants who were seeking to charge the administrator with a larger amount of profits arising from said business than the administrator had stated in his account; that contestants having failed to present proof that greater profits were realized by the administrator from said business, he is only chargeable with the sum of $1,580.43 (an amount slightly in excess of the sum admitted by him to have been so earned), or at the option of the contestants, with the balance of assets in his hands after deducting disbursements and necessary expenses of administration, with interest thereon at the rate of six per cent from January 1, 1885. Numerous exceptions to the report were filed by counsel for the respective contestants, most of which bear directly upon the question upon whom the burden of proof rested under the amended account to prove the details of receipts and disbursements of the business conducted by the administrator with the funds of the estate. On this point the ruling of the referee is correct. The business, as the business of decedent, ceased at the time of his death. All that remained belonging to his estate was the stock, good will, fixtures, leasehold, etc., which it was the duty of the administrator to dispose of at the earliest opportunity. In continuing the business the administrator did so individually, assuming individually all risks appertaining to said business. The estate was not chargeable with the losses incident thereto and did not run any of the ordinary risks of such a business. As a penalty, however, for departing from the line of conduct laid down for administrators, the administrator is forbidden to reap any benefit or profit from such personal use of the estate funds, and is required to credit the estate of decedent with all profits resulting from said business. This rule is clearly established in the following cases: "It is well settled that debts contracted by an administrator in continuing the business of the intestate would not bind the estate ( Willis v. Sharp, 113 N.Y. 591), nor would the product belong to the estate. The title or possession would not be in the estate but in the party who ran the business." Kenyon v. Olney, 39 N.Y. St. Repr. 839. "Protected from loss and from liability at all times, the estate is interested in the business only to the extent of its profits, and in them, not because it is the business of the estate, but because the administrator is using the property of the estate in a way he is not authorized to do, and, consequently, is required to account for all the profits made by its use. It follows from this that the expenses incurred in carrying on such business are not debts of or claims against this estate, nor are they charges or expenses of administration within the meaning of the probate law. The items of increase and items of expense of such business are not matters which came within the purview of the itemized account of an administrator as such. * * * He is bound to report to the court as money or property coming into his hands as administrator, the true net gains or profits derived from the business, in money or kind, but the detailed accounts of the management or conduct of the business is no part of his account as administrator." In Re Rose, 80 Cal. 166. The business, therefore, being the business of the administrator individually, and not of the estate, the burthen did not rest upon him to furnish vouchers or proofs in detail of the receipts and disbursements of the business under section 2734 of the Code, which section is applicable solely to the disposition of the funds of the estate. Primarily, the administrator is chargeable only with assets of the estate which came into his hands, and such interest as might have been earned thereon. If he has mingled the funds of the estate with his own, or used them for his own purposes, he is chargeable with interest on the same, or, at the option of the parties in interest, with whatever profit has resulted from such use of the funds, but the burthen of proving negligence or misuse of funds on the part of the administrator clearly rests upon those seeking to charge him with interest, and the same rule is applicable where they seek to charge him with profits. There is no presumption that he has derived profits from the use of the funds in his own business; and to charge him with them the contestants must clearly establish them. Failing to do so, they can only charge him with interest on the principal fund because of his negligence or wrongful use of the same, or with such amount of profits as he admits having earned. * * *"
An exception was also taken to the ruling of the referee allowing the administrator to file an amended account, it being contended by counsel for contestant that the referee had no power, under the order of reference, to allow such an amendment, and even if he had such power, it was improperly exercised after the case had proceeded so far, the amended account which was allowed making practically a new issue. There can be no question as to the power of the referee to grant such an amendment as the surrogate himself might grant upon a trial. Code Civ. Proc. §§ 2538-2546; Estate of Odell, 18 N.Y. St. Repr. 997; Estate of Williams, Surr. Dec. 1888, 308. There seems also to be no limitation of the power of the court to allow an amendment of the pleadings, even at the trial, where justice requires the same (Code, § 723; Van Ness v. Bush, 14 Abb. Pr. 33), provided the amendment does not create a new cause of action. In Avery v. New York, etc., R. Co., 106 N.Y. 143, the syllabus is as follows: "Plaintiff's complaint simply alleged that he was in possession of the hotel property. On trial, defendant moved for a dismissal of the complaint on the ground that it did not show plaintiff to be a party or privy to any covenant in the deeds. The court, on motion of the plaintiff, permitted an amendment of the complaint setting up the lease to plaintiff. Held, no error." This would seem to have been fully as serious and radical an amendment as the one in issue. In an accounting before a surrogate, the accounting itself is the subject-matter of the proceeding, and any amendment may be allowed which does not include a transaction subsequent to the return day of the citation. In Price v. Brown, 112 N.Y. 677, "where upon trial before a referee of an action to recover a balance of trust funds alleged to have been in the hands of defendant's testator at the time of his death, the referee allowed an amendment of the complaint by striking out a credit given by mistake and increasing the amount claimed, and where the judgment entered upon the referee's report was reversed and a new trial granted," it was held that the amendment did not introduce a new cause of action and was within the discretion of the referee. This disposes of the exceptions taken by the widow contestant, none of which are of any value. The exceptions taken by the special guardian of the infants in interest are five in number, and all have reference to the single question upon whom the burden of proof rested under the amended account to show the details of receipts and disbursements of the business carried on by the administrator. This question has already been disposed of, and the exceptions taken by the special guardian are without merit. There remain to be considered the two exceptions taken by the administrator to the report of the referee. They are as follows: First. To so much of the report as finds the administrator chargeable with the sum of $2,050.59, collected November 1, 1884, from George Ehret, and not included in the inventory, and to findings 49 and 12 which relate to the same point. It appears from the testimony of the administrator upon cross-examination, at page 1025, that this particular item was included among the receipts in the calculation from which the administrator arrived at the amount of the profits with which the estate should be credited. This testimony was brought out by counsel for the special guardian, and no evidence of any kind was introduced contradicting the same. It appearing, therefore, that the estate has already, in the estimate of profits, been credited with this amount, it was error on the part of the referee to again charge the administrator with the same item, and the exception taken by the administrator to such finding of the referee was well taken. The report of the referee should be modified in that respect and the administrator should not be charged with such amount. Second. The administrator excepts to the refusal of the referee to allow him the credit of $2,558.16, alleged by the administrator to have been loss on the lease of the premises in question from the date of the death of the decedent up to the time of the sale of the business, and to finding 53, which relates to this point. The referee having already found that the administrator was negligent in not sooner disposing of the business and leasehold belonging to the estate of decedent, and this loss being incident to such negligence, the finding of the referee is correct and the exception is overruled. It is also contended that the referee erred in charging the administrator with $4,000, the value of the good will of the business and the leasehold, over and above the items set forth in the inventory. It is claimed by the administrator that the sale of the fixtures, etc., for $10,000, included the good will of the business and the value of the leasehold. This claim is not supported by the evidence, for in both the original and the amended accounts a detailed statement appears of the articles which were sold for $10,000, and it is clear that the good will was not one of such items, nor was the leasehold. Sufficient evidence was introduced as to the value of the good will and leasehold to justify the finding of the referee.
The report as thus modified is confirmed.