Merrell, J.:
The plaintiff has appealed from a judgment in favor of defendant dismissing plaintiff’s complaint upon the merits upon a trial of the issues before the court without a jury. The action is to recover the sum of $3,000 and interest, the plaintiff claiming that the defendant had participated in an illegal investment of trust funds, the property of the plaintiff, and which investment was made by plaintiff’s guardian while she was an infant under the age of twenty-one years.
In the month of August, 1912, the Mitchell-McDermott Construction Company employed one Sinske, a real estate [245]*245broker, to procure a loan for it of $20,000, and offered to secure said loan by a first mortgage upon certain real property of the said Mitchell-McDermott Construction Company in the city of New York. The broker applied to the defendant for such loan. The defendant was unwilling to lend $20,000 upon the property, but was willing to lend $17,000 thereon and to permit the borrowing of the remaining $3,000 to make up the $20,000 required, from some other party, providing one could be obtained who was willing to advance said $3,000 and accept subordinate security therefor. The consent of the defendant to such arrangement was upon the express understanding that, to the amount of the $17,000 loaned by it, defendant should hold a first and prior lien upon the said real property of the borrower, and that whoever should loan the $3,000 should accept subordinate security to that of the defendant. Thereupon the broker applied to different parties for the loan of $3,000 upon such subordinate security to that to be held by the defendant. Finally the broker applied to one Patrick J. O’Beirne, an attorney, of New York city, who stated that he believed he had a client who would advance the necessary $3,000 and accept such subordinate security therefor. O’Beirne, however, stated that if he produced the party thus willing to loan $3,000 and accept subordinate security to that of the defendant for moneys loaned by it, he should demand and be paid a fifteen per cent commission, or $450. To such demand the borrower acceded, and O’Beirne produced the uncle, and general guardian, of the plaintiff, one John F. Caragher, who consented to loan the required $3,000 from funds in his hands as guardian of the plaintiff. The loan was closed at the law offices of the attorney for the defendant, and on September 13, 1912, a mortgage was executed by the Mitchell-McDermott Construction Company to one George H. Fitzgerald, who was a clerk in the office of defendant’s attorneys. The mortgage was given to secure the payment of $20,000, which money was that day paid to the borrower, the sum of $17,000 being paid by the defendant, and the balance of $3,000 was paid to the Mitchell-McDermott Construction Company by O’Beirne, representing plaintiff’s guardian. O’Beirne testified that the money which he thus furnished had been delivered [246]*246to him by said guardian. Up to this time defendant had no knowledge or information as to the identity of the party who was to furnish the $3,000 to make up the $20,000 required by the Mitchell-McDermott Construction Company. No part of the $3,000 of plaintiff’s trust funds passed through the hands of the defendant or any one representing it. The $3,000 of plaintiff’s money was brought to the conference by Q’Beirne himself in cash and check, and was paid by him directly to the borrower. From the $20,000 thus received by the- Mitchell-McDermott Construction Company, Sinske, the broker, received a commission of $875, and O’Beime, representing the guardian, received $450 for producing his client, the plaintiff’s guardian, who was willing to advance the $3,000 on such subordinate security. The said mortgage was accompanied by the bond of said Mitchell-McDermott Construction Company to said George H. Fitzgerald. On the same day, September 13, 1912, the said George H. Fitzgerald assigned and transferred unto the defendant the said bond and mortgage to secure the payment of $20,000. On the same occasion and as part of the same transaction and for the purpose of the mutual protection of the parties, the defendant, who had advanced the $17,000, and the guardian of the plaintiff, who had advanced the $3,000 of said trust funds, entered into a participation agreement which recited that the defendant held the aforesaid bond and mortgage to secure $20,000 and interest, and that the said guardian had an interest in said bond and mortgage to the extent of $3,000. By the said participation agreement the parties thereto further certified and agreed that the ownership of the defendant in said bond and mortgage was to the extent of $17,000 and interest thereon at five per cent per annum from the date thereof, and that plaintiff’s guardian was the owner of the balance of said mortgage debt remaining; but that the ownership of the defendant was superior to that of said guardian, “ as if the party of the second part held a first mortgage for said sum of seventeen thousand ($17,000) dollars and interest thereon as aforesaid, and the party of .the first part [plaintiff’s guardian] held a second and subordinate mortgage to secure the interest of the party of the first part in said mortgage debt.”
[247]*247By the ownership agreement the defendant was authorized to collect all interest upon said bond and mortgage and to retain therefrom a sum equal to the interest then accrued upon the share therein of the said defendant, and then to remit to plaintiff’s guardian any balance of interest remaining. The transaction was thus free from any possible ambiguity or misunderstanding between the parties. The respondent herein loaned $17,000, receiving as security what, in effect, was a first mortgage upon the property, and plaintiff’s guardian. loaned the sum of $3,000, accepting a second hen upon the property in accordance with the participation agreement entered into by the defendant and said guardian. The two loans were entirely distinct and independent of each other, although secured by the single mortgage held by the defendant under such declaration of ownership and interest through which the intent of the parties was fully expressed.
The mortgage thus taken ran along during the infancy of the plaintiff, the interest moneys upon the $3,000 interest of plaintiff’s guardian in said mortgage being remitted to said guardian by the defendant as and when received. Plaintiff became of age on April 13, 1915. Shortly thereafter and in May or June, 1915, plaintiff’s guardian instituted proceedings in the Surrogate’s Court to procure a judicial settlement of his accounts as guardian and to obtain his final discharge as such guardian. The account of the guardian was filed with the surrogate and the guardian petitioned for its judicial settlement. Citation issued out of the Surrogate’s Court to the plaintiff and she became a party to such proceeding. The guardian’s account explicitly set forth the investment of the $3,000 of plaintiff’s trust funds by said guardian, as above set forth. The plaintiff, then of full age, appeared in said accounting proceeding in person and by her attorney, and on June 18, 1915, plaintiff executed and acknowledged and .filed with the surrogate of New York county a waiver and consent in writing, appearing 'generally in said accounting proceeding, waiving the issuance and service of a citation, approving of the accounts filed by her general guardian, and consenting that a decree be entered settling the said account and discharging her guardian from all further liability in reference thereto and without any further notice to plaintiff. [248]
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Merrell, J.:
The plaintiff has appealed from a judgment in favor of defendant dismissing plaintiff’s complaint upon the merits upon a trial of the issues before the court without a jury. The action is to recover the sum of $3,000 and interest, the plaintiff claiming that the defendant had participated in an illegal investment of trust funds, the property of the plaintiff, and which investment was made by plaintiff’s guardian while she was an infant under the age of twenty-one years.
In the month of August, 1912, the Mitchell-McDermott Construction Company employed one Sinske, a real estate [245]*245broker, to procure a loan for it of $20,000, and offered to secure said loan by a first mortgage upon certain real property of the said Mitchell-McDermott Construction Company in the city of New York. The broker applied to the defendant for such loan. The defendant was unwilling to lend $20,000 upon the property, but was willing to lend $17,000 thereon and to permit the borrowing of the remaining $3,000 to make up the $20,000 required, from some other party, providing one could be obtained who was willing to advance said $3,000 and accept subordinate security therefor. The consent of the defendant to such arrangement was upon the express understanding that, to the amount of the $17,000 loaned by it, defendant should hold a first and prior lien upon the said real property of the borrower, and that whoever should loan the $3,000 should accept subordinate security to that of the defendant. Thereupon the broker applied to different parties for the loan of $3,000 upon such subordinate security to that to be held by the defendant. Finally the broker applied to one Patrick J. O’Beirne, an attorney, of New York city, who stated that he believed he had a client who would advance the necessary $3,000 and accept such subordinate security therefor. O’Beirne, however, stated that if he produced the party thus willing to loan $3,000 and accept subordinate security to that of the defendant for moneys loaned by it, he should demand and be paid a fifteen per cent commission, or $450. To such demand the borrower acceded, and O’Beirne produced the uncle, and general guardian, of the plaintiff, one John F. Caragher, who consented to loan the required $3,000 from funds in his hands as guardian of the plaintiff. The loan was closed at the law offices of the attorney for the defendant, and on September 13, 1912, a mortgage was executed by the Mitchell-McDermott Construction Company to one George H. Fitzgerald, who was a clerk in the office of defendant’s attorneys. The mortgage was given to secure the payment of $20,000, which money was that day paid to the borrower, the sum of $17,000 being paid by the defendant, and the balance of $3,000 was paid to the Mitchell-McDermott Construction Company by O’Beirne, representing plaintiff’s guardian. O’Beirne testified that the money which he thus furnished had been delivered [246]*246to him by said guardian. Up to this time defendant had no knowledge or information as to the identity of the party who was to furnish the $3,000 to make up the $20,000 required by the Mitchell-McDermott Construction Company. No part of the $3,000 of plaintiff’s trust funds passed through the hands of the defendant or any one representing it. The $3,000 of plaintiff’s money was brought to the conference by Q’Beirne himself in cash and check, and was paid by him directly to the borrower. From the $20,000 thus received by the- Mitchell-McDermott Construction Company, Sinske, the broker, received a commission of $875, and O’Beime, representing the guardian, received $450 for producing his client, the plaintiff’s guardian, who was willing to advance the $3,000 on such subordinate security. The said mortgage was accompanied by the bond of said Mitchell-McDermott Construction Company to said George H. Fitzgerald. On the same day, September 13, 1912, the said George H. Fitzgerald assigned and transferred unto the defendant the said bond and mortgage to secure the payment of $20,000. On the same occasion and as part of the same transaction and for the purpose of the mutual protection of the parties, the defendant, who had advanced the $17,000, and the guardian of the plaintiff, who had advanced the $3,000 of said trust funds, entered into a participation agreement which recited that the defendant held the aforesaid bond and mortgage to secure $20,000 and interest, and that the said guardian had an interest in said bond and mortgage to the extent of $3,000. By the said participation agreement the parties thereto further certified and agreed that the ownership of the defendant in said bond and mortgage was to the extent of $17,000 and interest thereon at five per cent per annum from the date thereof, and that plaintiff’s guardian was the owner of the balance of said mortgage debt remaining; but that the ownership of the defendant was superior to that of said guardian, “ as if the party of the second part held a first mortgage for said sum of seventeen thousand ($17,000) dollars and interest thereon as aforesaid, and the party of .the first part [plaintiff’s guardian] held a second and subordinate mortgage to secure the interest of the party of the first part in said mortgage debt.”
[247]*247By the ownership agreement the defendant was authorized to collect all interest upon said bond and mortgage and to retain therefrom a sum equal to the interest then accrued upon the share therein of the said defendant, and then to remit to plaintiff’s guardian any balance of interest remaining. The transaction was thus free from any possible ambiguity or misunderstanding between the parties. The respondent herein loaned $17,000, receiving as security what, in effect, was a first mortgage upon the property, and plaintiff’s guardian. loaned the sum of $3,000, accepting a second hen upon the property in accordance with the participation agreement entered into by the defendant and said guardian. The two loans were entirely distinct and independent of each other, although secured by the single mortgage held by the defendant under such declaration of ownership and interest through which the intent of the parties was fully expressed.
The mortgage thus taken ran along during the infancy of the plaintiff, the interest moneys upon the $3,000 interest of plaintiff’s guardian in said mortgage being remitted to said guardian by the defendant as and when received. Plaintiff became of age on April 13, 1915. Shortly thereafter and in May or June, 1915, plaintiff’s guardian instituted proceedings in the Surrogate’s Court to procure a judicial settlement of his accounts as guardian and to obtain his final discharge as such guardian. The account of the guardian was filed with the surrogate and the guardian petitioned for its judicial settlement. Citation issued out of the Surrogate’s Court to the plaintiff and she became a party to such proceeding. The guardian’s account explicitly set forth the investment of the $3,000 of plaintiff’s trust funds by said guardian, as above set forth. The plaintiff, then of full age, appeared in said accounting proceeding in person and by her attorney, and on June 18, 1915, plaintiff executed and acknowledged and .filed with the surrogate of New York county a waiver and consent in writing, appearing 'generally in said accounting proceeding, waiving the issuance and service of a citation, approving of the accounts filed by her general guardian, and consenting that a decree be entered settling the said account and discharging her guardian from all further liability in reference thereto and without any further notice to plaintiff. [248]*248Thereafter, on July 7, 1915, a decree was entered in said proceeding in the Surrogate’s Court for New York county upon the account of said guardian and schedules filed and the waiver and consent of the plaintiff, which decree, among other things, provided: “ That said general guardian (John F. Caragher) make, execute and deliver unto Annie Y. Reilly [plaintiff] his assignment of the bond and mortgage in the sum of $3,000, as mentioned in Schedule ‘A’.”
Concededly the bond and mortgage referred to in said decree was the ownership or participation agreement between said guardian and the defendant. On the day of the entry of said decree the guardian of plaintiff duly assigned to her the said participation agreement in said mortgage. The evidence indicates that at this time there was a payment of six months’ interest due plaintiff upon her interest in said bond and mortgate. This interest was paid to and received by plaintiff by check of the defendant for seventy-five dollars on November 9, 1915. On December 29, 1915, plaintiff wrote defendant for a further interest payment then due, and received therefor defendant’s check for six months’ interest. On the first of March following, plaintiff also received a check from the defendant, payable to her order, for seventy-five dollars interest then due. It will thus be seen that plaintiff fully understood and acquiesced in the loan in question and received at least three interest payments thereon after she became twenty-one years of age.
In July, 1916, proceedings were commenced by the defendant to foreclose said mortgage, the mortgagors having defaulted. The mortgage was foreclosed, and the property bid in on foreclosure sale by the defendant for the amount of its claim, a small judgment for deficiency in defendant’s favor being entered against the mortgagor. On April 3, 1917, plaintiff filed her petition in the Surrogate’s Court of New York county praying that a citation issue out of the said Surrogate’s Court requiring her former guardian to show cause why the decree entered on July 7, 1915, passing the guardian’s accounts and discharging him, should not be reopened and why a decree should not be made and entered surcharging the account of said guardian with the sum of $3,000 and interest lost to plaintiff by reason of said foreclosure. The said guardian [249]*249answered in said proceeding, and the application of the plaintiff to reopen said account was denied by the surrogate. Thereafter and on August 6, 1917, plaintiff brought this action to recover of the defendant the $3,000 loaned by her guardian, besides interest, upon the claim that the act of the guardian in loaning her money on second mortgage was illegal and was not a loan of trust funds authorized by law, and that the defendant well understood the illegality of such loan and participated therein and, by reason of such participation, became liable to refund to the plaintiff the amount thus wrongfully, as she alleges, taken from her.
It seems to me that the answer to plaintiff’s position is that defendant was in no manner responsible for the loss of plaintiff’s trust funds; that, in fact, defendant did not participate in the illegal loan and in no matter profited thereby. The defendant took no part in negotiating the loan of plaintiff’s moneys and never received a dollar of them nor any benefit therefrom. The money was paid over to the borrower by the attorney representing plaintiff’s guardian. It is undoubtedly true that Fitzgerald, who was merely a law clerk in the office of the defendant’s attorneys, as the money was being paid over by O’Beirne, representing plaintiff’s guardian, to the Mitehell-McDermott Construction Company, understood for the first time that the moneys were from trust funds of the plaintiff, who was an infant. The participation agreement entered into by the parties shows that at that time the defendant understood the source of the $3,000 which was included as a subordinate loan under said bond and mortgage. But defendant was in no wise interested in plaintiff’s moneys, and merely consented, for the purpose of facilitating the loan and without any profit to it, to participate in the mortgage for $20,000 under the express agreement that as to its loan of $17,000 it should have a prior interest in said mortgage to that of the other participant. The entire transaction was carried on between the representative of the borrower and the guardian of the plaintiff and his attorney. Therefore, it seems to me, the authorities relied upon by the appellant, where the courts have held that any person who receives property knowing it to be the subject of a trust, and that it has been transferred in violation of the legal duty [250]*250of the trustee thereof, takes it subject to the right of the cestui que trust and of the trustee to reclaim possession thereof, have no application to the conditions here presented. The cases of First National Bank v. National Broadway Bank (156 N. Y. 459); Squire v. Ordemann (194 id. 394) and other cases relied upon by the appellant, have no application here, as in those cases the money wrongfully dealt in was received jby the party sought to be charged. The case of National Surety Co. v. Manhattan Mortgage Co. (185 App. Div. 733), recently decided in this court, is clearly distinguishable from the instant case. There we held the defendant liable because the guardian had purchased of the holder of a $25,000 mortgage, the defendant in that action, an interest in the amount of $5,000, using for the purpose of obtaining said interest therein trust moneys held by said guardian.- The guardian then became a party with the defendant in that case to a participation agreement- setting forth that the defendant held a prior interest in said mortgage and a prior lien upon the property covered thereby, to the amount of $20,000, and that said guardian held a subordinate lien therein to the amount of $5,000 as security for said trust funds. In that case the defendant handled the trust moneys used for the purpose of buying for the said guardian the second and subordinate interest in said mortgage, and the defendant received and retained a portion of said trust funds, amounting to nearly $500, to apply on back interest due upon a former mortgage upon the premises. This court held the defendant liable for the reason that it had handled the moneys in that -case, had received a portion thereof, and had made itself a trustee of the fund, which it unlawfully diverted. No such conditions are to be found in the instant case. Here the defendant had no relation whatever to the funds of the plaintiff paid to the borrower by her guardian.
Moreover, I think the plaintiff, by her acts after reaching her majority and with full knowledge of the nature of the investment, fully ratified the same. She became a party to the accounting by her guardian. Upon the accounting she was represented by counsel. The account of her guardian fully disclosed the nature of this investment, and in writing she acquiesced in and approved of the.same and consented to a [251]*251decree discharging her general guardian from further responsibility. Thereafter the plaintiff received at least three payments of interest under the participation agreement under said mortgage. After the foreclosure proceedings were had which cut off plaintiff’s interest in the mortgage, she attempted through proceedings in the Surrogate’s Court to reopen the accounting of her general guardian and to obtain a decree of the Surrogate’s Court requiring said guardian to surcharge his account with the amount of her loss. In this she was unsuccessful. No appeal was taken therefrom, and it seems to me she was bound thereby. The decree of the surrogate discharging plaintiff’s guardian is still in full force and effect, it never having been opened, vacated or set aside. I think by her acts with reference to said mortgage and in receiving the various interest payments thereon after plaintiff arrived at her majority, she clearly ratified the act of her guardian in thus investing her trust funds, and that beyond doubt plaintiff is bound by the accounting of her guardian and is estopped from now claiming the illegality of his acts. (Norris v. Norris, 85 App. Div. 113; Matter of Klunck, 33 Misc. Rep. 267.)
I think the court properly dismissed the complaint herein, and that the judgment appealed from should be affirmed, . with costs.
Clarke, P. J., Laughlin and Dowling, JJ., concurred; Smith, J., dissented.