Eastham v. Landon

The opinion of the court was delivered by Gordon, J. The record in this case discloses the following facts: On the 31st of October, 1889, C. C. Landon and Katie Landon, his wife, executed and delivered to D. W. Black a promissory note in the sum of $2,500, secured by a mortgage of even date therewith upon lots 3 and 4, block 4, in the town of West Vancouver, Clarke county, which mortgage was duly recorded. On the 1st of January, 1892, s'aid Black died intestate and thereafter the said [51] C. C. Landon. was appointed as administrator of his estate, and served as snch until October 1, 1895, at which time he was removed and the respondent was duly appointed adminstrator de bonis non. In the month of September, 1892, Landon and wife borrowed from the appellant Bellows, through appellant McCredie, agent for Bellows, the sum of $1,500, and to secure payment of said sum, executed and delivered to Bellows a mortgage upon lot 8 above referred to. Prior to the execution of the last mentioned mortgage, Landon, as administrator of the Black estate, 'with full knowledge upon the part of appellant Mc-Credie, wrote upon the margin of the record of the mortgage owned by the Black estate the words, “ Cancelled as to lot 3 in block Mo. 4, West Vancouver, Clarke County, Washington,” signing “ C. 0. Landon, Administrator of the Estate of D. W. Black, deceased ”; and some two years later Landon, as administrator, without other consideration, executed a formal release to himself and wife of the mortgage as to said lot 3, which release was thereafter duly recorded. As further security for the loan from Bellows, Landon assigned and transferred a note secured by a mortgage on other property, which mortgage was junior to a mortgage held thereon by McMasters and Burrell. It further appears that, at and prior to negotiating the loan last mentioned, McCredie knew that Landon was administrator of the estate of D. W. Black, and that he was the maker of the mortgage which, as administrator, he attempted to cancel in the manner hereinbefore set forth; that, at the time of applying for the loan, Landon stated to McCredie that he desired the money for the purpose of applying the same as a part payment on the note and mortgage due from him to the Black estate. Mo part of the money was so applied. Thereafter the mortgage executed by Landon and wife to Bellows was assigned to the appel [52] lant Wiswall. From a decree of the superior court in favor of the respondent, setting aside the cancellation and discharge of the mortgage as to lot 3, and decreeing a foreclosure thereof, the present appeal was taken. Upon the part of the appellants it is contended that the attempted release and cancellation of the Black mortgage as to lot 3 was valid, and the mortgage thereon subsequently executed to Bellows created a first mortgage lien thereon; that the cancellation of the Black mortgage as to said lot 3 was in consideration of $1,500, paid by McCredie as agent for Bellows upon the mortgage executed to Bellows by Landon and wife; that there was no collusion or fraud on the part of appellants, and that the respondent should look to the bondsmen of the administrator; that the only person authorized to cancel or satisfy the mortgages of record due to an estate is the executor or administrator of the estate, and that the law cast no duty upon a purchaser to ascertain if the executor or administrator has mismanaged the estate in fraud of creditors or legatees. Sec. 961, Code Proc. (2 Hill’s Code), is as follows: “ The naming of any person as executor in a will, or the appointment of any person as administrator, shall not operate as a discharge from any just claim which the testator or intestate had against the executor or administrator, but the claim shall be included in the inventory, and the executor and administrator shall be liable to the same extent as he would have been had he not been appointed executor or administrator.” The money received by Landon in consequence of his mortgage to Bellows was not received by him in his representative capacity. It was received in- exchange for a mortgage upon his individual property. It was not loaned to the estate of which he was administrator, and, so far as the record shows, it never went into his hands as administrator of the estate. With full knowledge of his represen [53] tative capacity, and knowing that the law exacted of the administrator the utmost good faith, McCredie made no effort to see that the money borrowed by Landon on his individual property was paid or credited upon the claim held by the estate. McCredie knew that Landon, as administrator, was attempting to cancel or release from the lien of the mortgage due to the estate a portion of the property covered by that mortgage for the purpose of enabling him individually to borrow money thereon. The attempt on Landon’s part to cancel the mortgage as to a part of the property constituted a fraud upon the estate, and it can make no difference in law that McCredie, who knew all of the facts, did not intend that result to follow. It is enough that with full knowledge of the facts he made it possible for the fraud to be consummated. The surrender by Landon of the estate’s security for his personal benefit constituted a fraud upon the estate. And the facts sufficiently informed McCredie that Landon was committing a fraud upon the estate. Counsel for the appellants ask, “ If Landon could not cancel the mortgage, who could? ” We answer that the law gave him no right to apply the securities of the estate to his own private advantage. Suppose that Landon, instead of releasing the mortgage security, had sold or assigned it as security for his individual debt. The purchaser or creditor accepting it would have been chargeable with notice that the administrator was making a disposition of the trust estate inconsistent with the object of the trust and the transfer would be ineffectual. “ It is settled lawr, that when a person gets from an administrator, or other person, acting in a fiduciary capacity, the trust fund, or any part of it, as payment of the trustee’s own debt, that person cannot hold the fund from the cestui que trust, any more than the original trustee could.” Wilson v. Doster, 7 Ired. Eq. 231; Gray v. Armistead, 6 [54] Ired. Eq. 74; Hendrick v. Gidney, 114 N. C. 543 (19 S. E. 598); Smith v. Ayer, 101 U. S. 320; Williamson v. Branch Bank, 7 Ala. 906 (42 Am. Dec. 617); 7 Am. & Eng. Enc. Law, pp. 292-3, and the authorities there cited. That principle is applicable to the facts in the present case, and the decree will be affirmed. Scott, C. J., and Anders, J., concur.