Tompkins v. Weeks

By the Court, Sawyer, J. On the 9th of October, 1862, the respondent, Tompkins, as administrator of P. L. Miner, deceased, filed his first annual account, and asked that a day for the settlement be appointed and his account allowed. A day having been appointed for the purpose, the appellants, Weeks, Johnston and Morrison, appeared and filed exceptions to certain items charged by the administrator in his account, alleging themselves to be creditors of the estate. The administrator objected to the filing of their exceptions, and moved to strike them out, on the ground “ that it does not appear from said exceptions that said contestants, or either of them, is interested in the said estate;” which objection and motion was overruled. After an adjournment, the administrator again objected to “the contestants appearing, for the reason that neither of them come within the provisions of the statute authorizing persons to appear and contest administrator’s accounts;” which objection was also overruled, and the respondents now insist upon these objections. Under sections two hundred and twenty-six and two hundred and thirty-four of the Practice Act, “ any person interested in the estate may appear and file his exceptions in writing to the account, and contest the same.” A creditor is interested in the estate within the meaning of these provisions. But it is insisted, that there was no proof that contestants were creditors—that it is not sufficient to allege in the exceptions, that they are creditors without proving the allegation. The point of the objection taken in the Court below, was not that there — 58 — was a defect of proof, or no proof. If that was'the objection it should have been specified. The objection was, that “ it does not appear from the exceptions,” that contestants are interested—not from the proofs—and, that “ neither of them come within the provisions of the statute,” etc. The point of the objection evidently was, that a creditor is not entitled to contest. If it referred to proof, it does not appear whether any proof was introduced or not, or if so, what proof. If it related to a question of fact dependent on proof, the Court determined the fact against the respondent, and we cannot review its action without knowing whether it acted upon evidence or not, and if so, upon what evidence. There is nothing to show that the allegation of the interest of the , contestants was controverted, and the presumption is, that the fact was correctly determined by the Court. One A. Gr. Toomes held a mortgage on a rancho, executed by Alpaugh and Salisbury, for a part of the purchase money. The amount due on the mortgage July 26, 1862, including interest, etc., was two thousand nine hundred and thirty dollars and ninety-four cents. Alpaugh and Salisbury, in the lifetime of deceased, executed in his favor a second mortgage on said rancho to secure the payment of one thousand dollars borrowed money, and interest at three per cent per month, which sum, including interest, etc., on the said 26th day of July, amounted to two thousand two hundred and thirteen dollars and forty-four cents. One Hollister held a third mortgage. The administrator brought suit to foreclose the second mortgage, making the holders of the other mortgages parties. A judgment of foreclosure was entered, and the several sums above mentioned were directed by the judgment to be paid, in the order named. At the sale under the judgment, the administrator, with a view of protecting the estate, and on the supposition that the property was worth more than the amount due on the first mortgage, in good faith, but acting upon his own judgment, without any application to, or direction from the Probate Court, bid off the rancho at five thousand dollars. Not having cash in hand sufficient for the purpose, he borrowed a — 59 — considerable portion of the money at three per cent per month interest, with which to pay the amount due on the first mortgage. He paid the full amount, viz : two thousand nine hundred and thirty dollars and ninety-four cents. This item, thus paid upon his own responsibility, without any authority from the Probate Court, and the items of interest on the money borrowed to enable him to make the payment, are objected to by the contestants. The items were allowed, and the allowance is assigned as error. Alpaugh and Salisbury were insolvent at the time, and there was no prospect of making the money, unless it could be made out of the mortgaged property. The Court found as a fact, .that the transaction was made by the administrator in good faith, believing it to be for the advantage of the estate; that the rancho, at the time of the purchase, was worth five thousand dollars, although the only witness (Toomes) who testified on this point stated, on cross-examination, that he did “not think the land would have sold for five thousand dollars.” And it is pretty evident from the testimony, that it was not a very safe purchase at that amount. It is insisted that an administrator is only required to manage the estate in, his charge as a prudent man would his own; that in case of loss the question of liability depends upon the particular circumstances of the case; that he is not chargeable with the consequences of a disastrous exercise of his discretion, unless accompanied with such negligence as raises a presumption of wilful misconduct; that in this case no such negligence exists; that the administrator acted in good faith, and as a prudent man would have done in the management of his own affairs, and that he ought to be exonerated 'from the consequence of his error in judgment, if there be any; and upon this principle the Court below appears to have determined the question. But conceding, for the purposes of the argument, the principle to be correct, to render it applicable, the action of the administrator must be in a matter where the discretion exists. It must be an act which the law authorizes him to perform—one within the general scope of his powers as — 60 — administrator. An administrator has no right to speculate with the moneys belonging to the estate with the idea that he can make large profits, and greatly enhance its value. If he sees an opportunity where he can purchase a farm for five thousand dollars, which he is confident he can sell within a few days for ten thousand dollars, and makes the purchase with the funds of the estate, and it turns out to be a losing operation, he will be chargeable with the loss, no matter how pure his motives or how enticing the prospect may have been. He would urge in vain as a defense, that the property was well worth ten thousand dollars at the time.; that careful business men regarded it as an excellent operation; that he acted in good faith with the confident and reasonable expectation that he should double the assets of the estate. Such an operation is not one intrusted by the law to his discretion. It is not within the general scope of his powers as administrator. And yet in what respect would such a transaction differ in principle from the one under consideration ? The prior mortgage of Toomes was not a charge against the estate. No part of it could ever have been paid out of the assets of the estate. It is true, the estate held a subsequent mortgage, which might be utterly lost unless the mortgaged property could be made to pay it. But substantially, when reduced to its elements, the real, and only question with the administrator was, will it be a good speculation for the estate to buy the rancho at two thousand nine hundred and thirty dollars’ and ninety-four cents? Can I make for the estate by the speculation the sum of two thousand two hundred and thirteen dollars and forty-four cents, more- or less? For it does not affect the principle in the least, whether he saves that amount of indebtedness which he would otherwise lose, or makes the same amount as an original speculation, pure and simple, by the use of the funds of the estate in the purchase of lands, where no indebtedness against, or charge upon the estate existed. We have been referred to no case by the respondent—and we have been unable to find one—where an administrator has been exonerated from loss under similar circumstances, or upon — 61 — similar principles; on the contrary, the case of Knight's Estate, 12 Cal. 208, is directly in point the other way. The facts'disclosed by the record in that case are very nearly analagous to the facts in the case under consideration. As they are imperfectly stated in the report of the case, we state them very fully, as they appear in the record. They are as follows : Knight in his lifetime purchased one undivided fifth of the Suseol Kancho. At the time of the purchase and of Knight’s death, there was a mortgage upon the rancho for twenty-five thousand dollars. But Knight was not personally liable for the money secured. The interest of Knight’s estate in the rancho was appraised at twenty-four thousand dollars. The mortgagee was threatening to foreclose, and the administrator, in good faith, thinking to promote and protect the interest of the estate, entered into an arrangement with the mortgagee, by which he was tq pay in cash two thousand five hundred dollars, and interest on two thousand five hundred dollars more, making in all five thousand dollars, or one fifth of the whole, corresponding to the interest in the land held by the estate. The mortgagee, on his part, in consideratioh of the arrangement, agreed in writing not to foreclose as against the estate, until after the title should be confirmed by the Land Commissioners, before whom the claim was pending; and after such confirmation, upon the payment of the remaining two thousand five hundred dollars and interest, to release and discharge the entire mortgage as to the undivided fifth held by the estate. At the time of this arrangement the value of the interest of the estate had depreciated to twenty thousand dollars, but in the opinion of competent judges of real estate there was a prospect, and it was confidently expected, that it would soon largely appreciate again. The administrator paid the two thousand five hundred dollars, and continued thereafter to pay interest on the remaining sum due, in .pursuance of the arrangement. The title was at length confirmed, but still the land continued to depreciate in value. The mortgagee, after the confirmation, again threatened to foreclose and sell, — 62 — to prevent which the administrator, by order of the Probate Court, sold the said property for three thousand five hundred dollars, that being the highest amount that could then be obtained. The sale was confirmed, and a portion of the proceeds sufficient for the purpose, by order of the Court, applied to the satisfaction of said remaining sum of two thousand five hundred dollars, due on the mortgage. The result was a loss of two thousand four hundred and sixteen dollars and sixty-seven cents, which sum the administrator claimed to have allowed, on the grounds that he had acted in good faith and as a prudent man would have done under the circumstances, , and that the approval of the sale and application of the' proceeds by the Probate Court was a ratification of his acts. On exception to this item the Probate Court refused to allow it, and the administrator appealed. The principles applicable to such cases are so clearly and forcibly stated by Mr. Justice Baldwin in deciding the case that we ■ quote his language at length. At page two hundred and seven he says : “ This is unquestionably a hard case on the administrator, for he seems to have acted in good faith. But we cannot relax or set aside the rules of law to suit the exigencies of particular cases or relieve individual instances of hardship. “ The statutes of this State do not allow an administrator to pay even the debts due by an intestate, except in a particular way. Certainly they do not allow him to pay money not due by an intestate, upon an idea that the payment might be beneficial to the estate. He is to take care of, manage and preserve the estate committed to him; but this does not mean that he is, at discretion, to pay off all incumbrances resting on the property, upon the notion that the property may increase in value, and thereby a speculation maybe made for the estate. If this were so, an administrator might consume all the assets of the estate in clearing the title to a portion of the property, and then the property might turn out to be valueless or worth but little. If a case should arise in which a great sacrifice would ensue unless money were paid to discharge an incum — 63 — brance, it is not impossible that a Court of chancery might order the expenditure of the money needed to remove such incumbrance. The rule of equity is that a trustee has a right, in questions of responsibility and difficulty, to seek the direction of a Court of chancery, touching his conduct in the trust, and that the decree of the Court is a protection to him. But if he undertakes to go beyond the strict line of his duty as the law defines it, he acts upon his own responsibility, and while he can receive no profit from a successful issue of his investments he must bear the loss of a failure. It would be a most dangerous precedent to hold that an administrator may speculate with the funds of the estate, or pay charges not allowed by law, though solely with a view of benefiting the estate, and then throw the loss upon the estate, and assign his good intentions as a defense to the injurious consequences of his acts. “ The administrator, in the absence of special authority, must administer the estate as he finds it, paying taxes and other necessary expenses, and doing such other acts as are necessary to preserve it as left; he cannot advance money to remove incumbrances, unless his intestate was bound to pay the money. If he takes the responsibility of improving the estate or bettering the title in this way, it must be at his own risk.. The loss cannot be visited upon the heirs who gave him no authority to cause it. Nor can he ask legal protection when he has himself, though with the best motives, gone beyond the provisions of the law.” The principles thus laid down are decisive of the question under consideration. This record certainly does not present a more meritorious case, than that in the matter of Knight's Estate. If there is a loss, then, it must fall upon the administrator. But the lands purchased still remain in the hands of the administrator unsold, and are classed by him as a portion of the assets of the estate. If the creditors repudiate the purchase, and charge the administrator with the entire amount paid, the property purchased will belong to him. They can — 64 — not compel him to sustain the loss of the entire amount paid, including interest, and also avail themselves of the lands purchased as assets of the estate. But if the lands are to be regarded and administered as assets, the condition of the éstate is not yet such, as to enable the Probate Court to pass upon this item. It will be necessary to reserve the question till the lands are sold, and the amount of the actual loss ascertained. At the time of Miner’s decease, he was a partner with one Jaynes in the ere'ction of a flouring mill. It does not appear what progress had been made in the enterprise at the time of intestate’s death. On the fifth of August, several months after his decease, Jaynes, the surviving partner, presented to the Probate Judge of Tehama County a petition stating the partnership ; that previous to Miner’s decease the firm were engaged in erecting the flouring mill mentioned, and had entered into contracts for the construction thereof, which were still in force and binding upon the firm; that since the decease of Miner, jietitioner had been engaged in erecting said mill and carrying out the contracts made by the firm in the lifetime of decedent; that the assets of the firm at the time of filing petition, including cost of mill thus far (forty thousand six hundred and four dollars) were sixty-two thousand two hundred and twenty-nine dollars and twenty-eight cents; that in erecting the mill and carrying out the contracts a larger amount of money had been required than he could realize from the sale of property of and collection of the debts due the firm ; that to meet the obligations of the firm arising out of said contracts it was necessary to have immediately ten thousand dollars; that he could not collect the money, or borrow it except at high rates of interest; and that it was necessary to have this amount of money to protect the interest of the estate of decedent in the property of the firm. The amount of indebtedness of the firm is not stated. Upon these representations, he asks an order authorizing and directing the administrator to advance five thousand dollars out of funds of the estate to offset a like amount to be advanced by himself for the purpose specified. The administrator appends — 65 — an admission in writing that the matters stated in the petition are true, and consents that the order asked may be made. On the same day, without any citation to, or appearance by other parties interested in the estate, the Probate Judge, after reciting the matters set out in the petition, and the necessity of an appropriation, “ ordered, that said administrator of said estate be and he is hereby authorized to pay and advance to said Samuel Jaynes, surviving partner, out of the private funds of said estate, the sum of five thousand dollars, for the purpose of liquidating obligations existing against said firm, growing out of contracts made by said firm before the decease of decedent. * * * The above sum of five thousand dollars is to offset against a like sum of five thousand dollars to be advanced by said surviving partner, and to increase the capital stock of said firm by the gross amount of said sums.” The administrator not having ready money of the estate in his hands, borrowed for the purpose a large amount on interest at three per cent per month, and paid over to Jaynes four thousand seven hundred and six dollars and fifty-three cents. Of this sum four thousand dollars were borrowed of one Hort, and a note for ten thousand dollars, secured by a mortgage on real estate was assigned as security, with the approval of the Probate Judge. The sums thus borrowed and paid over to Jaynes, and interest paid on the money so borrowed, are items charged in the account of the administrator, and excepted to by the contestants. At the hearing, the Probate Judge found that the borrowing of the money, payment of interest, etc., were necessary for carrying out the aforesaid order of the Probate Court in paying the sum of four thousand seven hundred and six dollars and fifty-three cents to Samuel Jaynes, surviving partner, and that the transactions were made by the administrator in good faith, and with a view of furthering the best interests of the estate. These items were allowed, and contestants excepted. The allowance is relied on as error. If there are degrees, in error, in our bpinion these transactions of the administrator and Probate Court are less defensible than those already discussed. Upon a very imperfect and — 66 — unsatisfactory showing, without notice to any of the parties interested in the estate, upon the request of the surviving partner and the consent of the administrator, upon the same day the petition was presented, the Court authorized and directed the administrator to pay to said surviving partner five thousand dollars out of the assets of the estate; and to enable him to carry out this order,' authorized the administrator to borrow the money on interest at three per cent per month. The Court had no jurisdiction to make the order, and the administrator no authority to execute it. The partnership was dissolved by the decease of Miner. The partnership property was assets of the firm, and subject t'o the exclusive management and control of the surviving partner. It was not assets of the estate in the hands of the administrator. Only the share of the deceased in the residuum of the partnership assets, after the affairs of the partnership should be wound up and the debts paid, would be assets of the estate in the hands of the administrator. The administrator had no authority to intermeddle at all with the partnership affairs, except so far as he was entitled to call upon the surviving partner to proceed and close up the partnership affairs and account to him for the share of the surplus belonging to the estate. The authority of the administrator only extended to settling up the affairs of the estate, paying the debts and distributing the remainder, under the direction of the Probate Court, to the parties interested. Section two hundred and thirty-nine of the Act relating to the “estates of deceased persons” prescribes the order in which the debts of the estate shall be paid; and, in case of a deficiency of assets, section two hundred and forty-one provides that, “no creditor of any one class shall receive any payment until all those of a preceding class shall be fully paid.” Neither the administrator, nor the Probate Court has any authority to change the order of payments. But the direct effect of the payment of five thousand dollars by the administrator to Jaynes, in pursuance of the order in this case, was to transfer that amount of money from the assets of the estate — 67 — of the deceased to the assets of a dissolved, and, perhaps, insolvent partnership. And the result would be to give to the creditors of the partnership a preference to that extent over the creditors of the estate, whereas the law gives the preference, as to that fund, to the creditors of the estate. It would be taking five thousand dollars from the creditors of the estate, and giving it to those who have no claim against the estate unless the surviving partner is insolvent. (Lawrence v. Trustees, etc., 2 Denio, 577; 11 Paige, 80; Bloodgood v. Bruen, 4 Seld. 362, 369, 371; Voorhis v. Childs, 17 N. Y. 354-357.) The transfer was made according to the express terms of the order, “for the purpose of liquidating obligations existing against the firm,” etc.; that is to say, to pay the debts of the firm in preference to the debts of the estate, in case the estate should turn out to be insolvent, a contingency which seems to be by no means improbable; and “to offset against a like sum of five thousand dollars, to be advanced by said surviving partner and to increase the capital stock of said firm by the gross amount of said sums.” Such, at all events, is the result. Whatever powers a Court of equity may, or may not, have upon a proper showing, with the proper parties all before it, to authorize the administrator to use the funds of the estate in an extraordinary manner for the purpose of subserving the interests of the estate, we are clear that such a diversion and misapplication of the assets of the estate, as was made in this case, is beyond the powers of the administrator, and the j urisdiction of the Probate Court; and if any loss results, it must fall upon the administrator. If the principal sum cannot be allowed, it of course follows that the items of interest paid for the moneys borrowed, and improperly appropriated cannot be allowed. We cannot tell from the state of the record the amount of loss, if any, sustained'by the transactions considered. The fact does not distinctly appear in the record, but we infer from some facts, incidentally stated in the report of the administrator, that the partnership assets have all been absorbed, and that a considerable amount of partnership debts — 68 — are still unsatisfied. It seems probable also, but it does not appear otherwise than by inference, that the demands of the contestants are against the firm. If so, and the contestants have availed themselves of the money paid over to the surviving partner under the- order of the Probate Court to increase the amount received out of the partnership assets, it would seem to be inequitable that they should also insist upon charging the administrator, and compelling him to pay the sum a second time to enable them to take a second dividend out of the assets of the estate. In this way the contestants would have the benefit of ten thousand dollars when there was really but five thousand dollars belonging to the estate— the administrator, in consequence of his mistake, being chargeable with the other five thousand dollars. Whether the contestants have received any portion of the money thus paid over the record does not disclose. This case, like that of Knight’s Estate, is a hard one for the administrator, and it is greatly to be regretted that one who has assumed what is-usually a thankless trust, and who seems to have acted in good faith, and in part at least under the sanction of the Probate Court, should, through a mistake as to the extent of his authority and of the powers of the Probate Court, be visited with consequences so severe as seem likely to result to the administrator in this case. But we must administer the law as we find it, irrespective of the hardship of particular cases. ' The item of five hundred and thirty-two dollars and three, cents, for sundry items paid on account of the estate, was properly allowed. The record does not disclose facts sufficient to enable us to determine whether the item of eight hundred dollars paid to Hickox was properly allowed or not. The order appealed from is reversed, and the cause remanded for further proceedings.