Sacia v. Berthoud

C. L. Allen, J. If this case- is ‘"hot distinguishable from that of Colt v. Lasnier, (9 Cow. 320,) there can be no doubt that the plaintiff will be entitled to recover. That case, if I mistake not, establishes the following propositions, and it is to be held decisive as to the law in this state upon them, viz: That any person receiving from an executor, the assets of his testator, knowing that such disposition of them is a violation of the executors duty, is to be adjudged conniving with the executor to work a devastavit, and is accountable to the person injured by such disposition, for the property thus received, either as purchaser or a pledgee. So if the facts in this case show that the defendant purchased the Harris bond and mortgage knowing that they belonged to the estate of David II. Sacie, and that the executor from whom ho purchased intended to appropriate the proceeds to his own use, which was in violation of his duty as such executor, I do not see how he is to escape the consequences of such an act. But it is very ably argued by the counsel for the defendant that this case entirely differs from the one just cited, and that the defendant has not acted wrongfully and has not connived with the executors to work a devastavit, and that he stands fully justified in the purchase of the bond and mortgage, for the reasons, 1. That he purchased and took the assignment from the testator’s sons, they being attorneys at law and the executors of his will, and acting and assuming to act as individual owners as well as executors. In the case of Hill v. Simpson, (7 Vesey, 152,) Joseph Simpson was the nephew of Elizabeth Smith, and was her heir at law' and one of the executors of the will. Several legacies ivere — 19 — given by the will. Joseph Simpson alone proved the will and possessed himself of the assets and transferred a portion to the defendants Moffatt & Co. as a security for such sums as he then owed or might afterwards ow'C them. He afterwards became insolvent. The defendants Moffatt & Co. denied in their answer that they knew or suápected that the funds Avfcre not, at the time of the transfer; the absolute property of Simpson as executor or devisee of Elizabeth Smith. On the contrary they believed that they wrere Simpson’s own property, and he represented to them that he was absolutely entitled'thereto; that they did not know that any of the legacies were unpaid to the plaintiffs or any other person. That in consequence of and since the transfer; and upon the faith of it, they had paid bills and notes to a large amount. The master of the rolls remarked, “ It is true that executors are in equity mere trustees for the per-' fbrmance of the will, yet in many respects and for many purposes, third persons are entitled to consider. them absolute owners. A power of disposition is frequently necessary, and a stranger shall not be put to examine whether in the particular instance, that power has been discreetly exercised. But does it follow from' this,” he inquires, “ that dealing with the executor for the assets he may equally look upon him as absolute owner, and wholly overlook his character as trustee when he knows the executor is applying the assets to a purpose wholly foreign to his trust 1 Ho decision necessarily leads to’ such a consequence.” He further remarks in the course of his decision, that the defendants had distinct notice that the money was not to be applied to any demand upon either estate, but the assets were to be wholly applied to the private purposes of the executor. The defendants proceeded upon the faith of the representations of the executor, by which they were induced to believe, that the property he assigned to them was actually his own. They would have seen the .falsity of his representation if they had looked at the will. “ Common prudence required that they should look at the will, and not take the debtor’s word as to his right under it.- If they neglect that, and take the chance of his speaking the truth, they must incur the hazard — 20 — of his falsehood. It was gross negligence not to look at the will, under which alone a title could be given to them. It was not necessary to shut their eyes against information w'hich without extraordinary neglect they could not avoid receiving.” This case is quoted with approbation in Colt v. Lasnier, Oh. J. Savage closing his remarks in relation to it by observing that the whole scope of the argument went to prove that the purchaser or banker who receives the property of the testator from the executor knowingly, ‘for purposes inconsistent with his duty as executor, is responsible for such property to the creditors or the persons in interest. That case, it will be perceived, is like the present in many of its features. There, as here, the purchasers were dealing with the heir at law. There, as hero, they alleged that they believed the executor ivas the owner of the property which he assigned. There, as here, they asserted that they did not know the rights of legatees were concerned, and did not know any thing about the contents of the will: and' there as here they might justly infer from the personal guaranty of the executor that he wras the only beneficiary in the will; and yet the very fact that the purchaser knew) that the executor was about to appropriate the proceeds to his own use and for his own benefit, was held sufficient to charge him, on the ground among others, that such knowledge should have induced him as a. matter of prudence to go farther, and make proper inquiries as to the contents of the will. It is agreed that the executors were authorized, by law, to sell and assign the bond and mortgage, and that the assignment is valid, and the assignee cannot be called to account to the legatees, without showing fraud and collusion on the part of the assignee, with the executors. The case of Wheeler v. Wheeler, (9 Cowen, 34,) relied upon by the counsel, decides that an executor may pledge or assign a noté as collateral security for a judgment obtained against the estate of his testator $ and that such an assignment is valid so far as it respects the general power of the executor. Such assignment is not appropriating the funds or assets to his own use. The case of Sutherland v. Brush, (7 John. Ch. R. 17-21,) is also cited by the counsel. The chancellor there says that the general — 21 — doctrine seems to be well established both at law and equity, that a bare act of- sale of the assets, by the executor, is a sufficient indemnity to the purchaser, if there be no collusion. The defendant denied that when he took the bond and note lie knew that they were a part of the estate, and averred that the assignments were taken in good faith, and that he had not then any knowledge of the state of the assets. The chancellor remarked that there was no evidence sufficient to destroy the truth of i these averments in the answer, and the bill as to the purchaser was dismissed. That learned jurist cites among other cases in support of his opinion, Nugent v. Gifford, (1 Atk. 463;) Mead v. Lord Orrery, (3 Id. 235.;) and Whale v. Sir Ch. Booth, (6 T. R. 025.) In the subsequent case of Field v. Schieffelin, 7 John. Ch. 150—he reviews these cases, and remarks that subsequent decisions have in some degree restrained the extent of the doctrine laid down in them by Lord Hardwick and Lord Mansfield, and cites Bunner v. Ridgars, (1 Cox, 166,) and Scott v. Tyler, (Dickens, 712,) where it was held that where an executrix pledged bonds specifically bequeathed, as a security for her own debt contracted after the testator’s death, the pawnee must deliver up the bonds for the benefit of the specific legatee. That though the rule, in general, wras that the purchaser of the assets had no concern with the application of the price, yet if one concerted with the executor to obtain the effects at a nominal price, or at a fraudulent under value, or in extinguishing the private debt of the executor, or in any other manner, contrary to the duty of the office of executor, he would be liable. He also cites with approbation Hill v. Simpson, and also McLeod v. Drummond, (17 Ves. 152,) which approves of it—and finally comes to this conclusion, “ that the purchaser is safe if he is no party to any fraud in the executor, and has no knowledge or proof that the executor intended to misapply the proceeds, or was in fact by the very transaction, applying them to the extinguishment of his own private debt, or to his own private purposes.” He remarks that “the latter and better doctrine is, that in such a case he buys at his peril.” Wilson v. Moore, (7 Condensed Eng. Ch. 83,) also reiterates the same doctrine. — 22 — (And see 2 Paige, 202 ; 2 Rand. 298 : 5 Id. 195; 2 Vernon,-616; 1 John. Ch. 450, 566.) The distinction is sought to be taken between this ease and the cases cited, that the purchase was here made by an advance of money at the time of the assignment, and not for any antecedent debt of the testator or his executor. It is true, it is remarked in some of the cases, particularly in Colt v. Lasnier, that as a general rule the purchaser does not become a party to the fraud by buying or receiving the assets as a pledge for money advanced at the time, and as a general rule he is such party by buying or taking them in pledge in satisfaction of an antecedent debt of the executor, but that there are exceptions to both rules. One exception noted is that if one concerts with the executor by obtaining the testator’s effects at a nominal price, or at a frauduj lent under value, or in any other manner contrary to the duty of the'office of executor, such concert will involve the purchaser,- and make him liable for the full value; that if he knows that the assets are to he appropriated to purposes inconsistent with the duty of the executor, he is responsible to the persons in interest; What are the facts in reference to this bond and mortgage ? It is not disputed that the mortgagor was entirely solvent and able to pay the amount of the mortgage. It is true, payment of a part of it had not been pressed; and it is said this is evidence that it was a slow security. It was the very investment intended by the testator for the benefit of his infant children. It was not necessary to distribute it for their support or education; The defendant, after he was applied to for the money, postponed Ms answer and took time to make all proper inquiries; he no doubt informed himself as he was bound to do,- of every fact which a man who exercises ordinary care and prudence in the management of his affairs would deem important. He knew this was the property of the estate. He finally answers that he will advance the money if the executor will make it a sufficient object,that is, will submit to such a deduction from the" amount due on the mortgage, as his conscience will permit him to demand. He is informed that the executor is anxious to build, and wishes the fund for that purpose. He finds his necessities for the money — 23 — will induce him to submit to a large sacrifice, and after ascertaining that his brother is a co-executor with him, and requiring him to join in the assignment, and both to execute a personal guaranty to secure the payment of the mortgage, he requires the deduction of $262,29 from the amount, and advances the balance to the executor, knowing to what use he is about to put it, and knowing that a single inquiry of him, or at the surrogate’s office, would obtain for him the information that this was the property of the widow and the infant heirs mentioned in the will. He requires and the executor submits to a deduction of about 14 per cent on this abundantly safe security, without taking the trouble to inform himself whether the rights of third persons are concerned or not, or of the pecuniary circumstances of the executor, who was insolvent at the time of the transfer.. It apr pears to me, that these facts and circumstances should have put him upon his guard, and demanded the exercise of the utmost eaution, and “ that «common prudence required that he should have looked at the will, and that it was gross negligence not to have done so.” It is hardly to be presumed that he did not know of the contents of the will, nor the situation of the testator’s family— that there was a widow and minor children depending for their education and support upon the little fund belonging to the estate. ‘ At all events I think he was bound to know and could have informed himself. In Pinchard v. Wood, (8 Grattan, 140,) the lands belonging to the estate were sold by the administrator to the purchaser at a discount of 18 or 20 per cent. The charge was, as here, that as there was no necessity for a sale, the condition of the estate not requiring it; that Pinckard had actual knowledge at the time of the sale that he was dealing with an administrator for the assets of the estate of his testatrix, and that the administrator was committing a devastavit by such sale. The court laid stress upon the fact, that the bonds being payable to Newbill as administrator, was notice to the purchaser that they were assets of the estate. 'They remark, “ that if the administrator sell debts belonging to the estate, at a price below their value, he thereby commits a devastavit, unless he makes it appear that such sale was manifestly required by — 24 — the interests of the estate. This he can never do without showing that the proceeds of the sale were applied to the purposes of the' estate.” “ And the purchaser who acquires such debt at a profit, if he has reason to believe at the time, that the debt belongs to the estate, and is disposed of by the executor for his individual use, thereby concurs in the fraudulent breach of trust committed by the executor, and therefore incurs a like liability.” In this case, to apply the reasoning and facts in Pinchará v. Wood, the purchaser had the best reason to believe that the bond and mortgage belonged to the estate, when he purchased them. He knew so ; for he required both executors to join in the assignment. He not only knew that the executor was about appropriating the funds to his own use (a “fact which the result and condition of the estate have abundantly shown,”) but that disposing of a debt well secured belonging to the estate at so large a discount, was not in the usual course of administration, and would not be tolerated by the court. Under these circumstances he should have ascertained, if he did not already know, as he might easily have done, and probably from the same source where he derived his knowledge that there were two executors, that this property belonged to the plaintiffs, and that it was not necessary to dispose of it for their benefit, or to answer any calls upon the estate. (See cases before cited, and Pendleton v. Fay, 2 Paige, 202.) He did indeed require both executors to guaranty the payment, and perhaps believed that Josias was solvent. But such was not the ease. And his belief is no defense here. He must look to the estate of Josias, or to the surviving executor, for his indemnity. He cannot throw his loss, if he sustains one, upon the widow and infant heirs, who were not in a situation at the time to guard their own rights, which have been thus affected by his improper and careless intermeddling with their property. The defendant was fully cognizant of the intended misapplication, and he therefore cannot complain of the hardship which he alleges will exist, if he is compelled to pay both branches of this estate the amount of the bond and mortgage. I cannot distinguish this case in principle from Colt y. Lasnier, and on a careful review of all the cases bear — 25 — ing upon it, and of all the facts and eirumstanees, I cannot but come to the conclusion that the defendant is liable to refund to these plaintiffs the amount of the bond and mortgage and interest. Nor can I perceive that in ordering a judgment for the plaintiff I shall be laying down or establishing a new proposition, as intimated by the defendants’ counsel. I feel that I am simply recognizing and following, as I am bound to do, the principles well established in the cases which I have cited and reviewed, and the spirit of which will also be found in 2 Verm. R. 616; 2 Strange, 1178; 7 Condensed Eng. Ch. 83; 2 Ves. 466; 4 Cowen, 110 ; Dart on Vendors and Purchasers, 288; Story’s Eq. Juris. 581, 8,395; Hovenden on Frauds, 39. [Montgomery Special Term, June 13, 1853. C. L. Allen, Justice.] There must be judgment for the plaintiff for the amount of the balance due on the bond and mortgage at the time of the transfer, $1957,17 and interest from 1st April, 1845. Judgment accordingly.