Opinion
02-12-1824
Dodson, & c. v. Simpson, & c
Spooner, for the appellant, No Counsel, for the appellees.
[Syllabus Material]
John A. Pride died, leaving a will, by which he appointed John Simpson his executor, and Elizabeth B. Simpson, wife of the said John, his residuary legatee. John Simpson administered on the estate, and Daniel Dodson and Michael Wells, became the sureties in his executorial bond. Simpson becoming much involved in his circumstances, conveyed two of the slaves of his testator's estate, in trust to secure a debt of his own, due to A. & R. M. Cunningham. Shortly afterwards, Simpson absconded from Petersburg, where he resided, and the said property was taken possession of by Moore, the trustee.
Dodson and Wells, the sureties of Simpson, in his executor's bond, filed a bill in the Chancery Court of Richmond, stating the foregoing facts, making Simpson and his wife, Mary Covington, a legatee in the will, William Moore, the trustee, A. & R. M. Cunningham, defendants. The bill alledges that John A. Pride died considerably indebted: that but few of his debts have been paid: that the estate has been greatly wasted, and applied to the payment of the private debts of Simpson: that, he is involved to an amount greater than his own property, and that of his testator, could pay: that the complainants are informed, that it is the intention of Moore to sell the said property within a very few days: that they, as the sureties of Simpson, as executor of Pride, will undoubtedly be called on to pay all the debts due by the said Pride at his death, and now unpaid: that, although Elizabeth B. Simpson is the residuary legatee of the said John A. Pride, she cannot claim the property aforesaid, until the debts and legacies are paid; and John Simpson could not legally convey it in trust to pay his own debts, till he had paid the debts and legacies of his testator: that, it is their intention to apply to the next County Court of Chesterfield, to rule the said Simpson to give counter-security for his executorship; but, if the sale of the said slaves should not be prevented, the complainants believe that such application would be fruitless, as, before that Court, the remaining assets of the estate will be wasted: that, besides the claims of the Cunninghams, several attachments have been served on the property conveyed by the deed of trust, for the private debts of Simpson, under the law relating to absconding debtors. They, therefore, pray for an injunction to prevent the defendants from proceeding to sell, convey away, or otherwise dispose of, the two slaves aforesaid, belonging to the estate of John A. Pride, deceased, until further order; and that John Simpson may be compelled to settle his accounts as executor.
The Chancellor denied the motion for an injunction; but it was afterwards awarded by a Judge of this Court.
The answer of A. & R. M. Cunningham, states that John Simpson became indebted to them for merchandize, and gave his negotiable note, for the same: that, Simpson being unable to pay when it fell due, executed the deed of trust mentioned in the bill: that, when the time had nearly expired, within which the money was to have been paid, the defendants, with the consent of Simpson, assigned their interest in the property included in the deed of trust, to Leslie and M'Indoe, they having become responsible to the defendants, for the debt due from the said Simpson: that, the first intelligence they received that there was any doubt respecting the two negroes included in the deed, was from the bill of the complainants: that they are advised, that Simpson had a legal authority to dispose of these negroes in the manner he has done, to sell them to any person he pleases, and to apply the money as he may think proper; the legatees or distributees having their recourse to the executorial bond: that, if the sureties can prevent the executor from selling these negroes, the executor will be shackled in such a manner as not to be able to administer the assets: that, Elizabeth B. Simpson was in fact a specific legatee, and her husband, the executor, had the same right to assent to the legacy that he would have in any other case; in which case, the property became liable for his debts; and his sureties must stand in the same situation, (and no better,) as other sureties
Moore answered, denying all personal knowledge of the transaction.
The complainants filed an amended bill, stating, that the complainant Daniel Dodson had since obtained administration de bonis non, with the will annexed, on the estate of the said John A. Pride, in consequence of Simpson having failed to give counter-security: that the complainant Daniel immediately took the slaves into his possession; but, he is fearful, without the aid of the Court, the said slaves will be sold under the deed of trust and he be harrassed with a suit for the recovery of them: that there is a material difference between the actual sale of a slave of his testator by an executor, to an ignorant and innocent purchaser where the money is actually paid, and the mere pledge of such slaves, by an executor, on a conveyance in trust, to secure the payment of his own private debts, previously contracted. They pray, that Leslie and M'Indoe may be made defendants; and that all the defendants may be injoined from proceeding to sell the slaves aforesaid, until the debts of the said John A. Pride shall be paid off; unless they will, in the first place, enter into bond and security to indemnify the complainants against such debts; and that they may be restrained from commencing suit against the complainant Daniel for the said slaves, until the debts aforesaid shall be discharged.
The Court of Chancery, on motion, dissolved the injunction, and an appeal was allowed by this Court.
Decree affirmed.
Spooner, for the appellant, contended, that it was not competent to Simpson to pledge his testator's estate, to the injury of sureties or creditors. The authorities are decisive, that an executor cannot bequeath the assets of his testator. 11 Viner, p. 421; Plowden, 525. The modern cases are still more favorable to creditors. The case of Farr v. Newman, 4 Term. Rep. 621, proves, that assets, although a considerable time in the possession of an executor, cannot be taken in execution for his private debts. In 5 Vesey, p. 211, 212, it is decided, that a power to sell does not include a power to pledge, even as to chattels which cannot be traced. He also relied on the cases of Hill v. Simpson, 7 Ves. p. 152, and M'Leod v. Drummond, 14 Ves. p. 352. An executor is like a factor. He may sell, but cannot pledge the estate of his principal. 1 Livermore, p. 129, 130; 5 Ves. 211, 212; Robertson v. Ewell, 3 Munf. 7.
No Counsel, for the appellees.
Judge Green. Judge Coalter. Judge Cabell concurred. The Judges delivered their opinions. [*]
OPINION
GREEN, JUDGE
A factor cannot pledge or deliver the property of his principal for the satisfaction of his own debt, since the legal title to the property is in the principal, and not in the factor, the latter having a special authority to sell the property for the use of his principal only. The case of an executor differs from this. The legal title is in him, and his disposition of the property, for any purpose, passes the legal title effectually. Yet the executor holds the legal title in trust for creditors and legatees, whether specific, pecuniary or residuary. As to them, he is guilty of a breach of trust, when he disposes of the testator's property in any way, for his own use. And, as in all other cases, where a trustee has parted with the legal title, in breach of his trust, the cestui que trusts may pursue the property into the hands of a purchaser, with notice of the trust and of the breach of trust; so they may, in the case of an improper sale, or other improper disposition of the testator's assets, when the purchaser has notice of the existence and violation of the trust. For, in that case, the purchaser is guilty of a fraud, and on that account is held to be himself a trustee. But, in such case, as in all other cases, a purchaser of the legal title, without notice of the trust and of the breach of trust, being guilty of no fraud, nor of such gross negligence as amounts to evidence of fraud, may protect himself by the plea of purchase without notice; and a mortgagee for a precedent debt, is a purchaser to all intents and purposes. Accordingly, all the cases on this subject, have turned upon the enquiry, whether the purchaser had notice of the trust and of its breach. If he had notice of the existence of the trust, it did not follow, that the disposition of the property was, of course, a breach of the trust; for, it is a part of the trust that the executor shall sell or raise money upon the property, for the use of the testator's estate; and even in the case of a disposition of the property, manifestly known by the purchaser to be for the executor's own use, and not for the use of the estate, it does not follow that the purchaser is chargeable with notice of the breach of trust. That must depend upon the whole circumstances of the case: As, if the executor had settled his accounts, and appeared to be a creditor, when in fact he was a debtor; or, if the executor was himself a legatee of the property disposed of, and the purchaser had no reason to believe that his legacy was necessary for the payment of debts. In such cases, the purchaser might justly suppose, that the executor was disposing of the property fairly and bona fide, and the purchaser could not be charged with fraud. The fact, that the property is pledged or delivered by the executor for the satisfaction of his own precedent debt, is only important, as it proves that the purchaser knew that the executor was applying the property to his own use; and if, from other circumstances, it appears that he knew also, that he was so applying it improperly, and in breach of his trust, then the purchaser is chargeable with fraud. As, if the executor should give a specific legacy, bequeathed to another, in satisfaction of his own debt, it would necessarily follow, that he was violating his duty, unless the estate was indebted to him. For, such legacy could not properly be disposed of for any other purpose but for paying the testator's debts; and prima facie, the disposition of it in satisfaction of his own debt, has no tendency to satisfy the testator's debts.
I think the administrator de bonis non has an equity, which may be asserted in a Court of Chancery.
To apply these principles, which are elaborately discussed in 14 Ves. 355, and 17 Ves. 153, to the case at bar. It is not alledged, and does not appear, that the appellees, A. & R. M. Cunningham, knew that the slaves in question were assets of the estate of Pride. The answer is, however, somewhat evasive on that point. But, if they did know that fact, they knew, at the same time, that the wife of the executor was the residuary legatee of the whole estate; and, it does not appear, that they knew, or had any reason to believe, that any debts were due from the testator's estate, or that the negroes in question were necessary for the payment of debts and legacies. And, in the absence of such facts, they might have taken a lien, bona fide, upon the property, as the property of Simpson, their debtor. As to the charge in the amended bill, that Simpson never had any possession of the property, but as executor, it is completely repelled by the execution of the deed, by Simpson, conveying the property as his. It is true, that an executor, who is also a legatee, taking possession of the testator's property, is considered as taking possession as executor; for, he cannot, in the first instance, take it rightfully, in any other character; and he shall be presumed to have possessed himself right-fully, and not wrongfully. And, being originally so possessed, as executor, such possession shall be presumed to continue in the character in which it was acquired, until he does some act, shewing unequivocally, that he elects to hold the property in his character as legatee. No act can be more decisive to shew such election, than a conveyance of the property as his own, for securing the payment of his own debt. An answer, therefore, to this charge, was wholly unnecessary. The circumstance that the legal title is in the trustee, can make no difference in this case. The decree is right, and should be affirmed.
This decision will not preclude the appellants from asking a reinstatement of the injunction, or from pursuing the fund, if they shall hereafter establish the charge of a fraudulent disposition of the assets by the executor, and the participation in such fraud by the purchasers.
JUDGE COALTER.
I have no doubt, that a sale by an executor, for the purpose of paying his own debt, and a fortiori, a deed of trust made by him, to secure the payment of his own proper debt, when he is not in advance to the estate, so as to make such sale or incumbrance proper, is a fraudulent waste of the assets; and that, if the person purchasing, or in whose favor such trust is created, has a knowledge of, and consequently participates in, such fraud, the transaction may be set aside, either in favor of creditors, legatees, or an administrator de bonis non, with the will annexed; and, if these do not interfere, because the executor has given security, and they are satisfied to rest on that security, such sureties, it appears to me at present, have a right to call for a settlement of the estate, and to have these assets, thus fraudulently eloigned, so secured as that damage shall not arise to them, from such fraudulent combination; but, if I am wrong as to the rights of the sureties in this case, the administrator de bonis non is before the Court in the amended bill. The executor has not answered; but, it is alledged, has absconded, and left the country; so that the fraud, as to him, is undenied, and probably undeniable.
Can this fraud be brought home to the appellees? Their answer, as to their knowledge that the slaves in question were of the goods of the testator, appears to me to be evasive; which may perhaps arise from that not being explicitly charged in the bill; and they seem to rely very much on the fact stated in the bill, that the wife of the executor was residuary legatee.
If the appellees in this case knew that the slaves were part of the assets, what are the circumstances? The deed of trust is taken within about eight months after the qualification of the executor, who seems to have been a saddler, or shopkeeper of some kind in Petersburg; and, it is to secure A. & R. M. Cunningham, the appellees, probably merchants of the same town, the sum of $ 2,545 56, due by negotiable note, endorsed by Francis Y. Yancey, and payable in sixty days after the date of the note and deed. It conveys all the articles of saddlery and merchandize in the shop, all his household and kitchen furniture, and several slaves; amongst others, those in controversy. It was stipulated, that when the note fell due, if it was not paid, the appellees, having given ten days notice before the time of payment, by a writing, to the debtor, left at his shop, if the note should not be punctually paid, the trustee should sell, & c. All this convinces me, that Simpson, the executor, was in desperate circumstances; and that the appellees knew it at the time this deed of trust was taken. They did not, at that date, advance $ 2,545.56; relying on the note and security then taken, and believing their debtor a man in good circumstances. It was an old debt, for which a new note and deed of trust, authorizing unexampled proceedings, were taken. They could not have presumed that a man so pressed had paid monies in advance to the estate, which would justify a conversion of the assets to his own use. They were at least bound to enquire, and must have winked hard not to see that a palpable fraud was committing. This is a very different thing from a man's purchasing out and out, from an executor, who is committing a fraud. He has no inducement to pay his money, and take the risque of such fraud, and has no interest in shutting his eves.
Whilst, therefore, I think the evidence, as to the knowledge of the appellees, that the slaves in question were part of the assets belonging to the estate, is not sufficient to justify a decree against them on a final hearing, (though from their residing in the same town and the circumstance that the executor was much in debt, and that to themselves, they probably had a knowledge of his property,) yet I do not think the answer such a denial on this subject, as to justify a dissolution of the injunction on the merits. I think it might well have been dissolved and a sale directed, on the appellees giving security to abide by the final decree, or directing the money to be paid into Court, subject to its final order. These provisions not being made, but the dissolution being, as I presume, on the merits, I think the decree is erroneous, and must be reversed, and the injunction dissolved on the terms aforesaid, and the cause remanded to be finally proceeded in.
CONCUR
CABELL, JUDGE
There is no difference of opinion as to the principles applicable to this case. We all agree, that if an executor commits a fraud by improperly selling or pledging the assets of the estate, and the purchaser or mortgagee is a participator in that fraud. the sale or mortgage should be set aside as fraudulent. I agree with the Judge who first delivered his opinion, that no such evidence of participation appears against the appellees, who claim under the deed of trust contained in the record. The transaction, as to them, may have been perfectly fair, and there is no evidence in the record to shew it otherwise.
I concur, therefore, in the opinion to affirm the decree. This, however, will not preclude the appellant from obtaining redress by exhibiting and establishing a new case.
Decree affirmed.
[*]Judge Brooke, absent.