Opinion
08-19-1880
ASBERRY'S adm'r v. ASBERRY'S adm'r & als.
D. B. Strouse, for the appellant. Hansbrough, for the appellee.
Absent Moncure, P. and Anderson, J.
I. E, administrator of A, sells the assets, and B makes purchases for upwards of $1,000, and gives his bond to E with sureties for his purchases. B is the guardian of J, one of the distributees of A, and upon a settlement between E and B, E receives the receipt of B as guardian of J for $1,000 for so much of B's purchases at the sale. J dies and R, his administrator, sues E for J's share of the estate of A. HELD:
1. The duty of every fiduciary is to keep the trust fund separate from his own property or money; and to apply it in a due course of administration, or to invest it securely for the benefit of the parties entitled.
2. A party who concerts or unites with a fiduciary in a misapplication of the trust funds, or in any other act contrary to the duty of the fiduciary, becomes a particeps criminis, and will be held liable accordingly.
3. E knew the guardian was using the ward's money in paying his own debt; and he knew, or must be held to know, that the guardian was thereby misapplying the funds, and committing a breach of trust.
4. Though E may have acted in good faith, without a suspicion of anything improper in the transaction, the law stamps it as fraudulent, however innocent the intention of the parties; and E is not entitled to a credit for the $1,000, thus receipted for by B as guardian of J.
II. R as administrator of J brought an action against B, who was insolvent, and his sureties in his official bond to recover the amount due from B, and this action was pending when the decree was made in the case in equity. HELD: A creditor having two different remedies, or two sets of obligors bound for his debt, may proceed against both at the same time, although he is entitled to but one satisfaction. And the administrator of J cannot be delayed by a protracted controversy with the sureties of the guardian; he has his right of action against the party who has concurred in the breach of trust committed by the guardian, and therefore incurs the like liability.
This was a suit in equity in the circuit court of Roanoke county, but afterwards transferred to the circuit court of Bedford, brought by some of the children of Joel Asberry, deceased, against John M. Evans his administrator, and Lewis W. Richardson, administrator of John G. Asberry, another son of Joel Asberry, for a settlement of said Evans' administration account, and a distribution of the estate. The accounts were referred to a commissioner, who made his report, in which he stated the account of the administrator with each of the distributees, bringing John G. Asberry indebted to the administrator $494.01; and there was a decree for this amount against said administrator in favor of Evans.
Richardson, as administrator of John G. Asberry, then, by leave of the court, filed a bill to review this decree; in which he stated that the account of the administrator Evans, with John G. Asberry contained one item of $1,000, as paid by Evans to John G. Asberry's guardian, William L. Bernard. That in fact Bernard had purchased at a sale of the assets of Joel Asberry, by Evans as his administrator, upwards of $1,000, for which he gave his bond with sureties; and when it fell due, he had given to Evans his receipt for said sum of $1,000, as guardian of John G. Asberry; which Evans had received as a payment of so much of his debt. And he insisted that this was not a valid payment, and Evans was not entitled to a credit for the amount in his settlement with John G. Asberry.
Evans in his answer, states that he paid Bernard, the guardian of John G. Asberry $1,000, by the bond of Bernard, which he held as administrator of Joel Asberry, which was well secured.
The account was referred to the commissioner, who made his report accompanying it with a special statement made at the instance of the plaintiff, which, excluding any credit to Evans for the payment to Bernard of $1,000, found a balance against him of $962.33.
It appears that at the time this suit was pending, Richardson, as administrator of John G. Asberry, had brought an action at law against Bernard, who had become insolvent, and his sureties in his guardian's bond; the object of which was to recover the amount for which Bernard had given his receipt to Evans; and when the cause was about to be heard Evans moved the court to continue it until the next term. But the court overruled the motion. He also asked leave to file an amended answer, not to introduce any new grounds of defence, but to state more fully the facts in relation to the settlement with Bernard. But the court refused to permit the amended answer to be filed.
The cause came on to be heard on the 13th of September, 1878, when the court, being of opinion that the delivery of the bond of William L. Bernard to him by John M. Evans, administrator of Joel Asberry, was a mere colorable proceeding between them to misapply the money due from the said Evans to the said John G. Asberry, the ward of the said Bernard, to the private debt of the said Bernard to the said Evans; and the said misapplication being with the full knowledge and active participation of said Evans, cannot avail as against the said John G. Asberry, or his administrator, therefore was no valid payment of the distributable share of John G. Asberry in the estate of Joel Asberry, the said bond being due from said Bernard in his individual character to the said Evans, administrator of Joel Asberry, and that it was a collusive transaction between the said Bernard and said Evans, doth disallow the same, and doth disapprove of the report of Commissioner Palmer as to the two items of six hundred and sixty dollars and ninety-three cents, and three hundred and thirty-nine dollars and seven cents, credited in said report to the said John M. Evans, administrator as aforesaid, as being paid to the said John G. Asberry.
And the court approving the special statement of said commissioner made at the instance of the complainant, doth adopt and confirm the same, and doth adjudge, order, and decree that the defendant, John M. Evans, late sheriff of Roanoke county, and as such administrator of Joel Asberry, deceased, do, out of the assets of his intestate, if so much he hath, and if not, then out of his own estate, pay to the complainant, L. W. Richardson, administrator de bonis non of John G. Asberry, deceased, the sum of nine hundred and sixty-two dollars and thirty-three cents, with interest thereon at the rate of six per centum per annum from the 1st day of April, 1875, till paid, and his costs expended by him in the prosecution of this suit.
And it being represented to the court that a suit at law is pending in the circuit court of Roanoke county for and in behalf, and at the relation of the said John G. Asberry's administrator against the said William L. Bernard, and his securities on his guardian bond, to recover the amount of the alleged payment of one thousand dollars by the said Evans to the said Bernard by setting off the individual debt to said Bernard, to him as aforesaid, and that the said Bernard is insolvent, and his securities are resisting a recovery on the said guardian's bond in the said action upon the ground that the application of the amount due by the said Evans to the ward of the said Bernard to the private debt of the guardian to him, was no payment for which the securities of the said guardian were bound for the one thousand dollars so misapplied. The court doth therefore further order and decree, that the said administrator of the said John G. Asberry, deceased, do permit the said Evans to prosecute the said action at law in his name, but at the proper costs and charges of the said Evans, to recover the said alleged payment of one thousand dollars, if the said securities on the said guardian's bond shall be held to be liable for it. But, on the motion of the said John M. Evans, it is ordered that the execution of this decree be suspended for sixty days to enable him to apply for an appeal, upon his entering into bond with sufficient security in a penalty of one thousand dollars, conditioned according to law; and at his instance the court doth certify that several days after his motion for a continuance had been overruled, and after the court had announced its opinion and was about to enter up its decree in the case, the said John Evans, upon his own affidavit, moved the court for leave to file an amended and supplemental answer and a demurrer to the bill; which motion the court rejected and overruled. And thereupon Evans applied to a judge of this court for an appeal and supersedeas; which was awarded.
D. B. Strouse, for the appellant.
Hansbrough, for the appellee.
OPINION
STAPLES, J.
The questions involved in this case lie within a narrow compass and are of easy solution. The record shows that John M. Evans was the administrator of Joel Asberry, and as such made sale of the estate, or part of the estate, of his intestate. At that sale William L. Bernard became a purchaser of some of the property to the amount of a thousand dollars or more, and executed his bond to the administrator for the purchase money. At the time of these transactions or afterwards Bernard was the guardian of John G. Asberry, one of the distributees of the estate of Joel Asberry. His distributive share in that estate in the hands of Evans was not less than a thousand dollars. In this state of things it was agreed between Evans and Bernard that the money due the ward in the hands of Evans as administrator should be appropriated to the payment of Bernard's individual debt to Evans contracted in the purchase of the property. This arrangement was consummated, and Bernard as guardian, receipted to Evans for the amount due his ward as having been actually paid by Evans to him. The question before us is, whether this is a valid payment, sufficient to exonerate Evans from liability to the ward or his estate? The learned counsel for the appellant, in his argument here, insisted that if Evans had paid to Bernard the $1,000 due, the said Bernard might have become the borrower of the money and used it in the payment of his debt to Evans, and the transaction would be perfectly valid. And this being so, it was unnecessary for the parties to go through with the useless ceremony of paying over the money, and then paying it back again.
If the learned counsel's premises are correct, his conclusion cannot be questioned. But is it true that a guardian has the right to appropriate his ward's estate to the payment of his own debts? It is certainly well settled that an administrator or executor cannot so use the assets, unless under very peculiar circumstances, as where he is legatee or distributee, or otherwise in advance to the estate. The use of the assets by the personal representative for his own private purposes, or for the payment of his own debts, is necessarily a misapplication of trust funds, and a breach of trust. When he so appropriates the money of the estate he thereby becomes a borrower, throwing upon his cestui que trust, and upon the sureties on his official bond, all the risks of his continued solvency. The duty of every fiduciary is to keep the trust fund separate and distinct from his own property or money, and to apply it in a due course of administration, or to invest it securely for the benefit of the parties entitled. By so doing it can be identified and followed in the event of his death or insolvency. When, however, the fiduciary uses the trust money for his private purposes, the fund is forever gone, and the cestui que trust must incur all the hazards of the fiduciaries' insolvency. These are elementary principles; and it is a matter of some surprise they should have been so earnestly controverted at the bar. They apply to all fiduciaries, having trust funds in their hands, whether executors, administrators or guardians.
It is no less firmly established that a party who concerts or unites with a fiduciary in a misapplication of trust funds, or in any other act contrary to the duty of the fiduciary, becomes a particeps criminis, and will be held liable accordingly. And the reason is, that the party receiving the assets in payment of a private debt necessarily has notice that the fiduciary is guilty of a misapplication. If says Vice Chancellor Leach, the nature of the transaction affords intrinsic evidence that the executor in the mortgage or sale is not acting in the execution of his duty, but is committing a breach of trust, as where the consideration of the mortgage or sale is a personal debt due from the executor to the mortgagee or purchaser, there such mortgagee or purchaser being a party to the breach of trust, does not hold the property discharged of the trusts, but equally subject to the payment of debts and legacies as it would have been in the hands of the executor. 1 Lomax on Ex'ors and Adm'rs, 565-6; Pinckard v. Woods, 8 Gratt. 140.
In the case before us it was the duty of Evans, as administrator, to pay over to Bernard, as guardian, the distributive share of the ward, and it was the duty of Bernard to invest the fund to the best advantage. If the guardian, after receiving the money had wasted or misapplied it, parties dealing with him in ignorance that it was trust property, would of course not be responsible. But Evans knew that the guardian was using the ward's money in paying his own debt: and he knew or must be held to know that the guardian was thereby misapplying the funds, and committing a breach of trust. The learned counsel says that Evans acted in entire good faith, without a suspicion of anything improper in the transaction. It may be so. It is wholly immaterial. The law stamps the transaction as fraudulent, however, innocent the intention of the parties--not actual fraud in this case, but fraud in law arising from a misapplication of trust funds. And this is what was meant by the learned judge of the circuit court in saying it was a " collusive transaction." But even if as counsel contends, the learned judge had declared the transaction actually fraudulent, it is a matter of no sort of importance. We are not dealing with the reason of the court, but with its decree.
It appears, however, that the ward having died his administrator has brought suit at law, on the guardian's bond against the sureties--the guardian himself being insolvent. At the time the decree in the case before us was rendered, the action at law was still pending, and undetermined. It is insisted, that the administrator having made his election to pursue the guardian and his sureties, cannot now proceed against Evans; and at all events the chancery court ought to have stayed its hand until the result of the action at law is determined. In the first place the rules of law in regard to the election of remedies have no application to the case. A creditor having two different securities, or two sets of obligors bound for his debt, may proceed against both at the same time, although he is entitled to but one satisfaction. According to the views already presented Evans having in his hands funds belonging to the ward, or to his administrator, is primarily bound for them, the guardian being insolvent. And so far as this doctrine carried, if the sureties of the delinquent fiduciary are compelled to make good the loss, they will be substituted to all the rights of the legatee or distributee against the party uniting with the fiduciary in the breach of trust. It was so held by this court in Pinckard v. Woods, 8 Gratt. 140. Without undertaking now to decide whether that rule will apply in the present case, it is sufficient to say the administrator cannot be delayed by a protracted controversy with the sureties of the guardian--he has his right of action against the party who has concurred in the breach of trust committed by the guardian, and therefore incurs the like liability.
The appellant, Evans, has less ground of complaint, because the circuit court, by its decree of 13th September, 1878, has provided that the appellant may prosecute the action at law against the sureties of the guardian in the name of the administrator to recover the alleged payment of one thousand dollars " if the said sureties are justly liable for the amount."
It only remains to notice the alleged error of the circuit court in refusing permission to the appellant to file his supplemental or amended answer.
The learned counsel for the appellant admits that this answer sets up no new matter, " but is only a little more full upon the points raised in the bill." What good, then, was to be derived from it? Had it been filed it would not in the slightest degree change the aspect of the case or the result. If, therefore, any error was committed, as there was not in refusing permission to file the answer, the error was without prejudice to the appellant.
For these reasons we are of opinion the decree of the circuit court is right, and must be affirmed.
DECREE AFFIRMED.