Opinion
05-09-1854
HUNTER v. LAWRENCE'S adm'r & al.
Morson, for the appellant: Patton, for the appellees: Robinson, for the appellant, in reply: I am of opinion to reverse the decree and dismiss the bill, with costs of both courts to the appellant.
1. A bond executed to an executor is transferred by him to a guardian as part of the ward's estate. Whatever interest the ward has in the bond is subject to the control of the guardian, who may receive the money due thereon if voluntarily paid; may sue for it in a common law court in the name of the executor, for his own use as guardian, and cannot be prevented by the executor; or he may sell and transfer the bond.
2. As a general rule, a guardian has the legal title of the ward's personal estate; and has the power and authority to sell it.
3. A guardian violates his trust when he sells or transfers the property of his ward to pay his own debt.
4. The fraud of a guardian in disposing of the property of his ward, is not sufficient of itself, under all circumstances, to invalidate his transactions with innocent parties.
5. A bond executed to an executor is transferred by him to a guardian as part of the ward's estate; the guardian is himself a legatee for a large amount of the same testator, and is guardian of another legatee; and he receives the amount of these legacies from the executor in bonds and other evidences of debt. Upon the marriage of the last mentioned legatee, he transfers to her husband the bond belonging to the first named ward in part discharge of her legacy, he being at the time in good circumstances and his sureties as guardian being wealthy. The husband takes the bond at par, without knowing or suspecting that it is the property of the first named ward; and takes it without a hope of gain or fear of loss, but simply as a mode of payment convenient to both parties. Years afterwards the guardian becomes insolvent by the failure of speculations in which he is then engaged. HELD:
1. The husband, who received the bond, is not responsible to the ward, whose property it was, for the amount thereof.
2. The principle upon which a party dealing with a fiduciary is held responsible, is, that he has co-operated in the fraud of the fiduciary.
6. A guardian qualifies in 1821. In 1825 he transfers a bond of his ward to a party wholly innocent of any participation in the guardian's fraud, in payment of a debt. The ward comes of age in 1832, and takes no steps to obtain his estate from his guardian until 1840, when the guardian becomes insolvent. He then sues the sureties of the guardian, and recovers from them the amount due to him from his guardian. In all this time the sureties had done nothing to secure the faithful discharge of his duties by the guardian, or to compel him to pay over to the ward his estate after he came of age. HELD: That even if the party who had received the bond from the guardian, could be held responsible to the ward, he is not responsible to the sureties.
George Pottie the elder, late of the county of Louisa, died prior to April 1815, leaving a widow and five children surviving him. By his will, after giving a few small legacies, he directed that the remainder of his estate, both real and personal, should be divided between his widow and children, as the law directs in cases of intestacy; and he appointed John Thompson of Culpeper his executor. The will was duly admitted to probat, and Thompson qualified as executor.
Several of the children of George Pottie the elder were infants, and in 1821 R. S. Sandridge qualified as the guardian of George Pottie the younger, and Nathaniel Thompson, who had previously married the widow, qualified as the guardian of Isabella Pottie. On the 28th of June of this year the executor John Thompson divided among the legatees the sum of forty-five thousand dollars, Nathaniel Thompson, as the husband of the widow, receiving fifteen thousand dollars, and as guardian of Isabella Pottie, receiving six thousand dollars; and Sandridge, as guardian of George Pottie the younger, also receiving the sum of six thousand dollars.
Although the receipts given by these parties purport to be for so much money, yet in fact these sums were not paid in money, but principally, if not wholly, in bonds and other evidences of debt. Among the bonds so received by Sandridge as guardian of George Pottie the younger, was one for five thousand dollars, executed by Isaac Winston of Culpeper to John Thompson, executor of George Pottie, which bore date on the 13th of November 1820, and was payable on the 13th of November 1825, with legal interest payable semiannually. This bond was secured by a deed of trust executed by Winston and wife conveying real estate and slaves, and was recorded in the county of Culpeper. The executor did not assign the bond, but simply transferred it, and the only endorsement upon it was one signed by the executor, of the receipt of interest upon it to the 13th of November 1821.
In 1822 Sandridge died, and in November of that year Nathaniel Thompson was appointed guardian of George Pottie the younger. In 1823 Sandridge's account as guardian of George Pottie was settled by commissioners, and returned to the County court of Louisa, and ordered to be recorded. In this account on the debtor side, there is an item as follows: " 1822, Dec. 16. To amount of Isaac Winston's deed of trust, returned, $5000." And on the credit side there is the item, " 1821, June 28. By Isaac Winston, for bank stock sold him, per deed of trust, $5000." At the time this account was ordered to be and was recorded, John Hunter was, and had been and continued to be until this suit was brought, clerk of the County court of Louisa; but the order directing the account to be recorded, and the record of the account, are proved to be in the handwriting of a deputy then in the office, who had since died.
In 1823 the administrator of Sandridge turned over to Nathaniel Thompson, guardian of George Pottie the younger, the estate of his ward which had been in the hands of Sandridge; and as a part of that estate he delivered to Thompson the bond of Winston. In 1824 Dickinson, one of the two sureties of Nathaniel Thompson, having, as it is stated on the record, suggested his fears of suffering in consequence of said securityship, Thompson waiving the necessity of a summons, an order was made requiring him to give other security, whereupon he entered into another bond, with Garland Thompson, jun., Charles Thompson, Oswold McGehee and Henry Lawrence as his sureties.
On the 3d of November 1825 John Hunter married Isabella Pottie; and they being on a visit to Nathaniel Thompson and his wife, the guardian and mother of Mrs. Hunter, on the 17th of November Thompson informed Hunter that he was indebted as guardian to Mrs. Hunter about six thousand dollars; that he held the bond of Winston for five thousand dollars, secured by a deed of trust; that he had recently seen Winston, and that he promised payment of the debt in installments at short intervals; and that as fast as Winston paid him he would pay Hunter in part discharge of what he owed as guardian of Hunter's wife. To this Hunter replied, that as Thompson intended to collect the debt to pay him, he had as well pass the debt to him, as he had no immediate use for the money, and preferred having it in safe hands bearing interest. This suggestion was adopted, and the bond was immediately transferred to Hunter; who held it for near twenty years, receiving the interest regularly upon it, before he collected the principal from Winston.
The foregoing conversation and arrangement occupied between five and ten minutes; and neither at that time, nor before nor afterwards, was Hunter informed by Thompson that he had received the bond from Sandridge's administrator, or that it was held by him as a part of the estate of his ward George Pottie the younger; nor does it appear from any evidence in the cause that Hunter was ever so informed until after the failure of Thompson in 1840. At the time of this transfer of the bond Thompson was in good credit, and in independent circumstances, able to pay up what he owed to Hunter's wife; and the sureties in his bond as guardian were also in good circumstances; and his circumstances continued good until 1840, when, owing to the failure of speculations in which he had engaged, he became insolvent.
In 1832 George Pottie the younger came of age; but he does not appear to have taken any steps to collect from his guardian Nathaniel Thompson the moneys of his in Thompson's hands until 1840, after Thompson's failure; and although the sureties in the guardian's bond lived in the neighborhood of Thompson, and were well acquainted with him, they do not appear to have made any attempt either to urge the payment by Thompson to Pottie, or to obtain their release from their liabilities as Thompson's sureties. In 1840 Pottie brought a suit upon the official bond of his guardian, and obtained a judgment, a part of which was paid out of a trust fund conveyed by Thompson to indemnify his sureties and pay his creditors, and the balance was paid by the administrators of Lawrence and Garland Thompson, two of the sureties. These payments appear to have been made in 1842 and 1843.
In 1845 this suit was instituted by the administrator of Lawrence against Hunter, to obtain from him repayment of the amount he had been compelled to pay as the surety of Thompson as guardian of George Pottie; and subsequently the administrator of Garland Thompson came in by petition and was made a party plaintiff in the suit. The bill, after stating the death and will of George Pottie the elder, the qualification of Sandridge as the guardian of George Pottie the younger, the transfer to him by the executor of the bond of Winston, the qualification of Nathaniel Thompson as guardian of George Pottie, the transfer of the bond to him by the administrator of Sandridge, the settlement and recording of the guardian account, the marriage of Hunter with Isabella Pottie, and the giving in 1824 of the new bond as guardian of George Pottie, in which Lawrence became one of the sureties, as hereinbefore detailed, charged that about this period, Hunter having met with considerable difficulty in obtaining the money due to his wife from her guardian Nathaniel Thompson, and being perfectly familiar with all the circumstances of the case, and knowing that the bond of Winston for five thousand dollars was the property of the ward George Pottie, and not the property of Thompson, combining fraudulently with the said Thompson, obtained an assignment by Thompson to him of the said bond, and received the same as pro tanto a discharge of the debt due from Thompson to him, and had since held the said bond as his own property, and still held the same, unless he had changed the debt by receiving payment of the said bond. And it was charged expressly, that these facts were known directly to Hunter, because he was at that time, as he had been for years previous thereto, clerk of the County court of Louisa in which these facts were matters of record, and much if not all the record in his own handwriting. And it was charged that the doubtful condition of Thompson was known to Hunter; that he had full knowledge of the misapplication of the funds to the prejudice of the ward George Pottie or the sureties of Thompson, and that he thus obtained payment of his claim out of money which he knew could not be so applied without defrauding an infant or a surety.
The bill further stated the death of Lawrence, the action by George Pottie on his guardian's bond, and the payments made by the sureties, and making Hunter a party defendant, and calling upon him to answer to all the allegations of the bill, and to discover whether he still had the bond of Winston; prayed that if he still had it he might be compelled to surrender it, and to pay the interest he had received upon it; or if the bond had been paid, that he might be compelled to pay the amount thereof to the sureties of Thompson as guardian of George Pottie, and for general relief.
Hunter answered the bill, and denied explicitly every statement in the bill, as to his knowledge that the bond had been transferred by the executor of George Pottie the elder to Sandridge, or by Sandridge's administrator to Nathaniel Thompson, or that Thompson held it as a part of the estate of George Pottie the younger, or in any other manner which would have rendered it improper for Thompson to transfer it, or himself to receive it, in part payment of his wife's fortune, until 1840, when Thompson unexpectedly failed. He denied that Thompson was in difficulties in 1824 when Dickinson asked for other security, or that that proceeding was prompted by a fear of Thompson's failure. He denied that he had found any difficulty in obtaining payment of his wife's fortune from Thompson, and gave the facts attending the transfer of the bond substantially as before stated. He denied that he derived from his position as clerk of the court any knowledge that the bond had been transferred by Sandridge's administrator to Thompson, or of its being in any way or in any respect the property of George Pottie. And he stated the fact that the order for recording the settlement and the record of it was in the handwriting of one of his deputies. He averred that he not only did not know or suspect anything which rendered it improper to receive the bond, but that he could have had no motive to unite with Thompson in a misapplication of the bond, because Thompson himself was very able to pay his wife's fortune, and the security in the guardian's bond was ample; and it could not be supposed that he would combine with his wife's mere step father to defraud her brother without the slightest inducement of danger or profit to himself.
The court below, without deciding whether Hunter was liable to pay the amount he had received upon the bond, directed a commissioner of the court to take an account of what Hunter had received, and also an account of what the plaintiffs had paid as sureties of Nathaniel Thompson as guardian of George Pottie. This report was returned, showing that Hunter had received nine thousand eight hundred and twenty-six dollars and fifty-seven cents. That Garland Thompson's administrator had paid one thousand seven hundred and eighty dollars and twenty-four cents; and Lawrence's administrator had paid one thousand eight hundred and twelve dollars and eighty-one cents. The first sum was received by Hunter prior to February 22d, 1842; and the payments were made by the representatives of Garland Thompson and Lawrence prior to September 2d, 1843.
The cause came on to be finally heard in April 1848, when the court made a decree by which Hunter was directed to pay to the plaintiffs respectively the sums reported by the commissioner to have been paid by them, with interest from the time the money was paid, and their costs. And from this decree Hunter applied to this court for an appeal, which was allowed.
Morson, for the appellant:
There is no case in the books in which a party has been charged with constructive fraud, where there was no earmark on the subject dealt for, upon the ground of some latent equity. In this case Hunter stands as the purchaser of this bond for full value, without notice of any equity in George Pottie. And on this question I refer particularly to the case of Jones v. Powles, 10 Cond. Eng. Ch. R. 310. That was a case of real estate, but this is personalty; and if we look to the law applicable to this species of property, we find as to bills of exchange, the holder for value is not affected even by crassa negligentia; but that actual fraud is necessary. Goodman v. Harvey, 31 Eng. C. L. R. 212.
We insist, then, that to subject a purchaser for value to a latent equity, there must be more than gross negligence; there must be fraud. This principle is directly applicable to the subject involved in this case; and in all the cases decided in this court the principle of the decisions is that there must be not only proof of a breach of trust by the trustee, but proof of notice of such breach by the party dealing with him. In other words, there must be fraud. Dodson v. Simpson, 2 Rand. 294; Graff v. Castleman, 5 Rand. 195; Broadus v. Rosson, 3 Leigh 12; Fisher v. Bassett, 9 Leigh 119; Pinckard v. Woods, 8 Gratt. 140. The first of these cases can only be sustained on the ground that the party dealing with the executor must have notice not only of the trust but of its breach, before he can be held responsible; and in the other cases, all of them, the decision is founded on the principle that the party dealing with the trustee was conusant of his misconduct.
In this case Mrs. Hunter was entitled to receive from the executor of her father more than the amount of this bond; and six thousand dollars was in fact paid by him to her guardian; and this guardian received in right of his wife, from the same executor, fifteen thousand dollars; and these sums were received in bonds. The presumption therefore is, as the fact is, that Hunter had no notice that this particular bond belonged to George Pottie; and that omnis ritæ acta. If then Hunter may ex equo et bono retain this money, the equities are equal; and the equities being equal melior est conditio dependentis, aut possidentis. But in fact the equities are not equal. The assignment of this bond to Hunter was in 1825; and then Thompson was in good circumstances, and so continued until 1840, without any notice to Hunter in all that time that he had been dealing with a trust subject, and without any effort on the part of Pottie to obtain from Thompson his guardian, his estate.
Patton, for the appellees:
It would be very uncandid in me to attempt to show that there was actual fraud in Mr. Hunter, or even in Nathaniel Thompson, in this transaction. But in making the transfer of this bond Thompson was guilty of a gross breach of trust. It is true that this is not a suit by a ward against his guardian; and it is also true that this attempt to subject Hunter has not been made until seventeen years after the transaction complained of, and seven years after George Pottie came of age. But it is also true that in a much stronger case against the relief sought, this court held the purchaser responsible, and that too at the suit of the sureties of the executor. Pinckard v. Woods, 8 Gratt. 140. In that case the delay was nearly as great. The executor was amply solvent at the time, and continued in good credit for years. He was moreover a legatee of one moiety of the estate, which owed no debts; and the bonds sold were less than his interest in the estate. Here it was not a sale by the guardian to a bona fide purchaser for value; nor was it a pledge for money advanced at the time: And not even Hardwicke and Mansfield can satisfy this court that there is no distinction between these cases and a transfer or pledge by the guardian for the payment of his own debt. Hardwicke refers to the only principle upon which a purchase of trust property can be countenanced in a court of equity: That is, that the trustee has the legal title and power of sale; and a purchaser who deals with him in good faith is entitled to presume he is exercising his power in good faith. But when the trust property is not disposed of by a sale, as was the case in Pinckard v. Woods, but to discharge a debt of the trustee, the party dealing with him takes upon himself the burden of showing that the trustee had a right so to deal with the property.
There could be no doubt in this case of Hunter's liability, if the bond showed upon its face that it belonged to George Pottie. There can be no doubt, after the decision of Pinckard v. Woods, that the guardian had no right to transfer a security which was safe, and leave only his own liability. But further. The fund was then put out just as the court would have directed if the guardian of Pottie had had the money in hand and had asked the directions of the court as to its investment. The court is referred to Field v. Schieffelin, 7 John. Ch. R. 150, for an able review of the authorities on this subject.
The only ground upon which Hunter can stand with any hope of success, is, that the security had no earmark, and that he was a purchaser for value without notice. But in the nature of things there were circumstances which should have awakened suspicion; though I do not say that it did awaken the suspicion of Hunter. Nathaniel Thompson had been the guardian of Mrs. Hunter ever since the death of her father; and Hunter, as clerk of the County court of Louisa, was bound to know that Thompson ought to have invested her estate. When then Thompson told him he had a bond which he was about to collect for the purpose of paying him, he should have known that he had been misapplying her property; and should therefore have suspected that he was about to misapply George Pottie's. He knew that Sandridge's account as guardian of Pottie had been settled, and recorded in his office, though he had never examined the settlement; and therefore he might readily have ascertained to whom this bond belonged.
But further. To entitle himself to the defence of a purchaser for value without notice, he must have acquired the legal title. But neither the legal or equitable title to this bond was in Nathaniel Thompson. The legal title was in the executor of George Pottie the elder; and the equitable title was in George Pottie, junior. The bond was transferred, not assigned, by the executor to Sandridge the first guardian of George Pottie, junior; and in the account of Sandridge he is charged and credited with the amount.
I do not mean to say that the guardian could not sell the property of his ward, even a bond, to pay debts, or that he could not collect choses in action. But I do mean to say he cannot transfer it to pay his own debt: And the only principle on which the sale is sustained in any of these cases, is that the trustee has power to sell, and that the purchaser is not bound to enquire further. In this case the guardian had no greater power to dispose of the bond than the slaves of his ward. Could he have paid his debt to Hunter by transferring to him Pottie's slaves, which came into his possession in the same way that the bond came? Would not the slaves be still considered and held to be the slaves of Pottie? Suppose that instead of transferring the slaves at a valuation he had given a deed of trust upon them to secure Hunter's debt, would that have been valid?
I take it that a guardian has no legal title to the property of his ward; though he has the legal power to control, and as to the personal property, to sell. But as I have before said, Thompson had neither the legal or equitable title to this bond. It and the trust to secure it, were given for money loaned by John Thompson as executor of George Pottie the elder to Winston. Mr. Hunter was bound to know all these papers disclosed. They did not show any title in Nathaniel Thompson; but they showed that they were the property of the testator of his wards: And Hunter had no right to suppose that the bond came to Thompson as his own property. He does not say in his answer that he supposed it came to Thompson in right of his wife: And if he had said so, what right had he to suppose it. I submit that when he saw that this bond and deed of trust had been a part of the estate of George Pottie the elder, and knew that others beside himself were interested in that estate, it was gross laches in him not to enquire how Nathaniel Thompson acquired it. Mr. Hunter excuses himself for this neglect by saying that Thompson was about to collect the money. But if he had collected it, he had no more right to pay the money than he had to transfer the bond: And he had no right to collect the bond because it was then put out as it ought to have been. It was the money of George Pottie received by Mr. Hunter without any authority to receive it, and an action for money had and received might have been maintained for it.
The court is referred to American Leading Cases, p. 300, for a collection of the authorities as to agents, showing that the transfer by one partner improperly does not transfer the title; and to Fisher v. Bassett, 9 Leigh 119; in which the only objection was the sale of the bonds at a discount. Is that worse than to dispose of the whole subject to the trustee's own use?
Robinson, for the appellant, in reply:
Nathaniel Thompson was solvent in 1824, as is proved by his giving security as guardian, and by his deposition; and by the conduct of these parties in lying by for fifteen years after the transfer of the bond to Hunter: And he continued solvent until 1840. These parties, by signing the bond, give the best evidence of his solvency and trustworthiness. Hunter was married in 1825; and within a fortnight afterwards, being at the house of his wife's guardian and step father, this guardian, without any prompting, tells Hunter what he proposes to do to pay him his wife's fortune; and the arrangement for the transfer of this bond is made, as detailed in the evidence.
Then what is the attitude of these plaintiffs? They say we vouch for Thompson's trustworthiness; and they bind themselves for his acts; and now they seek to subject a man for their relief, who they admit has been guilty of no fraud, of no breach of trust; and who never vouched in any way for the acts of Thompson. But it is said the circumstances should have excited his suspicions, and have prompted him to enquiry into the true ownership of the bond. We say he did only what every gentleman would have done; even the most learned in the law either of this bar or bench. And the question is whether a man who thus acted is to be deprived of this subject as having been guilty of fraud: For that is the only ground on which he can be deprived of it.
It is said that Thompson was so in possession of this subject; that he had neither the legal or equitable title to it. It is true that the executor of George Pottie the elder owned the bond at one time; but he had parted with it. A creditor of the testator could not have followed it in the purchaser's hands. Whale v. Booth, 26 Eng. C. L. R. 210. The executor had a right to transfer the bond and did transfer it in a regular and proper manner. He could not be expected to assign it so as to bind himself; and he could not bind the estate. The delivery to Sandridge passed the property in the bond to him; and the delivery by his administrator passed it to Thompson. 1 Lomax on Ex'ors 276; Ewing v. Ewing, 2 Leigh 337. If the bond had gotten out of his possession, detinue or trover might have been maintained by Thompson for its recovery. It is true a transferree could not sue upon it in his own name. And so in England now neither an assignee or transferree could sue in his own name. But a court of law recognizes his right and will not permit that right to be defeated by the assignor. Welch v. Mandeville, 1 Wheat. R. 233; Heath v. Hall, 4 Taunt. R. 326; Kimball v. Huntington, 10 Wend. R. 675; Wilson v. Coupland, 7 Eng. C. L. R. 77.
It is argued that this bond was appropriated as the property of the ward George Pottie, and in that character went into the hands of Thompson. To the extent that the ward had a right to this bond the guardian had absolute control over it. Field v. Schieffelin, 7 John. Ch. R. 150. The doctrine of this case was recognized by this court in the case of The Bank of Va. v. Craig, 6 Leigh 399. In this last case the subject was bank stock; and if the power of control and sale exists as to bank stock, it must exist as to state stock or debt; and if so as to state debts, it must equally exist as to the debts of individuals.
In this case there is no question that whatever passed by the transfer of the bond to Sandridge passed to Thompson by the transfer to him. He might have sued upon it in the name of the executor of George Pottie the elder, and could not have been hindered by that executor from prosecuting that suit and collecting the money. And as we have seen that the guardian has the right to dispose of the ward's estate for value, the assignee for value is entitled to the protection extended to a purchaser for value without notice; and Jones v. Poules, 10 Cond. Eng. Ch. R. 310, applies.
The facts in this case abundantly show that Hunter could have no reasonable ground of suspicion that Thompson was dealing improperly with a trust subject. And as in The Bank of Va. v. Craig, there was no mala fides and no motive of gain. He had Thompson and his sureties, who were of undoubted credit, bound to him. He might lose, but could not possibly gain. If he had not taken the bond he would have proceeded at once against them. But these plaintiffs having delayed to question the transfer of the bond to him for much more than ten years, the sureties are now protected by the statute of limitations.
As these plaintiffs insist upon the enforcement of the strict rules of law, they must be bound by it. In Mead v. Ld. Orrery, 3 Atk. R. 235, the lord chancellor said he did not know any instance where an assignment has been made by an executor for a valuable consideration, that it had been set aside unless some fraud appeared between the executor and assignee. And to this effect was Ewer v. Corbet, 2 P. Wms. 148. The plaintiffs must therefore prove the fraud. The bill is indeed sweeping in its charges. But they are all denied in the answer and disproved by the evidence.
It is said that this bond was in fact the property of George Pottie, junior. Be it so. But do they show collusion between Hunter and the guardian? That is disproved. Did he have either means of knowing or reason to suspect that it was the property of George Pottie, junior? The only fact from which this suspicion could have arisen is, that Thompson transferred this bond to pay his own debt. The argument is that Hunter must know what the bond and deed showed; and then he must know all that he might have known. This argument has been tried before; Williams v. Nixon, 17 Eng. Ch. R. 473; and was repudiated by Lord Langdale. The bond shows that it was given to the executor of George Pottie the elder. The deed shows no more. And the proofs are that Thompson received in bonds from this executor fifteen thousand dollars in right of his wife, and six thousand dollars as guardian of Mrs. Hunter. It is said Hunter does not say he supposed the bond to have been taken as a part of his wife's fortune. He says he supposed it was Thompson's; and as he must have known that Thompson had received from the executor twenty-one thousand dollars in bonds, he might therefore well believe, when he saw Thompson treating this bond as his own, that it was his own in fact.
The whole question then is, whether the transfer of the bond by Thompson in payment of a debt of his own is of itself sufficient to subject Hunter, however innocent he may be of any participation or knowledge or suspicion of Thompson's breach of trust. On this question I refer the court to Rayner v. Pearsal, 3 John. Ch. R. 378; Petrie v. Clark, 11 Serg. & Rawle 377; Nugent v. Gifford, 1 Atk. R. 463; Bedford v. Woodham, 4 Ves. R. 40, in note. These cases show that the transfer of a bond in payment of a private debt of an executor or guardian is not fraud, unless it is shown affirmatively that the transferree knew it was a trust subject. And this doctrine has been recognized by this court in the case of Dodson v. Simpson, 2 Rand. 294. And the explanation of those cases in which such an assignment has been held invalid, is that such assignment was only important when it showed a knowledge on the part of the assignee, that the character in which the assignor held it did not authorize him to use it as he did. Scott v. Tyler, referred to in McLeod v. Drummond, 14 Ves. R. 353. In the cases in this court where such an assignment was held invalid, there were circumstances which brought home knowledge to the assignee, or should have satisfied him that the trustee was dealing improperly with a trust subject: and in all of them he knew positively that the subject dealt with was a trust subject. Such were the cases of Graff v. Castleman, 5 Rand. 195; Broadus v. Rosson, 3 Leigh 12; Fisher v. Bassett, 9 Leigh 119; and Pinckard v. Woods, 8 Gratt. 140. In this last important particular these cases are broadly distinguishable from the case now before the court.
It is asked whether if Thompson, instead of transferring this bond, had transferred Pottie's slaves, or made a deed of trust upon them to secure his debt to Hunter, it would have been valid. Such a conveyance from its nature would convey the slaves of some person; if his own it would be decisive to show he could not convey the slaves of his ward; if on the face of the deed he conveyed the slaves of Pottie, this would bring home knowledge to the grantee and would not be allowed. A guardian, believing it to be for the interest of his ward, sells his slaves. Under such a sale the purchaser for value takes the legal title, and will be protected. Then suppose Thompson had sold Pottie's slaves as his own to Hunter: Hunter would have taken the legal title; and if he bought them without knowledge that they were the slaves of Pottie, he would hold them against all claimants. It may be difficult to sell and buy such a subject without knowledge; and if there were circumstances which should have led the purchaser to suspect a misapplication of the ward's estate, of course the title would fail. But this is the only distinction between slaves and bonds.
Then here are two innocent parties, one of which must suffer; and the question is, which of them? We say the sureties. They undertake for the guardian and vouch for his trustworthiness. They are the security which the law has provided for the ward. The guardian having power to transfer the bond; and this having been done so as to pass the title, it then becomes a question of equity; and every man's moral sense will say that it is not unconscientious for Hunter to retain this money.
The principle of substitution cannot be extended further in such cases as this, than where there has been fraud on the part of the purchaser. Sureties may be expected to exercise some supervision over the guardian, and may be relieved by applying for further security. But the assignee is without redress. At all events, there is nothing in this case to induce the court to extend the principle of the cases already decided; and the laches of the plaintiffs should forbid relief. Portlock v. Gardner, 23 Eng. Ch. R. 594; McLeod v. Drummond, 14 Ves. R. 353, 17 Id. 153; Ray v. Ray, Coop. Ch. R. 264. It is not material in this aspect of the case whether the lapse of time or the statute is pleaded or relied on in the answer. There are different rules on this subject in different classes of cases. In some it must be relied on; in others this is unnecessary; and these cases of implied trust belong to the latter class. It is argued that Pottie might have maintained an action for money had and received, if it had not been barred by the statute. If Pottie was barred by the statute, how can these sureties be substituted to his rights? If he is barred, they are barred. And if such an action could have been maintained, then that is conclusive against this bill.
SAMUELS, J.
Nathaniel Thompson, as guardian, was in possession of Winston's bond, as part of the estate of George Pottie his ward. Whatever interest the ward had therein was subject to the guardian's control; he might have received the money due thereon if voluntarily paid; he might have sued for it in a common law court in the name of John Thompson, executor of George Pottie the obligee, but for his own use as guardian; and the nominal plaintiff would have had no power to prevent the prosecution of the suit, or to prevent the collection of the money for the use of the guardian; or he might have sold and transferred the bond. But in any exercise of his authority the guardian must, at his peril, have acted with proper discretion, in reference to the ward's interest. It is for the benefit of the ward himself that the guardian should, if possible, be regarded as having the legal title to the ward's personal estate. That title may be essential to the protection of the property itself; the guardian is responsible for its safe keeping, and it would be unjust to deny him the means which may be the only effective means of discharging his duty. In Garland v. Richeson, 4 Rand. 206, it was held that an assignee of a bond acquired no legal title to the debt; and it follows a fortiori that a mere transferree acquires no legal title. Yet we have seen that the transferree may in a common law court recover the money; and that the supposed holder of the legal title cannot interfere to prevent such collection. It is obvious that John Thompson, the holder of the legal title, and the obligee in this bond, could not recover the money due if the holder sued for his own use, or the bond itself in detinue, or its value in trover. It is difficult to understand a legal title thus shorn of the rights usually conferred thereby. it is enough, however, for the purposes of this case, to decide that Nathaniel Thompson the guardian was invested with such title as was the subject of sale; whether legal or equitable; or partly legal and partly equitable; or equitable in form, but legal in effect.
The interest of the ward requires that his guardian should have the power to sell his personal estate. Under certain circumstances, readily conceived, an immediate expenditure of money might be indispensable to protect the estate against loss; the guardian might find that the best mode, or only mode, of raising the money, was by a sale of bonds belonging to the ward's estate. Under such circumstances, a delay for collection might be injurious or even ruinous to the ward's fortune. It is no valid objection to allowing the guardian this power, to say, it may be abused: Every power, however necessary, may be abused. The objection would apply to every case in which one party is entrusted with the property of another. This power is justified by the reason and fitness of things, and is moreover well sustained by authority.
In Truss v. Old, 6 Rand. 556, Judge Green, speaking of guardians, says, " their authority is coupled with a legal interest, and is not barely an office." " It is an interest like that of a trustee for the separate use of a married woman, an executor in trust, or an administrator of an estate of which there is no surplus after the payment of debts; all of whom have a legal without any beneficial interest." Judge Green expresses the further opinion that the guardian has power to sell his ward's personal estate.
In Bank of Virginia v. Craig, 6 Leigh 399, 426, Judge Carr says, " The power and legal title of Fox (the guardian) to dispose of the stock (the ward's property,) is proved by many cases." And in this opinion Judges Brockenbrough and Cabell concurred. In the same case, p. 428, Judge Tucker says, " It is conceded also, that, as a general rule, a guardian has power to dispose of the personal estate of his ward; and though personally responsible for so doing, the vendee to whom he sells is not responsible if he has dealt fairly and justly, and without notice of any fraudulent intent."
In Field v. Schieffelin, 7 John. Ch. R. 150, Chancellor Kent considers the question of a guardian's power to sell his ward's personal estate; and comes to a like conclusion with our own courts.
Holding then on the general question, that the guardian in this case had the power to sell, the question recurs, did he exercise his power within the limits and for the purposes prescribed by law? The answer is plain, that he did not; he used his power for his own individual benefit, by appropriating the ward's property to pay his (the guardian's) own debt. This was a breach of trust, a fraud upon his ward. So far as the case of the appellees depends upon the conduct of Thompson the guardian, it is fully made out.
A recovery, however, cannot be had against Hunter, without showing his liability: The mere fraud of the guardian is not sufficient of itself, under all circumstances, to invalidate his transactions with innocent parties. In this case Hunter took the bond on Winston of Thompson, who concealed the right in which he held it, and passed it off as his own property: It was taken at par, in part payment of a debt, which was amply secured. Hunter was not induced, by any hope of profit or fear of loss, to take the transfer. His only purpose was to receive a debt justly due, by a mode of payment convenient to both parties. In the argument of the case here it was properly conceded by the appellees' counsel, that Hunter did not in fact know that Thompson's title was imperfect; but he contended that as the bond on its face was payable to John Thompson, executor of George Pottie, it showed that at one time other parties were interested, and might still be interested therein; that if Hunter had used proper caution he would have enquired further; and upon such enquiry would have ascertained the right in which Thompson held the bond: That he must be held liable as he would be if he had procured the information which he might and ought to have obtained. In reply, it may be said that the money due Hunter's wife, and which he was about to receive at the hands of her late guardian, was a legacy given by the will of George Pottie, of which John Thompson was the executor. That Nathaniel Thompson, the guardian, in right of his wife, a legatee in Pottie's will, had received fifteen thousand dollars of the executor on account of that legacy: that these two legacies had been paid wholly or in part by the transfer of paper belonging to Pottie's estate. Under these circumstances, when the guardian proposed to transfer as his own a bond payable to Pottie's executor, Hunter might well suppose he had full right to do so: any man of ordinary prudence would have been satisfied that all was right. Hunter must therefore be acquitted of any constructive fraud, as well as of actual fraud.
George Pottie the ward, and Hunter the purchaser for value without notice, are the victims of Thompson's fraud; and in settling the question of loss between them the court should proceed upon the general principles of equity. If the equities be equal, the court will not interfere; or if one party have the advantage at law, equity will not interfere to deprive him of that advantage, unless in favor of a party having superior equity. Trying the case by these tests, we must hold that Hunter's equity is equal to that of George Pottie; a purchaser for value, without notice of fraud in his vendor, stands upon as high ground in equity, as any creditor, or cestui que trust.
Again. Thompson's transfer to Hunter gave him the power at law to receive the money if paid by Winston, and to give him a valid discharge; or to sue for it in a common law court in the name of Thompson the executor, for his own use, and to recover it without the possibility of interference by the nominal plaintiff or any other party. Although Hunter may not have had the legal title to the debt, yet such were his rights and powers at law. In the exercise of his right he has received the money, and thereby acquitted Winston of all further liability therefor. To hold him responsible to George Pottie, we must deprive him of the advantage given by his legal power and right. To arrive at such a result, we must overturn all the decisions of the courts upon cases of the same or like kind.
In Broadus v. Rosson, 3 Leigh 12, the parties dealing with the guardian were fully aware of his breach of trust, and actively co-operated with him therein for their own benefit; and for that reason were held liable.
In Dodson v. Simpson, 2 Rand. 294, the party dealing with an executor was apprised of his breach of trust, and aided him therein; and was therefore held accountable.
In Fisher v. Bassett, 9 Leigh 119, a party knowingly dealing with an administrator, who in breach of his trust was applying the assets of the estate to his own use, was held responsible.
In Pinckard v. Woods, 8 Gratt. 140, a party, for his own profit, knowingly dealing with an executor in such way as to enable the executor to commit a devastavit, was made liable.
In each of these cases, and in many if not all others of like kind, the party dealing with the fiduciary has been held responsible, because and only because of his co-operation in the fraud. In our case this ruling fact does not exist. I am therefore of opinion that George Pottie had no right to draw Hunter in question for his dealing with Thompson the guardian.
If George Pottie had no right to recover of Hunter, the appellees, claiming to be substituted to his rights, can have no right to recover. If, however, the case were otherwise between Pottie and Hunter, still, under the circumstances of this case, the appellees should not be permitted to subject the appellant to any liability. The intestates of the appellees respectively bound themselves by bond as securities for Thompson as guardian; and in 1825, when this bond was in full force, their principal committed the breach of its condition which is complained of in this suit. At that time the securities might have guarded themselves against all loss by using a small degree of diligence. They owed it to themselves and to the ward, to see that the guardian, who obtained possession of the ward's estate by means of their credit, faithfully performed his trust; they should at least have taken care, when the ward attained full age, that the guardian fulfilled his duty. Instead of this, however, they allowed the guardian to retain the estate for fifteen years without question. At the end of that time, and eight years after the ward had become of full age, the guardian becoming insolvent, the securities are compelled to pay the amount of the ward's estate in the guardian's hands. From 1825, when the bond was transferred to Hunter, to 1840, Thompson was perfectly solvent, and could have paid his ward if required to do so; yet the securities, confiding in Thompson's integrity and resources for indemnity, permitted him to retain the money without question. The loss resulting from the misplaced confidence of the securities should be borne by their estates; they trusted first, and they trusted last; they are asking relief against a party who is at least as innocent as themselves, and whose conscience is in nowise touched by their claim: he should not be held liable.
I am of opinion to reverse the decree and dismiss the bill, with costs of both courts to the appellant.
DANIEL and LEE, Js. concurred in the opinion of SAMUELS, J.
MONCURE, J. concurred in reversing the decree and dismissing the bill upon the last grounds stated in the opinion of SAMUELS, J., without dissenting from the first grounds stated by him.
ALLEN, J. concurred on the last grounds stated by SAMUELS, J.
DECREE REVERSED AND BILL DISMISSED.