Summary
In Peyton v. Smith, 22 N.C. 325, the administrator purchased at a discount an interest in and to a distributive share of the estate while a suit was pending therefor.
Summary of this case from Hale v. AaronOpinion
(June Term, 1839.)
1. Executors and administrators are chargeable with interest on balances in their hands whenever those balances have accumulated beyond the exigencies of administration, unless it appears that the fund has been kept sacred and intact for the cestui que trusts, as their property, ready to be delivered over to them, so that profits could not have been made thereof.
2. A father cannot appoint a guardian for his children, nor impose on any one the duties and obligations of that office, except "by deed executed in his lifetime, or by his last will and testament, in writing," as prescribed by the act of 1762 (1 Rev. Stat., ch. 54, sec. 1).
3. Where it can clearly be collected from the will of a father that certain persons are thereby appointed to have the custody of the persons and the estate of his children until they arrive at age, such an appointment will be held to constitute them guardians, as though the appropriate term had been used. But where a term so well known, and of such universal use to describe the office, is not employed by the testator, there ought to be unequivocal indications of a purpose to confer the office before the Court will declare it conferred. Hence, a direction by a testator that the use of his property shall be with his wife, for the support of her and the children, subject to the supervision of his executors, until a division of it can be conveniently made, either in kind or in the form into which the executors may convert it, between the wife and children, will not constitute the executors guardians of the children.
4. A clause in a will giving "full power and authority" to the executors to dispose of any part or all of the property devised or bequeathed, which they might think best, and from time to time make distribution among the wife and children of the testator, does not enjoin upon the executors the duty of putting out the balances in their hands, from time to time, for the purposes of accumulation, so as to charge them, upon failure to do so, with compound interest.
5. Generally, the court, upon a bill filed for the settlement of an estate, will rely upon the judgment of the master in the allowance of commissions to the executor or administrator; but if it appear that the rate of commissions has been passed upon and fixed by the county court, the court of equity will follow that as the safer guide.
6. A sum paid to the widow of the testator by his executors as and in lieu of the distributive share to which she became entitled by dissenting from the will, is not a disbursement, on the payment whereof the executors can claim a commission.
7. Courts of equity view with jealousy contracts made by a trustee with his cestui que trust, as, for instance, a purchase by an administrator of his distributive share from one of the next of kin. But whether the purchase in any particular case ought to stand is exclusively a matter between the parties to the contract. As to all others, it must be understood as transferring the right which it professes to sell, and the price paid by the purchaser is a matter which concerns none but the parties. If not made for the other next of kin, they can take no benefit from it.
WILLIAM SMITH, formerly of Warren County, departed this life in July, 1818, having first duly executed his last will and testament, whereof he appointed John R. Eaton, Charles Baskerville, William Baskerville, and his brothers, Alexander Smith and Maurice Smith, executors. The will was duly admitted to probate, and all the other persons nominated as executors having refused the office, at November Term, 1818, of WARREN, Maurice Smith qualified as executor thereto. By the said will the testator devised and bequeathed as follows:
"I give and bequeath unto my daughter, Mary Nuttall, the second and fourth bonds due unto me from Alexander Boyd, Sr., of Mecklenburg County, Virginia, being $10,000 each, to her and her heirs forever; but at the same time, she is to be barred from compelling my estate to account to her, at any future day, for any part of the estate of her deceased husband, John Nuttall, until after my other children shall have received in equal degree from my estate. I also bequeath to my said daughter Mary one choice negro girl, my riding chair and harness, and a horse, called Doctor. It is further my will and desire that my daughter Mary shall have all the household and kitchen furniture which I bought at the sale of her deceased husband; which said furniture shall not be taken into view in the distribution of my estate, being in consideration of services rendered by her. All the rest and residue of my estate of every description to be and remain in the hands of my wife, under the directions of my executors, for the use and benefit of my said wife and family, with full power and authority to my executors to dispose of any part or all of said property which they, or a majority of them, shall think proper or best for the estate; and from time to time make distribution among or purchase for my wife and children, as they may think best, until they have given to each of my other children equal to what (327) Mary Nuttall has by this will (leaving her furniture out of view); then, if anything, divide it equally between my said wife and all my children, viz., Charles, Mary, Elizabeth, Samuel, Nancy, John, and William, to them and their heirs forever."
The wife and children of the testator all survived him. Mary Nuttall afterwards intermarried with John C. Goode, of the State of Virginia, and died, leaving three infant children, Mary J. Nuttall and Agnes and Elizabeth Goode, and administration upon the estate of the said Mary was granted to her husband, the said John C. Goode. Elizabeth, one of the said William's children, intermarried with one Henry C. Williams, who hath since died. William, another of the said children, died in June, 1827, at a tender age, and Maurice Smith administered on his estate; and Ann, another of the children, intermarried with Balie Peyton. Charles, John, and Samuel, the other children of the testator, are yet alive. Lethe Smith, the widow of the testator, dissented from the will of her husband in due form of law, and had her dower assigned in his real estate; and having afterwards intermarried with Francis Pugh, the said Francis and herself brought their suit by petition, in the County Court of Warren, against the executor and legatees of her first husband, for a distributive share. This suit was carried up by appeal to the Superior Court of Warren, and while there pending, viz., at October Term, 1830, it was compromised, by an arrangement between the petitioners and the executor, for a sum certain paid by him to the petitioners; the suit was dismissed, and the said petitioners executed a release of all demands to the executor. A bill in equity was also filed by the said Pugh and wife against the said Maurice Smith, as administrator of William Smith, the younger, to recover the distributive share of his personal estate to which Lethe Pugh was entitled as the mother of said intestate. This equity suit was compromised, at the same time, for a certain sum paid by the said Maurice Smith; and thereupon the suit was dismissed; and a release and a conveyance of their interest in said estate executed by the said Pugh and wife unto the said Maurice. (328) In March, 1827, Charles Smith, for a valuable consideration, made a conveyance to the said Maurice, whereby he professed to convey all the interest of the said Charles in the personal estate of his father; and in December, 1827, shortly after the death of his brother William, sold to the said Maurice and executed a deed which purported to convey to the said Maurice all his (the said Charles's) interest in the personal and real estate of his said brother, as also his interest in the real estate of his father, in North Carolina and Virginia.
On 21 November, 1832, this bill was filed. The plaintiffs were the said Balie Peyton and Ann, his wife, Elizabeth Williams, Charles Smith, and John G. Smith; and the defendants were the said Maurice Smith, Samuel Smith, John C. Goode, Mary J. Nuttall, and Agnes and Elizabeth Goode. The object of the bill was to have a full settlement with the defendant Maurice Smith, as executor of William Smith, the elder, and administrator of William Smith, the younger, in regard to the estates confided to his care. In the bill many grave charges of mismanagement and breach of trust were distinctly preferred; of which, at present, it is necessary to consider particularly the following: It was charged that soon after the death of William Smith, the elder, Thomas Hunt was appointed, by the County Court of Warren, guardian to the plaintiffs Ann, Elizabeth, John, and the defendant Samuel, and gave ample security for the care and improvement of their estates; but the said Maurice, by threats or other means, caused said Hunt to resign the guardianship; and that having thus prevented them from having a guardian, who would have been, by law, bound to secure their estates and by lending out the productive part thereof every year, to cause the same to accumulate until their arrival at age respectively, the said Maurice had subjected himself to the responsibilities of a guardian, and was not only bound to account with the said legatees for interest, but for interest annually, to be compounded. It was also charged that the said Maurice for many years had had in his hands a very large amount of money belonging to the estate of his testator, which sums of money he had been using for the purposes of gain — buying therewith (329) stock in banks, loaning the same out at interest, buying of notes, dealing in exchanges, and other operations of a like kind. It was also charged that James W. Smith, the brother of the testator, owed the testator, at his death, two bond debts, one for £ 450, Virginia currency, and the other for an amount unknown to the plaintiffs; and that the defendant Maurice had neglected to collect them; that the testator, at his death, was interested, as a copartner with the said James and Robert Burton, in the purchase of certain tracts of land in Tennessee; and the said Maurice, in settling the said copartnership account, either from facility of character or from a disposition to oblige the said James, had allowed the said James, who resided in Tennessee, most extravagant charges for personal services rendered in relation to the concerns of the copartnership, and had, moreover, allotted to Samuel G. Smith, a son of the said James, one-eighth of a 5,000-acre tract of land in that State, for very inconsiderable services. It was also charged by the plaintiff Charles that the conveyances made by him of his interest in the estate of his father and of his brother were obtained from him at an undervalue, when the said Charles was ignorant of the value of said estates and in great distress for money, and that the same ought not, and would not, be deemed by this Court other than as securities for the moneys he had received thereupon. And it was further charged that the purchase made by the said Maurice Smith of the interest of Francis Pugh and Lethe, his wife, in a distributive share of the estate of his testator, and also the purchase of their distributive share in the estate of William Smith, the younger, were made in behalf of the persons interested in said estates; and, therefore, ought to enure for their benefit. Upon these and all the charges in the bill, the most searching interrogatories were propounded to the said defendant. The answer of the defendant Maurice Smith was put in on 9 March, 1833. To it were appended, as exhibits, a copy of an account taken and of a report made by the commissioner in the petition of Pugh and wife in the County Court of Warren against the said Maurice and the legatees of William Smith, the elder, for the purpose of ascertaining the amount of the personal estate (330) of the testator then reduced into possession; also, further detailed accounts of his administration subsequently to the said account and report, which he averred to be full and true. He denied that he ever speculated with the funds of his testator to make profit for himself; declared that he had charged himself with all the interest he ever received on money or claims of the estate; that he had never used for himself, or loaned on his own account, any part of said estate; and that he had at all times been in possession of all the money of his testator that was collected and not regularly disbursed, either by having the same at his own house, or about his person, or on deposit with some of the banks in North Carolina or Virginia, excepting some small sums, at different times, in the hands of James W. Smith, which were held by the said James to meet incidental charges upon the estate in Tennessee.
In relation to the charge respecting the agency of the defendant, in causing Thomas Hunt to resign the guardianship of the children of William Smith, he answered that he believed that Thomas Hunt was appointed guardian to some of them, and that he resigned the guardianship; that having learned that the said Thomas was embarrassed and insolvent, this defendant, in pursuance of advice, was about to endeavor to have him removed from office, when the said Thomas resigned; that he did not improperly control or menace the said Thomas; that he believed the said Thomas resigned because he apprehended that he would be removed; that the defendant, for from being actuated by the base motives attributed to him, was governed solely by the desire to prevent the estate of his brother's children from being squandered, and a conviction, strengthened by the advice of eminent counsel, that he owed this interference to them as a duty; and that he was now convinced that so far as this interference contributed to produce the resignation of the said Thomas, it was eminently beneficial to the plaintiffs; for, shortly thereafter, it became manifest that the said Thomas was utterly insolvent; and it has since been discovered that the bonds given upon his appointment as guardian, because of technical defects, could not (331) have been enforced at law. He further said, on this subject, that it was always his desire that his brother's children should have guardians; that he refused to take upon himself the office of executor until their maternal uncle, John R. Eaton, consented to act as their guardian; that the said Eaton was appointed accordingly, but shortly afterwards resigned; that Alexander Smith was at one time appointed guardian to the plaintiff Charles, and Thomas Turner to the plaintiff Elizabeth; but both became wearied or dissatisfied in a very short time, and resigned their offices. He further answered that he knew nothing of the note or bond for £ 450, Virginia money, alleged in the bill to have been due to his testator from James W. Smith, excepting from the statements of said James, from which it appears not only that the same is not due, but that the said James is a creditor of his testator's estate. The defendant filed, as exhibits, copies of the accounts and reports of James W. Smith in relation to his transactions as agent of the testator in his lifetime, and as agent of the estate since the death of the testators, and a copy of the settlement made between the defendant and the said James, and averred that he had not allowed thereon any item to the said James which he was not satisfied was just, nor allowed him any compensation for services which was not, in his judgment, fair and reasonable; stated that upon the said settlement a balance was found against the said James; the same was thereupon received by him, and passed to the credit of his testator's estate. He further said that he understood there was a copartnership between the testator, Robert Burton, and the said James, in relation to a claim to a tract of 5,000 acres of land in Tennessee, of which concern the said James was the manager; and that, for important services rendered to the concern by Samuel G. Smith, there was allotted to the said Samuel an interest to the amount of one-eighth in the claim; that the defendant was convinced that the compensation so allowed was reasonable, but if it were in any respect improper, he was advised that it was an affair in which he had no concern, and for which he was in no way responsible. The defendant denied that he took advantage in any way of the ignorance, inexperience, or necessities of the plaintiff Charles in the purchase made of his interest in the estate of William Smith, the elder, and (332) William Smith, the younger; insisted that these purchases were fair, for full value, and absolute; and, although declaring that it was never his purpose to make any profit thereon, did not waive his right to insist on them, in this suit, as absolute conveyances. The defendant admitted distinctly that the release made by Pugh and wife, on the settlement of the suit by petition in Warren, was made for the benefit of the estate of his testator, and had always been so regarded by him; but he insisted that the transfer, made to the defendant, of Mrs. Pugh's interest in the estate of William Smith, the younger, was a matter wholly between Pugh and wife on the one side and the defendant on the other; not made for the benefit of the other next of kin of the said William, and, therefore, that it neither enlarged nor diminished their rights as against the defendant.
Upon the filing of this answer, it appeared that "the defendant, submitting that the plaintiff John G. Smith would be entitled to receive, at least, the sum of $10,000 of the money which, by his answer, he hath admitted to be in his hands, upon any probable estimate of the estate of his testator, and that he is ready to pay the same into court to and for the use of said John"; the said defendant was thereupon ordered to pay the same into the office of the clerk and master before the 2d day of the then next ensuing Granville County Court; and, in regard to the residue of the sums stated in the answer to be due to the estate of William Smith, which, by said answer, the defendant had submitted to pay into court, the plaintiffs not making any motion, it was, on motion of the said defendant, ordered that he should have leave (whenever the parties should all be properly brought before the court) to pay the same into the said office for the benefit of those who might be thereunto entitled. At the same term leave was given to the plaintiffs to except or reply to the defendant's answer at the next term. In pursuance of these orders, the said defendant, on 11 March, 1833, paid the first mentioned sum of $10,000 into office for the use of the said John, and on 7 September, 1833, paid into office, for the benefit of those thereunto entitled, the sum of $7,179.13.
(333) The defendants Samuel Smith and Mary J. Nuttall, Agnes Goode and Elizabeth Goode (the three latter by their guardian) answered the bill. The former stated that he believed and admitted the several matters charged in the bill to be true, and submitted to join in the account thereby prayed for; and the three latter submitted their rights to the protection of the court. Publication was made to the absent defendant, John C. Goode, and the bill, as to him, taken pro confesso. At September Term, 1833, it was ordered, "on motion of the counsel for the plaintiffs, and the counsel of all the parties except the defendant Maurice Smith, that the moneys paid into the office shall be paid out to the plaintiffs and defendants in such proportions as they shall agree, except the sum of $483.74, stated in the answer to have been received by Maurice Smith as one-third of the rents of Tennessee lands, whereunto Mrs. Pugh was entitled to dower, which sum shall be retained until the further order of the court." It was also ordered, on motion of the counsel for the plaintiffs, that it be referred to the master of the court to take the accounts involved in the pleadings, and that he have leave to examine the defendant Maurice Smith or interrogatories; the reference to be without prejudice to any of the matters of defense set up in the answer of the said Maurice, or of any rights appearing on the pleadings inconsistent with such reference.
It did not appear that a formal replication was entered to the answer of the defendant Maurice Smith; but the parties must have understood that the answer was put in issue, not only because of the plaintiff's failing to except to the answer, under the special terms of the order of March, 1833, but because immense volumes of testimony were taken under commissions issued on the application of the plaintiffs and the said defendant, to impeach, on the one hand, or to support, on the other, the averments of the answer.
Before the master concluded the reference, or the parties their proofs, the defendant Maurice Smith died; and thereupon the plaintiffs filed their bill of revivor against Richard J. Smith, the administrator of said Maurice, and the cause was duly revived against him.
(334) The master having finally made his report, and the cause being set down for hearing upon the proofs, the said report, and the exceptions thereto, the same was removed into this Court to be heard accordingly.
The report of the master set forth, in the first place, an account of the executor with the estate of his testator for the purpose of ascertaining the net value of said estate. This account was made upon the principle that the representative of Mary Goode, formerly Nuttall, and Francis Pugh and wife, were not entitled to receive anything more from the will of the testator, because, as to the former, the estate would not be sufficient to make the shares of Mary Nuttall's brothers and sisters equal to her legacy, and as to the latter, their interest had been released to the executor for the benefit of the estate. By that account it appeared that the executor was charged with assets to the amount of $137,900.42, and was credited for disbursements and charges of administration in the sum of $53,081.81 (exclusive of advances made by him to the several legatees, which were charged in their respective accounts), and was further credited with 5 per centum commissions on the amount of the assets received, and a like commission on his disbursements, leaving a balance thereupon due to the estate, if interest be not calculated on either side of the account, of $76,039.37. The commissioner submitted to the court the question whether interest ought to be charged in said account; and if the court should so decide, he showed that, by calculating interest on both sides of the account, there was a further balance due the estate, because of such interest, amounting to $59,440.41. The commissioner stated, also, that these balances were subject to a claim for a credit set up in behalf of Maurice Smith, because of his interest in a certain judgment against the executor of William Killingsworth, which this defendant, the said Smith's administrator, was, by arrangement between the parties, to show thereafter. Dividing the amount of the testator's estate, thus ascertained, among the children of the testator, other than Mary Nuttall, the share of each child amounted to $12,673.32 principal money, and, if interest were to be allowed as aforesaid, would be increased by the additional sum of $9,908.23 1/2 interest. The report further found that the share of William Smith, the younger, consisted of his one-sixth, (335) as aforesaid, of the estate of his father, and a share of certain legacies bequeathed by Charles R. Eaton, amounting together, principal money, to $13,706.64 5/6, which, by interest, would be increased the further sum of $9,977.70; and, crediting the administrator with what he had advanced for the use of his intestate, and his commissions, there would be a balance of $11,806.75 1/2 of principal and $9,060.85 1/2 of interest, divisible between the mother and the brothers and sisters of the intestate, making the share of each $1,687.67 2/7 of principal and $1,295.40 5/7 of interest. The commissioner then proceeded to state the account of each of the residuary legatees of William Smith, the elder, parties to this suit, in which each legatee was credited with the one-sixth of the net value of the testator's estate, and with the one-seventh of the net value of the estate of William Smith, Jr., and charged with the advances made from time to time by the executor and administrator; and also stated the account of the representatives of Mary Nuttall, otherwise Mary Goode, as one of the next of kin of the said William Smith, the younger, in which they were credited with the said Mary's one-seventh part of said estate, and charged for advances and payments made. Upon these accounts the report found due to Charles E. Smith a balance of principal of $8,130.36 and of interest $6,084.43; to Elizabeth Williams, of principal $287.34 and of interest $2,367.20; to Samuel W. Smith, of principal $1,065.65 and of interest $3,506.98; to John G. Smith, of principal $62.37 and of interest $6,200.66; that there was due from B. Peyton and wife, because of overpayment of principal, the sum of $456.90, but if interest was to be calculated, this would not only extinguish the said balance, but leave the sum of $3,660.90 due to them; and found a balance due from the representatives of Mary Nuttall, alias Goode, of principal $303.16, because of overpayment on account of her distributive share of the estate of William Smith, the younger, which, if interest were calculated, would not only be extinguished, but leave a balance in their favor of $427.55.
(336) The commissioner subjoined to the report, that after it was closed the administrator of Maurice Smith filed a bond of the the plaintiffs Charles E. Smith and James W. Smith for $450.50, a receipt for an attorney's fee, paid by the intestate, of $5, and vouchers and proofs in relation to the claim therein mentioned respecting the judgments against Killingsworth's executor.
Badger and Devereux for plaintiffs.
W. H. Haywood for defendant, Maurice Smith's administrator.
The principal controversy in this case is whether Maurice Smith ought to be charged in account with the estates confided to his management, with interest, and, if so, from what time, upon what sums, and whether with simple or compound interest. These questions are presented by the pleadings, and also arise upon the exceptions, and when they are determined there will probably be but little difficulty in making a full settlement between the parties. (339) Nothing can be clearer, in point of principle, than the general rule that a trustee shall not be allowed to retain to himself profits made upon the use of the property of his cestui que trust. These profits are in the nature of fruit and increase, and belong, of right, to the owners of the property. It is seldom practicable, however, to ascertain with precision when trust funds have been misapplied, the exact gains therewith made; and, therefore, it has been found necessary to adopt a general rule which substitutes, as the measure of profits, what the law or the usage of the country regards as the ordinary fruit or produce of capital. Where the breach of trust is accompanied with corruption, and there is abundant reason to believe that the general rule is an inadequate measure of the wicked gains actually made, the court may, and sometimes does, direct rests in taking the accounts, so as to render the trustee chargeable, in effect, with compound interest. The primary purpose is to secure to the cestui que trusts the profits on the use of their money, and the second, to discourage and prevent the application of trust funds to the private purposes of the trustee, a practice which, while it endangers the safety of the property, tempts to further faithlessness, and to ultimate dishonesty and corruption. The propriety of these principles is so obvious that they could not fail to receive the sanction of the Court of this State. Indeed, there are peculiar reasons here which have been supposed to call for a more extended and rigorous application of the rule of accountability for interest than that which prevails with respect to executors and administrators in the country of our ancestors. There the legal is above the ordinary market rate of interest; here it is below what is deemed the common value of the use of money. While, therefore, it is usual, in England, to charge trustees, made liable for interest on trust funds, but 4 per centum, although the statute rate of interest be 5, here, when interest has been charged at all, it was never charged at less than 6 per centum, allowed by law on loans of money. With us, too, there has always been such a constant demand for money, so many temptations to adventure or schemes of profit, and such a habit of rapid investments, that the presumption against its remaining (340) idle, even in the hands of executors or administrators, was deemed not an unreasonable one. Moreover, as the law here allowed compensation to trustees of this description, by commissions, there was not the same fear of discouraging persons from accepting these offices by a severe accountability, as is natural where their services are to be performed gratuitously. Certainly, therefore, with us it has been the established usage to charge interest on balances in the hands of executors and administrators whenever these have accumulated beyond the exigencies of administration, unless it appears that the fund had been kept sacred and intact for the cestui que trusts as their property, ready to be delivered over to them, so that profits could not have been made thereof.
In this case the mass of the testator's personal estate consisted of ten bonds, each for the sum of $10,000, payable in ten successive years, by Alexander Boyd and others, of Mecklenburg, in Virginia; all of which bonds, it appears, were collected by suit, and some of them after much delay. Upon examining the accounts taken by the master, it appears that after deducting a reasonable rate of commissions for the services of the executor, there was no considerable balance of money in his hands beyond what might be reasonably necessary to meet the charges of administration and pay unsatisfied demands against the estate, until 1824, when, by reason of upwards of $23,000 then received from the Boyd debts, besides other considerable collections, there remained in his hands at the end of that year upwards of $20,000, which balance never grew less, but on the contrary went on increasing. Upon the balance at the end of this year the Court thinks that the executor ought to be charged with interest, unless he has exonerated himself therefrom by reason of the special matters set up in his answer. As we understand that answer, it alleges that he was unable to settle with the legatees, because they were then under age and without guardians; that he did not deem himself justified in lending out the money for them, or otherwise investing it for their benefit, and that therefore he kept it, making no profit thereof. The language of the answer in regard to the (341) keeping of the money is, "that he hath at all times been in possession of all the money of his testator that was collected and not disbursed, either by having the same at his own house, or about his person, or in some of the banks in North Carolina or Virginia." This statement is obviously so vague that with all its appearance of specification it amounts to little else than that he had the money somewhere, and affords to those interested very slender opportunity of ascertaining where, and still less how, it was kept. An attempt was made to obtain specific information on this subject by interrogatories administered to the executor through the master; but all thus acquired amounted to no more than this, that the only banks in which he had made deposits were the State Bank of North Carolina, the Farmers' Bank of Virginia, and the United States Branch Bank at Richmond; and that a statement of his entire account with each of those institutions was contained in certain copies of the bank books exhibited to the master. These accounts from the bank books are accounts current between Maurice Smith (individually) and the banks, and make no discrimination between the deposits as having been made otherwise than to the general credit of the depositor. The executor has not undertaken to specify which, if any of them, were an account of the moneys of his testator. Upon the answer and the examination, it must be held, therefore, that while the executor claims to be relieved from interest because of his having kept the fund for his cestui que trusts, without having derived profit therefrom, he refuses to disclose where, or how, it was kept for them. It is impossible, we think, to account for the withholding of these reasonable explanations on the part of a trustee, from his cestui que trusts, in regard to the custody and management of their money, for many years, upon any principle consistent with the fact that it has been actually and bona fide kept exclusively for their benefit.
We must suppose, unless we attribute to the defendant, both in his answer and upon his examination, a deliberate purpose of equivocation, that some, at least, of the moneys appearing to his credit upon (342) these accounts were those of the estate of his testator. They are not all such, for the account exhibits, as he alleges, his entire dealings with the banks, some of which, therefore, must be understood to have been his individual dealings. From these accounts, then, it is to be collected that the trust funds went into the mass of the executor's property, and by no visible marks or signs were in any respect distinguished from his private moneys. They swelled the executor's personal credit at bank; upon his death they became assets in the hands of his personal representatives, and could not have been claimed as the assets of the testator by a representative of that estate; they were liable to his creditors — were, in all respects, his property; he charging himself with the amount thereof in account with his cestui que trusts. It is impossible, upon this state of facts, to hold that the executor did not use the funds of the estate. He has declared, indeed, that he did not "use them for himself, or loan them on his own account, or speculate therewith to make profits for himself," and we cannot declare his answer false unless compelled to do so by clear proofs. But it is manifest, if credit be given to the answer, that the defendant in denying all personal use of the trust funds, made the denial in a different sense from that in which we should have understood it, but for the explanations otherwise afforded.
This discovery may properly create doubts whether the denial that these funds had been loaned on his account, or employed in speculation, to make profits for himself, is to be taken in the sense which it would seem to import. And these doubts increase upon further examination into the details of the bank accounts. That with the Farmers' Bank of Virginia contains but one credit for a deposit of cash on 19 April, 1830, of $1,000; and this was drawn out on two checks of $500 each, one in favor of Webb, on 27th of the ensuing month, and the other in favor of himself, on 25 February, 1831. If this deposit were of the money of the estate (and if it were not, this account could have been presented but for the purpose of deception), why is the money thus withdrawn from its place of security — and withdrawn in two suits, at distinct times? It must have been for some purpose connected either (343) with the necessities of the estate or with the private concerns of the depositor. We have examined the account as returned by the executor, as made out by the commissioner, and no application of either of those sums at or about either of the times to the purposes of the estate appears. The account with the United States Branch Bank at Richmond contains three deposits, two of $1,000 each, made on the same day, 24 April, 1839, the whole amount whereof, $2,000, was withdrawn by "draft" on 24 April, 1830; and one of $1,000, made on 25 February, 1831, of which $500 was checked for on 29 August, 1833; and the remaining $500 yet remains standing to the credit of the depositor. If any of the money thus deposited were funds of the estate, the same inference arises, from the manner in which they were withdrawn, of their actual application to the private necessities or business of the executor. The account with the State Bank of North Carolina furnishes, as far as can be understood, evidence not more favorable to the positions taken here in behalf of the executor. It exhibits a deposit of $4,000 made by him in May, 1822, and withdrawn in the succeeding year by checks in favor of Willis Lewis, A. Paschall, and T. Booth; and it is shown that with regard to two of these, Lewis and Booth, they got those sums on a personal loan from the executor. On 6 and 7 October, 1824, he made deposits of $4,000 and of $2,200. Upon these he checked in favor of himself, on 4 October, 1825, for $2,000, and of R. Dickens Co. for $1,000. It is impossible to infer from the accounts of the estate that either of the sums thus checked for was applied to the uses of the estate; and in May, 1826, he checked for the balance of $3,200 in favor of Doctor Hunt and David Mitchell, to whom he lent the money as his own. If these, or any of these, deposits were of the trust funds, then the trust funds were, to every intent, employed in his private business. One other deposit alone remains, of $3,000, which was made on 14 May, 1832, and drawn out on 31 August, 1833, by a check in favor of himself, and, probably, for the purpose of being paid in, at the then approaching September term, on account of the parties in this (344) suit. Now, if this last deposit be the only one ever made of trust funds in the banks, then these conclusions are forced upon us: First, there has been a most disingenuous mystification in respect to the place of custody of these funds, by representing that they were kept either at home, or about his person, or in some of the banks of North Carolina or Virginia. An equivocation of this kind ought to deprive the answer of all moral weight. We are not casuists enough to decide whether such an equivocation has all the guilt of falsehood; but it is decisive to show that he who uses it cannot be relied on as a guide to truth. Another conclusion, resulting from this view, is that the executor deemed it prudent to deposit his own moneys, for safe-keeping, in those public institutions established for that purpose, but kept the funds of others committed to his care, where no one knows, and where he will not disclose, when called on to account for them. And when it is remembered that he had been, before this charge was confided to him, actively employed in making loans, buying up notes, and other profitable money operations, and that these were continued with undiminished activity during the entire period when these trust funds were in his hands, there is no rational ground left for doubt, and we are bound to declare, that they were used indirectly, at least, for his personal emolument. But, on the other hand, if this last deposit in the State Bank was not the only one made of the funds of the estate, we shall be obliged, by these proofs, to pronounce what certainly the parol evidence tends to show, that the funds were used in his private business directly for the sake of profit therefrom. It is not necessary to decide between these two declarations. Charity should induce us to hope that the deceased may have thought that while he kept on hand, at his command, an amount of money equal to what he supposed might be found due from him on a settlement, he could say that he had not used the funds of the estate for profit. If it were so, it is a melancholy instance of the facility with which the love of gain leads an erring man into the strangest delusions.
We pursue this unpleasant inquiry no farther, but direct that (345) interest be charged from the close of 1824 on the balance then due from the executor to the estate of his testator, and that, thenceforth, it be regularly charged and credited on the subsequent items in the account.
The estate of William Smith, the younger, consists almost exclusively of his share in the estate of William Smith, the elder. It owed no debts, and interest is to be charged thereon from the date of the receipts.
On the part of the plaintiffs it has been insisted that there should be annual rests made in the account, so as to charge the executor, in effect, with compound interest. It will be seen that to some extent the persons interested will, without giving the direction for rests, get the benefit of compound interest, because the interest with which the Court directs the executor to be charged will be calculated on his receipts, whether they be of principal or interest, for his cestui que trusts.
The claim thus advanced by the plaintiffs is rested on several grounds. In the first place, it is insisted that according to the declarations of Maurice Smith his dying brother had charged him with the special care of the deceased's children, the said Maurice became their guardian, and ought to be held accountable as such. This ground cannot be maintained. The power of a father to appoint a guardian to his children can be exercised only in the mode prescribed by law, and that is express "that it shall be by deed, executed in his lifetime, or by his last will and testament, in writing." Act 1762, Rev., ch. 69, sec. 2 (1 Rev. Stat., ch. 54, sec. 1). It is then insisted that in and by the clause where the testator disposes of the residue of his estate among his wife and children, other than Mrs. Nuttall, he constitutes his executors guardians to these children, by imposing upon them the duties of guardians. The Court admits that when it can be clearly collected from the will of a father that certain persons are thereby appointed to have the custody of the persons and of the estates of his children until they arrive at age, such an appointment will be held to constitute them guardians, as though the appropriate term had been used. But where a term so well known and (346) of such universal use to describe the office is not employed by the testator, there ought to be unequivocal indications of a purpose to confer the office before the court will declare it conferred. In the clause in question there are no indications warranting such a conclusion. Certainly the clause itself is not very perspicuous, but according to our construction it directs that the use of his property shall be with his wife for the support of her and the children, subject to the supervision of his executors, until a division of it can be conveniently made, either in kind or in the form into which the executors may convert it, between the wife and the children. This division necessarily means an equal division, and this division, between the wife and these children, is to be repeated from time to time until their shares respectively shall be made equal to the special provision made for Mary Nuttall, after which, should there be a residue, the division — equal, of course — is to proceed between the wife and all of the testator's children. If the supervision which the testator directs to be exercised by his executors constituted them guardians, they were appointed such, not only to his children, but his wife.
But it is further contended that he ought to be thus charged because he caused the guardian of his infant cestui que trusts to be removed; and thereby getting the unlimited control, not only over the property of his testator, but over the persons of the testator's children, he exercised the powers of guardian, and must be held to the responsibilities of a guardian. If the case were established that, after the appointment of Thomas Hunt as guardian, the executor, for the fraudulent purpose of preventing his being called to an account for the management of the estate, and of keeping the moneys thereof in his own hands, caused the said guardian to be removed or to resign his office, we might feel ourselves justified in exacting from him the most rigorous measure of accountability which the law will permit. But this case, we are decidedly of opinion, has not been made out; nor anything shown in relation to that transaction for which the executor merits censure. It appears from the records that at February Court, 1819, John R. Eaton, who had been nominated by the testator as an executor, but declined the appointment, the maternal uncle of the children was appointed (347) their guardian; and so far from its appearing that this was done in opposition to the wishes of Maurice Smith, he declares in his answer (and if the declaration were untrue it might have been contradicted) that he refused to qualify as executor until Mr. Eaton promised to take the guardianship. Besides, this allegation derives some support from the fact that Smith's qualification as executor did not take place until November Term, 1818, although the will was proved at the preceding August term. It also appears that in November, 1819, Alexander Smith, the brother of the testator, became guardian to Charles, one of the plaintiffs, and remained guardian until February, 1824. Besides, it does appear that although Thomas Hunt, when he received the appointment, was in good credit, and generally deemed solvent, a very short time justified the apprehensions of Maurice Smith in regard to his embarrassments, and proved that, on this subject, he had that more minute information and keen-sighted sagacity which are ordinarily found in pursuing habitually the business of lending money and buying in notes. Besides, when Thomas Hunt resigned the guardianship there was no money of the testator in hand, and no immediate temptation to make Maurice Smith desire that the children should be without guardians. And, upon the proofs, it does not appear that after the resignation of Thomas Hunt he executed any of the duties of the guardian except those necessarily devolved on an executor for infant cestui que trusts, of furnishing the means for their support and education. It is lastly contended upon this point that these rests ought to be directed because by the will the executor was expressly charged with the duty of putting out the balances in his hands from time to time at interest, for the purposes of accumulation, and that his gross breach of duty in utterly disregarding this injunction deserves such severe visitation. We are saved the necessity of ascertaining what ought to be the rule of interest in the case supposed — in the performance of which duty there would be a difficulty in reconciling decisions that apparently clash with each other — because we do not find any such injunction in this will. The only power given to the executors is that of converting the property for the purpose of a division, and the testator seems to have contemplated such a division whenever the administration of his estate could be (348) conveniently closed.
We have thus disposed of the main subject of dispute in this cause, and of the matters embraced within the 1st and 2d of the exceptions taken by the plaintiffs, and within the 5th, 7th, and 8th of the exceptions of the defendant. The report must necessarily be recommitted, in order that the accounts may be made out in conformity with the principles thus declared.
The 3d exception of the plaintiffs is for that the master hath credited the said Maurice with sundry small items for expenses, amounting together to the large sum of $1,110.98, without vouchers therefore, and without proof that the expenses so alleged were actually incurred, or, if incurred, for the benefit of the estate of his testator. According to the practice which has heretofore prevailed in this Court, and which must continue until one more suited to the convenience of suitors can be established, this exception must so far be allowed as to direct the master to revise this item, and in his report thereupon to set forth the grounds of his allowance, so that the Court may be enabled to decide, if made the subject of an exception, upon the correctness of his judgment.
Exception 4 of the plaintiffs, and 6 and 10 of the defendant's exceptions, relate to the quantum of commissions allowed to the executor, to the subject-matter of commissions and the mode of its computation. It is so difficult for this Court to ascertain by any means in its power what is the reasonable rate of commissions called for in any case, by the nature of the services, labor, and responsibility of the trustee, that it is much disposed, in general, to rely in this respect on the judgment of the master. In this case, however, the Court perceives a safer guide for the exercise of its discretion and will follow that guide. It appears that on one occasion when the accounts of the executor were audited in the County Court of Warren, and when the auditors recommended that there should be allowed to the executor a commission (349) of 5 per centum on his receipts, and 5 per centum on his disbursements, the court, nevertheless, ordered that his commission should be limited to 4 per cent on each. The Court, therefore, overrules the allowance of 5 per cent as made by the master, and sanctions the rate established by the county court. It is made a question by the 10th of defendant's exceptions whether the money paid to the widow of the testator as and in lieu of the distributive share to which she became entitled by reason of her dissent from the will, is a disbursement, on the payment whereof the executor can claim a commission. The Court holds very clearly that it is not. Here the payment was not made on an adjudication, but as on a purchase of the widow's right. But if it had been made on an adjudication, or in any other form, still the claim was in the nature of a distributive share, and comes within the reason of the decisions which forbid commissions on the payment of legacies and distributive shares. Potter v. Stone, 9 N.C. 30; Clarke v. Cotton, 17 N.C. 51. The Court is also called upon by the other of defendant's exceptions above stated to correct an alleged error of the master in the mode of computing the commissions. As the account itself is to be taken on a new principle with respect to the calculation of interest, the object of this exception will be best attained by directing the master, after ascertaining the amount of the receipts, as swollen by the addition of the interest thereon and of the amount of the disbursements as so increased, to make the allowance of commissions on the aggregate.
The 5th and 6th exceptions of the plaintiffs are either disproved or unsupported by proof, and the small matter embraced in the 7th exception is left by the expectants so completely in doubt that those exceptions are overruled.
Exceptions 8, 11, 14, 15, and 16 of the plaintiffs were abandoned in the argument as untenable.
Exception 9 must be overruled. The Court can discover no reason why a tenant in common of land has not a right to charge his cotenant with a just proportion of expenses incurred in relation to the common estate, and upon the proofs sees no room to doubt that the payments made to James W. Smith therefore were in all respects (350) proper.
Exception 10 must also be overruled. Upon the answer and the testimony of James W. Smith, which furnish all the evidence in relation thereto, it appears that the sum, for not collecting which it is sought to charge the executor of William Smith, was not, in fact, due to the said William.
Exceptions 12 and 13 of the plaintiffs will be considered together. Maurice Smith, who was the administrator of William Smith, the younger, purchased at a certain sum, and while a suit was pending therefor, the interest of his intestate's mother in and to a distributive share of the estate, and it is alleged by the other next of kin that he paid too little therefore, and that the profit made on the purchase should result to them; and if not, then the estate is not chargeable with any part of the costs which had been incurred in the litigation. Courts view with jealously such contracts made by a trustee with his cestui que trust. Whether the purchase in this case ought to stand or not is exclusively a matter between the parties to that contract. As to all others it must be understood as transferring the right which it professes to sell; and the price paid by the purchaser is a matter which concerns none but the parties. The purchase is not shown to have been made for the other next of kin, and the allegation that it was so made has been peremptorily denied. The representatives of Mrs. Pugh are not before the Court. We see no ground on which to overrule the judgment of the master on the main matter of these exceptions. But it is equally clear that it was an error to allow the executor for the costs paid by him in resisting this claim of Mrs. Pugh. To the extent of these the account must be corrected.
The matters disclosed in the affidavit of Samuel W. Smith, connected with the fact that the payment in question does not appear to have been claimed by M. Smith in the account rendered by himself, render it so questionable whether an error was not committed by the master in charging the said Samuel with the sum of $1,500, as paid on 25 December, 1827, that the Court sustains the 17th and last exceptions of the plaintiffs, so as to direct the master to revise his report in relation thereto.
The Court also sustains the 1st exception on the part of the defendant so far as to require of the master to review his report in relation to the payments claimed by said exception to have been paid to Charles Smith. The conveyance of the shares of the said Charles (351) in the estates of his father and brother is regarded by the Court but as a security for the sums actually paid to him; and the master will ascertain fully all that has been received by him on the account thereof.
The Court is of opinion that the 2d exception of the defendant is irrelevant. The representatives of Mrs. Pugh are not before the Court, and the Court does not understand that the report finds the late Maurice Smith is liable to any person because of her share in the estate of William Smith, the younger. The value thereof is set forth, partly for the purposes of elucidation and partly that the Court might be enabled to decree in relation thereto, if it held that the profits on the purchase of that share accrued to the other next of kin of the said William. But the report does not charge the said Maurice, in account with any of the parties to this suit, therewith.
The matter of the 4th exception, the claim of the late Maurice Smith on account of his share in the Killingsworth debt, has not been passed on by the master, and it is against the usage of this Court to act upon matters of account originally. The subject-matter of this exception is, therefore, recommitted to the master.
The 9th exception of the defendant is overruled. It appears that on 9 June, 1830, Maurice Smith made a large payment to Samuel Smith, in cash, and at the same time bound himself by bond to make a further payment of $2,000; that this bond was not taken up until some time afterwards, when it amounted, with interest, to $2,165. The master having credited the while account of M. Smith with cash and the principal of the bound as a payment of 9 June, 1830, it is clear that the defendant is not entitled to credit for the interest which Maurice Smith paid for the use of the $42,000.
The matter contained in the 11th of defendant's exceptions is not properly brought before the Court by way of exception. If material, the proper time to urge it will be when a decree is prayed for by (352) the plaintiffs. In the meantime as the matter will be necessarily before the master, upon the recommitment of his report, any of the parties who deem the inquiry suggested a proper and necessary one may direct the attention of the master thereto, and have a more specific report concerning the matter thereof.
Our attention was called during the argument to the sum of $483.74, mentioned in the order of September Term, 1833, to have been retained out of the moneys paid into office, subject to the further order of the court. The counsel for the legatees has prayed of us that this money may be decreed to be paid to them. This prayer is not granted. The money is stated to be the one-third of the rents, which had been received by Maurice Smith, of Tennessee lands, whereunto the wife of the late William Smith was entitled to dower; and if so, as an accessory, it ought, in equity, to follow its principal. The money, upon this representation, belongs to the representatives of Mrs. Pugh, and they are not before us.
The decretal order will be drawn in conformity to the principles laid down and the matters declared in this opinion. PER CURIAM. Order accordingly.
Cited: Spruill v. Cannon, post, 402; Hale v. Aaron, 77 N.C. 373; Pickens v. Miller, 83 N.C. 549; Green v. Barbee, 84 N.C. 73; Summers v. Reynolds, 95 N.C. 413; Bank v. Bank, 126 N.C. 539.