150 Va. 738 | Va. Ct. App. | 1928
delivered the opinion of the court.
This is an appeal from a final decree in the consolidated eases of Clifford W. Fuller, Executor, etc. v. Myrtle R. Gordon Searles, et als., and Cannon and De Young, Administrators, etc. v. Elsie Gordon Stelle, et als., overruling certain exceptions taken by the appellants to the commissioner’s report which found that the appellants were liable to the estate of George S. Gordon in the sum of eighty-five thousand four hundred and twenty-seven dollars and sixty-two cents ($85,427.62).
These causes have been before the Supreme Court of Appeals twice before this appeal. Some of the facts contained in these records, especially the record referred to as the “Denny Record,” are material to the appellants’ case, and as requested in the petition, has been referred to for pertinent matters.
The facts material to the decision of this appeal are set out in the main as briefly as practical in that branch of the case under the style of Denny, Jr., Administrator, etc. v. John R. Searles, Administrator, etc., ante, page 701, 143 S. E. 484, this day decided and will be herein referred to without being restated; but such additional facts will be included in the discussion of the various errors assigned in this appeal as may be necessary.
The first ground of appeal assigned is covered by exception No. 1 of the appellants to the report of Commissioner Crawford, filed December 28, 1925.
The original suit of Fuller, Executor, etc. v. Searles, et als., was an inter partes proceeding brought for the purpose of administering the estate of George S. Gordon, deceased, under the guidance of the court . after the renunciation by the widow of the provisions of the will made therein for her.
The case was referred to Commissioner Sands to take and state the necessary accounts which included the nature and value of the assets, and the debts and liabilities of the estate. These were all reported correctly to the commissioner and by him reported to the court, and made the basis of the “Brubaker Account” and subsequent accounts. On September 7, 1906, the commissioner took the evidence of C. W. Fuller on the present and prospective value of the assets, and who on that day filed his accounts of disbursements with the vouchers sustaining them with the commissioner. The last voucher is dated September 6, 1906, and the last receipt bears date July 6, 1906. There is no evidence that the executor laid before Mr. Sands any memorandum of receipts or disbursements after the date of his deposition or that Fuller was in Richmond after that time. Sands stated the accounts of the executor not only for the year beginning January 18, 1905, and ending January 17, 1906, but also stated the
This report, dated January 18,1907, was filed March 8, 1907. No exception was taken to it by any one of the four beneficiaries of Gordon’s will. The only exception taken was by the executor to the allowance by Sands of certain taxes amounting to $1,120.35, claimed by the State of Virginia and Henrico county. No decree was entered by the court passing on this report, but there was in the papers in this cause a decree bearing date July, 1908, endorsed by the attorneys for the executor and David Meade White, guardian ad litem for Rhea Gordon (the adult defendants made no appearance and the bill was taken pro (onfesso as to them), which decree sustains the exception of the executor as to taxes and in all other respects confirms the report and a supplemental report as to the taxes, filed May 7, 1908. Why this decree was not exerted does not appear. No exceptions have ever been taken to the Sands’ report.
In the argument before Commissioner Crawford in the early part of 1924, the next of kin made the point that the Sands’ report should not be confirmed or made the basis or starting point of his report, because Fuller, executor, failed to lay before Sands items of $3,777.02 of receipts and $15,774.50 of disbursements made between September, 1906, when Fuller laid his accounts before Sands, and January 18, 1907, the date of his report. The purpose of this argument was to deprive Fuller of his commissions allowed in that report. Commissioner Crawford, in his report to court
Commissioner Sands was evidently familiar with the law and practice of the courts on the matter of the allowance of commissions, and allowed commissions to Fuller on all receipts to September 18, 1906, and filed his report as required by law. This report had to lie in the clerk’s office for exceptions, and if no exceptions were filed within the time allowed by law, the executor could have asked for its confirmation.
The effect of the report of the commissioner in chancery and exceptions to same, or failure to file exceptions and the powers' of the chancellor over it, have been presented to the courts in almost innumerable forms. But all the general rules enunciated by the courts have for their purpose the justice of the case, and are, therefore, not inflexible. The general rule in Virginia on the power of the cour overt the report of a
In the instant case the report of Commissioner Sands was full and exhaustive. The accounts returned therewith were correctly stated. The commissioner, all the beneficiaries under the will and one at least of the attorneys, who could have explained the account and the failure to confirm the report, are now dead. It remained with the papers for twelve years. There is no evidence that Fuller wilfully withheld the receipts and disbursements between September 17,1906, to the end of the year, January 17, 1907, as the omission was greatly to his injury. It is manifest that the failure to present those items before the end of the year was an innocent mistake on his part, and an oversight on the part of the commissioner, which could have been easily corrected.
The Sands report having been accepted and adopted by the court in all other respects, and the
The fact that two of the next of kin of George S. Gordon were infants and not parties to this suit when the Sands report was filed does not affect the rights of Fuller. This suit was in the nature of a proceeding in rem, and at the time the Sands report was made and filed the next of kin had only an expectancy. Rhea was still living and owned the estate. If the court had confirmed the report,. as it would have, done had it been called to its attention, it would have been conclusive as to the next of kin whether parties to the suit or not. The next of kin cannot claim all the benefits of the report, and reject the rights of the executor.
The second error assigned is: “Because the court refused to allow the executor any compensation for his services and charged against him as executor and trustee compound interest on balance in his hands.”
Commissioner Crawford recommended that commissions be allowed the executor for the first year according to the Sands accounts, but the court refused him all compensation.
We have come to the conclusion that this was error, and that the' executor should have been allowed his commissions for the two years covered by the Sands report after the same has been collected. This leaves for consideration the question whether the court should have denied the executor all compensation after date
The general rule on the subject of the fiduciary’s compensation is that the amount-thereof, or whether for maladministration, he should be denied all compensation! is within the sound judicial discretion of the court to be exercised according to the circumstances of the particular ease. In Virginia the practice is to allow five per centum commission upon receipts, unless reason to the contrary is shown. Allen’s Executor v. Virginia Trust Co., 116 Va. 319, 82 S. E. 104.
Commissioner Crawford in his report to court, wherein he recommends that Puller should not be allowed any commissions after the first year, uses this language: “It is admitted, however, that he ' subsequently mishandled the funds of the estate, misappropriated a large amount of money, kept no proper accounts, made no settlements, and performed but few duties imposed upon an executor by law.” This is a strong statement, and if true, without any benefits conferred to mitigate it, no commissions should be allowed. The appellants claim that very meritorious services were rendered the estate and parties, which overbalanced his misconduct and for which he should be allowed some compensation by virtue of the following equitable rule; stated thus in Sehouler’s Executors and Administrators (2nd ed.) section 545.
“The American policy * * * * * binds the executor or administrator closely to the court in Iris dealings, but renders the judicial proceedings as inexpensive as possible, and remunerates him' for faithful services; holding him bound, in consequence, to fulfill his trust with a just sense of legal obligation which it imposes.
The same rule is expressed by Beach in his Commentaries on the Law of Trusts and Trustee. Section 737 is as follows:
“It is well established that a trustee is entitled to compensation only as he has faithfully discharged the duties of his trust. Where there has been any partial performance of duty that has been of value to the estate, and a partial failure to execute the trust in a bona fide manner, he may be allowed a partial compensation. The court will decree such compensation as, in view of all the circumstances, it shall decree just and proper.”
The specific breaches of duty of Puller, the executor, are, (a) that he did not file any accounts before the court, nor keep accounts though he kept the funds received in banks to his credit as executor, and disbursed them by check and thus had a voucher for each payment; (b) that he overpaid the widow, especially in the early part of his administration; that this might have been due to the fact that funds were slow coming in, and Rhea was living with and being supported by her, as the discrimination was mostly against Rhea’s trust fund, and (c) that he entirely failed to set up the Rhea Gordon trust fund and used personally large sums that should have been set apart as trust funds. He was not required to give bond and security as trustee under the will; that legacy was not payable until .she became twenty-five; being a lawyer he knew that if he had set up the trust, the surety company would not have been liable to make good any shortage
Over against this conduct, Fuller, who was a lawyer of experience in the management of estates, and a good judge of real estate values, had so handled the Gordon estate that inventoried at $145,868.68 in January, 1906, that it had been liquidated at the time of Fuller’s death in 1917 to the extent of $272,214.22, and had unliquidated assets amounting to approximately $74,136.67. More than twice its inventory value. The executor has plainly rendered very valuable and beneficial services to the estate and the legatees, while his indebtedness was almost entirely to the Rhea Gordon trust fund, and it is improbable that any loss will be sustained by reason thereof. Under the circumstances it would be unjust to refuse him all compensation, especially as it will enure to the benefit of the innocent surety. Three per centum, the figure suggested by the surety company, appears a reasonable commission upon receipts after January, 1907, and should be allowed.
The next assignment of error is the charge of compound interest against Fuller.- It is conceded that compound interest should not be charged against his estate after his death, and the only question on that subject before us is whether this is a case where the rule in reference to compound interest should be applied.
The proper manner of stating the accounts of executors and administrators in Virginia, where they have failed to settle their accounts and not paid out the funds which came into their hands, nor invested same or brought them into court, and the interest chargeable against them, has been established for many years by
The general rule under such circumstances is that the executor should be charged with simple interest. But there are exceptions to this general rule, where his conduct has been such that compound interest should be charged against him as punishment or as a measure of damages for undisclosed profits, and in place of them, Barney v. Saunders, 16 Howard (U. S.) 535, 542, 14 L. Ed. 1047. In this case there is no evidence of gross and wilful neglect to invest the funds or his use thereof in his own business, or profits made of which he gave no account, as vill take this case out of the general rule of law, and warrant the court in applying the rule for compound interest.
By statute in Virginia, section 2606, Code of 1887, section 5323 Code of 1919, guardians and persons acting as guardians must be charged compound interest on annual balances. This statute was construed by Judge Staples in the case of Crigler’s Committee v. Alexander’s Executor, 33 Gratt. (74 Va.) 674, 681, as follows:
“The next question is, whether in stating and settling the accounts of the intestate as committee, he is to be charged with compound interest upon the balance in his hands. It is insisted this ought to be done, by analogy to the rule governing in the settlement of guardians’ accounts. It is sufficient to say, that the liability for compound interest grows out of the peculiar provisions of our statutes on that subject. See Code 1873, section 10, chapter 124, and Garrett v. Carr, 1 Rob. (40 Va.) 196.
*753 “These provisions have never been considered as applying to other trustees.
“The accounts of the committee of an insane person are to be settled upon principles governing in the settlement of accounts of other fiduciaries having the control of trust funds. They are not chargeable with •compound interest, except under very peculiar circumstances. Where there is an express trust for accumulating, and the trustee, instead of investing, retains the funds in his own hands, or where he employs the money in his own business, and refuses to account for the profits, he may be charged with compound interest as a punishment, or- as a measure of damages for undiscovered profits. See 1 Perry on Trusts, sections 470-474; Barney v. Saunders, 16 Howard (U. S.) 535 [14 L. Ed. 1047]; Hill on trustees, 571, note.”
By the Gordon will the income from the trust fund neither expressly nor by implication of law was required to be accumulated, but given directly to Rhea, and when she died before reaching the age of twenty-five, the principal alone was divested and passed to his next of kin, while the accrued and unpaid income passed to her representative. Nor by the terms of the will or its legal effect was Puller acting as guardian for Rhea in the management of the trust fund. But conceding that Puller stood in the relation of guardian to Rhea, the next of kin have no right or interest by law, or by reason of the “release or assignment” dated August 3, 1923, as pointed out in the ease of Denny v. Searles, ante, page 701, 143 S. E. 484, this day decided, in the income or interest accruing prior to her death.
This case does not present such facts and circumstances as call for compound interest to be charged
The third assignment of error is: “Because the commissioner made quarterly- instead of annual distributions of funds coming into the hands of the executor.” No authority is cited or reason given why the commissioner in stating the executorial account should treat all funds in the hands of the executor as-divided among the beneficiaries quarterly instead of making annual rests in accordance with the general rule.
In Burwell’s Executors v. Anderson’s Admr., supra, which adopted the rule of stating fiduciary accounts, as laid down in Granberry v. Granberry, supra, that had then furnished the law of the subject, for the court,, and for the country for nearly half a century, the ruléis thus stated on page 360:
“The various items of receipts on the one hand, and disbursements on the other, in each current year, are-not to be treated as distinct items of account, but are to be added together and considered as constituting a single item.” .
The account having been stated with quarterly instead of annual rests is erroneous and this exception should have been sustained.
In regard to the assignment of error in not allowing-interest upon Rhea’s legacy, this has been disposed of in the case of Denny v. Searles and will not be further considered.
The fifth and sixth assignments of error really involve the same question and will be considered together.
The commissioner charged Fuller with interest until the death of Rhea, and appellants claim the executorial
When Fuller died in October, 1917, he was indebted to the Gordon estate, with interest until paid, and until assets came into the possession of Cannon and De Young, administrators, that should have been invested or- brought into court, his indebtedness still bore interest. There is no merit in these assignments of error and the exceptions upon which they are based must be overruled.
The questions submitted by these appeals are so numerous and complicated that it is impracticable to do more than settle the principles upon which the accounts should be recast. This court for obvious reasons should never undertake to recast accounts which come before it, but it is for us only to settle the principles upon which such settlements shall be made. Therefore, the decree complained of will be reversed, and the case remanded for the accounts to be restated according to the principles herein set forth.
Decree reversed and remanded.