Field v. Schieffelin, 7 Johns. Ch. 150

Field v. Schieffelin

7 Johns. Ch. 150 | New York Court of Chancery | 1823

The Chancellor.

The bond and mortgage which the plaintiff claims, were taken by William James Steivart, in his character of guardian of the person and estate of Hopkins, the infant, and to which trust he had been duly appointed by this court That he had a legal control over that bond and mortgage, and a right to collect and receive the money due thereon, and a legal right to sell and assign the same, in the due exercise of his discretion as guardian, is a proposition that does not seem to admit of dispute. The bond was not due when it was assigned to the plaintiff ; but if the money was wanting for the purposes of the trust, either for discharging incumbrances, or for making more advantageous investments, or for payment of debts, *153and for the better maintenance and education of the ward, or for any purpose whatever, connected with the faithful discharge of the trust, and beneficial to the infant, the guardian had just right and lawful authority to raise the money by the assignment of the bond and mortgage. The necessity or expediency of the measure rested entirely in the judgment and discretion of the guardian. He was, as between him and the purchaser, the proper and the exclusive judge of that expediency. It was not the duty or the business of the purchaser to inquire into the necessity of the assignment, or to see to the application of the purchase money. He had a right to presume, in the absence of all direct and plain proof to the contrary, that the guardian was exercising his power fairly and faithfully, in conformity with his duty.

This case, then, turns upon the question of fact, whether the guardian committed a breach of trust in the assignment of the bond and mortgage, and whether the plaintiff was a party to that breach of trust. If there was any fraud or collusion between the plaintiff and the guardian, or if the plaintiff knew or was sufficiently informed, when he accepted of the bond and mortgage, that the guardian had in contemplation a breach of trust, and intended to misapply the moneys, then, I apprehend that the plaintiff’ must be deemed to have taken the bond and mortgage in trust for the infant. But, on this point there is not sufficient evidence to affect the right and title of the plaintiff.

The assignment purports, on its face, to be for a fair and valuable consideration, and the answer of the guardian admits the payment of that consideration, and there is nothing in the proof to gainsay it. There is no direct or positive evidence that the guardian has, in truth, misapplied or wasted the infant’s money. It might be inferred from the acknowledged fact of his insolvency, and from the silence of the case; but when it becomes necessary, not only to establish the fact of breach of trust, but of a participa*154tion of the plaintiff in the fraud, we ought to have some» thing more decisive than a presumption resting on such a basis. It is very possible, and consistent with every esta^fished fact in the case, that the money received by the guardian from the plaintiff, was duly invested in other property, in the name and for the benefit of the infant, and was left untouched amidst the waste and destruction of his own property. But if the presumption of a devastavit is to be admitted, there is no evidence^that the guardian had any abuse of trust in contemplation, when he made the assignment, or, if such were his intention at the time, there is no certain and sufficient proof that the plaintiff knew or had information of that intention, or of any purpose or design in the guardian inconsistent with his duty. The proof on the part of the infant, is too lame and scanty to justify the conclusion1 of any breach of trust in the guardian, in which the plaintiff knowingly partook.

A Chancery guardian may, in his discretion, sell the personal property of his ward, for the purposes of his trust, without any previous direction of the Court. So he may lease the real estate; but cannot convey ,it absolutely without the authority of this Court.

Though it be not in the ordinary course of the guardian’s administration, to sell the personal property of his ward, yet he has the legal right to do it, for it is entirely under his control and management, and he is not obliged to apply to this Court for direction in every particular case. It was said by Lord Hardwicke, in Inwood v. Twyne, (Amb. 419.) that he might change the nature of the infant’s estate, under particular circumstances, and the Court would support him in the act, if the Court would have directed the change under the same circumstances. The question as to the due exercise of the power, arises between the guardian and his ward; and I apprehend that no doubt can be entertained as. to the competency of the guardian’s power over the disposition of the personal estate, including the choses in action, as between him and the bona fide purchaser. The guardian in socage of the real estate may lease it in his own name, and dispose of it during the guardianship, (and the chancery guardian has equal authority,) though he cannot convey it absolutely without the special authority of this *155Court, because the nature of the trust does not require it. (Wade v. Baker, 1 Lord Raym. 131. Cro. Jac. 98. Lord Ellenborough, in 10 East, 494.) The personal estate is necessarily subject to more unlimited control, and may be invested, called in, and reinvested, and changed and otherwise disposed of, as the exigencies of the trust, in the judgment of the guardian, may seem to require. In every instance he acts under responsibility to his ward, for the faithful and judicious discharge of his trust; but the stranger who deals with him justly and fairly, has a right to, presume that the guardian acts for the benefit of the infant, and he does not partake of that responsibility, until the presumption of fair dealing is destroyed by evidence of fraud and collusion.

A stranger ox bona jidt purchaser is not answerable for the faithful application of the money by the guardian. j!1® position or sale property‘^'by XiMorl . , . It is only in cases of fraud Sat th^cóm't ™ould foll°."" th6 hands of a puiLliasei"

The case of third persons dealing with executors and administrators, in their representative character, is analogous, and throws strong light on this subject.

Lord Hardwicke, in several decisions before him, would not permit creditors or legatees to follgw assets into the hands of a purchaser from the executor or administrator, unless there was evidence of fraud and collusion between them. Thus, in Nugent v. Gifford, (2 Ves. 269. 1 Atk. 463.) the executor assigned over a mortgage term of his testator to C., in satisfaction of a debt which the executor owed him; yet the Lord Chancellor held it a good alienation against the creditors and heir. He said the Court would follow the assets in case of fraud, but not where the executor disposed of them for a valuable consideration and without fraud; and that it would be very mischievous if the Court were to control this power of alienation, as no person would venture to deal with execu4 tars. The purchaser’s knowledge of the debts in general, was immaterial as to the validity of the assignment, provided it was for a valuable consideration: and there was no difference between the power of the executor to dispose of legal and of equitable assets. The same doctrine was maintained in Mead v. Lord Orrery. (3 Atk. 235.) Three *156executors assigned a mortgage of their testator, as a secority for the receivership of one of them; and the Chancellor considered it to be a purchase for a valuable consideration, an£| t¡lat ^ere was not sufficient grounds to set it aside. It was good, unless the executor did it collusively ; and neither creditors nor legatees could call back the assignment. He said there was no instance where an assign- ° ment had been made by an executor for valuable consideration, that Chancery had set it aside, unless some fraud aPPeared between the executor and the assignee. The knowledge in the third person, that the assignment was made by the executor, of property which he held as assets, did not alter the case. In Taner v. Ivie, (2 Ves. 466.) the same rule prevailed. It was a bill against the purchaser, to whom an executor had assigned a mortgage, which he held as executor. Lord Hardwicke said, that if there was fraud or collusion between the executor and purchaser, both would be liable to make satisfaction; and none was made out in that case sufficient to charge the assignee. “ I do not know,” he observes, “ that there can be any general principle, that an assignee, taking security of an estate from the executor, is not to be answerable. The cases all depend on circumstances. Whenever contrivance appears between the executor and assignee of the mortgagee, to make a devastavit, the Court would hold the assignee liable.”

The mere uíe°Wpurchaser that the property was assets and that there not sufficient responsibiehim

Lord Mansfield, in the case at law of Whale v. Booth, (cited in 4 Term Rep. 625. note.) went equally far in favour of the purchaser of the testator’s assets. The general rule, both of law and equity, he observed, was clear, that an executor might dispose of the assets, and that they could not be followed by the testator’s creditors. He must sell, in order to effect the will; but who would buy, if liable to be called to an account? If the purchaser knows they are assets, this is no evidence of fraud, for all the testator’s debts may have been already satisfied ; and if he *157knows they are not satisfied, must he look to the app'iication of the money ? No one would buy on such terms. mi • ..i.. • ■there is one exception, indeed, where a contrivance appears between the purchaser and executor, to make a devastavit*

Butifaperson knowingly buys or takes tiio assets ítí extinguish-o/ liie executor, it seems, that he will not be “anthem 'a-"e^a" tees.

Subsequent decisions have, in some degree, restrained the extent of the doctrine laid down by Lord Úardwiclce and Lord Mansfield.

In Bonney v. Ridgard, (1 Cox, 144.) Lord Kenyon, the Master of the Rolls, admitted, that, in general, the purchaser from the executor of the testator’s assets, was not bound to see to the application of the money; but that if, upon the face of the assignment of the property, it appeared to have been made in satisfaction of a private debt of the executor, the sale was fraudulent against the persons interested under the will, and equity would relieve. It would be a case of implied fraud: and he, accordingly, condemned the decision in Mead v. Lord Orrery, and said he should have made an opposite decision in that case. His objection, if valid, would apply equally to the case of Nugent v. Gifford, and overrule it; for there, also, it appeared, the assignment was in satisfaction of the executor’s private debt. So again, in Scott v. Tyler, (Dickens, 712.) Lord Thurlow held, that where an executrix pledged bonds specifically devised, as a security for her own debt, contracted after,the testator’s death, the pawnee must deliver up the bond, for the benefit of the specific legatee. He admitted that, in general, the purchaser of the assets had 7 ° * 1 e no concern with the application of the price, and that the rule applied equally to mortgages, bonds, and leases, But if one concerted with the executor to obtain the effects at a nominal price, or at a fraudulent under value, or . . . . 7 7 7 , 7 . in extinguishing the private debt oj the executor, or m any other manner, contrary to the duty of the office of executor, the purchaser, ot* pawnee, will be liable. In this case, bonds of the testator were delivered to the bankers, as ase*158curity for the private debt of the executrix, and they were ordered to be delivered up, and the bankers to account for the interest received; and though the bankers believed the representation of the executrix, without looking at the will, it was not sufficient to protect them. They knew that the bonds could not be so appropriated, until all the debts and legacies were paid; and the Chancellor must have proceeded on the ground of gross negligence, or implied fraud in the bankers. In Hill v. Simpson, (7 Ves. 152.) Sir William Grant made a similar decree, by setting aside the transfer of assets by an executor, to secure a debt of the executor, under circumstances of gross negligence, though not of direct fraud in the creditor, to whom they were transferred. He admitted that, for many purposes, third persons were entitled to consider the executor as absolute owner, and that the stranger should not be put to examine whether, in the particular instance, the power of disposition had been discreetly exercised by the executor. But it does not follow, that the third person must wholly overlook his character as trustee, when he knows the executor is'applying the assets to a purpose wholly foreign to his trust. The assets, known to be such, ought not to be applied, in any case, for the discharge of the executor’s debt, unless the creditor taking the assets, can be first satisfied of his right so to anply them. It was gross negligence in the creditor, to abstain, in such a case, from looking at the will, to see if there be not unsatisfied demands ; and the Master of the Rolls afterwards admitted, that this was the first case in which a mere general pecuniary legatee, succeeded in an attempt to follow the assets aliened by the executor.

The case of M'Leod v. Drummond, (14 Ves. 352. 17 Ves. 152. S. C.) was one of a pledge by the executor of the testator’s bonds, upon advances of money. The bill was by a co-executor, and it was dismissed by the Master of thejRolls, and the decree tvas affirmed, on appeal to the *159Lord Chancellor. Here was a specific bequest of the bonds so pledged, and the money was advanced at the time the pledge was made, and upon the credit of it. The Master of the Rolls said, he had found no case where the money had been advanced at the time, to the full value of the assets, that it was ever called back. He admitted that suspicion of fraud must always arise, where a party having a debt due from the executor, takes, in satisfaction of that debt, the assets which he knows belong to the executor, only in that character; but it would not do, to hold, broadly and generally, that no man could advance money upon a bond, or other chose in action of the testator, xvithout imptying a fraudulent collusion with the executor to misapply the assets. Lord Eldon, on the appeal, went into a very full and accurate review of the cases on the subject, and admitted they were not be reconciled. He declared, that on a sale by the executor, for money advanced at the time, the vendee could never be affected by proving the executor’s intention at the time to misapply the money, or that he afterwards did misapply it. The third person, if there was no more in the transaction, would be justified in assuming, that the sale was for those purposes for which the law gives the executor the power of sale. In a great variety of cases', the executor may pledge the assets at the hazard, not of the person dealing with him, but of the cestui que trust. The true question was, whether there must be fraud by the person dealing with the executor for his own benefit, or if there be direct, or strong and pregnant evidence, that the advance was not what it primafacie imports, for a purpose connected with the administration of the assets, but for a different purpose, and that the executor was going to misapply the fund, whether the party could safely deal xvith him. He, evidently, was of opinion, he could not; and he assented to the observation of Lord Alvanley, that there could not be a stronger case of a devastavit, than an executor aliening the property of the *160testator to pay his own debts, the alienee knowing at the time, that debts of the testator were due; and he thought that Lord Mansfield, in a c.ase already cited, strained too far in favour of the purchaser of the assets.

Upon a sale executor,by/or money fairly time, the venmadure({¡e^misappiication of the mone>°

*160The last case I shall notice in this point, is that of Keane. v. Robarts, (4 Madd. Ch. Rep. 332.) in which legatees and creditors attempted to follow assets into the hands of bankers, who had received them from the executor. Sir John Leach held, that the purchaser from an executor, of a specified bequest, was not bound to inquire into the fact, whether the sale was made necessary by the existence of debts, or for the purposes of the estate; because he has no adequate means to prosecute such an inquiry. He held, that the purchaser had a right to assume that the executor sells in the necessary course of his administration ; and that he was not responsible for the executor’s misapplication of the money, unless he was a party to the breach of trust.

I have thus looked pretty fully into the decisions in the analogous case of a purchase from an executor of the testator’s assets; and they all agree in this, that the purchaser is safe, if he is no party to any fraud in the executor, and has no knowledge or proof that the executor intended to misapply the proceeds, or was in fact by the very transaction applying them to the extinguishing of his own private debt. The great difficulty has been, to determine how“far the purchaser dealt at his peril, when he knew from the very face of the proceeding, that the executor was applying the assets to his own private purposes, as the payment of his otyn debt. The latter and the better doctrine is, that in such a ease, he does buy at his peril; but that if he has no such proof or knowledge, he is not bound to inquire into the state of the trust, because he has no means to support the inquiry, and he may safely repose omthe general presumption that the executor is in the due exercise of his trust.

The reasonableness and propriety of the application of this doctrine, respecting the assets of executors, to the case *161of guardians of the personal estates of infants, appears to be Very apparent, provided it be once admitted that the guardian has a power of disposition of the personal estate, and may exercise it in his discretion, for the benefit of the infant. The purchaser from the guardian has, indeed, less means to pursue the inquiry into the necessity or expediency of the sale, than the purchaser from the executor, because the duty of the guardian is not so clearly marked out, and depends more upon circumstances, as to the judicious and profitable management of the estate, and the suitable maintenance and education of his ward. If the guardian can sell and assign, the purchaser must be protected to the same extent, at least, as the purchaser from an executor, and he certainly can be under no greater obligation to inquire into the propriety of the assignment.

The case then resolves itself into the fact, whether the guardian has misapplied the produce of the bond and mortgage in violation of his trust, and whether the plaintiff was either a party to that fraud, or had information of any such design when he purchased. I have already observed, that the case does not warrant me in drawing the conclusion, that the plaintiff had any such knowledge or information. There is no ground for an inference of fraud, or for the charge of gross negligence. There was nothing special in the transaction, that rendered it the duty of the plaintiff, to make any inquiry as to the object of the sale, and the destination of the fund. He had no means to pursue the inquiry. The evidence does not bring home to him even a knowledge of the dissipated habits of the guardian, as early as when the assignment was made; and we want also the fact to be more fully and certainly established, that the funds have been actually wasted and misapplied. It is said that the plaintiff had reason to believe it was the intention of the guardian to misapply the fund. I see no other ground for that belief at the time, than the debts which the guardian owed. But, that circumstance does not appear to be svf *162ficient to fix a new responsibility upon the purchaser, for it is not shown that the guardian was, at the time, insolvent, or meditated any breach of trust, and it was to be presumed that he had given ample security for the performance of that trust, and that his own concerns would not involve or be permitted to affect the trust estate.

I shall, accordingly, make the usual decree, that the amount due on the bond and mortgage be paid by the defendant, «7. Schieffelin, within 60 days, or that the mortgaged premises be sold, and that no costs of this suit be charged by either party, as against the other, except that the defendant, J.S., be charged with the cost of the sale, if the sum due be not paid without it.

Decree accordingly.