Smith v. Smith

| New York Court of Chancery | Jan 8, 1820

The Chancellor.

There is not a single bad note taken by the guardians. It appears from the testimony, that every person to whom they had loaned money was a safe and responsible person at the time of the loan, and remained so when the testimony was taken. It was the same case with the persons from whom notes were taken for arrearages of rent. The testator appears to have been in the habit of giving three months credit to the tenants for arrears of rent, and the guardians gave the same credit. Notes so taken were usually at six per cent, which appears to be the customary rate of interest in Suffolk county. In a case, like the present, where the sums were comparatively small,, and the habit of dealing according to the practice which we have reason to presume was pursued by the testator, and especially where the debtors were originally sound, and continued so to the time of taking the account by the master, I am induced to think we may, consistently with the policy and the doctrine of this Court, credit the guardian with the notes which he has ready to surrender. It would, under such circumstances, be unreasonable, and render the trust of a guardian an object of unnecessary hazard, distrust, and aversion, to charge him with the amount of the notes in cash, and throw the future trouble and risk of collection upon him.

I am not aware, that any cases carry the rule to this rigorous extent. But in adopting this course, I mean to be understood, that if a guardian or other trustee loans money without due security, he must be responsible in case of insolvency. This is the settled English rule, and it ought to be followed. If any well grounded distrust had even been excited by the testimony, as to the safety of the debts, or any of them, I should have held the guardian responsible, and made, him take such notes to himself.

What is due security for moneys loaned by a trustee, is a question I am not now called to discuss. The English rules are exceedingly strict on the subject of trusts, and especially of infants’ moneys. An executor must not even rest on personal security; and if he does, it is at his own hazard. (Terry v. Terry, Prec, in Ch. 273. Wilkes v. Steward, Cooper's Eq. Rep. 6.) Lord Kenyon said, in Holmes v. Dring, (2 Cox's Cases, 1.) that it was never heard of that a trustee could lend an infant’s money on private security. If he does, and takes a bond, with personal security, he must be responsible, if the obligors become insolvent, though they were in very ample circumstances at the time the money was lent. I have no doubt that it is a wise and excellent general rule, that a trustee loaning money, must require adequate real security, or resort to the public funds. " If he invest the trust moneys in the public funds, he is not liable to the fall of stocks; (3 Bro. 434.) and, probably, the depreciation of the real security would come within the reason of that rule. But personal security is always more or less precarious; particularly when the credit is given for a considerable length of time, or when the borrower, or his surety, is engaged in mercantile, or other hazardous pursuits. Lord Alvanley, in Powell v. Evans, (5 Ves. 839.) held the executor responsible for a loss by insolvency, where he permitted, negligently, and without good reason, money to remain longer than was absolutely necessary, upon personal security taken by the testator, in his lifetime. This case is a strong illustration of the strictness of the doctrine upon which the general rule is founded. It is not, however, necessary for me to say, whether the rule declared by Lord Kenyon, is to be taken, at all times, and under all circumstances, in so absolute and unqualified an extent. Possibly, there may be cases in which the taking of personal security would exonerate the trustee, if that security was selected with discretion, and according to the practice of the testator, in like cases. The former cases were more indulgent than the latter ones. The observations of Lord Ch. Harcourt, in 1 P. Wms. 241, and of Lord Northington, in Harden v. Parsons, (1 Eden. 145.) seem to admit of more latitude than the doctrine in Holmes v. Dring. I am not, however, prepared to say whether any, and if any, what exceptions, may exist to the general rule on this point. I have not formed any absolute opinion on the subject, and must leave it to be discussed and considered when it shall arise.

The first exception is, consequently, overruled.

[The answer to the second exception was contained in the master’s supplementary report, under the order of the 13th of September last, and the explanation is entirely satisfactory. To allow the exception, would be charging the defendants twice for the same thing.]

Third Exception. That the master has omitted to charge the defendants, and to credit the plaintiff, with the rents which accrued and became due on the 1st of March, 1804, whereas the defendants ought to have been charged with 275 dollars, for the rents which accrued and became due on that day.

The Chancellor.

It appears, from the supplementary report, that the rents for the year 1803, were accounted for and settled with John Smith, as acting executor of William Smith, deceased, previous to the 27th of October, 1804, on which day, as appears by the bill, the guardians were appointed.

The only complaint, then, against the guardians is, that they did not collect this money of the executor, who duly received it. But there is no such neglect charged in the bill, and they are not to be answerable for breaches of duty not alleged in the bill. If it had been made a substantial allegation, they might, perhaps, have met and answered it fully, and excused themselves completely from the charge of that neglect or default. They are charged with specific breaches of duty,, and are called to account generally for the assets received, and they are not bound to answer beyond the allegations in the bill.

Exceptions' overruled.