Swoyer's Appeal , 5 Pa. 377 ( 1847 )

Bell, J.

The first error assigned in the decree of the court below, relates to the reduction of the credit of $788 88, allowed by the auditors to the accountant for moneys paid Frederick Watts, Esquire, to the sum of $568 84. The facts upon which this determination of the Court of Common Pleas was based, are very imperfectly and confusedly given in the paper-books, but sufficient is shown, or was conceded on the argument in this court, to enable us to-ascertain the leading features of this portion of the controversy between the assignee and the preferred creditors. [His honour here stated the case, and the two objections to the payment to Watts.J The first of these objections has not been insisted on in this court, nor could it be with any hope of success. Admitting that the husband had, by an adequate exercise of his marital rights, so vested in himself or his assignee such an absolute interest in his wife’s legacy as took away her right of survivorship, it is clear, on the authority of McDowell v. Tyson, 14 Serg. & Rawle, 300, and other cases, the partnership debt due to Woodburn could not have been set off against the demand for the legacy then vested in Mr. Watts. The second ground of objection, going to part of, the payment only, is that which has been principally, if not solely, urged here, and this view taken by the excepting creditors was adopted by the president of the Common Pleas, who, speaking of this part of the case, says: “ The proof is, that Joseph A. Ege had in part redeemed the pledge of the legacy to, James Lewis, by paying him $1700, and that all he had yet to pay him on the 14th September, 1837, the date of his assignment of it to Mr. Watts, was $568* 84; and that Lewis, as well as Mr. Watts, about that date was apprized of that sum being the balance yet due by Ege for its redemption. In the absence of proof that it was subject to other liabilities in the hands of Mr. Watts than in those of Lewis, the accountant was wrong in paying more than the balance due upon it.” But surely this was said without reflecting that the interest in this legacy was not transferred to Mr. Watts for the mere purpose of redeeming' it out of the hands of Lewis by the payment of any balance which might remain due of the sum borrowed of the latter, but as a security for the payment of a debt due to Watts, and that the payment made by him to Lewis, though it may have been of too much, was simply for the purpose of enabling him to acquire that security. The instrument by which the right to .the legacy was assigned to him and Mr. Biddle, purports to be an absolute transfer of it, without reservation, is under seal, which of itself imports a full consideration, and moreover recites that it was made for a valuable consideration. The payment of the full amount of the legacy charged on the land of Woodburn, the assignor, by his assignee, was therefore prima facie correctly made, for so far as we have yet advanced in the consideration of the facts, Mr. Watts, or he with Mr. Biddle, was absolutely entitled to the whole amount due. The learned judge who pronounced the decree of the Common Pleas was therefore wrong in the position that, in the absence of proof that the claim for the legacy was subject to othér liabilities in the hands, of Mr. Watts than in those of Mr. Lewis, the accountant was wrong in paying more than the balance due upon it to Lewis. Upon the faith of the absolute assignment held by Watts, Swoyer was not only right in paying, but was bound to pay the full amount due from the estate of .his assignor.

What matters it to that estate, or to the assignee representing it, that this might be more than was due from Ege to Watts ? This was a subject with which he had no concern, and could not inquire into. If more than was due to him was thus received by Mr. Watts, it was Ege’s business to call him to an account for the balance, but surely it did not lay in Swoyer’s mouth to make this objection. Pie was bound to pay to some one, and in the absence of all notice to the contrary, who should he properly pay it to, other than him who appeared by a solemn instrument, under seal, to be the real owner of the claim. I have thus far considered this point,' without reference to the deposition of Mr. Watts, taken since the case was brought into this court by appeal; and I have passed it by because it is objected to by the appellees as incompetent testimony. This opinion is based upon the ground' of a supposed interest residing in the-witness. But we do not perceive how Mr. Watts is interested in the issue of this controversy. He has been paid his demand, and having entered into no engagement to refund, he never can be called upon to do so, whatever may be the issue, for there is no suggestion of unfairness practised by him. But there is another objection to the deposition, perhaps better founded in the practice of this court, not to hear new testimony on appeals from the courts of Common Pleas, except under peculiar circumstances. Yet as the appellees do not raise this objection, and more especially, as it has been shown, the right of the accountant to have restored that portion of this credit stricken out below may be supported without the deposition, it may not be improperly referred to, as proving the debt due from Ege to Watts, and to secure the payment of which the legacy was assigned, reached to upwards of $500, which, added to the sum confessed by Ege to be due to Lewis, of $568 84, would make a much larger aggregate sum than was paid by Swoyer.

• The decree of the court below is therefore to be reformed by restoring the credit allowed by the auditors to the accountant, of $788 88, with interest from the 14th of September, 1887; but which was reduced by the Court of Common Pleas to the sum of $568 84. ■

The appellant avers, secondly, that the court erred in rejecting the credit allowed to him by the auditors, of $637 03, being the amount of two notes drawn by J. A. and M. P. Ege, and taken by him in payment of certain store goods, which had passed to him by virtue of the assignment, and were sold by him to the drawers on the 13th May, 1837. This exception involves the question whether the fact of making this sale and accepting the simple notes of the purchaser, without other security for the purchase-money, presents a case of such gross negligence, on the part of the accountant, as is sufficient in Pennsylvania to charge him with the loss that has happened. The subject of the liability of trustees to answer for losses of the trust fund, has often engaged the attention of our courts, and frequent decisions have been pronounced. . It cannot, perhaps, bo said that the inclination of our judges has always been uniform, for it is apparent, that while some have favoured a somewhat strict rule of accountability, others have leaned towards a more indulgent principle as proper to govern in such cases. Notwithstanding this diversity, the course of decision has been sufficiently steady to enable usf without much difficulty, to arrive at just conclusions in the instances ordinarily presented for adjudication.

It is said to be the harshest demand that can be made in equity, to seek to charge a trustee with imaginary values, and it must be a very gross case indeed, which will induce a chancellor to hold him liable for moneys or goods he has never received, more especially when he has trusted to the same security in which the creator of ■’the trust placed his confidence; Pim v. Downing, 11 Serg. & Rawle, 67; Johnson’s Appeal, 12 Serg. & Rawle, 317; Konigmacher v. Kimmel, 1 Penna. Rep. 214. But all the cases distinguish between the liability of non-receiving trustees, and the accountability of those who have actually reduced the trust, property to possession, and afterwards parted with it, without adequate security. In the latter instance they are, or ought to be, held to a more rigid account, and will not be exonerated, except where they have acted with the care, caution, and prudence, which should characterize the transactions of a man of good business habits in conducting his own affairs; Pim v. Downing, supra; Nyce’s Estate, 5 Watts & Serg. 254. In England, in the case of a sale of personal goods by a trustee, the rule established in equity requires him to exact cash payments. Owing to the peculiar situation and habits of our country, we have so far relaxed this rule as to allow a trustee to make sales at a credit, exacting, however, from the purchasers, security for payment at the expiration of the credit agreed upon.; Johnston’s Estate, 9 Watts & Serg. 107. But it has ever been held, that when he omits to require this security, he shall be liable to make good any loss which may consequently accrue. Even Mr. Justice Huston, who was willing to go as far as any one in shielding trustees from liability, in Konigmacher v. Kimmel, where great indulgence was extended to the guardian, agreed that trustees are liable where a loss is occasioned by their own act, in giving credit without taking security, when they sell goods, or put money out of their own hands. After noticing the practice which obtains with us, of taking notes with security, for goods sold at auction by trustees, he observes, if security be not taken, the executor — and the remark is equally applicable to other trustees — is generally charged with the amount, for he had the goods in his own possession. This rule, here and elsewhere announced, is, if possible, of more stringent operation where the vendee of the goods is engaged in merchandizing or other hazardous employment liable to fluctuations and ruinous disasters, as is often the case in the business of manufacturing iron; and of which the failure of the Messrs. Ege is a pregnant exam-pie. As is ruled in Thompson v. Brown, 4 Johns. Ch. Rep. 630, to put trust assets into the hands of a merchant in trade, without any security, is exposing the trust fund to unreasonable jeopardy. The policy of the law will not permit a trustee to deal in that loose way with the fund. It becomes a distinct appropriation of his own, and if a loss accrues, he will be liable. Had .there then been nothing more in the present case than a sale by the trustee to J. A. and M. P. Ege of the stock of store goods, upon a credit, without other security for payment than their own notes, he ought beyond question, upon the principle indicated, to be charged with the loss that has resulted from his own carelessness. But beyond this, the case presents peculiar features. The purchasers were two young men, just entering upon a hazardous business, the owners of no real estate, and at the time of the sale to them, indebted to an amount exceeding $20,000. The auditors report the fact that at this moment they were insolvent. Between the years 1835 and 1837, inclusive, judgments had been rendered against them in Cumberland county, where all the parties resided, to the amount of $24,000, and this must have been known to Swoyer, the assignee. Loaded with this burden, it is evident they progressed with difficulty until, meeting a sudden revulsion in' the business in which they were engaged, they succumbed, and publicly failed, within less than a year after the sale of the goods to them. But the assignee seeks to escape from the liability this state of things imposes, by showing that the sale and purchase of the goods in question was consummated under the direction, and with the approbation of John M. Woodburn, who, it is said, has an interest in at least some of ■ the preferred debts, which await payment out of the fund with which it is now asked this trustee may be charged. Two answers are given to this defence. The first is, that at the time of the sale Woodburn was in the employment of the purchasers, and evidently acted as their agent in the transaction; and the second, that it is not shown he is personally interested in the preferred debts, nor is it even suggested that he is the actual owner of all of them. On the contrary it is admitted, many of the creditors of the second class, who have an interest in this question, are represented in this court, claiming to have the accountant charged with the loss which has occurred.

' Eor these reasons this portion of the decree of the Court of Common Pleas is affirmed.

Decreed accordingly.