Robinett's Appeal , 36 Pa. 174 ( 1860 )

The opinion of the court was delivered by

Woodward, J.

The first question that naturally arises upon this record, has reference to the $500 received by Philip Donnelly, the intestate, which came to his wife under the will of John Gavin, her father.

The auditor, considering that Donnelly had reduced this sum into possession during coverture, treated it as part of his estate, which, at his death, went into his wife’s hands, as his administratrix, and for which, therefore, she should be held to account.

The Orphans’ Court reversed the auditor, on the ground that Donnelly had, on the 10th of December 1831, executed a deed to Thomas Traynor for all his interest in his wife’s property, in trust for her separate use and that of her children. The court regarded the deed as a renunciation of the husband’s right to reduce this chose into possession, 'and treated his actual receipt of it, subsequently, as illegal and void. The soundness of this ruling is the first point to be considered.

That Donnelly actually received this sum from his wife’s estate is past all doubt. There are his receipt of 9th December 1839 for $300 of it, and the report of Joseph A. Clay, as auditor of the account of Gavin’s executor, finding that the whole sum of $500 had been paid to Donnelly. The audit of Gavin’s estate took place in 1849, after Donnelly’s death, and Mrs. Donnelly contested the executor’s right to a credit for the payment of the money to her husband. The Traynor deed of 10th of December 1831, if of any validity, was in full operation at that time, and Mrs. Donnelly was represented before Mr. Auditor Clay by counsel; yet the decision was against her, and was acquiesced in. It was held to be good payment by Gavin’s executor to Donnelly, and the credit *was allowed. Now what wms this but a legal adjudication of the fact again drawn in question here ?

As the law of the marriage relation stood in 1839, Donnelly had a right to receive his wife’s chose in action, but if he had renounced that right by a valid instrument, eight years before, the payment to him was what the court considered it, illegal and void. On this hypothesis, Gavin’s executor paid it in his own wrong, and should not have had the credit claimed. Yet the law in 1849 adjudged the payment valid. From that decree no appeal was taken, and it is not to be reversed collaterally. If the decision of the court, now under review, were permitted to stand, we should have on record twro inconsistent decrees in respect to this fund: one, that it was well paid to Donnelly; the other, that he had no more right to receive or meddle with her property derived from her father than the most entire stranger.

From the facts that Mr. Auditor Perkins places before us upon the present record, it is easy to infer why Mr. Clay gave no effect to the Traynor deed of settlement in 1849. It appears, that when Donnelly made that settlement in 1831, he was largely indebted, and that the debt of Robinett, Pollard & Co., which is the subject of the present controversy, was in.existence at that time. Just a week after the date of the deed to Traynor, Donnelly made an assignment of his own property for the benefit of his creditors, stipulating for releases on their part. Robinett, Pollard & Co. released and came in under the assignment, but discovering after-wards that the assignment was fraudulent, they instituted suit against Donnelly on their • original claim. This suit was commenced 25th September 1835, in the District Court, and, though not tried until 1848, resulted in favour of the plaintiffs, and thus overthrew the assignment as fraudulent. The deed to Traynor, acknowledged the day of its date, was not recorded till the 5th of October 1835, almost four years after it was made, and ten days after the suit of Robinett, Pollard & Co. had been commenced.

These facts, in the absence of all proof that the deed of settlement was ever delivered to Traynor, or that he acted under it, doubtless, led Mr. Clay, in 1849, as they did Mr. Perkins, in 1854, to set it aside as fraudulent and void. Mr. Perkins had, moreover, the additional fact, sworn to by Mrs. Donnelly herself, that there was no settlement.

We think he had abundant ground for disregarding that deed. We are not prepared to say, that this chose of the wife would not have passed under the deed of assignment, had it been fair and valid; for we have not been furnished with a copy of the assignment, and under our decisions, which are hard to reconcile on the point, the terms of the instrument would need to be looked at; but surely it is competent for creditors to question a post-nuptial settlement, made by a man deeply indebted and on the eve of a bankruptcy, judicially ascertained to have been fraudulent; and that, too, when the pnly purpose of setting up the settlement is, to prove that money actually received by the husband from the wife’s estate was not reduced into his possession. The creditors have to look to his estate for satisfaction, and if in law and fact, this money became a part of his estate, they have a right to follow it. But he did reduce it to possession, and it consequently became a part of his estate, unless the settlement of 1831 was valid. Two very competent auditors have found that it was not valid; the wife herself swears there was no settlement; the circumstances attending it are of the most condemning character, and yet the court below held it sufficient to balk the pursuit of creditors. Before the auditor, Mrs. Donnelly seems not to have put her claim to the money on that deed at all. On the contrary, she swore that she kept the money, that her husband did not handle it, and that her guardian (by whom I understand her to mean her trustee) was dead at the time. We have not seen the deed, and do not know whether the trusts in it survived the -trustee or not; but it is very singular, that whilst the money is denied to the creditor and given to the wife, by virtue of that deed, she claimed it on the ground not of the deed,-but. of her personal custody and, handling of it.

If it were an honest settlement of the wife’s separate estate— if, indeed, it were not like the deed of assignment, a contrivance to cloak the property from the scrutiny of' creditors, why was it not delivered and recorded like other nuptial settlements ? And why were not the $500 paid to the trustee, or to his successor ? Why, in a word, did the wife rest her claim to the money on the sole ground that her husband permitted her to handle it ?

We entirely agree with the learned judge, that the husband might renounce his marital rights in favour of a trustee, but it must be a bond fide act of renunciation. A settlement, never recognised nor acted on, but disregarded by .all the parties in interest, was no settlement — was a sham transaction.

We have many cases in our books in which the wife’s right of survivorship in her choses in action was sustained, on the ground of the husband’s contemporaneous acts and declarations, importing that he did not mean conversion of her choses, to be reduction into possession; but this ease, unaccompanied by any such acts and declarations, stands where the court placed it, on the deed of settlement." Except that, there is nothing to indicate the husband’s intention to renounce his marital rights, and considering how clearly circumstances prove that to have been part of the scheme to defraud creditors, it ought not to prevail.

What is conclusive on the point, is the fact, that the auditor found it to be fraudulent and void, on grounds that are entirely satisfactory to us.

The next question upon.the record is, whether the auditor erred in surcharging the administration account with the profits made by the administratrix out of her husband’s estate. , He was a pawnbroker, and she continued the business after his death, and made large profits.

The auditor took the lowest amount of annual profits to which she testified, and deducting from them $600 per annum for her reasonable expenses, charged her with the balance, equal to $1100 per annum, as the net profits of the business.

As administratrix, she was the trustee, first of creditors, and next of heirs, and the law pointed out very plainly her duties. When, instead of walking in the prescribed path, and bringing the estate to a speedy and final settlement, she undertook to trade with it, she made herself liable to account to the cestuis que trust, on those principles which are ordinarily applied to trustees for breach of trust and malversation of funds.

The general rule of equity, as stated by Judge Story, in Oliver v. Piatt, 8 Howard 333, is, that the gain made by the trustee by a wrongful application of the trust-fund, shall go to the cestui que tfrust, and all the losses shall be borne by the trustee., This principle was substantially recognised and applied in Callaghan v. Hall, 1 S. & R. 241; Wiley’s Appeal, 8 W. & S. 244; and in Emeret’s Estate, 2 Parsons’s Eq. Cas. 195.

As the trustee is to be charged with so much of the profits only as are fairly attributable to the trust-capital, it is manifest, that it must often be very difficult to ascertain these correctly. If the trust-moneys be invested in lands or stocks, which appreciate hy mere lapse of time, a chancellor would have no difficulty in measuring the extent of the trustee’s liability; but if they be mixed with the trustee’s own capital, and be employed in trade or business which requires skill and industry on his part, it is hard to say how much of the profits are due to the trust-fund, and how much to the trustee.

The particular inconvenience of going into complicated accounts, for the purpose of separating the profits produced by the trader’s own capital or skill, from those that the trust-fund had earned, was strongly urged upon Lord Brougham, in 1834, in the case of Docker v. Somes, 2 Mylne & Keen 655. It was said in the argument of that case, that Brown v. De Tastet, 4 Russ. 126, was the only case in which such an investigation had been attempted, and that there it was eventually abandoned. . It wras insisted, that the rule had become firmly established, that whenever a trustee, who is in trade, mixes and uses trust-moneys in his business, he shall be charged with interest, the rate whereof, not exceeding five per centum per annum, is to be governed by all the circumstances of. the case. But after reviewing all the cases, and discussing with great animation, the alleged difficulties of the investigation, his lordship concluded, that if a trustee mixes trust-funds with his private moneys, and employs both in trade or adventure of his own, the cestui que trust may, if he prefers it, insist on having a proportionable share of the profits, instead of interest on the amount of trust-funds so employed.

In Robinson v. Robinson, 9 Eng. Law Eq. R. 75, the same rule was not only recognised, but the rationale of it brought out in terms as follows: “ The employment in trade is unwarrantable, but if it turns out to be profitable, the cestui que trust, in such a case, has a right to follow the money that is used in trade and profit, because in such a case the trade profits have in fact been produced by the employment of the money of the cestui que trust; and it would be manifestly unjust, to permit the trustee to rely on his own misconduct, in having exposed the fund to risks of trade, as a reason for retaining the extra profits beyond interest, for his own benefit. Even where no such extra profits have been made, the cestui que trust is, in general, at liberty to charge the trustee who has allowed the trust-money to be employed in trade, with interest at five per cent., that being the ordinary rate of interest paid on capital in trade. This right depends on principles the same, or nearly the same, as those which enable the cestui que trust to adopt the investment, and take the profits actually madé.” This decision was pronounced in 1852, and may be regarded as expressing the final conclusions of the English Chancery on this interesting question. Where profits are made, and the cestui que trust claims them, they are to be ascertained, notwithstanding the difficulties of the investigation. And if hardship occasionally happen from an application of the rule, the wrongdoer will have no right to complain. If he dread the application of the rule, the better for the trust, for he will be more likely to administer it according to law.

Shall this rule be adopted in Pennsylania ? We are referred to a great number of our own cases that are supposed to be inconsistent with it, but they have reference to the rate of interest with which trustees should be charged for non-employment of trust-funds, or for use of them where there has been no malversation. These cases show that we have rejected triennial rests in computations of interest, and come down to the legal standard of six per cent, in settling with trustees, but they were cases in which profits were not made, or if .made, were not claimed: Dietterich v. Heft, 12 Barr 87, and the cases therein cited; Light’s Appeal, 12 Harris 180; Biles’s Appeal, Id. 335.

They are not inconsistent with the English rule, nor applicable to a case like this, where the profits are claimed, and have been carefully, and, we have no doubt, correctly ascertained. We think that every reason that has been urged in behalf of the rule elsewhere, is applicable in Pennsylvania, and that the machinery of our courts is as well calculated for its prudent application, as is that of the English Chancery.

We approve, therefore, of the auditor’s procedure in this part of the case. The Orphans’ 'Court thought he did not make due allowance to the administratrix for her skill and industry, but we see no evidence of mistake in this regard. He meant to charge her with that proportion only of the profits which were fairly attributable to the trust-funds; and as there was nothing before the court to show that he erred in matter of fact or law, his report ought to have been confirmed.

It follows, as a necessary consequence, that the auditor was right in denying the accountant commissions. Besides the trading with the estate, there was some evidence of attempts to fabricate spurious debts against the estate, and to misapply funds. An unfaithful trustee is not to receive the rewards of a faithful one.

The allowance of counsel fees and the expenses of the audit were, under the circumstances of the case, all that the administratrix had a right to claim, and these, though excepted to, we are not disposed to strike out.

- Nor do we see any error in the court’s dismissing the first exception of Mr. Robinett. According to a strict construction of the English rule, interest as well as profits -might perhaps have been claimed, but that would have been interest on the capital, not on the profits. The auditor and court concurred in refusing interest on the profits, and we think they were right.

The result which we reach is, that of the seven errors assigned by the appellant, the 1st, 3d, and 5th are sustained, and the rest are not.

And now, to wit, 11th of May 1859, this cause having been argued by counsel, and considered by the court, it is ordered ■ and decreed that so much of the decree of. the Orphans’ Court as reversed the first report of the auditor as to his surcharge of the account with the $500, received from the estate of John Gavin, and with the profits of the business carried on by the accountant with the funds of the estate of her deceased husband, and allowéd her commissions, be and the same is hereby reversed, and the report of the auditor in these particulars is confirmed; and as to the residue of said decree, the same is affirmed, and the record is remanded to the Orphans’ Court, to be proceeded in according to law; the costs of the appeal to be paid by the appellee.

On the application of the appellee’s counsel, a re-argument was granted; and the case having been again argued by the same counsel, the following opinion was delivered by

Read, J.

An executor or administrator, in equity, is simply regarded as a trustee, and is bound to apply the property in his hands to the payment of debts and legacies, and to apply the surplus according to the will of the testator, or, in case of intestacy, according to the intestate laws. And if he undertakes to carry on the trade of the deceased, he is chargeable with all the profits. “ For, if the trade is beneficial, the profits are applicable to the purposes of the trust, and the executor or administrator derives no personal benefit from the success:”' 2 Williams on Hzeeutors, 5th ed. 1624-5. “ And the rule is now universal, that, whether the executor was solvent or insolvent, whether the money was part of the general assets, or specifically bequeathed, whether lent upon security, or employed in the way of trade, the executor shall account for the utmost actual profits to the testator’s estate Lewin on Trusts 360-1.

These rules, thus laid down by the ablest text writers of the day, are supported by the latest and best authorities, some of which it is proposed briefly to notice. In Palmer v. Mitchell, before Sir William Grant, where it was charged in the bill, that the defendant, one of the executors, continued to carry on the business in which the testator had been engaged, and that he. had retained large balances of the testator in his hands, which he had invested in the trade, or in other mercantile concerns or speculations, an account was decreed on the 8th December 1809, “ to be taken of what balances were, from time to time, in the hands of the executors, or either of them; and it was declared, that' they ought to be charged with the profits and advantages made by them of the personal estate of the testator, whilst the same or any part thereof was employed by them, in any trade or business, since the testator’s decease8 English Chancery Reports 180-1, in note. In Freeman v. Fairlee, 3 Merivale 25, a case which had been discussed at length before Sir William Grant and Lord Eldon, the former made a decree on the hearing of the cause, dated the 17th of March 1813, by which it was referred to the master to take the usual accounts, and to inquire what interest or profit had been made of the personal estate of the testatrix, it having been used in trade. The whole question was discussed and decided by Lord Chancellor Brougham in 1834, in Docker v. Somes, & Mylne Keene 655, a case which has been confirmed and followed in very late cases.

In Jones v. Foxall, 21 Law Journal Rep. (N. S.) Ch. 725, the present Master of the Rolls said, — “ If, in addition to this, he has employed the money so obtained by him in trade or speculation, for his own benefit and advantage, he will be charged, either with the profits actually obtained by him from the use of the money, or with interest at five per cent, per annum, and also in the yearly rests, that is, with compound interest. The principle on which the court charges an executor with profits which have actually arisen from the property of the cestuis que trust employed by him, is obvious, and of general application, when such profits are found to have been made. It was the money of the cestuis que trust, and they are entitled to receive the profits that are earned.”

In McDonald v. Richardson, 5 Jurist (N. S.) 9, V. C. Stuart, after reviewing the cases of Freeman v. Fairlee, Docker v. Somes, and Palmer v. Mitchell, says, — “ Where an executor employs assets in carrying on trade, without any authority, he is bound to account for and pay over all the profits, or he may be charged with interest, at the option óf those beneficially entitled to the assets misemployed.. This is a right personal against the executor.” The same doctrine is applied by the same learned judge, in the same way, in the case of Townend v. Townend, Id., 506, and a similar rule as to the profits derived by a trustee ex maleficio, was applied to a member of a corporation, in relation to the purchase of their debentures, in the case of Bowes v. City of Toronto, 11 Moore P. C. C. 463.

It is clear, therefore, that ‘the general rule laid down by my Brother Woodward is not only sound law, but the undoubted law of this state, and is founded in common sense, common honesty, and common justice.

This decides the real question in this case, and upon a careful examination of the opinion of Justice Woodward, I find no reason to differ from him in any of his conclusions. This cause was argued originally with great force, and every care was bestowed by both sides on the argument upon the rehearing; but seeing no reason to change the decree already made, it must stand as the final judgment of this court.

Decree affirmed.