Estate of Claghorn

37 A. 921, 181 Pa. 608, 1897 Pa. LEXIS 588

• Court: Supreme Court of Pennsylvania
• Decided: July 15, 1897
• Docket: Appeal, No. 368
• Status: Published

Opinion

Opinion by

Mr. Justice Dean,

James L. Claghorn, of Philadelphia, died on August 25,1884, leaving to survive him a widow, Julia S. Claghorn, and one son, J. Raymond Claghorn, then past his majority. He left a will, of which he appointed his widow and son executors. At his death, he was possessed of a considerable estate, probably, at that time, if it had been turned into cash, more than sufficient to pay his debts. But settlement of the estate was delayed by his representatives; no account was filed until one was compelled by the orphans’ court, April 5, 1895. This account was very confused and unintelligible; it indistinguishably blended principal and income, administration and distribution. The auditing judge ordered a restatement of it, which account was presented December 4, 1895. It was not much improvement on the first, yet, as all parties seemed to think it was the best that could be got, it was by their consent adopted as a basis for adjudication and distribution by the court. It showed a balance of principal in the hands of the executors, after deducting costs and counsel fees, of $21,962.58, to which was afterwards added a surcharge of $2,905 against J. Raymond Claghorn, one of the executors. Two claims on this balance were adjudged .sustained, one of $36,344.34, with interest from May 1, 1894, preferred by Mrs. Emma C. E. Keller; the other for $4,300, with interest from March 22,1894, by the Commercial National Bank. To them the fund was awarded, pro rata. Exceptions were filed to the adjudication by both the bank and Mrs. Keller, each objecting to the allowance of the claim of the other. The exceptions, after argument, were overruled by Judge Ashman, and the adjudication confirmed. From that decree the bank appeals, alleging error-in, 1. Not finding Mrs. Keller’s claim was barred by the statute of limitations. 2. In finding as a fact that securities of Mrs. Keller in possession-of testator were converted to his own use.

It appeared from the testimony that Mrs. Keller was an intimate friend of testator’s wife, and had great confidence in the business capacity and integrity of her friend’s husband; for some years before his death she had - placed in his hands different sums of money, aggregating a large amount, for investment ; these he reported to her as invested, specifying for the larger part the particular investments he had made in her name and for her account, and the income derived therefrom; frequent payments on account of alleged income were made to her, amounting to over $12,000, but the investments from which the income remittances came were not particularized in communications to her. And, although irregular, the remittances kept up from the father’s death until about the year 1894. It does not appear just how long before the father’s death these transactions commenced; as already noticed, James L. Claghorn died on August 25,1884. Two letters to Mrs. Keller which his son testified were written by him at his father’s direction were put in evidence. One dated April 7, 1881, is as follows :

“ My Deae Mes. E. C. F. Kellee : The account stands, February 1, 1881: Cash in hand to J. L. Claghorn, fully secured, interest 6 per cent, per annum, $10,462.73; State Line & Sullivan Railroad bonds, 7 per cent. $19,000 ' at par, worth today $105; 86 shares Commercial National Bank at $67.50, $5,800; $70 asked. Pennsylvania bonds, $5,000; bond and mortgage, $2,000; ground rent, $1,200; loan on call, secured, 6 per cent., $5,000; aggregating $48,762.73. It is very difficult to get 6 per cent, and be secure. We have done the best we could and feel you are secure. As soon as a good investment offers, father will invest the funds in his hands. Ten-thousand bonds were paid off last year is the reason the amount in his hands is large. But you lose no interest, he preferring to pay you 6 per cent., even if he does not realize that much at present.

“Yours in great haste,

“Raymond.”

The other is dated March 20, 1883, and is as follows :

“ My Dear Mrs. Keller : I have now made up father’s accounts since July, 1882, and I find very little change in your account; the investments are the same ,• the only difference is the amount of cash on hand, in the hands of father bearing six per cent., secured, which was July 1st, 1882, $10,054.01, instead of $10,462.73; 85 shares Commercial Bank; 19,300 bonds State Line & Sullivan Railroad; Pennsylvania Railroad, $5,000 ; bond and mortgage, $2,000; ground rent, $1,200; loan on call, secured, $5,000. If you should spend four or five hundred dollars a year more of income for ten years, it would only amount to $5,000 or $4,000 in the aggregate. I do not see that any more could be derived from investments than at present. You had better be sure than take risks. I am going over to Boston on Sunday night, and Annie, I think, will go along. In fact, I know she will. Will stop at Brunswick. Look us up. Kindly drop note when you will look in. Shall stay a day or so.

“Yours truly,

“ Raymond.”

March 2,1891, seven years after testator’s death, J. Raymond Claghorn wrote a letter of which the following is a copy, to Mrs. Keller:

“ My Dear Mrs, Keller : The following is a full statement of your account, with securities on hand, as it stood January 1, which is the date at which I have settled the accounts of the estate. It has not varied of any consequence since then. Hope you will find it satisfactory. The securities are all good and give very little concern. I have put opposite the different items of the annual income,

19,000 State Line & Sullivan R. R. Co. bonds, 6 . $1,140 00

2,000 Grand Rapids & Indiana fives, 100 00

136 shares the Commercial Bank of Phila., 476 00

- $5,000 temporary loan with collateral; has been five per cent. Is six,..... 300 00

$2,000 mortgage 2042 Woodstock street, Philadelphia, at 5 per cent.,..... 100 00

$9,043.79, being balance to your credit on books of estate of James L. Claghorn, deceased, upon which six per cent, has always been allowed, ...... 542 63

Aggregating,....... $2,658 63

‘• Of course you understand that when father’s estate is finally closed the items to your credit will be turned over either in cash or securities. Considering' the condition of affairs, do you think your funds have shrunk much, if any? State Line Bonds used to be seven per cent., but were reduced to six per cent, two years ago. Think first-class investment for the bonds sold at ten per cent, premium, but of course all things are depressed at present; but that makes no difference when one wants' to hold on.”

On May 14, 1891, he again wrote: ■

“ My Dear Mrs. Keller : Enclosed please find draft for $300. Will send you the balance early next week, which I presume will be satisfactory to you. I do not think it will be necessary for you to give any note, as I will charge it in your account in the estate, which I presume will be entirely satisfactory to you.”

The acting executor, the son, admits that the statements in' all three letters,1* of investments, purporting to be in Mrs. Keller’s name and :for her account, were false; the larger part of the securities were hypothecated for loans to the son ; some of the investments were in the name of the father, with nothing to indicate Mrs. Keller’s ownership. The uncontradicted testimony is that Mrs. Claghorn gave to her son a power of attorney to act for her, and that she concurred in all his acts in relation to the business of the estate. By the will of James L. Claghorn his wife and son were the sole beneficiaries of his estate, and except as to household furnifare^uich was directly-bequeathed to the wife, the son was appointed trustee to pay to her the income of the estate during her life, then principal and income were to merge for his benefit.

It was not until the remittances stopped in 1894 that Mrs. Keller made inquiry as to her investments; she then discovered that the grossest deception had been practiced upon her, and demanded at law the accounting which is the subject of this-litigation. After citation, but before account filed, Mrs. Claghorn and her son resigned as executors, and the son as trustee, and Henry C. Davis was appointed in their stead. He pleaded the statute of limitation as a bar to the claim of Mrs. Keller,, in which plea he was joined by the bank, the remaining creditor. The court overruled the plea on three grounds: 1. That the payments kept up for more than seven years after the death of the testator were a distinct recognition of the debt which subsisted at his death, and equivalent to a promise to pay; and, 2. As the executors themselves were the beneficiaries of the estate, and the benefit or indulgence or postponed payment accrued to them individually, under the authority of McWilliams’s Appeal, 117 Pa. 111, they were estopped from interposing the bar of the statute. 3. That a fraud had been practiced upon Mrs. Keller by both the testator and his executors, by misrepresentation, and in concealing from her the fact that her securities had been misappropriated, which fraud she did not discover until the year before the account was filed; therefore, the statute, as against her, commenced to run only from her discovery of the fraud.

We do not concur with the learned court below in the first and second reasons given for the decree. As to the first, it is directly in conflict with all our authorities, from Fritz v. Thomas, 1 Wharton, 66, down to Light’s Appeal, 136 Pa. 211. All of them hold that the recognition of a debt barred by the statute by the personal representative is but a new promise, on which he must be sued personally; he is not answerable in his representative capacity for any cause of action not created by the decedent himself. If he revive the cause of action by a new promise, then the promise is essentially a new contract, which alone can be relied on to sustain the action.

As to the second reason, it would be sound if Mrs. Keller were the only creditor, for the executors being the only beneficiaries, they would then, on the principle of McWilliams’s Appeal, supra, relied on by the court below, be estopped; this, because it would be inequitable to permit them to benefit personally by the fraud as against the party defrauded. McWilliams’s Appeal assumes the creditor knew his rights under the law, and was conscious of the peril from neglect to enforce them within the six years, but as by the act of the legatees, who alone were benefited, he deferred suit, they were estopped from pleading the statute, as representatives of the estate. There were no other creditors; the advantage accrued solely to the legatees. If in this case Mrs. Keller knew immediately after the death of testator that her securities had been misappropriated, the statute would have run against her as to other creditors, even if by cajolery and promises the legatees had induced her to defer suit. The rule in McWilliams’s Appeal, on such facts, could be invoked only to this extent; the bank could plead the statute against her, and, under the facts, its claim would then be paid in full; then, as to the balance of the fund, the executors would be estopped from interposing the bar of the statute against her, because as legatees, they had caused her to delay pressing her claim for more than six years.

But we think the third reason amply vindicates the decree. Putting aside the confidential relation and the fact that the executors were the sole legatees, the statute, under the facts found, does not bar her claim. Her money was not loaned; it was received to be invested; the executors, repeatedly, in the most explicit statements, represented to Mrs. Keller it was invested, and she was informed of the special securities in her name. If this had been true both father and son were mere custodians of her property, which they were bound to turn over to her on demand. She was not a mere contract creditor of the estate ; she had loaned no money: they were simply depositaries of her funds for a special purpose, winch purpose they represented had been executed. True, her claim against the estate, because of the fraud, had a legal existence during the whole ten years, and the law required her to know this, if she knew the fact that the securities had been appropriated; but, the fraud was in the active, persistent efforts of the executors to conceal the fact of misappropriation; in this they succeeded; as to her, then, the statute commences to run only from the time she discovered the fact of misappropriation, for from that time alone did she know she must assume the attitude of the ordinary contract creditor. The specific securities were beyond the reach of the law; their proceeds had become part of the estate to be distributed. In this view, while the law abhors such conduct, it cannot be questioned the executors were acting in their representative capacity; that is, they used their official position as a cloak to defraud one creditor, and thereby swell the assets for all creditors and legatees. No other creditor can successfully interpose the statute as against her, because her claim against the estate dates only from her discovery of the fraud. Then, only, so far as concerned her, did her right accrue to proceed against the estate.

While the executor and trustee appealed from the decree of the court below, and the appeal was pending at the argument here, it was afterwards, on March 20, 1897, discontinued, so that the appellant now of record is “the Commercial National Bank.” As our decree in the case of Keller’s Appeal, opinion handed down herewith, settles the form of final decree on all the exceptions, we simply dismiss this appeal, costs to be paid by appellant.