Herelick v. Southern Dry Goods & Notion Co.

123 S.E. 529, 139 Va. 121, 1924 Va. LEXIS 90

• Court: Supreme Court of Virginia
• Decided: June 12, 1924
• Status: Published

Opinion

Sims, P.,

after making the foregoing statement, delivered the following opinion of the court:

The questions presented for decision by the assignments of error will be disposed of in their order as stated.

• 1. Was the administrator guilty of a devastavit in giving the credit he gave to Berglass, for the $10,000.00 balance owing by the latter for the goods of the estate sold to Berglass by the administrator, at public auction, on the terms of all cash, but with which terms Berglass found himself unable to comply?

The question must be answered in the negative.

Section 5381 of the Code (1919), so far as material, provides as follows: “Of the goods * * the personal representative shall sell, as soon as convenient, at public auction, such as are likely to be impaired in value by keeping, giving a reasonable credit (except for small sums), taking bond with good security.” (Italics supplied.)

This statute has been in force in the same form since the Code of 1849, section 16, page 643, and was theretofore the same in substance back to 1 Revised Code of 1819, section 47, page 387.

This statute must be regarded as having authorized the sale, and also, in equity certainly, the credit in question, given as stated, if the length of the credit was “reasonable” and the security taken was regarded as “good security,” at the time, by the administrator, acting in good faith and with reasonable diligence, that is, acting in the exercise of a fair discretion and in the same manner that a reasonably prudent business man would have acted under the same circumstances had the subject been his own property. That the administrator did so act and so regard the security at the time, clearly appears from the evidence.

The circumstance that the security taken was not a “bond” is immaterial, certainly in equity, if the security was of the character just mentioned.

In Elliott v. Carter, 9 Gratt. (50 Va.) 541, this is said: “With regard to the rules by which trustees should be governed in the management of trust funds, the laying out of trust money in securities, or allowing trust money to remain in the hands of those from whom it is owing, Lord Hardwick remarked (Ex parte Belchier, Amb. R. 219), that these rules should not be laid down with such strictness as to strike terror into mankind acting for the benefit of others and not their own. In the case of Knight v. Lord Plymouth, 3 Atk. R. 480, s. c. 1 Dickens’ R. 126, the same learned judge says: ‘Suppose a trustee having in his hands a considerable sum of money places it out, for the benefit of the cestui que trust, * * on security at the time apparently good, but which afterwards turns out not to be so, was there ever an instance of the trustee being made to answer for the actual sum so placed? I answer no’.”

The opinion then reviews other English cases, refers to the observations of Judge Story on the subject and the holdings of the New York court in two cases, in which Chancellor Kent delivered the opinions, which authorities are, on the whole, to the effect that administrators, executors and other trustees are not to be held. personally responsible for any loss of the trust property or funds where there is no just imputation of mala fides on their part, and the fault is at most but an error of judgment, or a want of unusual sharpsighted vigilance, i. e., where the fiduciary has acted' in good faith, with fair discretion and in a manner in which a reasonably prudent business man would have • acted, under the same circumstances, had the subject been his own property; and has not been guilty of gross negligence or premeditated and fraudulent conduct.

And the opinion, thereupon, concludes the consideration of the subject by saying, in substance, that a different and more stringent rule than that prevailing in England and New York had not been adopted in Virginia, and adds the following: “And I very much doubt whether a wise policy would ever require more of a trustee than that he should act in good faith and with the same prudence and discretion that he is accustomed to exercise in the management of his own affairs. * * I should not feel disposed to extend the responsibilities of trustees beyond the limits by which they would seem to be bounded in the cases to which I have referred, and where they have intended to discharge their duties fairly, I think they should be treated with tenderness, and due caution taken not to hold them liable upon slight or uncertain grounds, lest, by a different policy, men of integrity and who would be actuated by proper views, may be deterred from taking upon themselves an office so necessary in the concerns of life, from fear of the anxiety, trouble and'risk which it involves.”

And such has, since such leading case on the subject, been the uniform holding of this court down to the present time. See Davis v. Harmon, 21 Gratt. (62 Va.) 194; Myers v. Zetelle, 21 Gratt. (62 Va.) 733, 753; Hale v. Wall, 22 Gratt. (63 Va.) 424; Parsley v. Martin, 77 Va. 376, 46 Am. Rep. 733; Mecklenburg County v. Beales, 111 Va. 691, 69 S. E. 1032, 36 L. R. A. (N. S.) 285; Shepherd v. Darling, 120 Va. 586, 91 S. E. 737— to mention only a few of the Virginia cases. And the same has been the uniform holding of the Supreme Court. See Taylor v. Benham, 5 How. (U. S.) 233, 12 L. Ed. 130; Lamar v. Micon, 112 U. S. 452, 5 Sup. Ct. 221, 28 L. Ed. 751.

It is earnestly urged in argument for the appellees that the administrator rendered himself personally liable in the instant ease by his extension of credit to the purchaser of the goods, by which the. administrator lost control of the 810,000.00 during the time given for its payment; and the following authorities are cited and relied on upon this subject, namely: Note to case of Chancellor v. Chancellor, 27 Am. & Eng. Ann. Cas. 1915-C, p. 50; Fidelity, etc., Co. v. Butler, 130 Ga. 225, 60 S. E. 851, 16 L. R. A. 994; 1 Perry on Trusts (3rd ed.), sec. 443; McCollister v. Bishop, 78 Minn. 228, 80 N. W. 1118; Corcoran v. Kostrometinoff, 164 Fed. 685, 91 C. C. A. 619, 21 L. R. A. (N. S.) 399; In re Wood, 159 Cal. 446, 114 Pac. 992, 36 L. R. A. (N. S.) 252; 18 Cyc. 207, 237. But these authorities all involve cases where the fiduciary had actual custody and control of the money in question, and had no authority to part with such control for any moment of time, and the fiduciary, without any authority so to do, parted with that control, either by confiding it in part to another, by way of creating a joint control shared with another person without any authority in the premises, or by depositing the money in bank for a fixed time without any authority to do so, or the like. They have no application to a ease, such as the instant case, where the fiduciary at no time had the money in question in actual custody and control, and where all that the fiduciary did was to extend a reasonable credit upon security at the time apparently good for money owing to the estate for goods sold as aforesaid, which the administrator had the authority to do, under the circumstances, as aforesaid, and which he did, acting in good faith and otherwise as aforesaid, for the very purpose of getting such money into his custody and control.

2. Did the decree under review err in not allowing the administrator any commissions on the $10,000.00 (for which he gave credit to the purchaser of goods at the sale as aforesaid, and which never came into the hands of the administrator), except upon the condition that the $10,000.00 be in fact paid to the estate by him or his surety?

The commission to which an administrator is entitled is a commission on “receipts,” Code 1919, section 5425, not on sales, for which the purchase price is never collected by him.

3. Did the decree under review err in not allowing the administrator credit for the full amount paid by him prior to the expiration of twelve months from his qualification and prior to his having obtained protection from personal liability as provided for by statute, to the holders of certain notes of the decedent in full payment of such notes, such payment being in excess of the pro rata share of the debts represented by such notes of the assets which were found to be in the hands of the administrator when his accounts were settled and an account of debts was stated according to law?

In Bliss v. Spencer, 125 Va. 36, at p. 56 (99 S. E. 593, 599, 5 A. L. R. 619), this is said: “Under the statute law of Virginia the personal estate (as is also the real estate) of a decedent is expressly made assets for the payment of his debts. And where there is insufficient” (erroneously printed “sufficient” in the report of the case) “ personal estate to pay all debts, the administrator, although he may have no actual notice of their existence, takes the risk of personal liability for payment of debts, if he distributes the personal estate before awaiting the expiration of the twelve months period allowed by statute in Virginia for presentation of debts and before thus obtaining protection from personal liability therefor, by refunding bonds, or before such protection is afforded him by order of court under the statute in such case made and provided, unless the creditor’s laches, or other conduct thereafter, should bar the demand. Sections 2706, 2707, 2708 of the Code” (of 1904, being sections 5437, 5438, 5439 of Code of 1919); “7 Am. & Eng. Eney. Law (1st ed.), pp. 318-319 and note 1 and authorities cited.”

We are of opinion that, where there are creditors, and where the administrator has not, but merely expects to have, in hand, or that there will be from some other source, sufficient assets to pay all debts, and, from any cause whatever, other than vis major, there is not such sufficiency of assets, what is said in Bliss v. Spencer, just quoted, is applicable, with respect to the personal liability of an administrator for such over payments as he may make, before awaiting the expiration of the twelve months period aforesaid and before obtaining the protection aforesaid as provided by statute, of or on account of any debts, beyond the true pro rata share of such debts, of the funds which may turn out to be in hand for distribution, although the administrator may in good faith believe, at the time of such payments, that he will thereafter get in hand sufficient funds, or that there will be sufficient funds from some other source, to pay all debts in full.

The only Virginia authority cited for the plaintiff to sustain a contrary view to that just expressed is Braxton v. Winslow, 4 Call (8 Va.) 308. But an examination of that case shows that it holds merely this, as stated in the head-note: “Paying debts of inferior dignity is not a devastavit, if the executor retains assets enough to pay those of higher rank;” which, in substance, sustains instead of being contrary to our views of the law on the subject. As stated in the report of the case, at page 309: “* * there was no proof that there were not assets enough left to satisfy the judgment and bill of exchange” — the debts left* unpaid by the executor at the time he made the distribution in question in payment of another debt of inferior dignity. In the opinion of the court, delivered by Chancellor Wythe, at page 317, this is said: “* * the mere act of paying debts of inferior dignity, as was done in this case, is not a .devastavit, if he. retains assets to pay those of higher grade *

There are only two other authorities cited for the plaintiff on the subject under consideration, namely, two eases from South Carolina, Swift v. Miles, 2 Rich. Eq. 147, and Hinton v. Kennedy, 3 S. C. 459.

. In Swift v. Miles, there were not funds enough in the hands of the administrator to pay all debts; he applied the funds in his hands to the payment of simple contract debts, leaving specialty debts unpaid, with the expectation that they would be paid out of proceeds of the real estate of the decedent, the realty being sufficient for that purpose. Afterwards, in a partition suit, to which the administrator was a party, a sufficient fund from the proceeds of sale of the real estate was reserved in the hands of thé master to pay the specialty debts as they then stood, but, because of an accumulation of interest and costs, this fund proved insufficient to satisfy the specialty debts in full. Held, that the administrator was guilty of a devastavit, and that he and his sureties were liable for the deficit. This is, in principle, the same holding as that of the court below and of ourselves in the instant case.

In Hinton v. Kennedy, the estate was entirely solvent, and the administrator, at the time he paid the simple contract debts, reserved in his hands ample assets to pay the specialty debts; but afterwards so large a portion of such assets was destroyed by vis major, i. e., by the liberation of the slaves during the civil war, etc., that the reserved assets, through no fault’ of the administrator, proved insufficient to pay the specialty debts. Held, That the administrator, while guilty of a technical devastavit, would not be held liable for the deficit, under the circumstances — the vis major being the cause of the deficit. There is nothing in this holding contrary to the holding of the court below and of ourselves above set out.

For the reasons stated above, the decree under review will be reversed, in so far as it holds that the administrator and his said surety are liable for the $10,000.00 loss above mentioned and interest thereon, and in so far as the balance found in the hands of the administrator is arrived at by including such $10,000.00. In all other respects the decree will be affirmed. Costs in this court will be decreed in favor of the defendants in the court below, the appellants here, as the parties substantially prevailing upon the appeal. And the cause will be remanded for further proceedings not in conflict with the views expressed in this opinion.

Reversed in part, affirmed in part, • and remanded.