Sims, J.,
after making the foregoing statement, delivered the following opinion of the court:
The question presented by the assignments of error on which the decision of the case depends is the following:
[1] 1. Did the appellants, Martin and Reid, acting as members of, or as authorized by the creditors’ committee, even if they acted in good faith with respect to the belief that they have the right so to do, have the authority from the corporation to make the application of the sums of money, refunded by them, respectively, under the ruling of the State Corporation Commission, to the two debts of the corporation on which they were bound as sureties, and thus give such debts preference, pro tanto, as to and to the extent of such money over the other outstanding debts of the corporation, and thus lessen their personal liability for the payment of such debts in the event that the assets of the corporation should prove insufficient to pay all of its debts in full?
The question must be answered in the negative.
It is apparent from the resolution of the board of directors which appointed the creditors’ committee that it did not undertake to impose upon the committee all of the duties or to confer upon the committee all of the powers of the board of directors; but only a limited duty and limited powers. The sole duty imposed, as set out in the resolution, was “to take charge of the property and conduct the operation of the corporation;” and it is manifest from the other terms of the resolution that the powers conferred were limited to those expressly named, [461]*461■or conferred by necessary implication, which were all such only as were incident to the custody of the assets, the borrowing of money to increase the working capital, and the conduct of the current operations of the corporation thereafter by the committee, in the “due course of business,” and necessary to enable the committee to discharge the aforesaid duty. They did not embrace the power to distribute the assets of the corporation in the payment of debts of the corporation existing when the committee was appointed, or any part or parts of such debts. The debts in question were incurred by the ■corporation prior to the appointment of the committee. Hence, it is plain that neither the appellants, Martin and Reid, acting as members of the committee, or as authorized by the committee, had any authority from the corporation to make the application of the. refunded money in question, if that money belonged to the corporation.
[2] In 39 Cyc. 296, this is said: “ * * good faith is no defense where the trustee has arbitrarily overstepped the bounds of his authority.” Citing the following mentioned cases of Gibney v. Allen and Pennington v. Seal.
In Gibney v. Allen, 156 Mich. 301, 120 N. W. 811, on .a bill filed by beneficiaries under a will to set aside a deed executed by a trustee named in the will without .authority, it is held that good faith on the part of the trustee is no defense. On'this subject the court said this: “* * good faith is a defense only where a trustee, acting within the limits of his powers, with proper prudence and diligence, commits mere mistakes or errors of judgment, but is not a defense where a trustee ■disregards the limits placed upon his powers by law or by the trust instrument. 28 Am. & Eng. Eney. of Law .{2d ed.), p. 1063, and eases cited.”
[462]*462In Pennington v. Seal, 49 Miss. 518, a guardian lent out money of the ward without the previous sanction of court required by the statute, and the money was lost by the insolvency of the person borrowing the money. Held: The guardian must pay back the money. The court said: “* * we are satisfied that the guardian, in this matter, was actuated by good faith and pure motives * *. If a trustee, whether his duties are defined by law or by instructions given by an individual who may appoint him, is under a duty to follow the directions of the law or the instructions given by the person who appoints him; and if he exceeds his authority or disobeys the rules prescribed for him, he acts at his peril and undertakes responsibility for the consequences.”
In Pannill’s Adm’r v. Calloway’s Committee, 78 Va. 387, it is held that one who assumes to act as a trustee in relation to trust property, without just authority, is held personally liable for the estate of the cestui que trust converted by him to his own use. Upon this subject the court says this: “One who assumes to act in relation to trust property without just authority, however bona fide may be his conduct, shall be held responsible both for the capital and the income, to the same extent as if he had been de jure trustee.”
[3] That the money mentioned did belong to the corporation is manifest. It is true that, as an original proposition, the corporation had no right to compel the appellants, Martin and Reid, to pay back such money. The blue sky law did not confer upon the corporation any such right. Section 18 of that law, however, expressly provides that it shall be construed to give the State Corporation Commission “power * * to require the promoters of such securities” (that is, such stock as was sold by said appellants), “shall honestly [463]*463apply the proceeds of the sale thereof to the purpose for which such securities are sold.” This statute, therefore, empowered the State Corporation Commission to require the appellants to apply the commissions they had retained to the purpose for which the stock was sold. As appears in evidence, that purpose was to supply the general needs of the corporation for money as capital; not the need to pay any particular debt or debts, or any part or parts thereof. Hence, when the Commission ruled that the said appellees must return the portions of the commissions aforesaid, the legal effect of the requirement was that such money be returned to the treasurer of the corporation as assets of the corporation; and when such appellees did in fact make such return by their checks payable to such treasurer and the checks were received by the latter, the money became part and parcel of the general assets of the corporation, of which, under the provisions of the aforesaid resolution appointing the creditors’ committee, that committee was “to take charge,” and thus it became a trust fund belonging to the corporation under the control of the committee and held in trust by it as provided in such resolution; and which neither the appellants, in any capacity whatsoever, nor the creditors’ committee, had any authority to distribute among the creditors whose debts arose prior to the appointment of the committee. The aforesaid application of such money was, therefore, a wrongful conversion of it by appellants, Martin and Reid, for their own use and benefit, in breach of the aforesaid trust, which rendered them personally liable, and, since they acted in concert in the matter, rendered them jointly and severally liable therefor; which was, in substance, the holding of the • decree under review.
[464]*464[4] It is urged in behalf of the appellants, Martin and.
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Sims, J.,
after making the foregoing statement, delivered the following opinion of the court:
The question presented by the assignments of error on which the decision of the case depends is the following:
[1] 1. Did the appellants, Martin and Reid, acting as members of, or as authorized by the creditors’ committee, even if they acted in good faith with respect to the belief that they have the right so to do, have the authority from the corporation to make the application of the sums of money, refunded by them, respectively, under the ruling of the State Corporation Commission, to the two debts of the corporation on which they were bound as sureties, and thus give such debts preference, pro tanto, as to and to the extent of such money over the other outstanding debts of the corporation, and thus lessen their personal liability for the payment of such debts in the event that the assets of the corporation should prove insufficient to pay all of its debts in full?
The question must be answered in the negative.
It is apparent from the resolution of the board of directors which appointed the creditors’ committee that it did not undertake to impose upon the committee all of the duties or to confer upon the committee all of the powers of the board of directors; but only a limited duty and limited powers. The sole duty imposed, as set out in the resolution, was “to take charge of the property and conduct the operation of the corporation;” and it is manifest from the other terms of the resolution that the powers conferred were limited to those expressly named, [461]*461■or conferred by necessary implication, which were all such only as were incident to the custody of the assets, the borrowing of money to increase the working capital, and the conduct of the current operations of the corporation thereafter by the committee, in the “due course of business,” and necessary to enable the committee to discharge the aforesaid duty. They did not embrace the power to distribute the assets of the corporation in the payment of debts of the corporation existing when the committee was appointed, or any part or parts of such debts. The debts in question were incurred by the ■corporation prior to the appointment of the committee. Hence, it is plain that neither the appellants, Martin and Reid, acting as members of the committee, or as authorized by the committee, had any authority from the corporation to make the application of the. refunded money in question, if that money belonged to the corporation.
[2] In 39 Cyc. 296, this is said: “ * * good faith is no defense where the trustee has arbitrarily overstepped the bounds of his authority.” Citing the following mentioned cases of Gibney v. Allen and Pennington v. Seal.
In Gibney v. Allen, 156 Mich. 301, 120 N. W. 811, on .a bill filed by beneficiaries under a will to set aside a deed executed by a trustee named in the will without .authority, it is held that good faith on the part of the trustee is no defense. On'this subject the court said this: “* * good faith is a defense only where a trustee, acting within the limits of his powers, with proper prudence and diligence, commits mere mistakes or errors of judgment, but is not a defense where a trustee ■disregards the limits placed upon his powers by law or by the trust instrument. 28 Am. & Eng. Eney. of Law .{2d ed.), p. 1063, and eases cited.”
[462]*462In Pennington v. Seal, 49 Miss. 518, a guardian lent out money of the ward without the previous sanction of court required by the statute, and the money was lost by the insolvency of the person borrowing the money. Held: The guardian must pay back the money. The court said: “* * we are satisfied that the guardian, in this matter, was actuated by good faith and pure motives * *. If a trustee, whether his duties are defined by law or by instructions given by an individual who may appoint him, is under a duty to follow the directions of the law or the instructions given by the person who appoints him; and if he exceeds his authority or disobeys the rules prescribed for him, he acts at his peril and undertakes responsibility for the consequences.”
In Pannill’s Adm’r v. Calloway’s Committee, 78 Va. 387, it is held that one who assumes to act as a trustee in relation to trust property, without just authority, is held personally liable for the estate of the cestui que trust converted by him to his own use. Upon this subject the court says this: “One who assumes to act in relation to trust property without just authority, however bona fide may be his conduct, shall be held responsible both for the capital and the income, to the same extent as if he had been de jure trustee.”
[3] That the money mentioned did belong to the corporation is manifest. It is true that, as an original proposition, the corporation had no right to compel the appellants, Martin and Reid, to pay back such money. The blue sky law did not confer upon the corporation any such right. Section 18 of that law, however, expressly provides that it shall be construed to give the State Corporation Commission “power * * to require the promoters of such securities” (that is, such stock as was sold by said appellants), “shall honestly [463]*463apply the proceeds of the sale thereof to the purpose for which such securities are sold.” This statute, therefore, empowered the State Corporation Commission to require the appellants to apply the commissions they had retained to the purpose for which the stock was sold. As appears in evidence, that purpose was to supply the general needs of the corporation for money as capital; not the need to pay any particular debt or debts, or any part or parts thereof. Hence, when the Commission ruled that the said appellees must return the portions of the commissions aforesaid, the legal effect of the requirement was that such money be returned to the treasurer of the corporation as assets of the corporation; and when such appellees did in fact make such return by their checks payable to such treasurer and the checks were received by the latter, the money became part and parcel of the general assets of the corporation, of which, under the provisions of the aforesaid resolution appointing the creditors’ committee, that committee was “to take charge,” and thus it became a trust fund belonging to the corporation under the control of the committee and held in trust by it as provided in such resolution; and which neither the appellants, in any capacity whatsoever, nor the creditors’ committee, had any authority to distribute among the creditors whose debts arose prior to the appointment of the committee. The aforesaid application of such money was, therefore, a wrongful conversion of it by appellants, Martin and Reid, for their own use and benefit, in breach of the aforesaid trust, which rendered them personally liable, and, since they acted in concert in the matter, rendered them jointly and severally liable therefor; which was, in substance, the holding of the • decree under review.
[464]*464[4] It is urged in behalf of the appellants, Martin and. Reid, that the corporation was not insolvent at the-time the aforesaid application of the money in question was made to the aforesaid payments on account of the two debts of the corporation in preference to other debts of the corporation; and the well settled rule is invoked that it is not fraudulent per se, under the State law on the subject, even for an insolvent debtor to prefer certain creditors in the distribution of his assets, if the preference is made in good faith, with no actual fraudulent intent; and it is urged that, in the case of a corporation, the directors, acting in good faith and without any fraudulent intent, may' make preferences-between creditors of the corporation, even in their own favor, where the directors are themselves creditors of the corporation—citing Planters' Bank v. Whittle, 78-Va. 737, and other authority to the same effect. But these well settled principles have no application to the-case before us, for the reason that we have not before us. the case of any preference made or attempted by the debtor corporation in the distribution of its assets between its creditors, through the action of its board of directors, or otherwise. We have before us the attempt of members of a committee of the board of directors of the debtor corporation.to act for the corporation in making such a preference, without any authority whatsoever so to do—a wholly different situation. And such being the situation it is immaterial for us to determine whether, in the case before us, the corporation was or was not insolvent at the time the wrongful conversion of assets aforesaid was made; or whether or not'the conversion was made with fraudulent intent on the part-of the appellants. In "any case, the conversion being without authority and in breach of trust, as aforesaid, it was wrongful, and having been made by appellants. [465]*465acting in concert, they are jointly and severally liable. Hence, the decree under review so holding will be affirmed; but nothing said in this opinion is to be construed as intended to affect any right which the appellants, Reid and Martin, may have, by way of subrogation, to assert against the corporation so much of the debts of the banks as was paid by them.
Affirmed.