Opinion
(June Term, 1846.)
1. Where a bond is, on its face, payable to a guardian for the benefit of his ward, this is prima facie notice to one, who takes an assignment of it, that it is the property of the ward and subject to his equities.
2. More especially is this the case, where the bond is taken in payment of the personal debt of the guardian, and where it is taken at an oppressive discount.
3. The case of a guardian disposing of securities for money belonging to his ward, is stronger against him than that of an executor disposing of the assets of the estate; for it is not so obviously necessary that the guardian should have such a power, as that the executor should, because infants usually come to their property, as the surplus of settled estates, and can hardly be properly in arrears to their guardian.
4. Yet in the case of an executor, if the person who takes a security from him, knows that the executor is raising money on it, for purposes not connected with the affairs of the estate, and more especially when the executor uses the testator's effects to pay his own antecedent debts to that person himself, it is deemed an act of concerted fraud between the two, and the owners of the property have a right to reclaim it.
Cause removed from the Court of Equity of NORTHAMPTON, at Spring Term, 1846.
B. Moore for the plaintiffs.
Badger for the defendants.
The following appeared, from the pleadings and proofs, to be the facts of the case:
In October, 1836, Samuel Spruill was appointed the guardian of Robert Cannon, an infant. He gave bond in the sum of $15,000 with the plaintiffs as his sureties, with three other persons, who have since become insolvent or removed out of the State. In a few days Spruill received about $3,500 for his ward; and on 8 March, 1837, he took from one Junius Amis a bond for the sum of $1,758.12 1-2, payable to Samuel B. Spruill, "guardian of Robert Cannon," and bearing interest from date. Spruill was indebted to the defendant, Bowden, on notes for about $1,200, and, upon being required to make payment, he agreed to let Bowden have the bond of Amis at 10 per cent discount, in discharge of his notes to Bowden as far as they went, he, Spruill, receiving the difference, (282) between seven and eight hundred dollars, in cash. Upon this agreement Spruill endorsed the bond in blank and delivered it to Bowden, who afterwards received the money from Amis. Spruill was known to be embarrassed, and afterwards became insolvent and was removed; and the succeeding guardian sued him and the present plaintiffs on their bond, and recovered judgment in February, 1842, for $6,211.22, which the plaintiffs have nearly paid. The plaintiffs then filed this bill against Bowden, Spruill, and their three co-sureties, praying that Bowden may be compelled to account for the money received from Amis, and apply it, as far as necessary, in satisfaction of the sum still due the ward on the judgment, and the residue to reimbursing to the plaintiffs the sum paid thereon by them. The bill states that the money, for which Amis gave his bond, belonged to the infant Cannon, and that Bowden knew that fact when he took the bond, and that, in truth, the bond was the property of the ward.
Bowden answered and stated, that he did not know or admit, that the bond of Amis was given in consideration of money or effects, belonging to Robert Cannon; and, if such was the fact, he denied that he had such knowledge at the time he purchased and paid for the said bond. "On the contrary," he says, "he then believed that the bond was the property of Spruill, and that he was well authorized to sell and dispose of the same. It is true, the bond was payable to said Spruill, as guardian of Robert Cannon, on its face; but it is, as this defendant hath understood, a frequent practice of persons, who are guardians, to take bonds for their personal claims in the same way, and that was, as this defendant had understood from the said Spruill, the practice pursued by him. Besides, the bond was executed by but one obligor, and the defendant knew that, by law or uniform custom, guardians take sureties for money due their wards. If the face of the bond be sufficient in law to charge him with notice, that it was the (283) property of the ward, he must submit to be thus charged; but no such notice was in fact conveyed to this defendant thereby, nor did he have such notice from any other source."
The defendant proved by a witness, that he inquired of the witness, what the circumstances of Amis were, and was told by him, that he was then surety for others, and the witness also stated, that, on the same day on which the defendant got the bond, Spruill wanted to sell it to him, and that the witness asked 12 1-2 per cent discount. And he proved by another witness, that, some short time after Bowden got the bond, Spruill said that, although the bond was payable to him as guardian, he had funds amply sufficient to pay his ward.
It appears by the accounts, returned by Spruill as guardian, to the county court, in February, 1837, that there was then a balance of cash in his hands of $3,223.87, and the sum was increased each year until his removal in 1840.
The Court is of opinion, that the plaintiffs are entitled to the relief they ask. It is clear, that, at the time Spruill let Amis have the money and took the bond, he had in his hands a larger sum belonging to the ward, which it was his duty to put out at interest. When he lent the money and took a bond payable to him, as guardian, it was an appropriation of this debt to the ward; at all events, as against Spruill himself. It is true, the bond does not appear in the guardian account of February, 1839; but that can make no difference, if it really belonged to the ward, because in that case it was the duty of the guardian to return it, as an investment for the ward. The omission of the duty can not injure the ward. We think it can not be doubted, if Spruill had died and left (284) this bond payable to him as guardian, and he had been found to have been indebted to the ward at the time he took the bonds, at the time of his death and at every intermediate period, in a larger amount than that of the bond, that a court of equity would have compelled his executor to deliver it to the infant, as his property, in preference to applying it to the guardian's general creditors. Taking it payable to him, as guardian, could, prima facie, have no other object than to designate it as a portion of the ward's estate and set it apart accordingly. His subsequent declaration, that he had funds amply sufficient to pay the ward, has no effect against the ward's right. He did not mean, that he had never considered the bond as belonging to the ward. But we collect rather the reverse, from his reference to the form of the instrument. All he meant was, that notwithstanding he had made the bond the ward's by the manner in which it was taken, and hence he might be supposed to have acted wrong in parting from it, as he had, and for the purposes he had, yet it would not really be to the prejudice of the ward, as he had other funds with which he could pay the ward. He was, in truth, apologizing in a lame way for what appeared to be a breach of duty, and at the same time endeavoring to keep up his own credit, by holding out that the ward could not be hurt, because he had made the debt his own, and was able to pay it. If that had turned out to be true, all would have been well; for it is only when a trustee, who violates his trust, becomes insolvent, that a contest arises, by the necessity of the cestui que trust following his property into the hands, in which it was wrongfully put by the trustee, or submitting to the loss altogether. In this case it turned out to the contrary of Spruill's expectations, or at least his declaration, and he proved unable to make the debt good. Would he therefore have the right to withhold the bond from the ward? Certainly not. If he still had it, he would be decreed to deliver it to the ward. Then, prima (285) facie, Bowden, who claims under it, can not withhold it. But he insists that he ought to be protected, for two reasons. The one is, that he had no knowledge nor just reasons to believe, at the time he took the bond, that it belonged to the ward; and the other, that, if the ward was the owner, yet a guardian has lawful authority to collect or dispose of debts to the ward, and that he is a purchaser for money paid, and securities surrendered.
Upon the first point the Court holds clearly, that Bowden is affected with notice. The bond, upon its face, disclosed the interest of the ward; told that he was the equitable owner, just as much as its being payable to the ward would have shown him to be the legal owner. But the defendant says, that, notwithstanding that circumstance, he did not in fact know it. The reason he gives, why the bond did not convey that information to him, is, not that the bond does not naturally import it, but that he had understood that some guardians had taken bonds payable to them, as guardians, for money that was their own, and that he had heard from Spruill that he had pursued such a practice. But that is a most illogical conclusion, and, if tolerated, would lead to serious mischief. It is an attempt to deny notice, which the instrument in its plain sense conveys, because it might be false. Although some persons might have corruptly endeavored to evade the statute of usury, and get compound interest by resorting to the device supposed, yet it did not follow, that this bond was not what it purported to be. It stated, that it was the equitable property of the ward, and, in dealing for it, he had to choose between the fact thus stated in it, and the opposite possibility or probability arising out of what he had heard some people had deceitfully practiced. That was his risk; and it has happened that he reasoned falsely and came to a false conclusion, as it appears that the bond really belonged to the ward, as it purported on its face. In Fox v. Alexander, 36 N.C. 340, it was considered decisive, that the bond was payable "to R D, guardian of R R D." Indeed, it was not a case, upon (286) which the party was put upon inquiry merely; but in itself the bond contained full notice, and the only question was, whether it spoke the truth or falsehood. The most precise and circumstantial information would not amount to notice, if it could be got rid of by a person's declaration, that he did not believe it, because he had heard in other cases of such having been done colorably.
Upon the other point, it need not be denied, that a guardian has power to discount or otherwise dispose of a bond belonging to the ward, as well as to collect it. It is not so obviously necessary, that he should have that power, as that an executor should. The necessities of a testator's estate may often require the executor to raise money upon the securities belonging to the estate. But infants commonly come to their property as the surplus of settled estates, and can hardly be properly in arrear to the guardian. Therefore it is, at all events, more suspicious in a guardian than in an executor, to be found disposing of the securities; and one to whom they were offered, would naturally inquire for, at least, some apparently good reason for his doing so. But for the purposes of the case in hand, it may be admitted, that the two, a guardian and an executor, stand on the same footing. For it is well settled, that if the person who takes a security from an executor, knows that the executor is raising money on it for purposes not connected with the affairs of the estate, and especially when the executor uses the testator's effects to pay his own antecedent debt to that person himself it is deemed an act of concerted fraud between the two, and the owners of the property have a right to reclaim it. For this position, we need go no further back than Scott v. Tyler, 2 Dick., 712, and 2 Bro. C. C., 431, and McLeod v. Drummond, 17 Ves., 153, in the latter of which Lord Eldon collects all the learning upon the point, and lays down the rule distinctly. In conformity with the same (287) principles, the cases were decided here of Bunting v. Ricks, 22 N.C. 130; Fox v. Alexander, 36 N.C. 340, and Powell v. Jones, Ib., 337. And we then held, that the assignee of the bond was liable to the full amount of it, though he paid for it partly in cash, because it was originally the equitable property of the ward, or other cestui que trust, and had not been transferred bona fide, and therefore remained his property. Supposing the law to be the same as to executors and guardians, then, if in this case Bowden had done nothing more than advance the $700 or $800 to Spruill, he might insist on holding the bond as a security for it, although Spruill afterwards converted the money to his own use; for Bowden might say, he thought he was advancing it for the benefit of the ward. But he can not say that now. The application, at the time, of $1,200 of it, to the guardian's own debt to Bowden, and the gross oppression to which the guardian submitted, in order to get hold of the residue of the price in cash, clearly proved, that both Spruill's integrity and his prudence gave way under his necessities, and ought to have led Bowden to expect, that Spruill would apply, as he did apply, the whole to his own use. It is in that point of view only, that the hard terms imposed on Spruill can be looked at in this case. The ward has no right to complain of the oppression on his guardian. But the guardian's agreeing to such terms, being 10 per cent on the whole bond of nearly $1,900, in order to get about $700 in ready money, he remaining liable on his endorsement, as he had been for his old debt, was enough to assure Bowden, that Spruill was not raising the money for his ward. No guardian ever raised money for a ward at a loss of 25 per cent or upwards. The truth is that the transaction throughout was (288) a breach of trust in Spruill, and in the view of a court of equity, a fraud on the ward; and Bowden must have seen it, unless he was wilfully blind, and therefore he must be regarded, as concurring in it, and thereby to have lost the character of a bona fide purchaser to any purpose, and be accountable for the whole bond to the ward, and, by consequence, to the present plaintiffs, who have paid the ward and are entitled to stand in his place.
PER CURIAM. DECREED FOR THE PLAINTIFFS.
Cited: Hauser v. Shore, 40 N.C. 363; Gray v. Armistead, 41 N.C. 78; Goodson v. Goodson, Ib., 242; Wilson v. Doster, 42 N.C. 234; Smith v. Fortescue, 45 N.C. 129; Lemly v. Atwood, 65 N.C. 47; Ruffin v. Harrison, 90 N.C. 571; Dancy v. Duncan, 96 N.C. 117.