Smith v. Ayer - 101 U.S. 320 (1879)
U.S. Supreme Court
Smith v. Ayer, 101 U.S. 320 (1879)
Smith v. Ayer
101 U.S. 320
1. A principal is, in law, affected with notice of all facts, of which notice can be charged upon his attorney.
2. Parties who deal with an executor, exercising his power of disposition of the personal assets of the estate in his hands, to raise money, not for the estate or the settlement of its affairs, but for the business of a commercial firm, are bound to look into his authority and are held to a knowledge of all the limitations which the will, as well as the law, puts thereon.
3. His sale or pledge of assets made for other purposes than the discharge of his duties as executor will not be sustained where the purchaser or pledgee takes them with knowledge or notice of the perversion of them or the intended perversion of their proceeds.
4. Such assets are held by him in trust to pay the debts of the testator and then to discharge legacies. Where, therefore, they are acquired from him by third parties with knowledge of his trust and of his disregard of its obligations, they can be followed and recovered.
5. At the time of his death, A. held in his name an interest in a commercial firm which he had acquired by funds belonging one-third to himself, one-third to the children of a deceased brother, and one-third to a sister. In his will, of which B., his brother, was appointed executor, A. made a request that the whole of such interest should be retained in the firm under the control of B. so long as the latter should deem it profitable. His own interest he bequeathed to B., in trust for the latter and certain nephews and nieces, in equal proportions, to be held and controlled by B. so long as he should deem it advisable. One of the members of the firm having withdrawn therefrom, B. purchased his interest, whereupon the firm name was changed. Subsequently, to raise funds wherewith to pay loans made to the firm, B. pledged to C. certain notes which had come into his possession as executor.
1. That, assuming the identity of the firm remained after the change of its members and name, the authority of B., as executor, to continue a specifically designated existing interest in the firm did not extend to the use in its business of any other funds or property of the estate.
2. That his use of the notes to raise funds for the firm was a misappropriation of them, and that C., having knowledge of the directions of the testator, cannot hold them against the claim of his representatives.
The facts are stated in the opinion of the Court.