In Virginia, the moneys arising from the sale of personal
property are called legal assets in the hands of an executor or
administrator, and those which arise from the sale of real property
are denominated equitable assets. By the law, the executor or
administrator is required, out of the legal assets, to pay the
creditors of the estate according to the dignity of their demands,
but the equitable assets are applied equally to all the creditors
in proportion to their claim.
Legal and equitable assets were in the hands of an
administrator, he being also commissioner to sell the real estate
of a deceased person, and by decree of the court of chancery he was
directed to make payment of debts due by the intestate out of the
funds in his hands, without directing in what manner the two funds
should be applied. Payments were made under this decree to the
creditors by the administrator and commissioner without his stating
or in any way making known whether the same were made from the
equitable or legal assets -- a balance remaining in his hands,
unpaid to those entitled to the same, the sureties of the
administrator, after his decease, claimed to have the whole of the
payments made under the decree credited to the legal assets in
order to obtain a discharge from their liability for the due
administration of the legal assets.
Held that their
principal having omitted to designate the fund out of which the
payments were made, they could not do so.
Where debts of different dignities are due to a creditor of the
estate of an intestate, and no specific application of the payment
made by an administrator is directed by, him, if the creditor
applies the payment to either of his debts by some unequivocal act,
his right to do so cannot be questioned. Query whether the
application must be made by the creditor at the time, or within a
reasonable time afterwards.
Page 30 U. S. 161
There may be cases where, no indication having been given as to
the application of the payment by the debtor or creditor, the law
will make it. But it cannot be admitted that in such cases the
payment will be uniformly applied to the extinguishment of a debt
of the highest dignity. That there have been authorities which
favor such an application, is true, but they have been controverted
by other adjudications. Where an administrator has had a reasonable
time to make his election as to the appropriation of
payments made by him, it is too late to do so after a
controversy has arisen. And it is not competent for the sureties of
the administrator to exonerate themselves from responsibility by
attempting to give a construction to his acts which seems not to
have been given by himself.
This cause came before the Court on a certificate of a division
of opinion in the Circuit Court of the United States for the
Eastern District of Virginia. In that court a bill was filed on the
equity side of the court for the recovery of debts by John
Backhouse's administrator, and others.
The facts of the case, as agreed on the argument, were:
James Hunter died testate and insolvent, charging his estate,
both real and personal, with the payment of debts. This suit was
originally brought by Rebecca Backhouse, administratrix of John
Backhouse deceased, one of the creditors, in the Circuit Court of
the United States for the middle circuit of Virginia against said
Hunter's executor, who dying during its pendency, Robert Patton,
the defendant, was appointed administrator
de bonis non,
with the will annexed, and gave bond and security accordingly. The
suit having abated by the death of the executor, was revived
against Patton. In 1803 it was decreed that the real estate should
be sold for the payment of debts, and Patton and others were
appointed commissioners for that purpose, to hold the proceeds of
such sale subject to the order of court.
In the management of the estate, divers sums of money came into
the hands of Patton, both as commissioner and administrator. After
various alterations of the parties by death and otherwise, and
divers interlocutory decrees ordering payments to be made ratably
to creditors, as their claims were ascertained by the court, a
decree was made on 12 June, 1820, against Patton, as commissioner
and administrator, whereby it was ordered and adjudged that he
should pay a certain sum, to be ratably apportioned among certain
creditors therein mentioned.
Page 30 U. S. 162
It was also ordered by said decree that a commissioner of court
should examine and report upon the administration accounts of said
defendant. This examination was had and a report made on 24
November, 1820. After the return of this report, to-wit on 15 June,
1821, it was decreed that the said defendant should pay a further
sum, to be apportioned among the creditors as therein directed.
Upon this decree executions were issued and returned "
nulla
bona." Whereupon a supplemental bill was filed, seeking to
make the sureties for the faithful administration of Patton
accountable for his waste.
One of his said sureties failed to appear and answer, and the
bill, as to him, was taken
pro confesso; the other
appeared and answered. When the cause came on for hearing against
the sureties, the insolvency of Patton and the amount of assets
which came to his hands to be administered on were not
controverted. Patton having made satisfactory arrangements to
secure the payment of the sum adjudged against him by the decree of
12 June, 1820, as to the present question, it was considered as
paid. It was contended by the defendant that the whole sum adjudged
to be paid by Patton, under the decree of 12 June, 1820, amounting
to $23,322.56, should go to his credit as administrator.
At the hearing in the circuit court, the questions presented by
the counsel of the parties, and argued before the court, were the
following, to-wit:
"1. Whether the whole of the said payments made by the said
Robert Patton, under the said decree of 12 June, 1820, was to be
applied entirely to the debt due from him as commissioner of the
court for the sale of the real estate, so as to leave his sureties
for due administration liable for the whole balance in his hands as
administrator
de bonis non, or"
"2. Whether the payment ought to be applied to the debt due from
R. Patton, as administrator, on his administration account,
or,"
"3. Whether the payment ought to be applied to the debts due by
him in both characters, as commissioner of the court and as
administrator
de bonis non, ratably, in proportion to the
amounts of those responsibilities? "
Page 30 U. S. 163
The court holding the negative on the first question, and being
divided on the second and third, they were adjourned to the Supreme
Court.
The complainants by their counsel contended in the circuit court
that the whole sum of $23,322.56, adjudged against Patton by the
decree of 12 June, 1820, ought not to go to the credit of his
responsibility as administrator, and that his sureties cannot claim
more than its ratable apportionment according to the amount of
their respective responsibilities of commissioner and
administrator.
Page 30 U. S. 165
MR. JUSTICE McLEAN delivered the opinion of the Court.
The question presented for decision relates to the application
of certain payments made by Patton, one of the defendants. The
facts in the case are substantially as follows.
James Hunter, by his last will, devised his estate, real and
Page 30 U. S. 166
personal, to certain relatives subject to the payment of his
debts. Patrick Home, one of the devisees and executors, being the
surviving executor named in the will, having taken upon himself the
execution of it, sold a part of the real estate to one Dunbar.
The complainants, creditors of Hunter, brought their suit in the
circuit court against Home as executor and devisee and against
others to set aside the sale to Dunbar and obtain satisfaction of
their debts. After having answered, Home died in the spring of
1803, and administration
de bonis non on Hunter's estate
was granted to Patton.
Being made defendant, he filed his answer in 1803, and a decree
was made appointing him, John Minor, and another commissioners to
sell, on twelve months' credit, the unsold lands of Hunter and to
hold the proceeds subject to the order of the court. As
administrator, Patton received personal property to a considerable
amount, and in June, 1803, sold such part of it as was saleable on
a credit of twelve months. The remaining lands of Hunter's estate,
he and Minor, acting as the commissioners of the court, sold on the
same credit in December, 1803.
In the progress of the cause, an amended bill was filed by the
complainants, waving all objections to Dunbar's purchase.
Patton, as commissioner, in 1813 reported a balance on the
administration account of about �3,312, including interest.
On this report, in June, 1815, the court directed payment by
Patton and Minor as commissioners of one dollar in the pound to the
creditors named, and on 3 December following ordered a provisional
payment to the complainants to be made out of the moneys in the
hands of Patton as administrator, if any he hath, and that he and
Minor as commissioners do pay, &c. This decree seems not to
have been acted on. On 12 June, 1820, the claims of the
complainants having been established, the court, with a view, as
expressed, to put them on an equality with the creditors named in
the decree of 1815, ordered
"That out of the funds of the estate of James Hunter at the
disposition of the court,
Page 30 U. S. 167
Robert Patton, one of the commissioners and administrator
de
bonis non, do pay the sum of $23,322.56."
This sum was paid.
The decree of 1820 having directed a further account, it was
taken, and the sums in the hands of Patton, as commissioner and
administrator, were stated. After the correction of various errors
by the court in the reports made, it was ascertained in 1821 that
after paying the sum of $23,322.56, there was still a balance in
the hands of Patton of �6,040 4s. 4p., and the court decreed that
he should pay that sum to the creditors of the estate as
administrator and as one of the commissioners of the court.
Patton had given security as administrator, but none as
commissioner. To make the securities liable, he being insolvent, a
supplemental bill was filed against them, and by the answer of one
of them the question of liability is raised.
The point presented for consideration is whether the payment
shall first be applied to the credit of the administration fund, or
ratably to both funds?
If the payment shall be decided to have been made out of the
administration fund, the sureties are discharged, as the sum paid
was greater than the amount Patton held in his hand as
administrator. The payment also exceeded the sum he held as
commissioner, though this fund was larger than the other.
It is earnestly contended in the learned and able argument in
writing submitted to the Court by the defendants' counsel that the
administration fund must first be exhausted. To determine the
question raised, it is not important to ascertain the precise sum
which Patton held in his hands in each capacity, as the amount paid
exceeded his liability in either.
In Virginia, the moneys arising from the sale of personal
property are called legal assets, in the hands of an executor or
administrator, and those which arise from the sale of real property
are denominated equitable assets. By the law, the executor or
administrator is required out of the legal assets
Page 30 U. S. 168
to pay the creditors of the estate, according to the dignity of
their demands; but the equitable assets are applied equally to all
the creditors in proportion to their claims.
The payment was made under the decree of 1820, and if the court
did not direct specifically in what manner the two funds should be
applied, it is contended that Patton had a right himself to
determine, and consequently, by applying first the legal assets, to
discharge his sureties.
If the correctness of this argument were admitted, it would
still be important to show that the payment was made by Patton as
administrator. This fact might be established by an unequivocal act
or by circumstances.
This is clearly not a case in which the creditor may apply the
payment, no specific directions having been given by the
debtor.
To each of the creditors there was but one debt due, on which
the payment was made; it could therefore be applied only to the
payment of such debt.
Had debts of different dignities been due to each creditor, and
no specific application of the payment had been directed by Patton,
and the creditor had applied it by some unequivocal act, his right
to do so would not, perhaps, be questioned.
Whether the application must be made by the creditor at the time
the money is received or within a reasonable time afterwards, it
can be of no importance in this case to inquire.
There may be cases where, no indication having been given as to
the application of the payment by the debtor or creditor, the law
will make it. But it cannot be admitted that in such cases the
payment will be uniformly applied to the extinguishment of a debt
of the highest dignity. That there are authorities which favor such
an application is true, but they have been controverted by other
adjudications.
From the terms of the decree of December, 1815, the court
undoubtedly intended that the legal assets should first be applied
in making the payments directed and then the equitable assets. But
no such direction is given in the decree of 1820. The payment is
directed to be made out of both funds in the hands of Patton
without any indication that either should be first applied in
preference to the other.
Page 30 U. S. 169
If, in making the payment, Patton could exercise his discretion
in first applying the legal assets, has he afforded any evidence of
having done so? Has he by any entry in his accounts, or by a return
to the court, or in any other manner shown a special application of
the money? Within what time was it necessary for him to make his
election? His intention is attempted to be adduced from his
interest, aided by the principles of law referred to.
As administrator, it is said, he was responsible for the funds
in his hands, by various modes of proceedings, summary in their
character, and from this it is inferred that he intended to relieve
himself from such a responsibility. To relieve his securities, it
is urged, must have formed an additional motive, to which might be
superadded the oath he had taken as administrator. But on the other
hand it may be urged that the motives were not less strong. As
commissioner, if unfaithful to his trust, he was subject to the
penalties which a court of chancery might impose. It would seem,
therefore, that the circumstances of the case do not authorize an
inference that any determination was made by Patton on the
subject.
When, in 1821, the decree was rendered against him as
administrator and as commissioner for the payment of the balance
which appeared to be in his hands, no objection seems to have been
made to the decree. It could not have been entered without giving a
construction to the decree of 1820, for if the $23,322.56 had been
paid by first applying the legal assets, the decree of 1821 must
have directed the balance to be paid as commissioner. This decree
therefore goes very strongly to show in what light the above
payment was considered by the court and the administrator.
Can it be supposed that when the decree of 1821 was about being
entered against Patton, holding him responsible in both capacities,
that he would have remained silent if his liability as
administrator had ceased? The rendition of this decree must clearly
refute any presumption attempted to be raised either from the facts
or circumstances of the case that the legal assets were considered
as having been first applied by the administrator in making the
payment.
Page 30 U. S. 170
Having had a reasonable time to make his election, is it not too
late to do so after the controversy has arisen? And is it competent
for the sureties of the administrator to exonerate themselves from
responsibility by attempting to give a construction to his acts
which seems not to have been given by himself?
They first raise the question as to the fund out of which the
payment was made. If then Patton did no act which showed an
intention to apply first the legal assets, in making the payment,
and if it was not the right of the creditor to make the
application, does the law make it, as contended for, under all the
circumstances of the case? Had Patton made the application, a
question might have been raised whether it was competent for him to
do so.
Jurisdiction over the legal fund was assumed by a court of
chancery. It was for that court, by its decree, to make the
application of the fund as the law required, and having done so,
the administrator could exercise no discretion over it. The same
may be said as to the priorities of the claims set up by the
complainants and established by a decree of the court.
That the administrator was limited in making payment by the
terms of the decree will not be desired. It was not for him to pay
more in the pound than was directed, nor to give a preference to
one of the claims over another on account of its higher dignity.
The decree placed them on an equality as to the payment, and this
was clearly within the province of the court, the estate of Hunter
being insolvent.
The entire fund in the hands of Patton was subject to the
distribution of the court. That part of the fund which, in the
hands of the administrator, constituted legal assets, and under the
law was directed to be applied in a special manner to the
extinguishment of debts, was taken from his control by the court of
chancery. The fund was applied by the court, and not by the
administrator. His official capacity was only noticed to ascertain
the extent of his responsibility, and the payment was directed
accordingly. He had no discretion to exercise, no rule to observe,
but that which the decree laid down. As administrator and
commissioner he was directed to make the payment, because in these
capacities he had received an amount greater than the sum directed
to be paid. The payment was made in pursuance of the decree.
Page 30 U. S. 171
Suppose Patton, as commissioner, had given sureties who were now
before the court, and objecting to the application of money as
contended for. This would present a question between sureties. The
insolvency of their principal renders a loss inevitable, and the
inquiry would be how shall this loss be sustained.
Under such circumstances, could any substantial reason be given
why the sureties to the administration bond should be exonerated in
preference to the others? No distinguishing quality exists either
in the fund as it now stands or the debts to be paid to determine
this preference. It is not found in the act of Patton, if his
discretion might have been exercised on the subject. The law has
fixed no rule applicable to the case. By the decree, both funds are
placed on an equality. Payment is directed to be made from
both.
Although Patton give no security as commissioner, yet the
question, in principle, is the same. A loss must be sustained, and
by whom shall it be borne?
The sureties on the administration bond, as has been shown,
cannot claim an exemption from responsibility under the payment
made in pursuance of the decree, nor can the creditors escape a
portion of the loss.
If this were a question of responsibility between sureties under
the decree of the court, the payment would be considered as having
been made from each fund in the hands of Patton in proportion to
its amount.
This rule will apply with the same justice to the parties
interested under the circumstances of this case. Indeed, it would
seem that no other construction could be given with equal propriety
to the decree of the court. It is consonant to the principles of
justice and within the equitable powers of the court.
On a view of the facts and circumstances of this case, the Court
thinks that the payment of $23,322.56 should be deducted ratably
from each of the funds in the hands of Patton at the time it was
made.
This cause came on to be heard on the transcript of the
Page 30 U. S. 172
record from the Circuit Court of the United States for the
Eastern District of Virginia and on the questions and points on
which the judges of the said circuit court were opposed in opinion
and which were certified to this Court for its opinion in pursuance
of the act of Congress for that purpose made and provided, and was
argued by counsel, on consideration whereof it is the opinion of
this Court that the payment of $23,322.56 should be deducted
ratably from each of the funds in the hands of Patton at the time
the decree of 12 June, 1820, was made.
Whereupon it is ordered and decreed by this Court to be
certified to the judges of the said Circuit Court for the Eastern
District of Virginia that the payment of $23,322.56 should be
deducted ratably from each of the funds in the hands of Patton at
the time the decree of 12 June, 1820, was made.
