Taylor v. State

McSherry, J.,

delivered the opinion of the Court!

Oliver W. Miller and Albert B. Carter, partners, conveyed to John H. Handy, Esq. their property, in trust for the benefit of their creditors. Mr. Handy accepted the trust, and gave bond, with the appellants as sureties thereon. The trustee converted the trust estate into money, and, after some delay, an audit was stated, making distribution of the funds amongst the creditors of the grantors. The wife of Mr. Miller claimed to be a creditor for a large amount, and her demand, evidenced by sundry promissory notes, was filed with the auditor, and allowed its due per centage. Some of the other creditors then filed exceptions to the allowance of her claim, but these exceptions were.subsequently withdrawn or overruled, and the audit was finally ratified by the Circuit Court of Baltimore City. After notice to and demand upon Mr. Handy, and his failure to pay, Mrs. Miller instituted suit upon his bond to recover the amounts audited to her. To the declaration, which assigned the non-payment of the money as a breach of the condition of the bond, several pleas were pleaded *217 by the sureties, but judgment by default was entered against the trustee for the amount claimed. The first and third additional pleas, which made defence on equitable grounds, were demurred to, and the principal question in the case is raised by one of these demurrers.

The first additional plea alleged, in substance, that Mrs. Miller made no effort to collect the money from the trustee, and that the fund was dissipated in consequence; and that it was not paid to her by reason of her own laches and negligence, whereby the sureties were discharged. The third alleged that Mrs. Miller employed Mr. Handy as attorney to establish for her her claims against the trust, fund; that those claims were fraudulent and fictitious; that Mrs. Miller agreed to compensate Mr. Handy for his services in securing the allowance of these claims; and that Mr. Handy, having an interest in their allowance, procured the withdrawal of the exceptions which had been filed by other creditors against these claims, and did not as trustee resist their allowance, and that the claims thus allowed are the very ones on which the pending suit was brought. The demurrers were sustained. Issues were joined on other pleas and the case went to trial. During its progress four exceptions were reserved, and they will be adverted to hereafter.

We think there was no error in the Court's ruling-on the demurrer to the first plea making defence on equitable grounds. The creditor is under no obligation to use diligence in pursuing his debtor, and where his failure to do so amounts merely to inaction or passivity, this is no defence, of which the sureties can avail themselves when sued for his default. As we have considered and passed upon this identical question at the present term, McShane and Rodgers vs. Howard Bank, ante page 135, it is not necessary to repeat what has been so recently said on that subject.

*218 The third plea involves an inquiry into the effect of the order finally ratifying the auditor’s report when that order is assailed for fraud in an action at law on the hond of the defaulting trustee. If the order of ratification is conclusive upon the sureties when collaterally impeached at law for fraud, the case is at an end. If upon the other hand, it may be stricken down in a collateral proceeding, there was error in sustaining the demurrer. The effect of an order ratifying an auditor’s report, in so far as it fixed the liability of the trustee’s sureties, was decided by our predecessors in the case of Butler and Belt vs. The State, use of Contee and Bowie, 5 G. & J., 511 . In that case the facts were these: E. M. Dorsey had been appointed by the Prince George’s County Court to sell the real estate owned by Walter B. Brooke. He made sale, and subsequently Contee and Bowie filed claims, held by them against the estate of Brooke in the equity cause wherein Dorsey was trustee, and the auditor reported to the Court that these claims were entitled to be paid out of the proceeds of the estate of Brooke. This report was finally ratified, and the trustee was ordered to pay the claims. Bailing to do so, his bond was put in suit, and upon the trial the sureties offered to show, in mitigation of damages, that the trustee, Dorsey, did not receive, in the character of trustee, a sufficient-amount of money to pay these claims, and that before he had done so another trustee had by authority of the said Court been substituted in his place, by whom the balance of , the purchase money had been received. This evidence was not allowed to be given, and the Court said: “The question on which it was offered was not open for consideration for the jury. It was adjudicated by the county Court, as a Court, of equity, in their peremptory order on E. M. Dorsey, the trustee, to pay over to the real plaintiffs in this action, the sum of money stated by the audit, then confirmed, to be due them, and for *219 the recovery of which the present action was instituted. To have admitted the testimony would have been to constitute the jury an appellate tribunal to reverse the order or decree of the county Court, long antecedently, solemnly, and judicially pronounced, when sitting as a Court of equity. * * * * The justice and legality of the order could not have been a subject of inquiry, in the trial of this cause in the Court below. They were questions not examinable when thus indirectly and collaterally presented; but could only be re-examined and re-adj udicated by a direct appeal from such order to this Court; or on a rehearing or bill of review before the same tribunal by which the order was passed. '' And in the later case of Cook’s Lessee vs. Carroll, 6 Md., 111 , which was an action of ejectment, the defendant offered testimony, which was admitted by the county Court, tending to prove that the patent upon which the plaintiff relied was obtained by fraud, but upon appeal the ruling was reversed and this Court said: “We also think the Court erred in allowing testimony to be adduced for the purpose of showing fraud in the obtention of the patent. If there was any fraud or misrepresentation in causing its issue, it could only be inquired into by the tribunal that issued it, or by a Court of equity. It is a well settled principle of law that the acts of a competent tribunal cannot be reviewed collaterally. They are to be taken as a just and proper exercise of power in all other Courts. ” The same principle has been repeatedly applied when, in actions at law, instituted by administrators* attempts have been made to show by way of defence, that the letters of administration were obtained or procured by fraud. In every such instance this Court has held that the regularity of the appointment of an administrator by the Orphans' Court could not be impeached collaterally, even upon an allegation of fraud. Raborg’s Adm’x vs. Hammond, Adm’r, 2 Har. & G., 42; Wilson vs. Ireland, 4 Md., 444 .

*220 Now, the plea which we. are considering was intended to make, for trial hy a jury, an issne as to whether the order ratifying the auditor’s report was procured hy fraud. Its effect would have been to submit to the jury, for reAÜew hy them in a Court of law, the regularity and propriety of an order passed hy a Court of equity, in due form, and with respect to a subject exclusively within the jurisdiction of the latter Court. Thus not only would that order have been brought collaterally into question, hut a Court of law would have been actually transformed into an appellate tribunal to pass upon a subject wholly outside of its well defined jurisdiction. The grave consequenees which such a departure from established principles would entail cannot he easily over-estimated. There would soon cease to he any certainty or stability in judicial proceedings, for the most formal adjudications could he brought into questian in any other tribunal upon the mere allegation of fraud, and re-examined, and then reversed hy the verdict of a jury, o.r even by the judgment of a justice of the peace.

The order of a Court of equity ratifying an auditor’s report is in the nature of a final decree. It is not confined to a mere direction to the trustee to pay certain claims, hut, as respects the trustee and his sureties, partakes of the qualities of an adjudication in rem distributing the trust estate itself with which the trustee is properly charged, and operating directly upon that estate; and- it is only passed after due constructive notice by publication has been given, as prescribed hy the statute. It is a general rule, which obtains in every system of jurisprudence, that no person is hound hy a judgment or decree except the parties to the cause, and those who stand towards them in some relation of privity. There are several such relations of privity. In some, the estoppel is conclusive, in others, hut prima facie. There is a privity in contract between principal and surety, *221 but a judgment or decree against the former is not ordinarily a conclusive, but only a prima facie, estoppel against the latter. An adjudication in rem is an exception to the general rule respecting the binding effect of a judgment or decree. Such an adjudication is not confined, as an estoppel, to the parties and their privies, nor is it only prima facie as against the latter. If a decretal order, disposing of a trust estate in the hands of a trustee, be not an adjudication in rem, as respects him and his sureties, the latter, when not parties to the cause, would not be concluded by it, but might in some other Court dispute each item of the audit, and, as often bring in question collaterally the propriety of the decree passed by a Court having exclusive jurisdiction over the trust property. This, as we have seen, cannot be permitted. When an audit disposing of trust money has been ratified, and the trustee has been ordered to pay out the funds as audited, the order as to him and his sureties has the force and effect of an adjudication in rem, and, if he fails to make the payments and his bond be put in suit, there are but two questions open for the jury, and these are: Has such an order been passed, has the money been paid? The court’s order ratifying the audit is absolutely binding on the trustee and his sureties unless reversed on appeal to this Court, or revoked on proper proceedings in the Court by which it was passed. An order like this differs essentially from an account stated in the Orphans’ Court by an executor or administrator.

That fraud vitiates every thing tainted by it, even the most solemn determinations of Courts of justice, is an axiom of universal application, but like every other subject of judicial inquiry, fraud must be investigated in the proper fonim and by appropriate methods of procedure. That the Circuit Court which passed the order of ratification had, and still has, full power to rescind *222 it upon the due allegation and proof of fraud is undeniably true. But it is equally true that the allegation of fraud cannot, in such a case as this, confer upon a Court of law the authority to strike down, or even question, an order of this character, passed by a Court of equity, within the admitted scope of its exclusive jurisdiction. It has, however, been insisted that the Act of 1888, ch. 547, Code, Art. 75, secs. 83, 84, 85, allowing equitable defences at law, sanctions the plea in question. "We do not think so. That statute was designed to prevent circuity of actions in many instances, and to allow numerous defences at law, which, before its passage, could only have been availed of in equity, but was never intended to enlarge the jurisdiction of Courts of law to the extent of converting them into appellate Courts for the review of the proceedings of other tribunals. It never intended to destroy the distinctions which exist between the jurisdiction of a Court of law and a Court of equity; and it does not by its language confer upon the former the authority to impeach such an order or decree of the latter as we now have before us.-

For the reasons given, we are of opinion that the third plea was had, and that there was no error in sustaining the demurrer to it. For the same reasons there was no error in the first, second, and third exceptions reserved to the rulings of the Court in excluding the evidence offered to establish the alleged fraudulent character of Mrs. Miller’s claims. The remaining exception relates to the rulings on the prayers. The first prayer of the appellants asked an instruction to the effect that if Mr. Handy was employed by Mrs. Miller as attorney to collect the claims in question, and if he collected them as attorney, and had the money in his hands after the ratification of the auditor’s report, and failed to pay the money over to Mrs. Miller, the sureties were not liable. There was no evidence to support this prayer. Mr. Handy *223 was employed to establish, and not to collect, these claims, and he distinctly testified that there was no separation by him of the funds payable to Mrs. Miller from the other funds belonging to the estate, but each was mingled with the other. The second prayer ashed an instruction that if Mr. Handy had been employed to collect Mrs. Miller’s claim, and if, when the audit was ratified he had in his hands sufficient funds, received by him as trustee, to pay the claim of the equitable plaintiff, “then the jury may infer that the money so in his hands was held by him as solicitor for the equitable plaintiff, and the sureties are thereby discharged.” This was properly rejected. Besides the absence of evidence to show that Mr. Handy was employed by Mrs. Miller to collect the claim, there is no legal principle which would have justified the jury, from the evidence in the cause, in making the inference mentioned in the prayer. This is not the case of an executor who is also trustee, nor the case of an executor who is also legatee ; and the doctrine obtaining in such cases, and in those relations, has no application to an attorney who is also trustee. The prayer granted at the instance of the appellee contains no error of which the appellants can complain. Discovering no errors in the record, the judgment must be affirmed with costs.

(Decided 5th December, 1890.)

Judgment affirmed, with costs.