Lucht v. Behrens.

how to determine. This money was borrowed and used in the business of the executor in carrying on the store, and not directly to pay the debts.

No attempt was made to wind up the estate, nor was the money loaned to enable the executor to do so, but to prosecute the businesss. Behrens, by making this loan, did not become a creditor of the estate, but of the executor, with whatever rights he may have had, if any, in equity, to charge the property embarked in the business with his claim.

2. As to the second aspect of the case:

In substance, the rulings of the court amount to this: That if the executor acted in good faith in carrying on this business with the assets, and from time to time drew out means and paid the debts of the testator, and turned the residue of the business over to the estate, it is liable for debts contracted by him in so doing, whether the business was profitable or otherwise.

In short, if the liabilities so incurred exhausted the assets employed in the business, the new creditors could resort to the general assets.

In so holding the court below lays stress on the fact that all the creditors of the testator have been paid off, and that the contention, therefore, is only between Behrens and the estate, and if, in course of the business, the estate has been benefited, it is liable to ita creditors. In this the fact is lost sight of that in refusing to allow defendant below to show that the business was unprofitable, that is, that the estate had not in fact been benefited, the court held that that was an immaterial issue, provided the executor acted in good faith.

The unqualified doctrine is thus announced: That if an executor in good faith continues the business of his testator, without authority, for the purpose of paying his debts, supporting the family, and preserving the good-will and business for the minor children when they shall grow up, and in so doing incurs liabilities, the rest of the testator's estate not embarked in the business is liable if all the creditors of the estate have been paid.

This, if true, would make liabilities so incurred a charge on the testator's other estate not so embarked in the business, and might defeat the disposition of property made by the will.

It is a part of this case that the executor prosecuted this busi

Lucht v. Behrens.

ness, not only without authority of law, but without the consent of any one interested.

Neither the widow for herself, nor as the guardian of her minor children, attempted to clothe him with any power to create debts which would affect them or the estate devised to them.

It will not be disputed that if this judgment is allowed to stand, and it turns out that the personal assets are insufficient to pay it (and as to that we are not advised), the real estate may be resorted to for that purpose.

By the will this real estate is devised to his wife while she lives and remains his widow, and after that equally to his children, thus vesting them with an estate liable for the payment of the judgment in this case. It thus appears that upon the theory of the court below the entire estate of the widow and heirs, outside of that embarked in the business by the executor, is, without authority of law or authority conferred by the will, made subject to all the perils and hazards of the undertaking.

It has long been well settled that:

"Contracts of executors, although made in the interest and for the benefit of the estate they represent, if made upon a new and independent consideration, as for services rendered, goods or property sold and delivered, or other consideration moving between the promisee and the executors as promisors, are the personal contracts of the executors, and do not bind the estate, notwithstanding the services rendered or goods or property furnished, or other considera. tion moving from the promisee, are such that the executors could properly have paid for the same from the assets, and been allowed for the expenditure in the settlement of their accounts. The principle is, that an executor may disburse and use the funds of the estate for purposes authorized by law, but may not bind the estate by an executory contract, and thus create a liability not founded upon a contract or obligation of the testator." Austin v. Monroe, 47 N. Y. 360. It is equally well settled that executors, in the absence of power conferred by the will, have no authority to carry on the trade or business of their testator, and that:

"The employment of the trust funds in trade, or any speculative undertaking. without an express authority, will, a fortiori, be treated as a breach of trust; and whatever may be the apparent advantages of such course, and however well-intentioned the conduct of the trustee, there is no question but that the court will

Lucht v. Behrens.

visit upon him any loss resulting from such a step, while he will have to account for any profit thus made." Williams on Ex'rs, 1274; Hill on Trustees, 379; Perry on Trusts, § 429.

So rigid is this rule, and so careful have the courts always been to guard against the perilous consequences resulting from embarking the assets in trade, that, even when the will authorizes the executor to carry on the business, he cannot in so doing create liabilities against the general estate, but the creditor of such new business must look either to the business itself or to the executor individually for his pay.

In the leading case on this subject, Ex parte Garland, 10 Ves. Jr.. 109, the testator devised his personal and leasehold estate in trust, to permit his wife to receive the rents and profits during her life for her own use and for the support and maintenance of his minor children, and after her death to the children; and then directed that his trade as a miller and his farming business be carried on until the trustees should think proper to establish his sons. His wife was one of the executors, and, as directed by the will, carried on the business until she became a bankrupt.

The action was brought to charge the testator's other estate, not employed in the business with its debts.

Lord ELDON said that this could not be done; that it would be intolerable to hold that every legatee is to hold his legacy subject to the venture in business which he can not control, and which may cut down all his hopes, as far as they are founded on the receipt of that bounty. He adds that, on the other hand, speaking of the executor: "He becomes personally responsible, though but a trustee." Again, in speaking of those who are creditors, not of the testator, but subsequent to his death, he says: "In the first place, they may determine whether they will be creditors; next, it is admitted, they have the whole fund that is embarked in the trade; and, in addition, they have the personal responsibility of the individual with whom they deal. *They have something very like a lien upon the estate embarked in the trade. They have not a lien on any thing else."

He concludes by saying that the convenience of mankind requires him to hold that the creditors of the trade as such have no claim against the distributed assets, not embarked, and cannot resort to the general assets.

In Burwell v. Mandeville, 2 How. (N. S.) 560, when the same

Lucht v. Behrens.

question was before the court, it is said: "Nothing but the most clear and unambiguous language, demonstrating in the most positive manner that the testator intends to make his general assets liable for all debts contracted in the continued trade after his death, and not merely to limit it to the funds embarked in the trade, would justify the court in arriving at the conclusion, from the manifest inconvenience thereof, and the utter impossibility of paying off the legacies bequeathed by the testator's will, or distributing the residue of his estate, without in effect saying at the same time that the payment may all be recalled, if the trade should be unsuccessful or ruinous."

In the case at bar, the testator disposed of all his estate, subject only to the payment of his debts, the funeral expenses, and costs of administration. No other liabilities incurred by the executor, however honestly incurred, can be made a burden on this bounty to his wife and minor children.

The doctrine of the cases just cited is supported by numerous authorities, and may be regarded as well established. Richardson v. Hodgson, 3 Madd. 138; Pitkin v. Pitkin, 7 Conn. 307; Scholefield v. Eichelberger, 7 Pet. 586; Laughlin v. Lorenz, 48 Pa. 275; Davis v. Christian, 15 Gratt. 11; Stanwood v. Owen, 14 Gray, 195.

Numerous cases have been cited and relied on to show that there are exceptions to the general rule, as to the liability of the estate for the contracts of the personal representative.

In Cable v. Alvord, 27 Ohio St. 654, decided by us at the last term, it was held that when there was a controversy between the widow and the administrator as to her title to the rents of the mansionhouse due from the tenant within the year, and the administrator, acting in good faith, collects these rents, and applies them to the payment of debts of a solvent estate, he was liable in his representative capacity to refund to the person entitled to collect them.

This case goes quite far enough, but it is supported by a strong equity as well as by authority.

In De Vallengin's Adm'r v. Duffey, 14 Peters, 282, it was said "that whatever property or money was lawfully received by the executor, in his representative character, he holds as assets of the estate, and he is liable in that character to the party who has a good title thereto."

"So if an executor or administrator out of his own funds pays VOL. XXII. - 49

Lucht v. Behrens.

a debt, he becomes a creditor, and may resort to the trust fund to satisfy it." Peter v. Beverly, 10 Peters, 582.

In Arbuckle's Ex'r v. Tracy, 15 Ohio, 432, the executor of a surety on a note, acting in his representative character, received sundry collaterals to protect his testator's estate from liability on the suretyship, and it was said if such executor had collected money on the collaterals, and applied them to the benefit of the estate, it would be liable, but it was not liable for conversion of these col laterals by the executor.

To allow personal representatives of estates to go beyond this, and without authority of law, or under the will, embark the assets of an estate in trade or business, however well intentioned they may be, and thereby subject the estate to all the hazards of the venture, would encourage that which it has been the especial policy of the law to prevent- the employment of trust property in any other mode than is clearly authorized.

For aught we know (for the court refused to hear evidence on the subject from the defendant), this well-meant endeavor to preserve the business of the testator for his sons, while paying the debts and supporting the family out of it, may have been disastrous; and if this judgment stands and is collected, it may defeat the express provisions of the will. If this and like claims are allowed, it may exhaust both real and personal estate to pay them, leaving nothing to the devisees under the will.

These devisees have had no voice or control in this undertaking, and their interests are proper objects of protection, as well as those of creditors of the estate. As between them and one who lends his money to carry on this unauthorized business, there can be no question that their rights in the estate not embarked in the business are paramount.

Judgment reversed and cause remanded.