CHAPTER XXIII. OF MORTGAGES BY EXECUTORS AND TRUSTEES. SECTION I. OF MORTGAGES OF PERSONALTY BY EXECUTORS AND executors. i.—of the Power to mortgage Personalty of a Deceased Person.— General The whole personal estate of a testator, including leaseholds, powers of vests in the executor, who, from the duties of his office and the nature of his trusts, must necessarily have an absolute power over it (a), whether specifically bequeathed (b), or limited in trust (c), or otherwise. His first duty is to provide for payment of debts; and if the general undisposed-of property or the fund expressly provided by a testator is not sufficient for such purpose, the property specifically bequeathed or given in trust must be resorted to. Nor can a testator, by any testamentary disposition of his personal estate, frustrate or delay the claims of his creditors (d). In order to carry out this duty, it often happens that the Power of sale. executor must sell or otherwise dispose of the assets; and, if he does so, the assets cannot be followed by any creditor or legatee into the hands of an alienee (e). For no one would deal with an executor if liable afterwards to be called to account (ƒ). In case of misapplication of the money, the creditor or legatee has no remedy against the purchaser, but only against the executor, and notice of the will does not prejudice the purchaser in this respect (g). (a) Nugent v. Gifford, 1 Atk. 463. (b) Ewer v. Corbet, 2 P. Wms. 149; Burting v. Stonard, ibid. 150; Langley v. Earl of Oxford, Amb. 17; Andrew v. Wrigley, 4 Bro. C. C. 125. (c) M'Leod v. Drummond, 17 Ves. 152, at p. 161. (d) Andrew v. Wrigley, sup. (e) Whale v. Booth, 4 T. R. 625, n.; Chap. XXIII. § 1 (i). Mortgage of assets by executor. Power to sell or mortgage a specific legacy. As the executor may absolutely dispose of the testator's assets for the general purposes of the will, there seems no good reason why, in the exercise of a sound discretion, and presuming the language of the will does not peremptorily require an absolute sale, the executor may not raise the money required by a partial sale or mortgage of the assets. Accordingly, this proposition has been repeatedly recognized by high authorities (h). Lord Loughborough, indeed, is reported to have said, that a mortgage is not a natural way of raising money, and that it may lead to an inquiry as to the circumstances of the testator's estate (i); but this observation, it is conceived, must be considered as applying to transactions attended with circumstances exciting suspicion of fraud. The right of executors to mortgage the leaseholds or other personalty of a testator or intestate is established beyond question, and the power is now extended by the Land Transfer Act, 1897, to the freeholds of a testator or intestate dying after 1897. The power of executors to dispose of a specific legacy seems to have been questioned in an early case (k); and Lord St. Leonards, in his Treatise on Vendors and Purchasers, raised a doubt whether it is safe to take an assignment of a specific legacy from the executor without the concurrence of the specific legatee, lest the executor should have assented to the bequest, and he cited Thomlinson v. Smith (1). It is submitted that both the cases referred to were complicated by circumstances of fraud. If a purchaser or mortgagee bonâ fide deals with an executor within a reasonable time after the testator's death, and obtains possession of the muniments of title, it is conceived that a specific legatee would not be permitted to set up the executor's assent against the sale or mortgage, for, by sale and delivery, the title of the purchaser or mortgagee is complete (m). Where the specific legatee is also an executor, no difficulty arises, as the purchaser or mortgagee is not bound to inquire as to the assent (n). But in other cases it is advisable to require the concurrence of the specific legatees. (h) Mead v. Lord Orrery, 3 Atk. 239; Scott v. Tyler, 2 Dick. 724; M'Leod v. Drummond, 17 Ves. 154; Berry v. Gibbons, L. R. 8 Ch. 747; Re Cooper, 20 Ch. D. 611, C. A. (i) Andrew v. Wrigley, 4 Bro. C. C. at p. 138. (k) Humble v. Bill, 2 Vern. 444. (2) Finch, 378. (m) See Scott v. Tyler, 2 Dick. 712. (n) Taylor v. Hawkins, 8 Ves. 209; Cole v. Miles, 10 Ha. 179. A mortgage of assets by an executor to secure a debt of his testator is valid, though the estate is insolvent (0). Chap. XXIII. estate. An administrator derives his authority entirely from the § 1 (i). appointment of the Court (p), but after the administration is Insolvent granted, the power and interest of the administrator over per- Powers of sonalty is equal to the power and interest of the executor (q). adminisAn administrator durante minore ætate has all the powers of an executor (r). trator. ministration Although, generally speaking, after an administration decree, Effect of adpowers can only be exercised with the sanction of the Court (s), decree. yet the power of an executor to mortgage the assets is not affected by an administration decree, where no receiver has been appointed, nor any injunction granted restraining the executor from dealing with the assets (t). The mere institution of an action does not prevent executors Institution of from dealing with the assets (u). proceedings. An executor or trustee is, however, entitled to apply for the Application sanction of the Court even before decree, and will be allowed his of Court. costs of such application (x). for sanction An application to sanction raising of money by mortgage of Form of application. a testator's estate cannot be made by originating summons under Order LV. r. 3 (y). In the case referred to, the summons was amended by making it one for the administration of the real estate under Rule 4, so as to allow of the application being subsequently made for the sanction of the Court. not bound to ii.-Application of Moneys advanced.-As a general rule, a Mortgagee mortgagee is not bound to see to the application of money see to appliadvanced by him to an executor or administrator, unless he has cation of notice that the money is intended to be applied otherwise than money. for the purposes of the administration of the estate (z). The mortgage need not, therefore, state that the money is wanted for the purposes of administration, for, in order to vitiate the Chap. XXIII. § 1 (ii). Mortgage to secure executor's own debt. Mortgage partly for purposes of administra tion. Executor beneficially entitled to share. Executor also specific legatee. Executor also residuary legatee. security, it must be shown that the mortgage was not for the payment of debts, and that the mortgagee knew, or ought to have known, that such was the case (a). And by statutory enactment, in the absence of fraud or notice of any impropriety, the receipt in writing of an executor or administrator will effectually exonerate the person paying the money advanced from seeing to its application or being answerable for the misapplication thereof (b). It is a settled rule of equity (c) that, generally speaking, an executor cannot make a valid assignment or pledge of the assets as a security for his own debt (d). Two decisions of Lord Hardwicke sustaining such transactions (e) appear to be referable to the particular circumstances of those cases (ƒ). When the mortgage is partly for purposes of administration and partly for the private purposes of the executor, the security is valid to the extent only to which it is shown that the money was applied for the purposes of administration (g). Where an executor who is beneficially entitled to a share in his testator's general estate, deposits the title deeds of the estate to secure his own debts, the deposit only affects his own interest (h). If the executor is also specific legatee, a mortgage from him of the specific legacy for satisfaction of his private debt will be safe, unless it can be shown that the mortgagee knew that there were debts of the estate unpaid (i). But of course, on failure of the security, the mortgagee cannot prove against the estate (k). The mortgagee of an asset from an executor who is also residuary legatee acquires a title free from unsatisfied creditors (a) Bonney v. Ridgard, 1 Cox, 145. (c) Formerly, at law, it was laid (d) Wilson v. Moore, 1 My. & K. 337; Eland v. Eland, 4 My. & Cr. 420; Haynes v. Forshaw, 11 Ha. 95; Collinson v. Lister, 7 De G. M. & G. 634; Re Morgan, Pillgrem v. Pillgrem, 18 Ch. D. 93, 98; Ricketts v. Lewis, 20 Ch. D. 745. (e) Nugent v. Gifford, 1 Atk. 463; Mead v. Lord Orrery, 3 Atk. 235. (f) Taner v. Ivie, 2 Ves. Sen. 466. (g) Carter v. Sanders, 2 Drew. 248. See Re Brettle, Brettle v. Burdett, 2 De G. J. & S. 244. (h) Farhall v. Farhall, L. R. 7 Ch. 123. (i) Taylor v. Hawkins, 8 Ves. 209; Hall v. Andrews, 23 W. R. 799. (k) Farhall v. Farhall, sup. if he took without notice, provided that neither the executor nor the Court retains control over the asset (1). Chap. XXIII. executor. Fraud or covin will vitiate any transaction, and turn it to a § 1 (ii). mere colour. If one concerts with an executor, by obtaining Fraudulent the testator's effects at a nominal price, or at a fraudulent dealing with under-value, or by applying the real value to the purchase of other subjects for his own behoof, or in extinguishing the private debt of the executor, or in any other manner contrary to the duty of the office of executor, such concert will involve the seeming purchaser or pawnee, and make him liable to the full value (m). So, if a person lends money on mortgage to an executor or administrator collusively, and with knowledge that the borrower is acting fraudulently in violation of his trust, and to the detriment of the persons beneficially interested in the estate, the transaction will be wholly vitiated by the fraud, and the security will be void and incapable of being enforced (n). Even in the absence of direct fraud, a mortgage of assets by Notice of an executor or administrator may be incapable of being enforced intended application of if the mortgagee had, at the time of the advance, actual or con- money to structive notice (o) that the money was intended to be applied improper for purposes other than those of the administration of the estate (p). There have been several decisions as to what circumstances amount to notice that the mortgage is for the executor's own purposes (q). The Court will not lightly impute notice to a mortgagee dealing with an executor (r). So, the fact that a mortgage included property of the executor as well as property of his testator was held not to be sufficient (s). And it is not enough, in order to impeach a mortgage of assets, to show that it was made to secure a debt originally contracted by an executor on his personal security, without reference to his representative capacity, or to the assets (t). (1) Graham v. Drummond, (1896) 1 Ch. 968. (m) Scott v. Tyler, 2 Dick. 712. See Rice v. Gordon, 11 Beav. 265. (n) Doe v. Fallows, 2 Cr. & J. 483. See Re Scott and Alvarez's Contract, (1895) 1 Ch. 596, C. A. (0) See further, as to what will amount to constructive notice of prior equities, post, Chap. LVIII. Sect. II. VOL. I.-C. (p) Hill v. Simpson, 7 Ves. 152. (a) Collingwood v. Russell, 10 Jur. N. S. 1063; Howard v. Chaffers, 2 Dr. & S. 236; Farhall v. Farhall, L. R. 7 Ch. 123. (r) Collingwood v. Russell, sup. (s) Barrow v. Griffith, 11 Jur. N. S. 6. (t) Miles v. Durnford, 2 De G. M. & G. 641. EE purpose. |