MOORE v. SMITH et al., 182 F. 540

ROSS, Circuit Judge (after stating the facts as above). We have stated only what we deem the controlling facts, although the whole record, as well as the voluminous briefs, have had careful consideration. That a guardian has no legal or moral right to appropriate his wards’ money to the payment of his own debts, even though he expects to return it, is a proposition too plain for discussion. And that is just what the correspondence, as well as the testimony of John M. Smith above set out, shows that he did. We think it is quite evident from the record that both he and the executor of the estate of William A.

Smith, deceased, were at first desirous of protecting the interest of the minors, and to that end made bona fide and diligent efforts, but without success, to sell both the interest of John M. Smith and that of the estate together. Finally, however, those good intentions gave place to evil ones. The first evidence of that fact is shown in John M. Smith’s obtaining from the executor of his brother’s estate an option on its interest in the stock at such a price as would give him “a marégen to work on.” This is made evident, we think, by the letters of John M. Smith to the executor of March 19 and July 2, 1898.

So far as appears, the first absolute offer the executor received for the interest of the estate in the stock was a cash offer of $-80,000 received on the 30th of December, 1898, from one Neill, notice of which was communicated to John M. Smith by the letter of the executor of the next day, in which the latter informed John M. Smith that he could have that interest for $85,000 cash. While it seems from the record that John M. Smith wired the executor his willingness to take the stock at the price of $85,000, the letters passing between them, as well as the letters passing between John M. Smith and Mr.

Ramsey, cashier of the Union Bank & Trust Company, very clearly show that the terms and conditions of such sale were not settled by the executor’s proposal and John M'. Smith’s telegraphic reply thereto. The record further shows that before any terms or conditions of such sale were agreed on by and between the executor and John M. Smith, and while the latter was asking of the executor time within which to make payment for the stock, the executor wrote to John M. Smith a letter which appellees’ counsel concede contained the suggestion that John M.

Smith make application for the guardianship of the minor children, and which we think, from other letters in evidence as well as from the circumstances of the case, contained a suggestion of the plan or arrangement which the record shows was thereafter actually carried out. The letter referred to was written January SO, 1899, but was not produced in evidence; it having disappeared in some undisclosed way. It will be borne in min'd that at this time the executor was at White Sulphur Springs, Mont., Ramsey, cashier of the Union Bank & Trust Company, was at Helena, Mont., and John M. Smith was at Pasadena, Cal.

The executor and John M. Smith were exchanging letters in respect to the terms and conditions on which the former would sell and the latter would buy the stock of the deceased, William A. Smith. Before the executor’s letter of January 20, 1899, could have been received at Pasadena, John M. Smith wrote him from that place, under date January 22, 1899, as follows: “N. B. Smith Dear Nefue I received yours of the J.6 in reply to my telegram I had written 2 letters that you have no dout receved befoar this in which I asked turms but have not herd from ether yet it dont look as tho Miles is going to make a deel.

I now will ask you the amount you wish me to pay down on the property & what interst you want on the balence I will take the astates Stock at the 885000 and no claim on the astate for enny money advanced it at enny time tell me the least you will take as a down payment & what time you will give on the balence & & what interst ontill payed & you hold all the property as securty I made you a propersition in my last but dont know how it will soat you pleas give me yours best turms as soan as you get this and I will arange to meet it on the $85000 bases.

Yours Truly Your uncle John. “I think the Coart will aprove of the Securty & offer for the balence I know your Bondsman would I dont think that it will take me longer then May the first to make some turn So I will get the balence for you.” John M. Smith had applied to the Union Bank & Trust Company of Helena, Mont., for a loan of $90,000, and on the 21st of January, 1899, the cashier of- that institution, M'r. Ramsey, wrote on its behalf from Helena to him that the bank would loan him the $90,000 he asked for at 9 per cent, per annum, and on the 28th of the same month wrote him as follows: “Mr John M.

Smith, Pasadena, Cal. “Dear Sir: We now have your telegram Reading: ‘Do not want money’ which is interpreted to mean that you are ,not in a position to use the money just at the present time. But that you may possibly desire to later. If our surmise is correct, I beg to advise you that we will be glad to figure with you whenever you are ready; but we would not of course want to promise so large an amount of money at any time in the future as it is a considerable sum and we may have to invest it elsewhere.

Just at this time we would be very glad to make the loan and it is possible we may be in the same position whenever you get ready. “Yours respectively, George L. Ramsey, Cashier.” Evidently something occurring between John M. Smith’s application for the loan and January 28, 1899, changed his desire to borrow $90,-000 at 9 per cent, per annum. On the 27th of January, 1899, John M. Smith wrote to the executor as follows: “Pasadena, Cal., Jan. 27. “N. B.

Smith: “Dear Nefue: I receved yous of the 20 & I think your plan good I will take steps to get the ten thousand down payment & we will proceed to business at once I will write to the bank & arange for the money if you have me apointed garden for the Children as soon as I as sell out I uou & [“wan to,” according to original exhibit] invest in Gove bonds all thair money and also my one as I dont intend to try to dew anny buisness after I sell out & I fully intend to let goew this spring I think your suggestion a good one I think I should have the children come out hear the schools is first cías & the climat is good also good society Yous Treuly J.

M. Smith.” Three days before the letter last quoted was written, and four days .after the executor’s letter of January 20th, the latter wrote to John M. Smith as follows: “N. B. Smith, County Attorney, Meagher County. “White Sulphur Springs, Mont., Jan. 24th, 1899. “J. M. Smith, Pasadena, California. “Dear Uncle: Your letter of the 16th of Jan. came to hand. I can not sell the way you indicated. The only way I can sell is for cash down. If you are appointed guardian of the children then I could turn the money over to you. As I told you all the time I have no right to sell on credit.

You had better forward me a draft for ten thousand and then I will file the petition, and on the approval of sale by the Court the balance can be paid. The offer that I had was a cash down offer. If you but [buy] the stock the Company can run on just the same and I can act as one of the trustees as I have some stock in my own name. Give my love to all. Yours, etc.” In both of the two letters last above quoted there is, in our opinion, a very strong indication that in the missing letter of January 20th from the executor to John M.

Smith, the suggestion was not only made that the latter apply for the guardianship of the children, but also that, in the event of his appointment as such, their money, which the executor would turn over to him, could be used by him in paying for the stock; for in John M.

Smith’s letter of January 27th he said: “I receved yous of the 20 & I think your plan good I will take steps to get the ten thousand down payment & we will proceed to business at once I will write to the Bank & arange for the money if you have me apointed garden for the Children as soon as I as sell out I uou & [“wan to,” according to original exhibit, appellees’ brief says] invest in Gove bonds all thair money -and also my one as I dont intent to try to dew anny buisness after I sell •out & I fully intend to let goew this Spring.” And in the executor’s said letter of January 24, 1899, to John M.

Smith, he said: “If you are appointed guardian of the children (as was concededly suggested in the missing letter of January 20th) then I could turn the money over to you. As I told you all the time I have no right to sell on credit. You had better forward me a draft for ten thousand and then I will file the petition, and on the approval of sale by the Court the balance can be paid.” On the same day that John M.

Smith wrote the above-mentioned letter of January 27th to the executor, he also wrote from Pasadena a letter to Ramsey, in which he said: “I received a letter today from the adminestrator & now I am in shape to use ten thousand of the money at once. I wish the lone for 6 months with the understanding that I have the privilege of paying it at enny time I can befour it is dew intrest to be at the same for what time I have used the money.

You understand I want the money to make a payment on the estate of my brother the money will be turned ovr to the adminestrator N B Smith at White Sulpher Springes, if you will you can make out a Note for ten thousand & send it hear to me I will signe & retern then I will turn it over to the admnestratr & close a deel then I will be the entier oner of the Smith Bros Sheep Co.” And on the 31st of January, 1899, John M. Smith wrote from Pasadena to Mr. Ramsey as follows: “I have taken the liberty of drawing a check on your Bank for ten thou-send Dollars $10,000 — in favor of N. B.

Smith of White Sulphr Springes the adminestratr of my Brothers asíate I dont think that the money will be ealed for only plast to his cr.

I inclose his letter so you can se how we intend to manage so that I don’t think we will have to call for enny of the money will leave it as a creddet for when I am apolnted gardeen of the children I will turn it all back to the Bank & pay what intrest has acrued for what time we have the money, hoping this will meat your aprovel I wrote you a letter a few days ago asking you to forward me a Note for $10,000-—for me to signe but I have not receved it yet hoping you can favor me with my request & oblige.” The record shows that the scheme outlined in the correspondence above referred to was strictly carried out.

John M. Smith drew his check on the Union Bank & Trust Company for $10,000 in the executor’s favor, as a payment on account of the purchase of the stock, giving his note to the bank therefor, and in his subsequent letter to Ramsey of March 1, 1899, wrote: • “I cant say jest when I will be eald to turn over the other $75,000 — on the Ranch Deele. the Money will not be drawed out of the Bank but left as a Cr to the adminestrater N B Smith as soon as I am apolnted gerdean the money will be turned back to me I pay intrest for what time I have it.” John M.

Smith’s $10,000 check was deposited by the executor with the Union -Bank & Trust Company, he taking from the bank a certificate'.of deposit in that sum. The executor proceeded to make application to the.probate court for confirmation, of the sale of the stock to John M.’ .Smith .for the sum of $85,000, and about the same time procured- an -.attorney named Waterman to make application on behalf of John M. Smith for his appointment as guardian of the persons and estafes‘of the minors.; The order confirming the sale and appointing John M. Smith such guardian were made on the same day, to wit, March 28, 1899.

Subsequently John M. Smith drew a check on the Union' Bank Trust Company in favor of thé executor, for the balance of the purchase price, to wit, $75,000, and in a letter from Pasadena, Cal., to .Mr. Ramsey, written on the 18th of -April, 1899, notified. him of that fact, at the same time saying in his letter: “But I dont-think he will Send it in ontill I get back.” ' On the' 27th of the same month John M.

Smith executed to the Union Bank .& Trust Company his note for $75,000, bearing interest at the rate of 9.per cent, per annum, the amount of which the bank put to his credit, and with which it paid the check for $75,000 which John M. Smith had given to the executor, such payment being then charged by the bank to John M. Smith’s account.

At the same time the $10,000 certificate of deposit was surrendered by the executor, who took from-the J3ank & Trust Company in lieu of it and the $75,000 a certificate of deposit to his order for $80,000, and $5,000 in money, which latter sum he thereupon deposited to his personal credit — $2,-161.49 of which he paid himself as diue him “on the sale of the property” and the balance to other persons and for other purposes. On the 28th of the same month of April John M.

Smith sent from California to the executor his power of attorney appointing the latter his attorney in fact, with instructions to indorse the stock that he had bought to the Union Bank & Trust Company as collateral security for the payment of his $10,000 and $75,000 notes then in the bank, and with the request that the executor meet him in Helena about the 17th or 18th of May following. On the 18th of May, 1899, John M. Smith returned to Montana, and on the 25th of that month executed his bond as guardian and took the oath of office.

Within a few days thereafter, to wit, June 1, 1899, the executor filed the final account of his administration of the estate of William A. Smith, and on the 12th of Jüne of the same year a decree settling his accounts and distributing the estate was signed, and on the 14th placed on file. On the same day, to wit, June 14, 1899, the executor paid the entire amount in his hands over to the guardian, John M. Smith, taking his receipt therefor as such guardian. John M.

Smith thereupon went to Helena, Mont., and on the 17th of June, 1899, there usedl that money of his wards in discharging his indebtedness to the Union Bank & Trust Company as far as it would go, giving a new note to the bank for the balance due -it from him. N. B. Smith testified that he did not know until the fall of 1899 what use the guardian had made of his wards’ money; that “in October, or before October,” 1899, the guardian told him; yet, in his subsequent letter of November 20, 1899, to his aunt, Mrs.

Reynolds, who had charge of the children at her home in Fayette, Ohio, he said: “In regard to Unele John buying the stock, will say that he borrowed the money from a bank in Helena to buy the stock. I would not let him have the stock until he had actually paid me the money. I had the money in my name in the bank until I was finally discharged from my trusts. When I made my final account I showed the judge my draft, and my bank account subject to check. I turned over to him the money and took his receipt for the same, and filed the same in court and the same is now a matter of record.

The Union Bank & Trust Company furnished his bond and same is perfectly good. He has to pay the bank quite a sum of money for furnishing the same. I think he has to pay about three hundred dollars a year for his bond. The judge and Uncle John and I talked over the matter of the use of the money, and the understanding was that he should pay four per cent, for the use of the money until such time as it should be invested in bonds.

That is better than we could do with government bonds, and as long as the Union Bank & Trust Company is his surety the same is perfectly safe.” There is in this letter not only no statement of the fact then confessedly known to the writer that the guardian had misappropriated the money of his wards to the payment of his own indebtedness, but the clear implication that the guardian then had on hand their money, secured by a perfectly good bond, furnished at his expense by the Union Bank & Trust Company. Not only did the former executor of the estate of William A.

Smith and subsequent attorney of the guardian of the minors fail to disclose to his aunt having charge of the children the misappropriation of their funds, but his own testimony is that after acquiring knowledge of the fact of such misappropriation, he failed to report it to the court, although keeping the guardian’s accounts at least as early as October, 1900, and being on the 11th of December of that year substituted of record as attorney of the guardian in place of the former attorney, Waterman, by an order of the court of that date, containing, among other things, the following: “John M.

Smith, the guardian of said minors, having made application to the court for an order authorizing him to borrow the funds in his hands belonging to said minors amounting to the sum of about $82,000 at the rate of three per cent per annum. The court being fully advised in the premises: It is ordered that said guardian be authorized to borrow said sum of $82,000 at the rate of 3% per annum, and to so hold the same at said interest until ,the further order of this court.” It is true that N. B.

Smith testified that he didl not procure this order to be made, and did not know of it at the time, but he admits that he thereafter acted as the attorney of the guardian, and prepared the final, account of the latter, in which the guardian was charged interest on the money of the wards only from December 11, 1900, and at the rate of 3 per cent, per annum, and in which the wards were charged.for the money paid by the guardian to the surety company for going on his bond as guardian. Before so acting N. B.

Smith knew that long before the making of the order of December 11, 1900, the guardian had misappropriated all of the money of his wards by the payment of his own indebtedness with it, for he himself so expressly testified, and, according to his own testimony, he withheld that information from the court and acted .under'and by virtue of the court’s order substituting him as attorney for the guardian in place of the guardian’s former attorney, which order recited the false pretense that the guardian then made application to borrow the money of his wards which he had long before misappropriated to his own use, upon which' sham and false statement the court undertook to make an order authorizing the guardian to borrow his wards’ money at the ■rate of 3 per cent, per- annum. - We are of the opinion that'the record shows that both the sale of the stock of the estate of the.deceased William A'.

Smith and the subsequent misappropriation of the money of the minors by their guardian were parts and parcels of a scheme -entered into by and between 'N. 'B. and John M. Smith, and consummated as hereinbefore indicated, which was a fraud both upon the minors and the probate court, and that therefore the judgment appealed from should be reversed and the cause remanded, with directions to enter a' decree for the complainant to the effect that upon the return to the representative of the estate of John M.

Smith, deceased, of the money received by her for.her interest -in the stock from her guardian, with legal interest thereon, her-proportion of the said stock be returned to her, and providing for an appropriate accounting on her behalf, and for such proceedings as may be requisite and . appropriate as will place her in such position as she. would have been in if the sale of said stock had not been made, and with costs. It is so ordered.