Devries v. Hiss

McSherry, J., delivered the opinion of the Court. By the will of Philip Hiss, sundry pecuniary legacies, aggregating eleven thousand dollars, were bequeathed, and their payment -was charged upon his real estate. All the rest, residue, and remainder of his property was given to five named trustees, and théir heirs and successors in trust, for the following purposes, viz., first, that one equal sixth part should “go to and become the property of” P. Hanson Hiss, absolutely and forever; and secondly, that the other five-sixths should be held by the trustees for the benefit of the several cestuis que trust named in the second, third, fourth, fifth and sixth items of the fourth article of the will. These cestuis que trust are the four other children of Philip Hiss and two children of a deceased child.

By the sixth article of the will the trustees were authorized and empowered, in case they “shall be of the opinion at any time that it is necessary, "for the' purpose of making a division among those entitled, or if it shall be necessary for any other purpose, or in case they shall deem it advantageous to ⁵⁶⁴ the parties interested in the same,” to sell the whole or any part of the testator's estate; and by the ninth article they were authorized to convey any land sold by them under the aforegoing provisions. The personal property proving insufficient, a portion of the real estate was sold by the trustees, and the legacies were paid out of the proceeds. The whole of the residuum now consists of fee simple real estate. P. Hanson Hiss was one of the trustees and executors under the will of his father, Philip Hiss.

As trustee lie-collected the rents and income and some of the securities-belonging to the estate, and when he failed in business he had used $9,985.44 of these trust funds so received by him. On the 6th day of November, 1886, he executed a deed of trust, conveying all his property to Christian Devries for the benefit of creditors. He was subsequently removed from the position of trustee, and his letters as executor were revoked. A new trustee was substituted in his place.

This bill was then filed by the trustees under the will of Philip Hiss, and by others, against all parties interested in Philip Hiss' estate, for a partition thereof. Mr. Devries, the trustee of P. Hanson Hiss, was made one of the defendants. In addition to the relief sought by way of partition, the bill prayed that the amount of trust funds retained by P. Hanson Hiss be treated as a payment in part of his share of the trust estate. Mr. Devries resisted this, and claimed that the whole share of P. Hanson Hiss, undiminished by crediting the misapplied trust funds, belonged, under the deed of trust, to him, Devries, for the benefit of the creditors of P. Hanson Hiss.

And this raises the first question which we are required to decide on this appeal. Mr. Devries stands in precisely the same position towards the estate of Philip Hiss that P. Hanson Hiss would have occupied had the deed of trust not been executed. It is equally certain that, when a trustee who ⁵⁶⁵ has a beneficial interest in a trust estate misappropriates a part of the trust property, a Court of equity will treat the amount of his defalcation as a payment to himself of that much of his interest. Irby vs. Irby, 25 Beav., 632.

It would be an idle display of research to multiply citations in support of this position. This doctrine has been extended to include even a derivative interest in a trust fund. Jacubs vs. Rylance, L. R., 17 Eq., 341; Doering vs. Doering, L. R., 42 Ch. D., 203.

In Fox vs. Buckley, L. R., 3 Ch. D., 508, it appeared that Edmund Buckley, by his will, after making sundry dispositions of real and personal estate, gave all the freehold land and hereditaments, not otherwise devised, unto his executors, (of whom Sir Edmund Buckley was one,) their heirs and assigns, to the use of Sir Edmund Buckley and his assigns during his life, without impeachment of waste, with divers remainders over. The other executors permitted the whole control of the estate to fall into the hands of Sir Edmund, who afterwards committed breaches of trust, and then filed a petition for liquidation. In a proceeding instituted by the legatees, it was sought to hold the estates legally devised to Sir Edmund Buckley for life liable to reimburse his defalcations.

This was opposed by the .trustee. under the liquidation. Little, V. C. of the County Palatine, of Lancaster, in refusing the relief, said “that it was not disputed Sir Edmund Buckley, in his character of executor and trustee, had committed breaches of trust, and that his beneficial interest in the trust property was liable to be applied towards making good his breaches of trust. The only question was whether the property legally devised to him was subject to the same liability. The question was materially different from that which had often been before the Court of Chancery as to the right to impound or stop the beneficial interest of a defaulting trustee in order to make good a breach of trust committed by him. ⁵⁶⁶ In those cases there was something to be done in the administration of the trusts or of the assets, and the Court took that occasion to oblige any claimant upon the estate to satisfy his obligations before he was allowed to withdraw anything from it.

But a legal devisee took iustcmter on the testator’s death, and if the devisee was indebted to the testator, the debt could not be treated as forming a lien on the devise.” * * * This was affirmed by the Court of Appeal. The relief was refused, not because an equitable interest of a defaulting trustee in real estate could not be made liable just as though it had been an interest in trust funds; but solely because the estate sought to be affected was a legal estate, and not an equitable one. When a Court of equity has acquired jurisdiction over the trust property, and has all the parties interested therein before it, and there are trusts yet to be performed in respect of the partition of the property, there is no reason why the Court should not prohibit a defaulting trustee from receiving any part of his equitable interest in the real estate until his defalcation is first made good out of that interest. What he owes to the trust estate ought to be deducted from what he is to receive from it, whether the trust estate consists of personal or of real property.

This is obviously just and equitable, and violates no legal principle. Now, what interest did P. Hanson Hiss take under the will of Philip Hiss P 'Was it a legal estate, or was it an equitable interest subject to the trusts named in the will, until an actual division of the property shall be made ? It is a rule of construction that the legal estate will be held to vest in the donee to uses, in order to enable him to perform the duties with which he is intrusted; and it was established at a very early period, and has since been generally acted on. Hill on Trustees, 231; 1 Cru.

Dig., tit. 12, ch. 1, secs. 20, 21 and 25. It seems to be ⁵⁶⁷ a reasonable conclusion “that the testator, by devising tbe property to the person who is directed to make the conveyance or sale intended, not merely to make him the medium or instrument through which to vest the estate in the beneficial devisee, but that he should take an estate commensurate with the duty which was assigned to him; and the ground for this construction is obviously strengthened when there are other purposes requiring that the trustee should have some estate.” 3 Jar. on Wills, 58. Accordingly it has been held that, where an estate is in the first instance given to trustees and their heirs iipon trusts which do not exhaust the equitable fee simple, and for which a particular estate short of the legal fee in the trustees would be sufficient, but discretionary powers are superadded which cannot be exercised by the trustees without arming them with the means of passing the fee simple, there the trustees do not take a particular estate by way of vested interest with a power of passing the fee, but they retain, the legal fee simple given to them in the first instance, on the footing that they were meant to exercise the discretion given to them by virtue of their otvnership and not by the mere operation of a power. Watson vs. Pearson, 2 Exch., 581; Blagrave vs. Blagrave, 4 Exch., 550; Davies vs. Davies, 1 Q. B., 430; Doe, dem.

Cadogan vs. Ewart, 7 Ad. & El., 636; Poad vs. Watson, 6 El. & Bl., 606, (88 Eng. Com. Law.) Now, the entire residuum, which includes the whole of P. Hanson Hiss’ share, was devised to the five trustees in fee simple, in the first instance, and they were given full power to sell and convey, in their discretion, all or any part of that residuum for the purpose of making partition or for any other purpose which in their judgment might benefit the estate. There are active duties imposed upon them.

As the legal estate was expressly devised to them, and discretionary powers