Dorsey v. Banks

Miller, J., delivered the opinion of the Court. A single question is presented by this appeal, and the following brief statement of facts, derived from the record, is sufficient to show how it arises: Daniel B. Banks, by his will, devised the residue of his estate to his son, Andrew Banks, the appellee, in trust to collect the rents, issues and profits thereof, and to distribute one-half of the net income “at regular stated periods during each year” to his daughter Mrs. Dorsey, the appellant, during her natural life, and the other half in like manner, to his daughter Annie, now Mrs. G-odwin, during her natural life. Upon the death of each of these daughters he devised one-half' of the corpus of this residue to her issue pier stirpes, if she had any living at the time of her death. The will also gave the trustee power “to make such sales, leases, or other disposition of the trust estate, and such reinvestment of the proceeds, as in his judgment shall he expedient for the better and more profitable development thereof.” At the instance of the trustee a Court of equity assumed the supervision of this trust, and by a decree passed in June, lSII, he was directed to render regular semi-annual accounts of his receipts and disbursements.

Some time after the passage of this decree, and prior to the year 1880, .the appellee, in connection with another party, undertook the building of a row of eleven marble-front houses on Oak street, and three brick houses on Mankin street. This transac ⁵¹⁰ tion resulted in a heavy loss, and he used a considerable amount, both of the principal and income of the trust, to meet the obligations he had thus incurred. It is conceded he had obtained no authority from the Court to use the trust funds in this way, or to undertake this enterprise for the benefit, or at the risk, of the trust estate. He has, however, replaced all of the principal he thus expended, with interest thereon, and has also repaid to the appellant all arrearages of her income, but has failed to pay her interest on such income during the time he thus withheld and used it.

This interest she now claims from him, and the question is whether she is entitled to recover it. The trust, as to the appellant, continues during her life. Her share of the net income for life was all .that was given to her by her father's will, for her support and that of her family. The trustee was bound under the decree of June, 1877, to pay it over to her semiannually, but this he failed to do.

Prior and up to the 1st of January, 1881, he was in arrear to the amount of $4848.97, and from that time on this amount varied, increasing in some years, and decreasing in others. Thus on the 1st of January, 1882, it was $5914.86; 1883, $6914.40; 1884, $5952.44; 1885, $3508.87; 1886, $3527.05; 1887,. $1952.36; 1888, $4191.35 ; and was not extinguished until March, 1888. It is admitted that the trustee applied this income to Ms oion uses whilst it thus remained in his hands. That a trustee who thus uses trust funds is chargeable with interest thereon is a proposition too well settled to admit of doubt.

Diffenderffer vs. Winder, 3 G. & J., 342 ; Comegys vs. State, use of Dyckes, 10 G. & J., 186 ; Mickle, Adm’r vs. Cross, Adm’r, 10 Md., 362 ; Lewin on Trusts, 340; 1 Terry on Trusts, sec. 464. Now, what is the defence which the trustee sets up against this claim ? It is, substantially, that the appel ⁵¹¹ lant, his sister, was aware of his losses in the Oak street building enterprise,' which he says he undertook in the interest and for the benefit of the trust estate, as well as his own, knew he had applied her money to meet obligations thereby incurred, sympathized with him in his misfortune; that he was abundantly able to repay her out of his own means, and that in the year 1880 she entered into an agreement, understanding, or contract, with him to the effect that if he would thereafter pay her the income, from time to time, as she needed it, or as it was received by him, and at such times make a partial payment on account of the income in arrear, she would be satisfied, and charge him no interest. In determining the validity of this defence it must be remembered that we are dealing with a controversy between trustee and cestui que trust, in which it is conceded that the former has applied the trust funds to his own use.

In such case the plain and only duty of the Court is simply to determine the question whether there has been any binding contract, agreement, or understanding entered into between these parties by which the cestui que trust is debarred or estopped from claiming this interest. And here it must be borne in mind that every contract between trustee and cestui que trust by which tb e former obtains any pecuniary benefit or advantage is open to suspicion, and the onus is on him to establish to the full satisfaction of the Court that it was the free, voluntary, and unbiased act of the latter, and that the transaction was fairly conducted, as if between strangers. The least that can he said is that the agreement must he definite in its terms, established by clear and satisfactory proof, and founded on a valid consideration. The alleged agreement was made, if made at all, in the latter part of the year 1880, at the office of the trustee, and is set out in rather vague terms in the ⁵¹² answer of the trustee to the petition