Dougherty v. Dougherty

Offutt, J., delivered the opinion of the Court. Leo J. Dougherty, the appellant, and Francis P. Dougherty, one of the appellees, are the sons of Patrick Dougherty, who died on April 10th, 1916. Patrick Dougherty in 1895 organized the P. Dougherty Company of Baltimore County, a corporation, the other appellee, which since that time has been engaged in the business of building tugs and barges, towing and transportation, buying and selling vessels, and the operation of vessels inland and coastwise. Patrick Dougherty’s wife was a sister of Thomas F. McHugh, who had been associated in the business with Patrick Dougherty before the formation of the corporation, perhaps as early as 1888.

The capital stock of the corporation was divided into 5,100 shares, of which Patrick Dougherty and McHugh each owned 2,550 shares. At his death Dougherty’s shares passed to his family, but McHugh held his stock until February 27th, 1926, when he endorsed certificates, transferring 1,250 shares to Francis and 1,250 shares to Leo, and had the transfers entered on the company’s books, but retained the certificates until his death on January 10th, 1936. At that time an additional certificate transferring his remaining fifty shares to Leo was found. In addition to those shares Francis and Leo own a part of their father’s share of capital stock of the company, so that at present Leo holds 1,937 shares and Francis 1,887 shares.

Of the ⁴⁴⁴ remaining 1,276 shares, 638 are held in trust for P. Francis (not Francis P.) Dougherty, and the remaining shares by other members of the McHugh and Dougherty families. Upon the death of Patrick Dougherty, Thomas F. McHugh became president and treasurer of the company, Leo its secretary, and Francis its assistant secretary, offices which they retained until the death of McHugh, when Francis became president and treasurer, and Leo vice-president and secretary. McHugh was twice married.. His first wife died January 24th, 1920.

He remarried in 1925, and the second wife died March 23rd, 1933. There were no children of either marriage, and perhaps because of that his relations with his two nephews, Leo and Francis, were unusually intimate, pleasant, and affectionate. Both he and Patrick Dougherty seem to have been men of outstanding force and sound business judgment, and the company appears to have been successful during their association, but its greatest period of prosperity came during and for a short time after the closing years of the world war, when for a time McHugh and Mrs. Dougherty, the widow of Patrick, each received $2,000 a week in salaries. McHugh left an estate of about $500,000, most of which came in one way or another from the P. Dougherty Company.

Because it represented the greater part of his life’s work, because throughout its history it continued to be the exclusive property of his own and the Dougherty family, and because his fortune was founded on it, McHugh until his death, took a deep interest in its affairs, although even before 1918 he had considered severing his connection with it, and in 1926 he endorsed certificatés transferring his stock to his nephews, and had the transfers entered on the books of the company, although he retained the certificates in his possession. Nevertheless he held the office of president and treasurer until his death, and in every crisis or need of the company he was ready to lend money to aid it. These advances, while enuring to the immediate benefit of the company, were not infre ⁴⁴⁵ quently entered on its books as credits to his nephews, and in 1928 he advanced as a gift $55,000 to each of his nephews, Leo and Francis, upon the understanding that they should apply the money to liquidating a loan of $110,000 by the Mercantile Trust Company to the company, each to be credited on the books of the company with a loan of $55,000 to it. These advances to or for the company were, except as to the $110,000, drawn from a checking account which McHugh kept with the Mercantile Trust Company, in which at his death there was a balance of approximately $42,000.

In September, 1924, he had that account put in his name as trustee for himself and Leo as joint owners, subject to the order of either, balance if any at the death of either, to go to the survivor, and so it remained until October 2nd, 1933, when he substituted the name of Francis P. Dougherty for that of Leo. After the death of Thomas F. McHugh, Francis P. Dougherty succeeded to the balance as survivor, and voluntarily had the account changed so as to read “F. P. Dougherty, Trustee, in trust for himself and Leo J. Dougherty, joint owners, subject to the order of either, balance at the death of either to belong to the survivor.” During McHugh’s life, only he drew checks against the account, and after his death only Francis P. Dougherty drew against it. After it was transferred to Francis in trust for himself and Leo as joint tenants, Francis drew against it for loans to the company and for the purchase of certain stock, which Leo suggests was bought for the company, but which Francis says he bought for himself. Some months after Francis had opened the trust account for himself and Leo as joint tenants, he withdrew the name of Leo therefrom, and substituted therefor the name of Margaret F. Dougherty, the wife of Francis.

When he learned of the change, Leo sought an explanation from Francis and, to quote from his testimony: “I brought up about this account, and asked Frank what he was going to do about it, and he said it was his, and I asked him to divide it with me. Frank ⁴⁴⁶ claimed and said it was his, and of course I just felt different, and I thought if Seymour O’Brien advised me —I took it up with Mr. O’Brien, and he said, T think if you talk with your brother he will divide with you,’ and on that suggestion that caused me to do it. That was the first conversation when I was informed that it was all his, or he told me it was his.” That interview is said to have occurred in the third or fourth week of July, 1936, and the bill in this case was filed in the following May. The bill was filed by Leo against Francis P. Dougherty, his brother, and the P. Dougherty Company.

In it, after reciting in substance the facts stated supra, he prayed this relief: “(a) That a decree may be passed declaring the amount on deposit in the aforesaid Mercantile Trust Company of Baltimore at the time of the death of the said Thomas F. McHugh to have passed to the Defendant, Francis P. Dougherty, in trust and for the use of said The P. Dougherty Company of Baltimore County. “(b) That said Francis P. Dougherty may be required to account for and pay over to said The P. Dougherty Company of Baltimore County all said amount so on deposit at the time of said death of said Thomas F. McHugh. “(c) And that your Orator may have such other and further relief as his case may require.” The defendants answered, and in their answer denied that the fund of $42,000 deposited with the Mercantile Trust Company in the name of Thomas F. McHugh, Trustee for himself and Francis P. Dougherty, as joint tenants, was impressed with a trust for the P. Dougherty Company • of Baltimore County. The case was tried upon that issue, and at the conclusion of the trial the court dismissed the bill. From that decree the plaintiff, Leo J. Dougherty, appealed. The case is essentially one of fact.

The legal principles applicable to the facts are well established, and not seriously questioned by either party. Obviously if the settlor, the trustee, and the cestuis que trust intended ⁴⁴⁷ and agreed that the survivor should hold the balance of the fund in trust, that fact may not only be shown but should be given effect. A. L. I., Restatement of Trusts, par. 24, illus. 4, par. 58, comment a; Wetzel v. Collin, 170 Md. 383, 387 , 185 A. 117 ; Bollack v. Bollack, 169 Md. 407 , 182 A. 317 ; Tillinghast v. Lamp, 168 Md. 34 , 176 A. 629 ; Milholland v. Whalen, 89 Md. 212 , 43 A. 43 ; Ghingher v. Fanseen, 166 Md. 519 , 172 A. 75 . On the other hand it is equally established that where an account is entered to one in trust for himself and another, as joint tenants, subject to the order of either, balance if any at the death of either to belong to the survivor, a presumption instantly' arises that, upon the death of one of the tenants, the survivor takes title to any balance remaining in the fund, and the burden is upon any third person, who alleges that a different result was intended by the settlor, to prove that fact.

Ibid. The appellant’s contention is that the settlor intended that the survivor should secure possession of the balance, but that, having secured possession of it, he should hold it in trust for the P. Dougherty Company of Baltimore County. In other words, he alleges that the settlor intended to create a definite trust as to the balance, to arise after the termination of the trust created by the entry. An indispensable element of a valid trust is certainty, certainty as to the subject matter upon which it is to operate, certainty as to the object to which the subject matter is to be dedicated, or, as stated by Judge Digges for this court in Sieling v. Sieling, 151 Md. 536, 549 , 135 A. 376, 381 ; “Generally speaking, in order to create a valid trust three circumstances must concur: First, a definite subject matter within the disposition of the settlor; second, a lawful, definite, object to which the subject matter is to be devoted; third, clear and unequivocal words or acts devoting the subject matter to the object of the trust.” To establish a trust by parol “the trust must be clear and the evidence of it convincing”.

Pope v. Safe Dep. & Tr. Co., 163 Md. 239 , ⁴⁴⁸ 249, 161 A. 404, 408 ; 65 C. J., Trusts, par. 47. The general rule in respect to the burden assumed by one who alleges the existence of a trust is thus stated in 26 R. C. L. 1203: “Whether a trust has been perfectly created is largely a question of fact in each case, and the court, in determining the fact, will give effect to the situation and relation of the parties, the nature and situation of the property, and the purposes or objects which the settlor had in view. The burden of proving the existence of a trust rests on the person asserting it, and he must prove it by clear and satisfactory evidence having in view all the surrounding facts and circumstances and the intention of the parties.

The same degree of proof should be required to prove an express trust as to establish a resulting trust, and the naked oath of one witness, without other corroborating circumstances proved, ought never to be held as sufficient.” See also Gimbel v. Gimbel, 148 Md. 182 , 128 A. 891 . In this case, the appellant concedes, as he must, that to secure the relief for which he asks he must prove (1) that the settlor intended that the balance should not be taken by the survivor for his own proper and personal use, and (2) that he intended that the survivor should hold it in trust for the P. Dougherty Company, for that is the specific relief for which he prays. So that the purpose of any analysis of the evidence must be to discover (1) whether the settlor intended that the appellee, if he survived the settlor, should come into the possession of the fund, and (2) that if he did so come into possession of it that he should hold it not for himself but in trust for the use and benefit of the P. Dougherty Company. Appellant, in support of his contention that the settlor so did intend, relies (1) upon the long continued course of dealing between McHugh and the company, (2) upon the conduct of the appellee subsequent to McHugh’s death, and (3) upon McHugh’s declarations.

Without attempting to recite it in detail, it is sufficient ⁴⁴⁹ to say that in addition to those recited above, the evidence does establish facts which may be thus stated. After the peak of its prosperity during the war years and immediately thereafter, the business of the P. Dougherty Company began to recede, and that recession continued until its profits disappeared entirely and it was operated at a loss. In those lean years, Thomas F. McHugh loaned it the support of his name, of his credit, and of his money. He acted as its president, he indorsed its notes, and he made loans to it. ' From 1932 until his death he advanced to the company by way of loans over $39,000, of which $7,900 was advanced after the name of Francis had been substituted for that of Leo as a joint tenant of the checking account in the Mercantile Trust Company.

But those advances appear to have been loans rather than gifts, for while the evidence shows that McHugh was always willing to lend the company money, there is no evidence that he ever gave it any. When he did make such advances, the money was invariably drawn from the particular checking account under consideration here, but it also appears that that account was quite active, and that he drew upon it not only for that purpose but for his own personal needs, such as living expenses, charitable contributions, and contributions for church and educational purposes, so that, of one lot of five hundred and fifty checks against that account, only seven, aggregating some $8,594.12, were for advances or loans to the company, and when such advances were made they were credited to McHugh as loans. In 1921 the company had bought a number of barges, and had borrowed $400,000 to pay for them, and had given its note to the Mercantile Trust Company for that amount. In 1928 the amount due on the note had been reduced to $110,000.

McHugh, although he had transferred his stock in the company to his nephews, wanted that loan paid off. He therefore advanced to each of them as a gift $55,000, upon the understanding that they would use the money to pay off the note. They did so use it, and the company gave each ⁴⁵⁰ of them it's note for $55,000. As a result of these and other credits, on August 19th, 1936, the company was indebted to Francis P. Dougherty for $66,000 and to Leo J. Dougherty for $66,000, much of which was barred by