Douglass v. Safe Deposit & Trust Co.

Digges, J., delivered the opinion of the Court. In 1859 Robert Graham Dun purchased a business which from that time to- the time of his death in 1900 he operated, enlarged, and developed, under the name of R. G. Dun & Company, or the Mercantile Agency. He. left a will by which the business .was directed to be managed by four trustees, the income or profits therefrom to be paid to his widow during her life. The term of this testamentary trust was during the lifetime of his widow, Mary B. Dun,- and for a period of one year after her death.

The testamentary trustees were Robert Dun Douglass (the plaintiff below and appellant here), Francis L. Minton, Walter D. Buchanan, and Mary B. Dun. At the termination of the testamentary trust the business was ⁸³ bequeathed to the named children of the testator’s two sisters, Elizabeth Dun Douglass and Lucy A. James, in unequal proportions. By virtue of said will, on the termination of the trust the entire business and property vested absolutely in the following children of the two sisters, in the following proportions: To William A. Dougless, 6/60; Benjamin Douglass, Jr., 6/60; Eobert Dun Douglass, 6/60; George Douglass, 6/60; Thomas James, 9/60; Lucy James Dun, 9/60; and Jane James Cook, 18/60. Mrs. Dun, the widow, died in November, 1910, and the testamentary trust terminated on November 2nd, 1911.

After the termination of this trust the owners continued to conduct the business until May 16th, 1912, through attorneys in fact appointed by the owners; these attorneys in fact or agents being Eobert Dun Douglass, Francis L. Minton, and Thomas James; Joseph Packard being substituted for Thomas James upon the death of the latter, February 24th, 1912. On May 16th, 1912, the owners of the business executed a remarkably clear and carefully prepared agreement, designated in the instrument a “trust agreement” and so called by the appellees herein, but which is designated as a “partnership agreement” by the appellant. The agreement, after reciting the property conveyed, the provisions of Eobert G. Dun’s will in respect thereto, the death of his widow, the continuation of the business by the surviving trustees for one year after her death and by the attorneys in fact from November 2nd, 1911, the substitution of Jogeph Packard as one of such attorneys, in place of Thomas James, naming the then owners of the property, that the parties to the agreement consider that, the nature of the business and the continued usefulness and value thereof require that the entirety of the business be preserved and its conduct continued under a form of organization properly adapted to securing its stability, growth, and prosperity, and are of the opinion that it is impracticable to attain those ends, through the direct and personal administration of the present legal owners, and that the legal ownership of the same should be vested in trustees, and that upon the termination of the testamentary trust the ⁸⁴ owners were unable to agree among themselves as to> the form and terms of an organization under which the business should be continued and preserved; declares that the parties of the first part (who were all of the owners with the exception of George Douglass, who owned 6/60), who, for reference and not as a legal definition, are described as the “proprietors,” for a named valuable consideration, evidenced by the signatures to said agreement, sold, assigned, transferred and conveyed to Robert Dun Douglass, Francis L. Minton, and Joseph Packard, thereinafter described as the “trustees,” their survivors, survivor and successors, all of the interests of the parties of the first part in and to all the property which was bequeathed as aforesaid by the will of Robert Graham Dun, including the good-will of the business, with all accretions thereto, as it then existed, to have and to hold the interests in the said good-will, property and business thereby transferred and conveyed, “in trust, during the period and upon the terms and conditions hereinafter set forth.” Lucy J. Dun was named as one of the parties of the first part; she, however, did not sign the agreement, having been adjudicated a lunatic by inquisition in the Circuit Court for Baltimore County May 6th, 1912, the jury finding that she had been a lunatic without lucid intervals since June 27th, 1910. On May 7th, 1912, that court appointed Jane J. Cook, the sister of Lucy J. Dun, committee of her person, and the Safe Deposit & Trust Company of Baltimore committee of her estate, with full power and authority to take charge of and manage her property, subject to the order and direction of that court; and that corporation signed the agreement of May 16th, 1912, as her committee.

The term of the trust created by this agreement was for the life of the survivor of two named persons and twenty-one years thereafter*. The agreement particularly described the powers and duties of the trustees and of the proprietors. The trustees were given power to manage and conduct the business, subject to the enumerated reserved powers of the proprietors. The trustees were authorized to designate themselves and conduct business as if they among themselves were partners, either ⁸⁵ by naming themselves individually as co-partners, or with the addition of the word “trustees” after their names as co-partners; but with respect to the proprietors they were not individually liable as partners.

In other words, the trustees were to conduct the business with respect to outsiders as if they were a partnership, with all of the property of R. G. Dun & Company belonging to the proprietors responsible for any obligation incurred by tbe trustees, and the net profits derived from the business distributed among the proprietors according to their respective interests. The proprietors reserved control of the trustees. Those entitled to a major part of the profits may (1) remove and retire trustees, at will, (2) appoint a successor and fix his compensation, (3) change compensation of existing trustees, (4) increase or decrease the number of trustees, provided they should never be less than three, (5) open new offices, (6) fix dates for trustees’' reports, (7) prevent any proprietor transferring his interest except by will, (8) decide any question on which the trustees are not unanimous and direct what course shall be pursued in such case. Those entitled to- seventy-five per cent, of the profits may (1) terminate the trust and cause all rights to revert to the proprietors, (2) cause the trustees to sell the whole property at a price, (3) incorporate the business, (4) amend the trust deed by addition, subtraction, or modification, provided it does not diminish the quantity or relative value of the ownership of any proprietor in said trust estate or in the profits thereof.

By article XXVI it is provided: “In all cases in which action or dissent of proprietors is required, the legal guardian or committee of the property of any proprietor who, by reason of infancy or other cause, has not legal capacity to act upon his or her own behalf, and the executors, administrators or trustees, when a proprietary interest is at the time held by executors, administrators or trustees, shall have and may exercise the right and power in respect of any such interest to join for action or dissent with other proprietors.” Article XXVIII- is: “By the word ‘trustees,’ wherever it is found in this instrument, is meant the persons who are herein ex ⁸⁶ pressly named and designated as trustees, and also their survivors or survivor, and each and every of their successors in office, and the word ‘proprietors,’ wherever used herein, refers not only to the present proprietors, but to their respective successors in interest, and whenever there has been such a succession of interest, the successor, for the time being, shall possess the rights, power’s and authority, and be subject to the obligations and limitations of a proprietor to the same extent as though he or she had as an original proprietor been, a party to this instrument. The term ‘successor in interest,’ as used in this instrument when referring to the interest of any of the proprietors, applies to a person or persons whose title is derived from any of the parties of the first part.” By article XX it is provided: “The relations of the trustees to the subject-matter of this instrument shall be governed by the general rules and principles of equity jurisprudence as applied to. trustees.” The agreement also provided for the purchase of George Douglas’ 6/60 interest, which was subsequently consummated and resulted in increasing each of the proprietors’ interests by 1/60, each of said proprietors having paid one-sixth of the cost thereof. From May 16th, 1912, to October 31st, 1927, certain changes took place in the personnel of the proprietors and trustees, so that on the latter date the business of E. G. Dun & Company, including all property owned and used in connection therewith, and the good-will thereof, was vested in Eobert Dun Douglass, Francis L. Minton, Archibald W. Ferguson, and Charles F. Tuttle, trustees, in trust for the following persons called proprietors, in the following proportions: Jane James Cook, 19/60; Lucy Wortham James, 10/60; Safe Deposit & Trust Company of Baltimore, trustee under the will of Lucy J. Dun, 10/60; Eobert Dun Douglas., 7/60; William A. Douglass, 7/60; legatees and devisees of Benjamin Douglas, Jr., 7/60. On October 31st, 1927, Jane James Cook, Lucy Wortham James, and the Safe Deposit & Trust Company of Baltimore, trustee under the will of Lucy J. Dun, deceased, together owning 39/60 of the E. G. Dun & Company business and property, and being entitled to 39/60 of the profits arising ⁸⁷ therefrom, formed an unincorporated voluntary association, under the name “Dun Investment Association.” The purpose and business of this association generally is to acquire the 89/60 interest of the three named proprietors in the R. G. Dun & Company trust, and to acquire shares of the other proprietors to the extent deemed advisable by the board of directors of the association; (a) to collect the shares of the parties in the profits distributable under the trust agreement; (b) to sell for cash or securities the whole but not part of the undivided interest in the R. G. Dun & Company trust held by the association; (c) to join with other proprietors in selling and transferring the whole R. G. Dun trust estate pursuant to article XXI of the trust agreement; (d) to join with the other proprietors in incorporating R. G. Dun & Company pursuant to article XXII; provided, however, as to the matters contemplated by clauses (b), (c) and (d) above, and not otherwise, that the action of the investment association in so doing be unanimously approved by all of its board of directors and by the holders of a majority of its shares from time to time outstanding, such approval of directors and shareholders to be expressed in writing at a meeting or meetings.

All other rights and actions of the association, as a proprietor in R. G. Dun & Company, such as the right to direct or remove trustees, are controlled by a majority in interest of the association. The capital of the association consists of shares, all distributed among the parties in proportion to their interest in R. G. Dun & Company assigned to the association. Certificates of beneficial interest in the association, assignable without restriction, are issued to each member. The association business is governed by a board of three directors, no one of whom need be a shareholder, elected annually by a majority vote of the members.

The officers consist of the president, treasurer and secretary, elected annually by the directors. At any meeting of the proprietors under the R. G. Dun trust agreement, all of the directors of the association are to represent the association, but any action of the association as proprietor is to be determined by a majority. One of the directors is designated the ⁸⁸ senior director, and in case no more than two directors attend meeting of the proprietors, in case of disagreement between the two, the senior director is empowered to cast the vote of the association. The death of a shareholder does not dissolve the association.

The term of the agreement is coextensive with that of the E. G. Dun & Company proprietors’ agreement. Dissolution in advance of the regular termination may be had, by-laws may be made and amended, and the articles of the association may be amended, by the action of a majority in interest of the members. Its present directors are: J. J. Nelligan, president of the Safe Deposit & Trust Co.; Jane James Cook; and Lucy Wortham James. The respective interests as proprietors of E. G. Dun & Company, held by the Safe Deposit & Trust Company, executor and trustee under the will of Lucy J. Dun, J ane J ames Cook, and Lucy Wortham James, were assigned by each of them to the Dun Investment Association on the date of its organization.

The consent to each of said assignments by all three of the assignors was evidenced by their signatures, they at the time being proprietors of 39/60 interest in the E. G. Dun & Company trust, and being those entitled to a major part •of the profits arising from that business. On November 23rd, 1927, J. J. Nelligan, as president of the Dun Investment Association, sent the following letter addressed to E. D. Douglass, A. W. Ferguson, and Charles F. Tuttle, trustees of E. G. Dun & Company, 290 Broadway, New York City: “I beg to advise that Mrs. Jane James Cook, Mrs. Lucy Wortham James and the Safe Deposit and Trust Co. of Baltimore, trustee under the will of Lucy J. Dun, deceased, have assigned their respective interests in the business and assets of E. G. Dun & Co. held by you as trustees to the Dun Investment Association. I enclose, for your files, an original of each of said assignments. The directors of the Dim Investment Association are Mrs,.

Cook, Mrs. James and the writer. The officers are J. J. Nelligan, president; John W. Marshall, treasurer and secretary. Please take proper ⁸⁹ note and make record of said assignments. Until further advised, please continue to pay the share of profits due under said assignments to the assignors.

For your information, I would advise you that the articles of the Dun Investment Association have provided that all three of said directors may he present at any meeting of the trustees and proprietors of R G. Dun & Co.” The record discloses that subsequently the appellant acknowledge to Mrs. Cook the receipt of the notice of the formation of the Dun Investment Association, and inquired of her: “Have you anything further to say about it ?” That in response to such inquiry, Mrs. Cook informed him: “The-Dun Investment Association was formed, and Mrs. James, the Lucy Dun Estate, and myself conveyed our respective interests in the R G. Dun & Co. business to it. We all felt that, in view of the possibility of the interest represented by each of us becoming scattered through death or otherwise, it was very much to our advantage and also to the advantage of the Douglass interests, that the control of the business should be in the hands of a small group so that it might be continued without the risk of introducing into it any unknown or outside interests, such as might happen if the Lucy Dun Trust expired and the Rucker family became possessed of that interest. As the matter stands now, the Dun Investment Association will have the controlling voice in the appointment of trustees in case of the death of any of the present trustees, and the right to direct the trustees in the management of the business, and that, I think, is a very important safeguard to the Dim business.” After which the appellant informed Mrs. Cook as follows: “I am very much obliged to you for telling me so much in detail, in regard to the Dun Investing Association. I think it ought to work out very satisfactory for all of us, as the Dun Investing Association and ourselves will be the only ones interested.

There is one suggestion I would like to make and that is that the ‘Investing Association7 should, make appointments from our rank and file, and not appoint people who