Safe Deposit & Trust Co. v. Cahn

⁵³² McSherry, C. J., delivered the opinion of the Court. There are three appeals in this record. Two of the questions brought up for decision are involved in all of the cases, whilst there are separate, subordinate inquiries which are confined to the first and third appeals respectively. Before stating any of the questions which are to be considered, a brief narration of the facts must be given, in so far as they affect the first contention which is common to all the cases; and subsequently the facts bearing on the other general question will be stated, and when the subsidiary inquiries are later on, dealt with, the facts pertaining to them will be mentioned, if not incidentally alluded to earlier.

Three bills in equity were filed in the Circuit Court offBaltimore City by the appellant, the Safe Deposit and Trust Company of Baltimore City, against the several appellees. To each bill demurrers were interposed; the demurrers were sustained and the bills were dismissed upon the sole ground that a Court of equity was without jurisdiction to grant the relief prayed. It appears from the face of the'bills and exhibits that in the year eighteen hundred and ninety-five a certain Wesley A. Tucker departed this life leaving a last will and testament in and by which his widow, Rebecca J. Tucker, and his son, William Trump Tucker, were appointed executrix and executor, and were named and constituted trustees of the propierty therein disposed of on the trusts and conditions therein mentioned and set forth: That the executrix and executor after administering on the estate of the decedent, conveyed and transferred that portion thereof falling within and covered by the trusts created by the will, to themselves as trustees: That the Circuit Court upon appropriate proceedings taken, assumed jurisdiction over the administration of the trusts named and described in the will and over the trust property and estate subject thereto: That a portion of the trust estate was invested in three hundred and twenty-eight shares of the capital stock of the Merchants and Miners Transportation Company, and in two hundred and eleven shares of the capital stock of the Northern Central Railway Company; and that ⁵³³ the certificates representing all of those shares stood in the names of Rebecca J. Tucker and William Trump Tucker, trustees of Wesley A. Tucker, deceased: That by certain orders passed at different times by the Circuit Court in the trust estate proceedings, the trustees were authorized to sell the above-named shares of stock with a view to the re-investment of the proceeds in other securities: That as to one hundred shares of the Merchants and Miners Transportation Company’s stock the sale was directed by the Court to be made at the Public Stock Board of Baltimore, and as to the entire two hundred and eleven shares of the Northern Central Railway Company’s stock, the sales were directed by the Court’s orders to be made at the highest market price obtainable on the Public Stock Board of Baltimore City; and as to one hundred of the remaining two hundred and twenty-eight shares of the Merchants and Miners Transportation Company’s stock the order instructed the trustees to sell at the highest market price obtainable at the Public Stock Board of Baltimore, “or otherwise, provided the same shall not be sold at less than one hundred and seventy ($170) dollars per share;” and as to the remaining one hundred and twenty-eight shares of the same stock the Court’s order permitted the sale to be made at the “market price upon the Public Stock Board of Baltimore City, or at private sale at not less than $[75.00 per share:” That all of the above-mentioned certificates thus plainly earmarked and distinctly identified as forming parts of the corpus of the trust estate of Wesley A. Tucker, deceased, and clearly showing that they did not belong to Rebecca J. Tucker or William Trump Tucker individually, were sold by the appellees — who are bankers and stock brokers — under circumstances, some of which need not be mentioned just here because having no relation to the branch of the case now being considered, but which will be stated later on when the liability of the several firms separately proceeded against comes to be discussed: That the appellees sold all the shares for the individual benefit and account of William Trump Tucker, and credited the proceeds of the sales to the individual account of ⁵³⁴ William Trump Tucker and paid the .proceeds by check to him individually, without indicating in any way on the face of the checks that-they represented the proceeds of the sale of stock belonging to a trust estate, and without naming Rebecca J. Tuckeras trustee or payee, and without describing William Trump Tucker; the person named as payee therein, as trustee, although the appellee firms knew full well, both from information gathered from previous dealings with William Trump Tucker, and from the fact that the certificates all showed on their face that they represented stock standing on the books of the two corporations above-mentioned, in the names of Rebecca J. Tucker and William Trump Tucker, trustees of Wesley A. Tucker, deceased, that said stock, in fact belonged to and formed part of the trust estate of the decedent: That William Trump Tucker took the proceeds of said sales, thus paid to him individually, and converted them to his own private use without accounting to his co-trustee or to the trust estate therefor; that after wasting and despoiling the trust estate to a large amount he departed to, 'and is now residing in, some place unknown, and that he is utterly insolvent: That both Rebecca J. Tucker and William Trump Tucker were subsequently removed from the trusteeship and that the Safe Deposit and Trust Company was duly appointed in their stead. The three bills contained in the record were filed by the Safe Deposit and Trust Company, the substituted trustee.

In the first, certain individuals who formerly traded as Frank B. Cahn & Company, and later in conjunction with a special partner as Roberts, Cahn & Company, were proceeded against to recover from them the sum of about seventeen thousand dollars representing the proceeds of the sale of one hundred shares of the capital stock of the Merchants and Miners Transportation Company; in the second, certain individuals constituting the same firm of Roberts, Cahn & Company, were proceeded against to recover from them the sum of forty-two thousand, one hundred and thirty-eight dollars and thirty-nine cents, being the amount of the proceeds of the sale of the remaining two hundred and twenty-eight shares of ⁵³⁵ the Merchants and Miners Transportation Company’s stock ; and in the third, certain individuals constituting a still later firm of Roberts, Cahn & Company were proceeded against to recover from them something more than twenty thousand dollars, being the amount of the proceeds of the sales of the two hundred and eleven shares of the capital stock of the Northern Central Railway Company. The liability of all the appellees is based upon their participation in Tucker’s breach of trust. Upon the facts admitted by the demurrers, the first question presented is this: Has a Court of equity jurisdiction to decree that the defendants — the appellees here — shall restore to the trust estate the amounts which by their participation in Tucker’s malversations they enabled him to abstract therefrom and to convert to his own use? Or, must the substituted trustee proceed by an action at law against these participants in Tucker’s conceded breach of trust to recover the amounts lost by his defalcations ?

It cannot be doubted at this day, that on the facts alleged in the bills of complaint the appellees are answerable, in some forum — either in a Court of equity or in a Court of law— for their participation in the defaulting trustee’s breach of trust. It is a general principle that all persons who knowingly take part or aid in committing a breach of trust are responsible for the money thus withdrawn from the trust estate, and they may be compelled to replace the fund which they have been instrumental in diverting. Every violation by a trustee of a duty which equity lays upon him, whether willful and fraudulent or done through negligence or arising through mere oversight or forgetfulness, is a breach of trust.» There is in such instances no primary or secondary liability as respects the parties guilty of, or participting in, the breach of trust; because all are equally amenable. That a breach of trust -was committed by William Trump Tucker does not admit of a doubt.

He and his co-trustee were removed because he was a defaulter. He received the proceeds of the sales of all of the shares of stock which have been hereinbefore mentioned, and those proceeds formed part of the corpus of the ⁵³⁶ trust estate which it was his imperative duty to preserve intact. Instead of performing that duty he spent the funds or appropriated them to his own use. Whoever knowingly aided him, or knowingly participated with him, in misapplying those funds, became by reason of so aiding and so participating, equally liable with him to make the fund good by restoring the proceeds of the sales or an equivalent in cash to the trust estate.

If the appellees aided and participated in TuckT er’s breach of trust in the manner and to Ihe extent alleged in the pleadings as hereinbefore stated, then they are, beyond dispute, as responsible and answerable to the substituted trustee as is the defaulting trustee himself. But in what tribunal must that responsibility of the appellees be enforced? The appellant says in a Court of equity; the appellees assert, in a Court of law because an adequate remedy exists there. If this were a proceeding against the defaulting trustee alone, can it be questioned that a Court of equity would have ample jurisdiction to require the spoliator to make good to the trust estate the funds belonging thereto which he had unlawfully converted to his own use ?

A Court of equity which has assumed charge of the administration of a trust estate has jurisdiction over the trust property and over the trustee; and if the trustee misappropriates the trust funds, squanders and misapplies them whilst a Court of equity has supervision over them and him, that Court would be lame and impotent indeed if it were powerless to compel, by its own process, the delinquent trustee to restore the abstracted funds, and if it were, in consequence of its own want of jurisdiction, «driven to seek the aid of a Court of law to accomplish that result. “The trustee’s personal liability to make compensation for the Joss occasioned by a breach of trust is a simple contract equitable debt. It may be enforced by a suit in equity against the trustee himself, or against his estate after his death, and the Statute of Limitations will not be. admitted as a defense, unless the statutory language is express and mandatory upon the Court.” 2 Pom. Eq., sec. 1080. If the jurisdiction of a Court of equity is broad enough to enable ⁵³⁷ that Court to decree that a defaulting trustee shall make compensation to the extent which he has wrongfully depleted a trust estate; upon what principle can it be maintained that the same jurisdiction will not extend to and bring within its scope the individuals who may knowingly aid and assist the trustee in his spoliation of the fund ?

If the one is answerable in a Court of equity, why should not the other be also? Both the defaulting trustee and his confederates — those who aided and abetted him — occupy precisely the same relation to the trust estate. Each is primarily liable. Why, then, cannot the same tribunal be invoked to enforce against both an identical liability?

The participants in the defalcation — the persons who aid, and by their conduct knowingly assist the trustee to squander the trust funds — are chargeable with the loss, because, as stated by Sir John Leach, Master of the Rolls, “in the consideration of a Court of equity, they, by being parties to a breach of trust, have themselves become trustees for the purposes of the testator’s will.” Wilson v. Moore, 1 Myl. & Keene, 126. By their own wrongful act they have, in the consideration of a Court of equity, constituted themselves trustees of the fund they have aided the trustee in misapplying, and they may be treated as trustees of the misapplied fund for the purposes of. the testator’s will. As the original trustee is answerable in a Court of equity to the trust estate for his diversion of its funds, because that Court has jurisdiction over the estate and over him; it must of necessity follow, that those who aid the trustee in his misappropriations of the funds and who by so aiding him become themselves trustees of the diverted assets, are also liable in a Court of equity, because by- becoming trustees ex delicto they have brought themselves within the jurisdiction to which the testamentary trustee is amenable. The forms and varieties of the trusts which are termed ex maleficio or ex delicto are practically without limit. “The principle is applied wherever it is necessary for the obtaining of complete justice, although the law may also give the remedy of damages against the wrong-doer.” 2 Pom.

Eq., sec. 1053. The jurisdiction of a Court of equity to grant the relief ⁵³⁸ prayed for in these proceedings has been distinctly and unequivocally upheld by this Court. The substituted trustee clearly became in equity the assignee of any rights of action possessed by the cestuis que trustent for injuries done to the trust property before the substituted trustee’s appointment, and it was clothed by the order appointing it with all the powers conferred by the" will of Wesley A. Tucker upon the original trustees. This Court had before it A precisely similar situation in Stewart & Duffy, Trustees, v. Firem. his.

Co., 53 Md. 564 . It appeared in that case that a testator bequeathed the residuum of his estate to two trustees upon certain trusts which need not be stated here. The Circuit Court of Baltimore City assumed jurisdiction over the administration of the trusts, and thereafter the trustees with the consent and permission of the Firemen’s Insurance Company, transferred a portion of that company’s stock which belonged to the trust estate, and appropriated the proceeds to their own use. Subsequently the trustees were removed and Messrs.

Stewart and Duffy were appointed trustees in their stead. The decree, which effected this removal and appointment, clothed the new trustees “with all the power and authority conferred upon or vested in” the removed trustees. The. substituted trustees then filed a bill in equity against the insurance company to recover the stock thus lost to the trust estate, or its value; and the insurance company specially denied the right of the complainants to institute the süit, and also denied that the Circuit Court had any jurisdiction to confer such a right. It was held in a carefully considered judgment delivered by the late Judge Miller, that a Court of equity has jurisdiction to enforce the liability incurred by a participant in a breach of trust by a trustee, and it was said: “In case of a trust like the one before us we cannot doubt the power of a Court of equity, at the instance of the cestuis que trust to supervise the trustees in its management, to remove them for misconduct and appoint others in their place, clothed with all the power and authority over the trust estate which the original trustees had under the instrument creating the trust.

Why, then, is it not compe ⁵³⁹ tent for the complainants to maintain this bill to recover the portion of the trust property which they aver has been lost through the misconduct of their predecessors and the negligence of the defendant corporation? It is true the question-has never been expressly decided in this State, but in Thurston v. Blackiston, 36 Md. 501 , a similar bill was sustained without any such objection being interposed.” After citing with approval the case of Loring v. Salisbury, 125 Mass. 148 , this Court proceeded to say: “But apart from authority, and assuming the question is one of first impression, we have no difficulty in sustaining the right of the trustees appointed, as in the present case, to maintain suits against the proper parties for breaches of trust committed by, or injuries done to the trust property while in the hands and under the management of their predecessors.” The insurance company was accordingly held responsible in equity at the suit of the substituted trustees for the loss sustained by the trust estate as the result of a breach of trust committed by the former trustees with the aid and co-operation of the company. Precisely the same relief was granted upon analogous facts in Swift v. Williams & Moore, Trustees, 68 Md. 236 . In Duckett v. Bank of Baltimore, 88 Md. 8 , the jurisdiction of a Court of equity to compel a participant in a breach of trust to make compensation at the suit of a substituted trustee was distinctly challenged and was in express terms upheld.

In Duckett v. Mechanics Bank, 86 Md. 400 , the jurisdiction was not questioned or doubted. The allusion in the last-named case to Third Nat. Bk. v. Lange, 51 Md. 138 ; Marbury v. Ehlen, 72 Md. 206 , and Stewart v. Fire Ins. Co., 53 Md. 564 , was to distinguish them from the situation presented by the check which was payable to Scott, cashier, for deposit to the credit of Clagett personally, as the context plainly shows.

It has been vigorously and ingeniously contended in behalf of the appellees that none of the cases above cited is applicable here, because the proceedings now before us are in reality suits in equity for the recovery of damages and should have therefore, been instituted in a Court of law. The fundamental ⁵⁴⁰ proposition upon which the contention is based is, that the substituted trustee is the holder of a legal title, that as such holder it is not seeking to have the stock itself restored, because the shares were rightfully sold under an order of Court, and it is not endeavoring to have restored the proceeds of the stock in their identity as trust funds, because those proceeds, according to the averments of the bills, are no longer in the hands of the appellees, having been paid over to William Trump Tucker; but as the holder of the legal title the substituted trustee is attempting to recover from the appellees damages for the negligence of which they were guilty in the method of payment pursued by them, whereby they made it possible-for William Trump Tucker to appropriate the proceeds to his own use. There are several fallacies lurking in this contention. It does not follow because the substituted trustee holds a legal title to the trust estate, that therefore the trustee cannot, in the circumstances of these cases, invoke the remedial aid of a Court of equity to compel a deposed trustee or his confederates to reimburse the depleted trust estate.

Conceding that the trustee does hold the legal title, yet “the primary right, estate, or interest to be maintained, or the violation of which furnishes the cause of action,” (1 Pom. Eq. sec. 130.) is essentially equitable. “In all cases of equitable estates * * * they are in equity what legal estates are in law; the ownership of the equitable estate is regarded by equity as the real own-, ership, and the legal estate is * * * no more than the shadow, always following the equitable estate, which is the substance, except where there is a purchaser for value and without notice who has acquired the legal estate.” 1 Pom. Eq., sec. 147. But equity jurisdiction embraces not only cases for the maintenance or protection of primary rights, estates and interests purely equitable, “but cases for the maintenance and protection of primary rights, estates and interests purely legal; and in the latter class of cases the remedies granted may be of a kind which are peculiar to equity Courts * * * or may be of a kind which are administered by Courts of law, as the recovery of money, or of the possession of specific things.” ⁵⁴¹ 1 Pom.

Eq., sec. 136. Hence it is obvious that the mere circumstances that the trustee is clothed with a legal title and seeks to recover money due to the trust estate are not sufficient to indicate that equity has no jurisdiction to grant relief. Again; the implied assumption that there is no fiduciary relation between the substituted trustee and the appellees is equally fallacious. It directly conflicts with the doctrine laid down by the Master of the Rolls in Wilson v. Moore, supra, pursuant to which the abettor of a defaulting trustee becomes by participating in a breach of trust, a trustee for the purposes of the testator’s will and therefore amenable to the jurisdiction of a Court of equity.

The case of White v. White, 1 Md. Ch. Dec. 53, has been strongly pressed upon us as flatly deciding that a Court of equity is without jurisdiction in such cases as these. In that case the bill of complaint averred that 46 shares of the stock of the Manhattan Company of New York were transferred to the defendant, Joseph White, in trust for the complainants, and that Joseph White, by letter- of attorney, empowered Campbell P. White to sell and transfer the shares to the defendant, John C. White, which was accordingly done; that said defendant, John C. White, knew the stock was trust property, but made no returns of the proceeds to the complainant,