Stewart v. Firemen's Insurance

Miller, J., delivered the opinion of the Court. Joseph Johnson died in March, 1864, leaving a will by which, after some small bequests, he directed all the residue of his property to he divided into two equal parts, and then devised one part to trustees, in trust for his grand■son, Joseph J. Tyson, for life, with remainder to his chil ⁵⁶⁶ dren and their descendants, if he left any living at the-time of his death, and if not then over, and the other part, to the same trustees in trust for his grandson, Joseph J. Johnson, for life, with like remainder to his children and their descendants, and with like contingent limitation over. The greater part of the testator’s personal estate-consisted of 1069 shares of stock in the Firemen’s Insurance Company, worth at the time of his death more than $60,000. The trustees to whom the property was thus devised were William Simms and the grandson, Joseph J. Tyson, who were also appointed by the testátor his executors.

They accepted these trusts, and in June,, 1866, presented to the Orphans’ Court their first and final account as executors, in which, after payment of debts and legacies, they crave an allowance for 584-| shares of this, stock, retained by them as trustees for Joseph J. Tyson, to be held subject to the trust purposes mentioned in the will, and for a like number of shares retained by them as trustees for Joseph J. Johnson, to be held subject to the same trust purposes. This account was duly sworn to by the executors and passed by order of the Court on the 30th of June, 1866. When the testator died, his grandson, Joseph J. Johnson was an infant and did not attain majoi’ity until October, 1815. In the meantime, proceedings in behalf of the infant were instituted in the Circuit Court of Baltimore City, under which that Court, as a Court of equity, assumed jurisdiction and control over the administration of' the trusts, and in April, 1869, passed an order requiring the trustees to give bond for the faithful performance of their duties, which they did.

Afterwards, in 1810, 1811 and 1812, the trustees, with the consent or permission of the Insurance Company, transferred portions of this stock, amounting to 532 shares in all, and appropriated the proceeds to their own use. In October, 1814, but before discovery of these transfers, the trustees, upon petition of the- ⁵⁶⁷ infant, were removed from the trust, and the appellants, Duffy and Stewart, appointed trustees in their place. The decree which effected this removal and appointment, was passed jin the proceedings referred to, and clothed the new trustees “ with all the power and authority conferred upon or vested in” the removed trustees, “in and by virtue of the last will of Joseph Johnson, deceased, but subject to the future order of this Court in relation to said trust,” and directed the old trustees to deliver up to the new ones “the money, hank-hoolrs and securities in their hands belonging to the trust estate.” After this, in October, 1875, the new trustees filed a petition in the cause in which they charged that the former trustees had failed to deliver to them 532 shares of the stock in question, and prayed they might he required to do so. In their answer to this petition, the old trustees admitted they had sold these shares and had used the proceeds in their business, and were now unable to return the same, being insolvent.

The Court thereupon passed an order directing the new trustees “to proceed to recover the moneys and securities belonging to said trust, admitted by said Simms and Tyson to have been disposed of without the sanction of this Court; and said trustees are hereby authorized to proceed at once against the sureties in the bond filed by said Simms and Tyson in these proceedings, and also take such other measures as may in their judgment be necessary to obtain possession of said moneys and securities, or damages for the conversion of the same.” The new trustees then, in March, 1876, filed the hill in the present case against the Insurance Company to recover the stock thus lost to the trust estate or its value. The hill charges that Simms and Tyson had transferred on the hooks of the company 532 shares of its stock, part of the 1069 standing in the name of Joseph Johnson, deceased, without the order of the equity Court, without the sanction or authority of the will under which they ⁵⁶⁸ had been appointed'trustees, and in fraud of the rights of the cestuis que trust mentioned in the will; that at or before the time the first of these transfers was made, the company well knew and understood that such transfers were without lawful authority, and it is therefore in construction of law a party to the fraudulent acts of the trustees, and is liable to the complainants for the consequences thereof. It also charges the insolvency of the former trustees. The company in their answer admit the fact of the several transfers of the 532 shares but aver by way of defence: 1st.

That after the arrival of the proper time for distribution of the testator’s estate, Simms as executor by the authority and with the assent of his co-executor, Tyson, distributed 417 of these shares to said Tyson as distributee thereof under the will, and that Simms and Tyson conjointly, after they had taken to themselves the stock as trustees for some reason unknown to defendants, but supposed by them to be proper and legitimate, transferred, 115.other shares to one Marean. 2nd. They deny that these transfers were illegally or fraudulently made so far as the defendants are concerned, or with any knowledge on their part that the same were in any way improper or unauthorized: they deny that they had any copy of the will or any knowledge of its contents, and aver that the transfers were permitted to be made by them in perfect good faith, fully confiding in the propriety and legality of the same and without notice of any sort to the contrary. 3rd. That even if Simms and Tyson did commit the frauds alleged, the complainants are in duty bound to exhaust their remedies upon the bond which these parties gave as trustees prior to any resort against the defendants, if any they have against them, which they do not admit. 4th. That the only parties damnified by these pretended breaches of trust are the legatees of the stock in remainder, who being designated as a class to take after the death of the respective tenants for life, cannot therefore be ascer ⁵⁶⁹ tamed as individually entitled to take until the death of the life tenants, and that these when so ascertained will be the only proper parties to institute proceedings on account of said alleged breaches of trust, and they specially deny the right of the complainants to institute this suit, and also that the Court has any jurisdiction to confer such right if it hath assumed to do so as is alleged.

Afterwards by agreement Simms and Tyson, as executors and trustees were made defendants to the’ bill, and filed an answer in which they admit they made the transfers, but deny they did so with any fraudulent intent. Testimony was then taken, but before the case was ready for hearing, Tyson died without leaving children or descendants, so that by the terms of the will the equitable interest in the whole 1069 shares of stock devolved upon the grandson, Joseph J. Johnson for life, with remainder to his children and their descendants if he should leave any, and if not, then over. Upon the. hearing the Court below passed a decree dismissing the bill, and from that decree this appeal is taken. If the bill was filed under proper authority and with proper parties to it, and if the proof makes a case rendering the company liable, it seems to be well settled that a Court of equity has jurisdiction to enforce the liability.

We need not review the many decisions cited in argument in support of this position. It is sufficient to say that the leading-authorities upon the subject, both in this country and in England sustain the jurisdiction of Courts of equity in such cases. In Perry on Trust, sec. 242, the learned author in treating of trusts by equitable construction, states as the result of the authorities in the United States that if a corporation that requires a transfer of its stock to be made by its own officers upon its own books, permits a transfer to be made by an executor, trustee or guardian, -of stock held by such persons in a fiduciary capacity, such corporation knowing the trust, and that the transfer is ⁵⁷⁰ made for purposes other than such trust, will he held in equity as constructive trustee of the stock thus wrongfully conveyed, and will he liable to make it good to the cestui que trust; and for this the cases in Maryland to which we shall have occasion to refer, are cited, in all of which jurisdiction in equity was either conceded or asserted without question. Nor do we think the complainants, if otherwise entitled to maintain the bill, were bound to exhaust their remedy upon the bond of the former trustees before proceeding against the delinquent company.

On the contrary, we are of opinion it was not qnly their right, but their duty, if in their judgment they deemed a suit upon that bond would be ineffectual or insufficient to secure the trust estate, to proceed at once against the responsible corporation. But it has been argued that the complainants are seeking to make the Company responsible for breaches of trust committed by their predecessors, before they themselves had any legal existence or relation to the trust, and for which of course neither they nor their sureties are responsible, and that for this they have no legal competency merely as trustees, nor by virtue of the order of Court on which they rely; that the parties injured are the legatees, in remainder under the will, who alone are competent to sue, and for whom the Court had no authority in the previous case to substitute the trustees now suing; that the position of the complainants is precisely analogous to that, of administrators de bonis non, who accept by virtue of the statute, and within the limits which it prescribes, have no power to sue for the delinquencies or devastavils of their predecessors, nor has any Court, unless under special statute, the power to authorize them to sue for any violation of trust committed before their appointment, and that this is not because of their being administrators merely, but because of a nile and principle common to all classes of trusts alike, viz., that the injury done by the delinquent. ⁵⁷¹ fiduciary gives a cause of action to the cestuis que trust alone who must seek their own remedies, and cannot give any cause of action to subsequent trustees, who were not legally in existence when the wrong was done, were not injured as trustees by its being done, and were appointed in the stead of the delinquents to administer what they left, and not hold them to account for what they had parted with. It is true an administrator de bonis non cannot in this State maintain an action for a devastavit committed by a deceased or displaced administrator, hut this doctrine is, we think, founded in reasons not applicable to the present case. Our laws, like those of most of the States, in relation to .such administrators, are founded upon the law of England as it was administered in the Ecclesiastical Courts.

By these laws the administrator who is displaced, or the representative of a deceased administrator °or executor intestate, are required to a'ccount directly to the persons beneficially interested in the estate as distributees, legatees or creditors, and this accounting may he made or enforced in the Probate Court. The remedy for parties thus interested for any waste or misapplication of the effects of the deceased by his administrator or executor, is by an action at law on his administration bond. To the administrator de bonis non is committed only, the administration of the goods, chattels and credits of the deceased which remain in specie, and have not been “ already administered.” Our statute limits his authority to the administration of such assets as have not been “ converted into money, and not distributed and delivered or retained by the executor or former administrator, under the direction of the Orphans' Court.” In view of this law, and the source from which it was borrowed, money received by the administrator and mingled with his own, or other assets sold, wasted or misapplied or converted to his own use, are regarded, so far as the rights and power of the administrator de bonis non ⁵⁷² are concerned, as already administered, and hence he acquires no title to such assets, has no authority to bring an action against any one for their recovery, and cannot therefore sue for a devastavit committed hy his predecessor in office. Hagthorp vs. Hook, 1 G. & J., 270 ; Potts vs. Smith, 23 Rawle, 361 ; Wernick vs. McMurdo, 5 Rand, 51; Cassick vs. Cassick, 23 N. J. Eq., 364; Beall vs. New Mexico, 16 Wallace, 535.

But there is no such statutory limitation upon the power of trustees appointed to succeed others in the administration of a conventional trust, and we see no good reason why any such restriction should he imposed hy the Courts. 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 cesiuis 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 competent for the complainants to maintain this hill 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, hut in Thruston vs. Blachkiston, 36 Md., 501 , a similar hill was sustained without any such objection being interposed.

In the case of Loring vs. Salisbury Mills, 125 Mass., 138 , a trustee under a marriage settlement invested a portion of the trust'funds in the stock of a manufacturing corporation, and. after-wards committed a breach of trust hy transferring the certificates for the