In support of the application for rehearing it is asserted that section 35 of article 4 of the Constitution of 1875 "was evidently borrowed from the Constitution of the State of Pennsylvania," adopted in Philadelphia on November 3, 1873. This conclusion seems to be drawn from the fact that section 22 of article 3 of the Pennsylvania Constitution of 1874, adopted as above stated, is in the identical language of section 35 of article 4 of the Constitution of 1875, this state.
It appears from the Journals of the Constitution of 1875, that the Constitutional Convention that drafted and adopted the Constitution of 1875, assembled on the 6th day of September 1875, concluded its work and adjourned on the 4th of October, 1875, *Page 646 and the Constitution adopted by that Convention became effective December 6, 1875.
Assuming that the conclusion that the provisions of section 35, article 4, were borrowed from the Pennsylvania Constitution of 1874, is well grounded, it does not appear that the Pennsylvania court of last resort had construed and applied the provisions of section 22 of article 3 prior to the adoption of the Alabama Constitution of 1875; but it does appear that the law of said state was then settled, by an opinion of its Supreme Court, speaking through Black, C. J., filed May 17, 1852, in which it was said:
"In England it has been held for more than a century past to be settled law, that a trustee can only protect himself from risk, when he invests the trust fund in real or government securities, or makes the investment in pursuance of an order by the court: 3 Atkyns 444; 5 Ves. 838; 7 Ves. 150; 1 Madd. 290. The same rule has been adopted in its whole length and breadth by the Courts of New York and New Jersey: [Smith v. Smith] 4 Johns. Ch. [N.Y.] 281; [Ackerman v. Emott] 4 Barb. [N.Y.] [626]; 2 Story's Eq. 638. In Pennsylvania this doctrine does not appear ever to have been either affirmed or denied. * * * So far therefore as our own authorities go, the question is an open one. But the time has come when the interests and rights of trustees, as well as orphans, married women, and insane persons, demand the settling of it, and we think the rule here ought to be as it is elsewhere, not because we feel bound by the precedents of a foreign state, but because we cannot resist the considerations of justice and policy by which they are supported.
"It has never been doubted anywhere, that a loss which accrues of a trust fund, invested on personal security, must be borne by the trustee. Is the stock of a banking, manufacturing, and trading corporation any better? Certainly not, if it be true (and who will deny it?) that men associated together are subject to the same accidents, and exposed to the same temptations that individuals are. Chief Justice Gibson, in Twaddell's Appeal [5 Barr (5 Pa.) 15], said that banking was essentially hazardous; from which I infer, that he thought bank stock even more doubtful than personal security.
"If a trustee may throw off his responsibility by investing the trust fund in the stock of a corporation, what security is left for the cestui que trust? Not even the personal responsibility of the corporators. On the contrary, the cestui que trust becomes, to the extent of the fund, liable for their misconduct, as well as for all the casualties of commerce, to which their business is exposed. There is no reason why the trustee should not make the investment in some security which cannot fail. It is just as convenient. In the country real security can always be had; and in the cities and large towns, there is no trouble about getting government stocks. It is better for trustees that the rule of their conduct should be clearly defined and well understood. A plain path, though it may be a narrow one, is safer to walk in than a trackless waste, where no man can be sure that he is on the right course. If the occasion had arisen twenty years ago for laying down the true rule, the present loss would not have occurred. Then the trustees would certainly not have stood by and seen the stock going down gradually, from $122 a share to nothing, without making an effort to save at least a part of it. But, unfortunately, they believed they had done their whole duty in the purchase of the stock, and were by that act absolved from all further obligations to see to the interests which had been committed to them. It may be severe to correct, in this way, an error as honest as theirs was; but we cannot help it. Durum est valde durum; sed ita lex scripta est." Hemphill's Appeal (Bacon's Appeal), 18 Pa. 303, pages 305, 306.
This doctrine was reaffirmed in Worrell's Appeal, 23 Pa. 44,48, 49, in March, 1854, by the court, speaking through Knox, J.:
"In Worrell's Appeal, 9 Barr [9 Pa.] 508, it was held that this appellant was liable for an investment in the stock of the Schuylkill Navigation Company of moneys received by him for his ward. The decision was in accordance with former adjudicated cases, and has been followed by others of like import. It may now be considered as settled law, that in Pennsylvania an investment by a guardian or other trustee, unless authorized by the deed of trust, in the stock of an incorporated company, whether a bank, railroad, canal, manufacturing, or mining corporation, cannot be made at the risk of a ward or other cestui que trust. It is unnecessary to repeat the reasons which are the foundation of this rule. In England and in this country the *Page 647 adoption of the rule has been found essentially necessary for the protection of those who could not protect themselves. It will not do to say that because prudent men sometimes invest their own money in such stocks, guardians may legally invest the estate of their wards in like manner.
"One who is entitled to the appellation of a prudent man, incited by the hope of a large return, may make an investment understood to be of a speculative or experimental character. He calculates the chances and takes the risk. If fortunate he pockets the profits; if not he must stand the loss. But with trust funds no such hazard can be permitted."
And in Commonwealth ex rel. v. McConnell, 226 Pa. St. Rep. 244, 247, 75 A. 367, 44 L.R.A. (N.S.) 889, decided in 1910, the Pennsylvania Court observed: "The doctrine thus firmly established in this state prohibits a trustee from investing the estate of his cestui que trust in the bonds or stocks of a private corporation. The people of the commonwealth have attempted to enforce the rule by article 3, § 22, of the present Constitution, which prohibits the General Assembly from authorizing the investment of trust funds by a trustee in the bonds or stocks of any private corporation. Time has tested the wisdom of the rule, and, as our cases declare, it is firmly established in this commonwealth."
Here we have the history of the doctrine, the reasons underlying it, and the purpose and intent of the constitutional provisions reaffirming it.
In Re Maroney's Estate, 311 Pa. 336, 338, 340, 341,166 A. 914, decided in 1933, the questions presented were whether or not, "under section 41 of the Fiduciaries Act of June 7, 1917, P. L. 447, amended April 26, 1929, P L. 817, a trustee may invest in a first mortgage, secured upon real estate of a Pennsylvania corporation, accompanied by the single bond of the corporation to the trustee as sole obligee," and whether or not the statute, if construed to so authorize, contravened the provisions of section 22 of article 3 of the Constitution of said state?
In the opinion of the court it is stated that:
"Section 41 of the Fiduciaries Act as amended in 1929 [20 PS § 801], authorizes investment, inter alia, in 'first mortgages on real estate in this Commonwealth, securing bonds or other obligations not exceeding in amount two-thirds of the fair value of such real estate. * * *' The challenged investment (a) is a first mortgage, (b) on real estate in the commonwealth, (c) in amount less than two-thirds of the fair value of the land. The Farmers' Investment Company is mortgagor, and theaccountant mortgagee. If made by an individual, its legality could not be questioned on the ground taken by expectant. [Italics supplied.] * * *
"The purpose, as well as the popular understanding of article 3, § 22, undoubtedly was that investment in personal securities of private corporations should not be authorized by legislation. By section 14 of the Act of March 29, 1832, P. L. 190, 193, fiduciaries were authorized, with the approval of the orphans' court, to invest in specified public obligations, 'or on real securities'; by section 2 of the Act of April 13, 1854, P. L. 368, 369 (20 PS § 3172), they were authorized 'to invest trust moneys in ground rents or other real estate by leave of the proper court.' It appears not to have been until 1870, that the field of investment was enlarged to include personal securities of corporations. For then, by Act of April 1, 1870, P. L. 45, the provisions of section 14 of the act of 1832, supra, were extended to include bonds of the Pennsylvania Railroad Company secured by its general mortgage of July 1, 1867; by an Act of March 29, 1872, P. L. 31, to the general mortgage bonds of the Philadelphia Reading Railroad Company; by an Act of April 3, 1872, P. L. 833, to the general mortgage bonds of the Lehigh Coal Navigation Company; and by the Act of April 4, 1873, P. L. 59, to bonds issued by the Pennsylvania Railroad Company under an Act of February 18, 1873 (P. L. 129). The necessity for this enlargement is legislative recognition that bonds of the kind specified in these statutes were not real securities as defined for purposes of the classification referred to, for if they had been, the legislation would have been unnecessary. The effect of this radical change in economic policy became the subject of serious discussion in the constitutional convention of 1873 (Debates: vol. 2, p. 744 et seq., vol. 5, p. 293 et seq.) and was ultimately reflected in the prohibition on future legislation contained in article 3, § 22. It is to be noted that by the acts of 1832 and 1854, supra, the right to invest in real securities was general, and not limited to mortgages by *Page 648 individuals. The corporate mortgage, made as in this case, is as completely a real security as the mortgage of an individual. Section 22 does not in terms deny power to authorize investment in real securities given by corporations, and there is nothing to indicate intention to change the policy of the law theretofore existing as respects trust investment in real securities, nothing to show that it was intended to operate differently on the mortgage of a given tract of land if given by a corporate owner of the tract direct to the mortgagee than if the same mortgage were made by an individual owner. On the contrary, the bonds and stock that are condemned as trust investments are of the class designated as personal securities, of which those mentioned were well known examples."
The clear effect of that opinion is that a mortgage on real estate, securing a loan or investment, executed direct to the trustee is a "real security" not within the influence of article 3, § 22, of the Pennsylvania Constitution; that such bonds as the "bonds of the Pennsylvania Railroad Company secured by its general mortgage," and other named corporations, were of the class of securities "condemned as trust investments."
On the appeal in Re Curran's Estate, 312 Pa. 416, 420,167 A. 597, 599, the construction of the act of 1923 was the only question involved, as stated by the court, " 'the constitutionality of the Act of 1923' is not 'involved.' " The act (Act Pa. June 29, 1923, P. L. 955) authorized investments by trustees "in bonds of one or more individuals secured by mortgage on real estate in this [that] Commonwealth, which may be either a single bond secured by a mortgage or one or more bonds of an issue of bonds secured by mortgage or deed of trust to a trustee for the benefit of all bondholders." The decision in that case is not, therefore, here pertinent.
The provisions of our statute (Code 1923, § 8149) are more restrictive. They provide that the guardian "must, if practicable, lend out all surplus money of the ward on bond andmortgage, or on good personal security, and, if the bond is notrenewed annually, require the interest to be paid at the end of each year." (Italics supplied.) Thompson v. Thompson, 92 Ala. 545,547, 548, 9 So. 465; Cunningham v. Cunningham, 215 Ala. 484,111 So. 208. The statute clearly contemplates bond andmortgage direct to the guardian as payee and mortgagee; a bond which may be renewed annually. It clearly does not contemplate bonds of private corporations secured by trust agreements under which collateral may consist of either money, government bonds, or mortgages on real estate, or instruments of like legal effect, wherein "the company (obligor on the bond) reserves the right to withdraw any of the first mortgages and/or instruments of like legal effect, and/or the bonds of the United States of America, so deposited and pledged with the trustee as security for the bonds issued under and secured by said indenture (trust agreement), upon paying to the trustee the principal amount of the first mortgages, and/or instruments of like effect and/or bonds of the United States of America so withdrawn, and/or substituting therefor other first mortgages, and/or instruments of like legal effect, secured and guaranteed as herein and in said indenture provided, and/or other bonds of the United States of America, of any issue, equal in principal amount to the principal of the security so withdrawn."
The only alternative left to the holder of such bond to realize thereon is to sell the bond, and its marketability is wholly dependent upon the reputation of the obligor and the status of its business at the time. He has no voice in the enforcement of the obligations held as collateral under the trust agreement, except as a common creditor, and his relation to the situation is very much the same as a minority stockholder in a private corporation. This character of security is clearly within the class condemned as unfit for trust investments by the provisions of the Constitution. Randolph v. East Birmingham Land Co. et al., 104 Ala. 355,16 So. 126, 53 Am. St. Rep. 64.
This conclusion is re-enforced by the provisions of section 10413 of the Code 1923, that: "A trustee, having moneys to invest or lend, may invest them in the purchase of the interest-bearing securities of the state, or of the United States; but for such investment his liability is governed by the general rules of law."
And if such investment is to be made without this state, such investment cannot be made without the authority of a decree of the circuit court. Code 1923, §§ 10414-10417.
Randolph v. East Birmingham Land Co. et al., supra, was decided in 1894, and thereafter the representatives of the people, *Page 649 in convention assembled, brought forward the provisions of section 35 of article 4 of the Constitution of 1875 into the Constitution of 1901 as section 74, without change. In that decision it was declared: "The policy of the law of this state forbids such investments, for it is provided in the constitution itself, that 'No act of the general assembly shall authorize the investment of any trust fund by executors, administrators, guardians and other trustees in the bonds or stock of any private corporation.' Article 4, § 35." 104 Ala. 355,366, 16 So. 126, 129, 53 Am. St. Rep. 64.
By such readoption the interpretation was made a part thereof, and that section became self-executing, in so far as it condemns such investments.
The application for rehearing is overruled.
ANDERSON, C. J., and GARDNER and THOMAS, JJ., concur.