Castle v. Cross

This is a suit in equity for an accounting, instituted by the petitioner as executor of the will of Harriet Castle Coleman. The allegations of the petition were in brief that the respondent was the very close and intimate friend of the decedent, lived in her home for about fifteen years, under a power of attorney and otherwise transacted business for Mrs. Coleman and did not keep a strict and accurate account of the affairs of the decedent; and that the respondent had failed and refused, upon demand, to render an accounting. There were other allegations, now immaterial. The master to whom the cause was referred for examination reported his findings upon many subjects which had been under investigation by the parties at the hearing before him. Upon the report coming before the circuit judge the controversy narrowed itself to one issue and that was whether certain moneys which had been placed on deposit in a bank by the decedent constituted a trust fund beyond the power of the executor or were a part of the property of the decedent, to be administered upon by the executor. Of the two accounts in question one was opened in the savings department of the Bank of Bishop Company on March 16, 1923, with a deposit of $2000 and is entitled "Account of Harriet Castle Coleman and/or Ermine Cross, Tr's for Henry and Dorothy Foundation, payable to either or survivor." The other is an ordinary checking account with the same Bank of Bishop Company, opened April 11, 1923, with a deposit of $2000 and entitled as follows: "Deposited with the Bank of Bishop Co., Ltd. to the credit of Henry and Dorothy Foundation, Harriet Castle Coleman and/or Ermine Cross, Trustees."

At the dates when these two accounts were opened there was in existence no trust or account or legal entity known as the Henry and Dorothy Foundation. The origin of the expression will appear later. So, also, at the dates of the opening of these two accounts and at all other times during the acquaintanceship of Mrs. Coleman and Ermine Cross the latter was the devoted and faithful friend of the former, fully recognizing and admiring Mrs. Coleman's marked business ability, but in connection with the business affairs of Mrs. Coleman Miss Cross did not exercise any independent judgment of her own, but always did exactly what Mrs. Coleman desired her to do. Mrs. Coleman had, prior to the opening of these two accounts under investigation, maintained an account in the name of "Mary E. Cross, Trustee," another in the name of "Ermine Cross, Trustee," still another in the name of "Ermine Cross, Special," and perhaps one or two others in Miss Cross's name, and Miss Cross signed checks on these accounts (in which were deposited moneys of Mrs. Coleman), but always did so strictly in accordance with the requests of Mrs. Coleman. The latter from time to time placed stocks in the name of Miss Cross, but in Miss Cross's own words, "I knew nothing about her business. I signed on the dotted line when she put stock in my name." As otherwise expressed by the same witness on the stand, when asked whether she "ever operated under" a certain system: "I did not operate. I only endorsed. I endorsed every certificate Mrs. Coleman put in my name." The trustee's stock was "in my name but all I did was to endorse." In these and other ways the respondent has made it abundantly clear by her testimony given in the case at bar that in connection with Mrs. Coleman's business affairs generally and in particular in connection with the several "Mary E. Cross, trustee," accounts she was simply an obedient and faithful agent who never ventured and was not expected to venture opposition to Mrs. Coleman's plans or dispositions. The same we find was true with reference to her service under the title of "trustee" in the two bank accounts under consideration. She was not an independent trustee. To put the account in that name was simply, and was intended to be simply, to place the fund at the sole disposition of Mrs. Coleman while she lived. We think that in spite of the titles under which the two accounts were opened they should be regarded as though they had been opened solely in the name of Mrs. Coleman, even though marked "trustee."

It may be assumed for the purposes of this case that a trust may be created with the creator named as the sole trustee. It may likewise be assumed that a trust declared to be for the purpose of aiding education generally or for the purpose of aiding "progressive education" in particular is sufficiently definite and certain to exist and to be enforced. The question remains whether upon the evidence adduced Mrs. Coleman intended by the opening of the two accounts, one in the savings bank and one in the checking department of Bishop Company, to create a trust.

When, as in this case, there is no formal, written declaration of trust and an account is opened in a bank in the name of the owner and depositor under the mere title of "trustee," or in the name of the depositor and one other person, "trustee, payable to either or survivor," other evidence may be resorted to in order to ascertain whether the owner intended to create a trust. Both parties in this case have proceeded upon this theory. The question is, do the facts show an intent to create a present trust?

A mere bank deposit made by a person in his own name as "trustee" or in his name and that of a faithful and obedient agent as "trustees," for a "Foundation" which has no legal existence, over which deposit the depositor exercises complete control during his life, is insufficient to create a trust entitling the supposed beneficiary to the deposit as against the depositor's administrator. 3 R.C.L. 717.

Under date of March 31, 1920, Mrs. Coleman executed a deed of trust whereby she transferred to the Hawaiian Trust Company, Limited, a corporation, certain United States Liberty Loan Bonds and Victory Loan Bonds of the par value of $33,000 upon certain trusts. "This property," it was therein recited, "together with any and every addition thereto to which may be made at any time hereafter by anyone, shall be known and designated as the `Henry and Dorothy Foundation.'" (Henry and Dorothy were relatives of Mrs. Coleman who had perished in a marine disaster.) This apparently was the origin of the expression "Henry and Dorothy Foundation." Trusts were in the deed declared as follows: "To collect the income therefrom and after deduction of expenses and of the commission hereinafter set out, to pay over and apply the said income under my direction and upon my order and/or under the direction and upon the order of Mary Ermine Cross of said Honolulu as long as both or either of us shall continue to survive, we to have joint and several authority while we both survive, and the survivor to have sole authority during her life, as follows: for the support and maintenance of the family school at Castle Home, `Puuhonua,' in Manoa Valley, Honolulu aforesaid, now being conducted in accordance with and based upon the educational ideas and their legitimate outcome advocated by John Dewey as indicated in such books as `Democracy and Education' by John Dewey and other similar books." There were additional provisions for the contingency of the school at the Castle home not continuing to exist or not requiring the whole of the income of the trust fund. In the instrument power was expressly reserved by the grantor to revoke the trust by filing with the trustee a written instrument to that effect. This deed of trust was in fact revoked, but upon what date does not appear in the record. Upon the revocation, the trust property was all redelivered to Mrs. Coleman. She thereupon used $8000 of the principal in such ways as she saw fit and on January 21, 1922, executed a second deed of trust to the same trust company, transferring Liberty Bonds of the face value of $25,000 only, giving the trust property the same name of "Henry and Dorothy Foundation," and stating the purposes of the trust substantially as in the earlier deed. This second deed of trust was likewise upon its face made revocable and was revoked on December 19, 1922. Upon its revocation the trust property was again redelivered to Mrs. Coleman.

Of the $25,000 of bonds thus returned $5000 was given by Mrs. Coleman to two relatives and $5000 was retained by her because she had theretofore made certain advances for the Castle home school, which was known as a progressive school. The remainder of $15,000 or thereabouts was deposited, not all at one time, in the two accounts immediately under investigation.

In the language of her own attorney, "the respondent does not of course contend that between the date — December 19, 1922 — of the revocation of the second trust deed and March 16, 1923, the date of the opening of the savings account in Bishop Co., there was any legally created trust;" but it is contended in her behalf that "during that period the testatrix considered that, and acted as if, she was holding a number of the bonds, in trust for the purposes of progressive education" and that "from the time of the execution of the first trust deed right up to her death her fixed intent was to assist financially the cause of progressive education, and that, while from time to time she reduced the amount * * * she never wavered or shifted from the purpose to establish a trust in favor of the specific charity above referred to, and did finally establish it by the opening of the trust accounts in the names of the respondent and herself as joint trustees." The mere fact that the two accounts were opened and maintained under the titles above quoted is not itself determinative that a trust or trusts were thereby created. Resort must be had to the testimony and other evidence adduced not only to ascertain what were the purposes of the trust, if a trust were proven, but also to ascertain whether or not Mrs. Coleman intended thereby to create a legal trust. So also the mere fact that she called it a "trust" or named herself and Miss Cross "trustees" is not sufficient. The accounts are still subject to construction and explanation.

It is contended by the respondent that the execution of the two deeds of trust is evidence tending to show an intention on Mrs. Coleman's part to create a trust in 1923 by making the two deposits or series of deposits under consideration. To our minds her conduct with reference to these two deeds carries an inference quite to the contrary. Her execution of the two deeds and her acts thereunder show clearly that Mrs. Coleman was perfectly familiar with that method of creating a valid trust and, in general, with the provisions that such instruments must contain in order to sufficiently express an intention to create a trust recognizable in law as such. Having this knowledge she deliberately chose in March and April of 1923 not to follow that procedure but instead to merely open an account in the bank. There must have been a reason for this decision. We infer that the reason was that she wished not to be bound or limited in her acts as she would be if she were to execute a formal instrument of the general character of the two deeds. She wished to reserve for herself entire freedom of action, entire freedom to dispose of even the moneys so deposited to whatever purposes she might incline from time to time. She revoked the first deed of trust and immediately used $8000 of the capital for her own purposes. When next she created the trust it was with a capital of only $25,000 and when the second trust was revoked she withdrew $10,000 of that sum for purposes of her own choosing and later deposited in the two bank accounts only $15,000. Her failure to execute a third deed of trust naming, let us say, herself and Miss Cross as trustees, indicates to our minds that such a trust was exactly what she did not want. She wanted merely a bank account like that of "Mary E. Cross, trustee," upon which she could draw checks at her pleasure for purposes of her own choosing, — even though it was at that time her thought that much of the money would be devoted to the aid of progressive education.

In 1918 Mrs. Coleman had expended of her moneys for the assistance of "Castle Home School," an institution understood by her to teach "progressive education," the sum of $1112. In 1919 she spent for the same purpose $2467; in 1920, $4025; in 1921, $1620; and in 1922, $1100, — or a total of $10,324 during the five years just named. Deducting from this total the sum of $940 which had been expended "for transportation" (see exhibit No. 24, slip No. 1), the remaining balance was $9,384. In 1921, 1922 and 1923 (prior to April 11) Mrs. Coleman repaid herself $2300 of this amount, leaving a balance of $7084 expended by her during the five years named in aiding progressive education. After the opening of the two bank accounts under consideration, the two trustees repaid to Mrs. Coleman out of this so-called trust fund at least $5000, and perhaps the whole $7084, and this they did because to them, in the language of the respondent herself found in another part of exhibit 24, "it seemed fitting that this fund should reimburse her, as its first great outlay." This reimbursement to Mrs. Coleman of moneys expended by her in the five years from 1918 to 1922 inclusive is reconcilable with the theory that the moneys deposited in the two bank accounts were hers to do with as she pleased, but is not reconcilable with the view that the two deposits constituted trust funds for the "aid of progressive education." A trust fund for that purpose would be properly usable for aiding education to be thereafter furnished to the young. It would not ordinarily be understood as being deposits to be used in recompensing individuals for education of that nature long since furnished. In any event that use of the moneys indicates to us a belief and understanding on Mrs. Coleman's part that she was not bound by the limits of any trust legally established.

Nor can this disbursement or other payments which were made for non-trust purposes be accounted for as revocations pro tanto of the trust. Mrs. Coleman was perfectly familiar with the possibility and the procedure of revoking a trust, in whole or in part. She had revoked a trust twice before. She had withdrawn parts of the principal and reconstituted a trust as to the remainder. Again, in a memorandum dated April 16, 1923, and signed by both Mrs. Coleman and Miss Cross, each as "Trustee — H. D. Foundation," the two ladies declared that they "have decided that this fund shall assume the whole expense which was incurred by H.C. Coleman in financing the Progressive Education School at the Castle Home, which school was started in September 1918, and finally closed in June 1922." It is to be observed that they did not decide that the trust should be pro tanto revoked, in which case no statement of the proposed use of the funds withdrawn would have been necessary, but that they decided that "thisfund," such as it was, should bear the expense named. In other words they felt, not that they were partially revoking the trust, but that the fund was such that they could use it for such purposes as to them seemed fitting.

Another enlightening bit of evidence is to be found in Master's exhibit No. 24, in its opening pages, in a penciled memorandum written by the respondent herself within a very few days after the opening of the accounts. She there says of this fund: "originally it was spoken of as a traveling fund to defray expenses for the talked and dreamed of trip to Egypt return. From time to time its purpose changed — the money was invested and reinvested. Finally — during the war — when sugar was high — the stock was sold and the money reinvested in Liberty Loan Bonds, and as at that time our great interest was in Progressive Education we resolved to call the investment The Henry Dorothy Foundation, the principal and interest to be used to assist the cause of progressive education in Honolulu or elsewhere, until the account shd. be closed." In other words the fund, although bearing the name of the Henry and Dorothy Foundation, was regarded by the respondent and her principal merely as a particular "investment." There is no suggestion in this memorandum of the establishment or maintenance of a legal trust.

In support of the contention that the two accounts in question constituted a trust, reliance is also had by the respondent upon a letter, dated December 21, 1922, written by Mrs. Coleman and addressed to George Mead, a relative of hers who was then living in Chicago. That letter reads as follows: "I have come to the definite conclusion considering all the personalities I have to deal with — that if I have any money to spend I would better spend it while I am alive — and so I am breaking up this Foundation — of which you may or may not be cognizant — and am going to distribute it now — I am sending you this portion of it for safe keeping if you will be so kind to add this to your many kind offices on my behalf — you will see by the terms of the enclosed duplicate of the deed now revoked what I had planned to do with it — and I still propose to follow this plan in general — though with principal instead of interest — sooner or later — Please consider its disposal subject to instructions from my self or Ermine Cross — and in the event of our departing before it is distributed — then I hereby authorize you — George Mead — and Helen K. Mead to dispose of it, interest or principal according to the terms of the deed — but with discretionary power to amend — so long as it is for educational purposes. I intend to write more fully of this later." Assuming, that which is not free from doubt, that this letter in itself would have constituted a trust, the obvious answer to the contention is that the letter was never delivered. It remained in Mrs. Coleman's possession and was found amongst her papers. It may be a record of thoughts that were going through her mind at the time, but the conclusions therein referred to were not sufficiently definite to lead her to entrust the letter to the mails or to its addressee. At this point it may be said that it clearly appears from the evidence that Mrs. Coleman, able and attentive as she was in matters of business, had a habit of thinking on paper, just as some have a habit of thinking aloud. Many crude memoranda, written by her, are in evidence which clearly were not intended to be decisions, but merely attempts to state more clearly thoughts which were in the process of formation. At the best the letter referred to was in this class; but it was never acted upon. Neither George nor Helen Mead was ever entrusted with any of the powers there discussed. The respondent herself has testified in this case that Mrs. Coleman told her that the letter had not been sent to George Mead because "she had decided to use the bonds in another way, that she wished to sell them here in the market, or otherwise, anduse the principal herself." This direct testimony strengthens our belief and finding that to Mrs. Coleman it was of the utmost importance that she should retain complete control over the disposition of her funds even though at the moment she might be inclined to use them for this or that charitable purpose.

After the opening of the two bank accounts $300 was paid therefrom for "nutrition," not in the schools that taught "progressive education," but in the public schools generally. The explanation given by the respondent in her testimony is that this was "a very forward movement in the public schools; therefore it comes under the head of the large reading of progressive education." Helping to defray the cost of nutrition in the public schools generally, however praiseworthy that object may be, would not come within the purposes of a trust which was formed to aid a particular method of education called "progressive education," such as Dr. Dewey taught or encouraged in a book written by him on the subject. The expenditure of this money for the assistance of public schools generally rather indicates to us that the deposits in question were not intended to be a trust fund, but were intended to remain the property of Mrs. Coleman for her to expend from time to time in such manner as her charitable inclinations might direct.

Mrs. Coleman died on December 11, 1924. A Mrs. Harriet Park Thomas lived with her the last five or six weeks of her life. On one occasion Mrs. Coleman asked her to read one of the deeds of trust. After Mrs. Thomas read it Mrs. Coleman asked her, "What do you think of it?" Mrs. Thomas: "I think it is far too valuable an enterprise to be abandoned." "It is not abandoned," answered Mrs. Coleman. "It is in existence today as an educational trust and is being administered according to this trust deed." This is relied upon by the respondent as evidence supporting the theory of a trust. It need hardly be said that this statement, made in November or December of 1924, did not operate to create a trust if none had been created in March and April, 1923. Under the circumstances already recited, it cannot of itself indicate that the purpose of Mrs. Coleman in March and April, 1923, in opening the accounts, was to thereby create a trust. The statement itself, as made to Mrs. Thomas, was inaccurate. The funds had not been administered according to the deed of trust; they had been administered in part, as above indicated, for purposes inconsistent with the theory of a trust; and there was no requirement that the deposits in these two accounts should be administered according to the deed of trust.

There can be no doubt that Mrs. Coleman was charitably inclined and that it gave her great pleasure to use freely of her means to aid the particular kind of education which she favored, to-wit, "progressive education," as well as to aid education generally and other established charities; but we cannot find from the evidence that in opening or maintaining the two accounts under consideration she intended to thereby create a trust which, until revoked by her, would tie her hands to however slight an extent so that she would not have the utmost freedom of action in dispensing her charities. On the contrary, in spite of her use of the words "foundation" and "trustee" or "trustees," we believe that she regarded these two accounts just as she would have regarded two accounts similarly styled in her own account books kept in her safe at home or in her office, — something which she could do and undo entirely at her pleasure.

Another question raised by the appeal relates to the amount of the fee allowed the master. At the commencement of the trial the presiding judge made an order appointing a master and referring to him the issues of fact that were presented by the petition and the answer. The order was that "an accounting be taken by the said * * * master of and concerning all moneys, stocks, bonds and things of value, if any, belonging to the said Harriet Castle Coleman and at the time of her death in possession of the respondent and of all trust property and moneys, if any, committed by the said Harriet Castle Coleman to the charge of the respondent." The master held hearings, testimony was adduced and many exhibits consisting of books of account and other memoranda were filed before him. He filed a report and a supplementary report. While at the inception of the case there was controversy between the parties on many subjects, one only of these questions was presented to the trial judge upon exceptions to the master's report and that was the question above considered as to the existence of a trust.

At a hearing before the circuit judge one witness, an accountant, testified that in his opinion the services rendered by the master merited compensation in an amount from $3000 to $3600. One of the attorneys for the respondent gave testimony that in his opinion the services were worth from $1500 to $2500. The master gave testimony in detail concerning the nature and the extent of the services rendered and suggested a fee of $1500. The circuit judge fixed the amount of the fee at $800. Upon consideration of all of the circumstances to which our attention has been called by counsel we find no sufficient reason for disturbing the award of the trial judge.

The decree declaring a trust is set aside. A decree in conformity with the foregoing views will be signed upon presentation.