Mayer v. Mordecai

The opinion of the Court was delivered by

Moses, C. J.

When a trustee is not limited or directed by the instrument under which he acts, and is left to the discretion of his own judgment, our cases hold that his discretion must be exercised with the same diligence and care that a prudent man would bestow on his own concerns.

It is not to be understood by this that, wherever loss ensues from the investment of the trustee, he will be excused by showing that persons of care and prudence, in the management of their own affairs, made investments .of the same character and were disappointed in the result. A prudent man, dealing with his own means, might employ them in speculations promising large gains, or loan them on personal security, or invest in the stocks of railroad companies or other private corporations. If a trustee should, however, so loan, or engage in such enterprises, at the expense of the interests .committed to his charge, he could not claim excuse by pointing to the course of individuals, noted for their prudence, by whose example he had been misled.

The principle which is to be extracted from the cases in this State consists with what is said in Hovenden on Frauds, 486: “ He is bound to manage the property for the benefit of the cestui que trust with the care and diligence of a prudent man.” What will constitute the care and diligence thus exacted will depend on the attendant circumstances. If the act, in itself, was an incautious and imprudent one, it will not be sustained; and no aid derived from the fact that the trustee was countenanced in it by the participation of prudent men will give it sanction or support.

In the case under review, the bonds and the cash constituted the whole trust estate. The cash was invested in a bond of the character of those transferred to the trustee, and was secured by a mortgage of real estate. This was done on consultation with the plaintiffs, and the trustee had therefrom some indication of the investment they preferred. It was, at least, notice to him that the other bonds were in a form of security satisfactory to the parties interested.

He maintains that he was bound to collect, because the proceeds of the bonds, when received, were to be invested; but how were they to be invested ? “In such manner as the said Benjamin Mor-decai may think proper, on consultation with the said Maurice Mayer, and Eachel M., his wife.” The power to collect was not at all dependent on the duty to invest. The bonds, by the deed, were transferred and assigned to him. The legal title was in .him, and this, of itself, conferred the power to collect. If the deed had not directed an investment, still it woqld have been his duty, on the receipt of payment of the bonds, to have disposed of their proceeds in some proper manner, for the benefit of those interested in the trust. An omission to do so would have made him chargeable with interest on the funds retained in his hands, and subjected him to the animadversion of the Court by which he was appointed, for holding, in place of investing them.

It is not in consistency with his position thus taken to say, that the duty to collect was so compulsory that it could not be deferred, because a necessity to invest was imposed upon him. The investment was to be “ on consultation ” with the plaintiffs. Of their absence, and the impracticability of reaching them, he was aware, and his own action in calling in the securities, which he says was demanded by the deed, was in disregard of a reservation or qualification, which must have been made expressly for their benefit. Although it may be possible that, after consultation, he had the power to reject their suggestions, and disappoint their wishes, by. pursuing a course which might be objectionable, and even obnoxious to them, still the condition conferred a privilege, and they should have had the opportunity of communicating their impressions as to the investment which, in their judgment, would best conduce to their interest.

So'far as any conversion was to be effected, it was to be done on consultation with the cesluisque trust. The result might have satisfied the trustee of the improvidence of the particular investment to which he was inclined. A conference with them might have aided his judgment. At any rate, ho was to invest, after having the benefit which a consultation with them might possibly afford.' His authority should have been strictly exercised.

While the trustee relies on their absence as an excuse, on the one hand, for not consulting them, on the other, he avers that an early conversion was for tlieir benefit, as they, were not entitled to tlie interest on the bonds until they were called in and the proceeds invested. If they could not, as they did not, after the collection of the bonds, receive the interest, in consequence of the want of intercourse between the citizens of the Confederate States and the United States, how were they benefited in that regard by the change? It would have contributed more to their advantage to allow the interest to accumulate on the bonds than to place them in securities, which, if they produced interest to which the plaintiffs were entitled as income, could be of no avail to them for present use and support, and would, therefore, remain in the hands of the trustee, yielding no profit to them.

It is not clear that the plaintiffs were not entitled to the annual interest on the bonds, and that their enjoyment of it was to be postponed until they were converted, through collection, into some other investment. The deed looked to tlieir reception of the interest on the “settled property,” and the bonds constituted that property. A decision of that question is not now necessary, but it will not be out of place to refer to the order which prescribed and fixed the terms of the settlement. It directs “that the'share of the plaintiff, Rachel M. Mayer, be conveyed by deed to Gustavus Poy-nanski,” (in whose place the said Benjamin Mordecai was substituted,) “ upon the trusts and conditions sot forth in the answer to complainant’s bill.” The answer furnishes the fact, “ that the income of the property, so settled, was to be for the joint use of her husband and herself, during their joint lives,” &c. If there was a reason for such a change by the Master who executed the deed, it has not been made to appear in the course of the case. It is, at least, certain that the trust contemplated by the plaintiffs ivas to make them the recipients of the interest accruing annually from the share of the wife in the real estate of her father, which share was represented by the bonds and cash to be transferred by way of settlement.

The motive which induced the trustee to collect the bonds was not, in fact, to provide an investment which would furnish the plaintiffs with the annual income arising from it, as was submitted in the argument. ITis conception was, that they were entitled to the interest on the bonds, and on that he acted, for the exhibit filed with his answer shows that, to July 5, 1861, at which period communication with the plaintiffs became almost impossible, he did transmit to them the interest received on the bonds.

The collection of White’s bond stands on a'different footing from that of Kerr’s and Goldsmith’s. Payment of it was tendered to him in Confederate Treasury notes, and we are to consider whether the acceptance of it, in such currency, under the circumstances, is consistent with the faithful discharge of the duty which he owed to those whose interests were confided to him, in a fiduciary capacity, at a time when they were entirely incapable of contributing, by their presence or their counsel, to the protection of them. The bond was secured by a mortgage of real estate. According to the testimony, in May, 1862, when the first payment in Confederate currency was accepted, such property was worth, in that currency, about fifty per cent, more than it would have brought in gold before the war; and, in May, 1863, when the second payment was made, it was worth three times as much. It was in evidence that “no prudent person would have sold property in 1863 for the same amount, in dollars and cents, that he would have sold it for before the war, and receive payment in Confederate money, or bonds representing on their face that amount.” With knowledge of. all this, he accepted, in a currency which was not a legal tender, even under the Constitution or laws of the Confederate States, payment of the bond at the amount due on its face. To say nothing of the want of all obligation to receive such currency, can his act be-recognized as one of ordinary prudence? The bond and mortgage, as a marketable article, were worth much more than he received. If he had sold them, they would have yielded a higher amount, and his fund for investment in the securities in which he appeared to have so much faith, although issued by a Government waging war against that in -the territory of which.his cestuis que trust were domiciled, would have been still larger. Regarded, even, as a mere business operation, it exhibits, to no small extent, the characteristics of neglect and indifference to his trust.

The fact that the city was besieged, and the buildings subject to the chances of injury by the explosion of shells, affords no excuse. If parties were disposing of their real estate, and retreating to the interior, fearful of the fall of Charleston, the loss to the Confederacy of one of its principal supports, that had so long resisted an attack, would not have contributed to enhance the securities into which he converted the mortgage; and, even if the buildings had been destroyed, there would have remained some value in the land.

What has been Said in regard to the bond of White, applies, with still more force, to those of Kerr and Goldsmith. The trustee, under the circumstances already referred to, invited or called them in, without any offer of payment from the obligors. It is said, in the decree, “that, having a trust fund in charge which he could not dispose of, as directed by the deed, he was, for the time, substantially in the condition of a trustee with funds as to the investment of which the instrument creating the trust gives no directions at all.”

Is it in his power to seek relief from such inability, when it arose, in a great measure, from his own voluntary act ?

That he sold, during the war, his own residence, in Charleston, and invested largely in Confederate bonds, while it exhibits his great faith in the ultimate establishment of the Government whose currency he so much favored, may be accepted as the evidence of a patriotism so controlling as to absorb every selfish and interested motive. He could do as he pleased with his own, but he had not the right to risk, to the chances of the whirlpool, the moans of others, entrusted to his care and protection.

Although the trustee is not discharged from liability to account for the three bonds, yet the mortgage, as against the original debtors, cannot be set up as of force. The legal title to the bonds was in him, and with the investment of the proceeds they had no concern. If, according to the ruling in this State, a vendee is not bound to see to the application of the purchase money, (Lining vs. Peyton, 2 DeS., 375; Laurens vs. Lucas, 1 Rich. Eq., 226,) or a mortgagee under the order of the Court, that the money is appropriated to the purpose for which the mortgage was taken, (Spencer vs. Bank of State, Bail. Eq., 468,) much less can a debtor who makes satisfaction to the creditor, in a manner acceptable and agreed to by him, in the form of actual payment, be held to such requisition.

Mr. Justice Inglis, in Austin vs. Kinsman, 13 Rich. Eq., 265, says, “ a creditor, though entitled to demand payment in lawful money, may waive his right and accept any substitute he pleases, and his voluntary acceptance of such substitute, as payment, makes it so.”

If the satisfaction of the bonds was the result of a fraud between the debtors and the trustee, or induced by an improper combination, to the prejudice of the cestuis que trust,-or if the debtor knew of the intended misapplication of the proceeds by the trustee, and in any way wrongfully facilitated the accomplishment of that design, the instruments would be set up as existing and binding. But no such proof has been made in the case. On the contrary, as to the two principal bonds, the trustee required the payment. There was no medium of circulation but Confederate currency. This the trustee might have rejected ; but, so far from doing so, he sought payment in it. There is no testimony showing any willful combination on the part of White, Kerr, or Goldsmith, with the trustee, that would j ustify an interference to hold them responsible for the act for which alone he should respond.

It is ordered and adjudged, that go much of the decree as dismisses the bill, as to the said White, Kerr and Goldsmith, and directs the payment of the costs, be confirmed.

That the decree of the Chancellor, as to the said Benjamin Mor-decai, be set aside, and the case remanded to the Circuit Court, with instructions for an order directing him to account, as trustee under the said deed, on the principles hereinbefore set forth, and for all proper orders necessary and requisite to carry out the judgment of this Court in the premises.

Willard, A. J., concurred.