Summary
In Freeman v. Cook, 41 N.C. 373 (378), Nash, J., said: "The chancellor is the only safe and secure counsellor to trustees."
Summary of this case from In re Estate of MizzelleOpinion
(December Term, 1849.)
1. A want of good faith or of proper diligence will subject a trustee to the loss which may be consequent upon it.
2. A marriage settlement stipulated that the property settled should remain in the hands of the husband; but if, in the opinion of the trustees, it should become necessary for any purpose to take the property out of the hands of the husband, the trustees should be at liberty to do so without the interruption of the husband. Held, that when the trustees found that the husband was wasting and disposing of the property, it was their duty to resume the possession, if it could be done by proper diligence, and if they failed to use such diligence they were responsible for any loss that might occur.
3. The advice of counsel will not protect a trustee from the consequences of a failure to discharge his duty properly. If he has doubts, he should apply to a court of equity, which will always give him directions upon which he may rely with entire confidence.
4. When trust property has been improperly disposed of, and is capable of being followed in specie, the party in possession, with notice, may be compelled to reconvey it. If it cannot be followed or the person in possession cannot be made liable to the trust, the trustee will be decreed to compensate the cestui que trust by payment of the value of the property so lost, and also to account for all rents, hires, interest, and other profits which would or might have been made from the property so lost.
CAUSE removed from the Court of Equity of FRANKLIN, at (374) June Term, 1849.
W. H. Haywood for plaintiffs. (376)
No counsel for defendants.
Harriet Green, a minor, now the plaintiff, Mrs. Freeman, being about to marry William D. Freeman, a marriage settlement was executed by the parties whereby the property of Harriet Green was conveyed to the defendants upon the trusts therein expressed. The property conveyed consisted of lands, negroes, money and securities for money. By the settlement it is provided that William D. Freeman "is to have, use, and enjoy all and singlar the profits arising from the said land, negroes, and other property hereby conveyed, during his natural life"; and if he should die, his wife surviving him, then the property "to insure to the benefit of the said Harriet Green and her children who are then alive, and their heirs forever, as tenants in common." It is then provided, "And further, it is the intention of the parties that if in the opinion of the said Marmaduke Jeffries and Jones Cook, or the survivor of them, etc., it shall become necessary, for any purpose whatever, to remove the aforesaid property hereby conveyed, or any other part of it, out of the possession of the said William D. Freeman, the said Jeffries and Cook or the survivor them, etc., shall be at liberty to do so without the interruption of the said William D. Freeman." The defendants executed the deed of settlement and assumed the trust. The infant plaintiffs are the only children of Mrs. Freeman by her husband. Mr. Freeman, and who were alive at his death, which occurred in February, 1828. Immediately upon the marriage, the whole of the property conveyed, both real and personal, was by William Harrison, the guardian of Harriet Green, delivered over to the husband, none of it ever having been in the actual possession of the defendants or either of them. The money and other property of that kind were wasted by Freeman; and soon after he took possession of the slaves they were seized by officers under executions against the husband, and sold to pay his debts. They were (375) purchased by different persons, and some of them were carried out of the State, beyond the jurisdiction of the court. All that were retained in the State have been recovered at law and were in the possession of the plaintiffs. The defendants had full notice of the sale of the negroes and were present when it took place.
The bill charges a breach of trust in the defendants in not suing William Harrison for the money and the securities for money, and for the value of the negroes that were carried off, and for not taking proper steps to secure them. It prays for an account of the trust fund.
The bill is taken pro confesso against Marmaduke Jeffries, who has left the State and is insolvent.
Jones Cook, in his answer, avers that the property conveyed by the settlement was all put into the possession of William D. Freeman after the marriage, by an order or decree of the county court of Wake, without his knowledge or consent. As soon as he heard it, having no confidence in William D. Freeman, and anxious to discharge his trust to the best of his ability, he demanded the property from him. He refused on the ground that he was entitled to it during his life. He thereupon took the advice of respectable counsel, who stated that, under the settlement, the husband, W. D. Freeman, had an unquestionable right to the property during his life, and that the defendants could not interfere with it; and further, that he doubted if the marriage settlement was not void because of the nonage of Mrs. Freeman when she executed it; that the strong impression on his mind was that, for that reason, it was void. They were further advised, if an attempt should be made to sell the negroes, it would be their duty to attend and make known to the purchases the rights of Mrs. Freeman, so as to fix them with notice. All of which they did, exhibiting the settlement.
The first inquiry presented by the case is, Have the defendants been guilty of a breach of their trust? Justice Story, 2 Eq. Jur., 576, sec. 1275, thus sums up the duty of a trustee: He is to defend the title to the property at law, should any suit be brought concerning it; to give notice to his cestui que trust; to prevent any waste or injury to the trust property, etc., and must act in relation to it with good faith and reasonable diligence. He must be particularly careful, says Mr. Willis, in his treatise on trustees, p. 125, to execute the trust faithfully and according to the intention of the parties creating it; and however fully a discretionary power of management may be given, yet if he omit doing what would be plainly beneficial to his cestui que trust, he will be answerable. A want of good faith or of proper diligence will subject a trustee to the loss which may be consequent upon it. If the case before us be tried by these principles, the defendants have acted negligently; not with that diligence which was incumbent on them, but with a delay amounting nearly to an abandonment of the property.
Let it be admitted that William D. Freeman was, under the settlement, entitled to the possession of the property during his life, still as the legal estate was in the defendants, they were entitled to take the property out of his possession if the interest of those in remainder required it, or were bound to take steps to secure it against his illegal acts. Tidd v. Lister, 5 Mad., 429, 432, 433; Whitfield v. Bennet, 2 P. Wil., 242; Hill on Trustees, 384-5. They suffered the property to remain in the possession of a man who they knew to be an unsafe person to have the management, of it. They stood by and saw it wasted, and the negroes sold, not by him, but for his debts; a man who, if not insolvent at that time, they knew to be much embarrassed. And yet they took no (377) steps to protect or secure it.
But the case does not rest on general principles. The parties provided a remedy for the very evil which has occurred, and which was anticipated. The marriage settlement provides that when, in their opinion, it should become necessary for any purpose to withdraw the property from the possession of William D. Freeman, they should do it. If they had a discretionary power given them, it was not an arbitrary one, to act as a shield for negligence, but one to be exercised and regulated by reason and propriety, and only for the benefit of those interested. Hill on Trustees, 495. The defendants covenanted that they would, if it should become necessary, take the property from William D. Freeman. This they did not do, or attempt to do any father than to demand it. They ought, immediately on his refusal, to have appealed to a court of equity, which upon a proper case would have compelled him either to surrender the property to the trustees or secure its forthcoming at the termination of his life estate. And if the interest of William D. Freeman was liable to be sold under execution, the purchasers acquired nothing but what was in him; they stood in his shoes, and might have been restrained from carrying the slaves out of the State. All this they neglected to do. Nor have they, as far as the answer discloses the fact, made the slightest effort to regain the possession of that portion of the slaves which has been carried away. This is clearly causa negligentia.
The defendants, however, allege that they ought not to be made answerable, as they took the advice of counsel and acted on it. The answer states that they were not only advice they could not disturb the possession of Mr. Freeman, but the counsel doubted if the settlement was not void for the nonage of Mrs. Freeman, and that he was disposed (378) to think it was void. It was very important to the defendants, not only to have good advice, but such as would sustain or remove the doubts thus expressed and protect them in their action. What course, then, ought they to have pursued? Their only safe course was to have procured the advice of a court of chancery, which they had a right to resort to, Willis on Trustees, 125; 2 Fon, Eq., 172, note c. The chancellor is the only safe and secure counselor to trustees. The counsel, however, gave no advice upon this point; he merely suggested doubts. But if he had given a positive opinion, it would not have protected the defendants; it would have been palpably erroneous. An infant can enter into a marriage contract in relation to personal property, and if he does so, is bound by it. Atherly on Marriage Settlements, p. 49. The settlement in this case was not void.
The maxim, that ignorance of the law will furnish no excuse for a breach of duty or omission to perform it, is as much respected by equity as by law. 1 Fon. Eq. B., ch. 1, sec. 7, note V; 1 Story, 121. sec. 3; Hill on Trustees, 149. In Doyle v. Blake, 2 Sch. and Lefr., 243, it was admitted that the defendant, who was an executor, meant to act honestly, but had received wrong advice. Lord Redesdale said: "The Court must proceed, not upon the improper advice under which an executor may have acted, but upon the act he has done. If under the best advice he could procure he acts wrong, it is his misfortune; but public policy requires that he should be the person to suffer." Looking, then, alone to the acts of the defendants, we are constrained to say that they have been guilty of such negligence as amounts to a breach of a trust and subjects them to make good the injury the plaintiffs have sustained in consequence of it. In Beal v. Darden, 36 N.C. 54, the Court say: "The total neglect to look after the slaves for three years, when the character of the person in whose possession they were was so bad that he was generally considered unfit to be intrusted with the possession (379) of slaves, is almost an abandonment of the property altogether." Here there has been no attempt made by the defendants, for more than thrice that period of time, to recover the slaves carried away out of the State, or to recover from William D. Freeman the principal money put into his hands by William Harrison, or the value of the other property conveyed in the deed of trust. As to the money and the securities for money, it was unquestionably the duty of the trustees to have taken and retained possession of the fund for the benefit of those in remainder; and to permit them to remain unprotected in the hands of Freeman, after notice of their not being safe in his hands, was a breach of trust. Hill on Trustees, 386. William D. Freeman died insolvent.
In giving relief for a breach of trust, a court of equity endeavors, in the first place, as far as possible, to replace the parties in the situation they would have been in if no breach of trust had taken place. And for this purpose, when the trust property has been improperly disposed of, and is capable of being followed in specie, it will compel the trustee, or the party in possession, with notice, to reconvey it. If it cannot be followed, or the person in possession cannot be made liable to the trust. the trustee will be decreed to compensate the cestui que trust by payment of the value of the property so lost. And he will be decreed to account for all rents and hires and interest and other profits which would or might have been made from the property lost. Hill on Trustees, 522.
There must be a reference to the master to ascertain the number of the slaves sold to pay the debts of William D. Freeman, which have not been recovered and were alive at the death of said Freeman, and their increase up to that time, and their value; and also to take an account of the money and securities for money which came into the hands of William D. Freeman from Harrison, and was by him (380) appropriated to his own use, with interest upon the value of the abstracted slaves since the death of William D. Freeman, and to inquire whether the defendants could, after they received notice of his having received the proceeds, have recovered the money from said Freeman; and if they should find they could have recovered it, to compute interest thereon from the same time.
PER CURIAM. Decree accordingly. Cited: Satterfield v. Riddick, 43 N.C. 271; Deberry v. Ivey, 55 N.C. 375; McLeran v. Melvin, 56 N.C. 200; Cheatham v. Rowland, 92 N.C. 344; McEachin v. Stewart, 106 N.C. 343; Culp v. Stanford, 112 N.C. 669.