Cornet v. Cornet

269 Mo. 298 | Mo. | 1916

BROWN, C.

This suit was instituted in the St. Louis City Circuit Court on the 13th day of June, 1908, by a petition in equity filed by George A. Cornet and Tillie Cornet, his wife, against. Henry L. Cornet as trustee under the last will of Francis Cornet, deceased, and in his individual capacity. The relief asked was that the court decree that plaintiff George A. Cornet was entitled to appoint and dispose of the estate devised and bequeathed to him in said will by his father, the testator therein; that, a certain deed executed by the said George A. Cornet to the defendant, his brother, dated January 14, 1892, be cancelled and declared void for fraud; that the defendant be removed as trustee under said will; that an accounting be taken of the trust estate, and that the defendant pay over to the said George A. Cornet what shall appear to be due to him upon such accounting.

The answer put in issue the fraud charged in the petition and averred that the instrument of January 14th was made in full recognition of the terms and provisions of said will as giving to the said George A. Cornet only the net income from the share of the testator’s estate left to defendant in trust for him during his life and that defendant accepted said trust and ever since continued to discharge his duties thereunder.

The cause having been put at issue by replication, was tried and the bill dismissed upon the merits. An appeal was taken by the plaintiffs to this court, where, upon hearing, the judgment dismissing the bill was reversed and the cause remanded to the St. Louis Circuit Court with directions that the said deed of January 14, 1892, be set aside; that the defendant be removed as trustee; that a successor be appointed to administer the trust according to the provisions of the will and that an accounting be had as prayed.

The opinion of this court, with its directions, setting forth the issues and findings in detail is published in the 248th Missouri Report at pages 184 to 243 inclusive. This renders it not only unnecessary but improper that we should incumber our records with a restatement of the same matters to which we shall refer in this opinion.

Upon the return of the cause and on June 20, 1913, the circuit court entered its decree in accordance with the directions of this court cancelling the deed of January 14, 1892, removing the defendant as trustee under the will of Francis Cornet, appointing the St. Louis Union Trust Company successor to the trust, and appointing B. D. Kribben, Esq., special master to settle the accounts of the removed trustee and determine all issues relating thereto. Thereupon the new trustee entered its "appearance, accepted the appointment, and is appellant and respondent in connection with the original plaintiffs. This court directed, and it was, in pursuance of such direction, ordered, among other things: “That said Henry L. Cornet be allowed the legitimate expenses paid or incurred by him as such trustee on account of said trust property, in-eluding reasonable compensation for whatever services he has performed for the trust estate under the direction of said will, and be allowed credit for all proper disbursements from said property made by him to the said George A. Cornet or for the latter’s benefit.” The concluding paragraph of said interlocutory decree is as follows: “It is further ordered by the court that all of the costs of this .proceeding as well as the cost of said accounting herein ordered and taken, be taxed against and paid by the said Henry L. Cornet.”

The will of Francis Cornet was executed January 31, 1891, and the testator died December 20th of the same year in his seventy-second year, leaving surviving him his widow and six children, including the plaintiff George A. Cornet and the defendant Henry L. Cornet.

The defendant took possession of his estate, both real and personal, of which the share of George A. Cornet was one-seventh. Upon the division of the personal estate, the defendant, as his trustee, received Leavenworth bonds of the par value of fourteen thousand dollars, with accrued interest amounting to three hundred and three dollars and thirty-three cents; Ray County bonds of the par value of twenty-five hundred. dollars, with one hundred and forty dollars interest' accrued; and one hundred and thirty-five dollars and ninety-seven cents in cash, aggregating $17,0-79.30. After the execution of the deed of January 14, 1892, he proceeded from time to time to sell real estate devised by the will, realizing for tbe share of George A. Cornet $7629.20. These amounts, aggregating $24,708.50, constitute the investment fund in the hands of the defendant trustee, which, with the income of real estate unsold (some of which still remains undisposed of), constitute the subject of the accounting, to which all the errors assigned by parties to this appeal are directed.

The defendant testified in his own behalf in the hearing before the master. He said, in substance, that he was, during the time covered by the trust, a member of tbe firm of Cornet & Zeibig, a partnership engaged in the real estate anl loan business, composed of himself and Mr. F. G. Zeibig, having equal interests. The Standard Realty Company was a corporation organized by them and of which they owned the stock in equal proportions. It was engaged in the real estate business. Cornet & Zeibig kept a single bank account, in which all the trust funds held by defendant, of which there were others than- the fund in controversy, were deposited, and paid out on the checks of the partnership; and loans of such funds by defendant were charged to his' account on the partnership books, while loans made by the firm went to the account of bills receivable. Sometimes Mr. Cornet would purchase a number of bonds in a single transaction and then distribute them among the funds he had on hand for investment. He bought fifteen or twenty of the Jalisco bonds, which we shall have further occasion to mention, distributing them among these funds. For several years Cornet & Zeibig had received interest from its bankers on average monthly balances at the rate of two per cent credited to the account monthly. At all times during these transactions there was sufficient funds of the partnership account to make good the trust funds in defendant’s - hands for investment. It was contended by the defendant upon the hearing that the amount paid by him for attorney’s fees and expenses of this entire litigation, amounting, with interest, to $1128.57, together with the costs of the accounting, amounting to $1326.50, and all taxable costs of this proceeding should be adjudged and taxed against the trust estate. These contentions were disallowed by the master and all taxable costs were adjudged against the defendant.

Certain loans were made through the office of Cornet & Zeibig for which commissions were charged by that firm against the trust fund, amounting to $298.75. This was disposed of by the special master in his report as follows:

“Tour special commissioner finds that the ■ trustee received one-half of these commissions in the distribution of the profits of the firm of Cornet & Zeibig, and that he is not entitled thereto and should be excluded therefrom, but that he is entitled to credit in his accounting to the other half thereof which Zeibig received for his services, amounting to $149.38.”

The plaintiff contends that the trustee should not only be charged with interest at the rate of six per cent per annum, compounded annually, on the loans made to the Standard Realty Company, but he should also be charged with the further sum of .$260.50 which seems to be admitted as the amount of the usual commissions charged to borrowers by loan brokers for obtaining such loans, and renewals thereof. This was disallowed by the special master in his report.

The special master charged the trustee with the amount of interest received by Cornet & Zeibig on the amount of the trust fund included in their average monthly bank balances, but refused to charge interest at the legal rate, either simple or compound, for which the plaintiff contended. He allowed the trustee, commission at the rate of five per cent on the income from investments of the personal property received by him under the will, amounting to $899.08, and also commission at the rate of two-and-a-half per cent on the corpus of the personal estate turned over to. the new trustee, amounting to $426.18.

Among the investments made by the trustee were' certain bonds called the Alton Bridge bonds; being two bonds, each' of the par value of $1000, bearing interest at five per cent, purchased by him in 1894 for $1840, making an income rate of five and twenty-eight hundredths per cent. These were a part of an authorized issue of $1,000,000, of which $600,000 at least were sold, and were secured by first mortgage on a railway bridge with its terminal, under construction across the Mississippi River at Alton, Illinois. Its prospect of earnings consisted of what is called in the record a “contract” with the Chicago, Burlington & Quincy Railroad Company to use it, which was expected to yield a gross income of $80,000 per year. The bridge was completed and was used for about three years, when the Burlington refused to further carry out the arrangement, and the property went into the hands of a receiver. It was reorganized in 1901 with an issue of four per cent bonds, which were substituted for the original bonds and accrued interest. At the time of the hearing these bonds were worth about seventy-five per cent of their face. The plaintiff insisted that the trustee be required to take these bonds from the estate, at cost and interest. The special master thought differently, and reported that they be allowed the trustee as an investment.

Another investment for which the defendant trustee sought credit consisted of nine bonds of $1000 each, bearing interest at six per cent, purchased by him for $9,555. These bonds were purchased at various times between March 1, 1900, and November 27, 1906, inclusive. They were a part of an issue of $1,500,000 by the State of Jalisco, Mexico, to aid the city of Guadalajara in that state, in the construction of a municipal water-plant, and seemed to have been founded upon bonds of the city in an equal amount. Interest payment had been stopped on these bonds under circumstances which are lightly touched upon in the testimony, but enough is disclosed to indicate that it was payable in gold in New York City, and that some law had been enacted in Mexico discouraging the exportation of gold, which rendered the rate of exchange so high that the state refused to transfer it. The special master found that these bonds were not a proper investment and ought not to be charged against the trust estate, .but that their cost, with unpaid interest, should be charged to the trustee, who would thereby become entitled to the securities. The court sustained an exception of the defendant to this recommendation, and allowed them as a credit to the trustee.

It sustained the findings and recommendations of the special master in all other respects. ■

The defendant in his appeal assigned as error the action of the court:

(1) In refusing to allow him credit as against the ■ trust fund for the costs and expenses of this litigation as already stated.

(2) In not allowing him credit for all sums re-, ceived hy Cornet & Zeibig for making loans for the trustee.

(3) In -refusing to allow him compensation for the sale of real estate.

(4) In refusing to allow him' commission upon the corpus of the fund derived from the sale of real estate.

The errors assigned by the plaintiffs, including the St. Louis Union Trust Company, are:

(1) In refusing to charge the trustee with either compound or simple interest on the uninvested assets of the trust estate remaining in his hands from time to time, as we have stated.

' (2) In refusing to charge the trustee with compound interest on the Standard Realty Company loans.

(3) In refusing to charge the trustee with commissions of two and one-half per cent on loans and one per cent on renewals made by him to the Standard Realty Company.

(4) In refusing to charge the trustee with the entire commissions received by Cornet & Zeibig for making the loans to which we have already referred.

(5) In allowing the trustee compensation by way of commissions, amounting to $898, on income from his investments of the personalty, and $446.18 by way of commission on -the corpus; of the personal estate turned over to the new' trustee.

(6) The refusal of the court to order that the trustee make good the investment in the Alton Bridge bonds.

(7) The refusal of the court to require the trustee to make good the Jalisco bonds. ’•

Costs I. The defendant insists that the nature of this suit requires that not only its taxable costs, but all the legitimate expenses incurred in his resistance to the relief sought hy the plaintiffs, should be charged aSainst and paid out of the' trust fund in his hands. This is true if these costs and expenses were incurred by him for the benefit or protection of the fund, and this depends upon the nature of the suit, the object of the parties to its prosecution and defense, and their respective rights as they may be determined by the court.

The defendant says that this is essentially a suit to secure a construction of- the Francis Cornet will for his guidance in the administration of the trust. Every suit at law or in equity, involving a title or right depending upon the meaning of a will, involves also its construction; yet such a suit does not involve the special jurisdiction of a court of equity in construing wills. If it did, the unsuccessful defendant in ejectment or in a suit to quiet title would often he entitled to have his costs taxed against the property involved. The construction of the will in such cases is simply in the redress of the wrong charged’ whether the suit he at law or in equity. It has been truly said “that the special equitable jurisdiction to construe wills is simply an incident of the general jurisdiction over trusts,” and that the courts exercise such jurisdiction when it is moved on behalf of an executor, trustee, or cestui que trust, to insure a correct administration of the power conferred hy a will. [Pomeroy’s Equity Jurisprudence (3 Ed.), sec. 1156 and cases cited.]

The twofold purpose of this suit was to set aside a deed obtained by the defendant trustee from his brother, for alleged fraud in securing its execution, and to remove the trustee on account of the fraud. An accounting by the trustee to his successor or his beneficiary was a necessary incident of this latter remedy. There is nothing in it calling for the exercise of the special jurisdiction of the court to construe wills. It required only the exercise of the general jurisdiction of courts of equity over trusts and trustees by removing a trustee for misconduct and fraud in connection with bis trust.

It is not necessary that we go into the details of the fraud, for all questions as to that have been put at rest by the former judgment of this court. [Cornet v. Cornet, 248 Mo. 184.] The only feature of the will which concerns us is the attempt of an affectionate father to protect a son who was subject to the alcoholic mania to such an extent that he would periodically unfit himself for the transaction of business, and, like most other people similarly afflicted, become improvident and rash in his expenditures. There is nothing in the evidence which seems to indicate that he had become a helpless inebriate, or that his father, at any time while living, despaired of his reformation. He had another son, the defendant, whose habits seem to have been unexceptionable, and who had for more than ten years been engaged in the loan and real estate business, and was intelligent and active. Under these circumstances the father made the will in question, and his policy toward his less fortunate son, plainly expressed in that instrument, was to confide to the care of the more fortunate and capable one the possession and management of the equal share of his property he desired to leave to the other, so that he would, neither by neglect nor improvidence, be without some means of support during his life. The father evidently contemplated that he might marry and have children and issue of his own, and used, in providing for the succession, the broad words of inheritance prescribed by the common law for the creation of a fee. The use of any words conferring a title upon the trustee, or power of disposition over the realty, was carefully avoided, and the door of opportunity for a normal life was left carefully open.

The principal fraud charged in this case was, in substance, that the defendant, in procuxing*the deed of January 14, 1892, had fraudulently taken advaxxtage of the fiduciary relation to his brother George created by the will, to secure from the latter the legal title in fee, together with the absolute power of disposition over the estate left him by his father, as well as that which he might thereafter receive through his brothers and sisters, and to reinvest the proceeds in real or personal property as he should see fit, subject to the same trust, and at his death to be equally divided among his heirs at law per stirpes-, none of which rights or powers were conferred by the will. We held, that independently of the presumption arising from the fiduciary relation, the record showed actual fraud in procuring that deed for which it must be set aside, and the defendant removed from the trust. The deed itself was replete with untrue statements with reference to the rights both of the beneficiary and the trustee under the will, while the testimony exhibited circumstances of advantage taken of the weakness and dependence of the beneficiary which appealed strongly to this court.

These questions could not be determined, without examining and construing the will for the purpose of determining to what extent the defendant had violated the trust with which it had clothed him. He had absorbed the title to all the property, both real and personal, leaving his beneficiary with no interest whatever except the bare right to receive such portion of the income as he should see fit to pay him, instead of investing it otherwise, as permitted by the fifth clause of the will. It put his nose to the grindstone, if we may be allowed so homely an expression, and enabled his trustee to keep it there until the time when he himself would perhaps participate as heir in what was left. If the will itself did all these things then the deed was harmless and the construction of the will constituted the principal task of the court in this case, and the disposition to be made of the deed itself the principal duty.

The defendant, so far from joining in a request for such construction and showing a disposition to regulate his administration of the trust accordingly, repudiated the trust by the fraudulent deed under which he proceeded to sell the real estate and defended his action to the last ditch in this court, insisting in his answer that he was acting under both the deed and the will, and is now seeking to make his beneficiary pay the costs which he incurred and the attorney’s fees which he paid in making the fight against his own removal for misconduct. It is unnecessary to give further reasons for the conclusion that he will not be permitted to do this. The action of the circuit court in confirming the report of the special master in this respect is approved.

fo^Gratultous Administration, II. The question whether' the defendant is entitled to have the costs incident to the accounting taxed against the trust fund deserves a word of special mention. As we have already said, and as his answer states, he assumed the duties of trustee both under the will and the fraudulent deed, the latter constituting his only authority for the sale and conveyance of the real estate, and having no excuse for its existence other than to obtain a stronger hold upon the fund, that it might result in some personal benefit to himself should his- more unfortunate brother die without issue. lie contended for the success of his plan in this suit to the end. It appealed to him so strongly that he even concluded, as he states in his answer, to administer the self-created fund without compensation, and continued to do so until the court decreed his removal. It was only then that he reached back to reclaim, in his accounting, the price he had been willing to pay for the acquiescence in the violation of his trust. His removal brought upon him the burden of accounting to his successor; a burden which he now seeks to impose upon his brother, through the trust fund, on the ground that his removal involved the construction of the will which he had already construed against himself by obtaining the deed necessary to conform it to his own plan. We find no authority for taxing upon a trust fund the expense incurred solely by the violation of tbe trust under which it is held. The circuit court was clearly right in its disposition of *this question.

Real Estate. III. The trial court properly held, and the decree was framed upon the theory, that the sale of the real estate derived through the will of Francis Cornet for the aggregate sum of $7529.20 was a violation of the terms of that instrument for which trustee was entitled to no compensation. The instrument had been made by the father, and his will clearly required, so far as the trustee was concerned, that it should be continued in the same form. So far as the title had been conveyed under the fraudulent deed it was the duty of the trustee to make it good in money without deduction, and this he seems to have done with the proceeds, which seems satisfactory to all parties. This was the natural and necessary result of our former decision, and, although error was assigned by defendant, the point has not been pressed here, and we therefore take for granted that the correctness of this action is conceded, and will so assume.

investment Funds. IV. The amount of the personal estate distributed to defendant as trustee for George under the will and to which this accounting particularly relates, was $17,079.30, consisting of Leavenworth bonds and bonds of Ray County, Missouri, and $135.97 in cash. The bonds, with interest, were all called and paid in due time, so that the entire trust fund was equivalent in value to cash, and bore interest from the date of the settlement of the estate, December 6, 1892. The master’s report, which exhibited the final condition of tbe trust fund, includes a period of about twenty years of its administration. The income of the fund had, in the meantime, amounted to $17,981.78, and the corpus of the estate consisted, at the end of that time, of one real estate mortgage of $2500, and certain bonds, making an aggregate of $16,947.72. .This income was slightly in excess of five per cent per annum.

If the amount of the corpus of the fund now on hand is .as well invested as was the fund received by the trustee in 1892, his administration has been creditable, the amount of loss of capital negligible, and reasonable claims for compensation for services in producing such a satisfactory condition would be founded in sub-, stantial equities.

It is said, however, that the present condition of the fund is unsatisfactory, and that an amount equal to more than seventy-six per .cent of this entire personal estate-is invested in securities which have ceased to be productive and are now in great jeopardy. This complaint refers to the “Jalisco” bonds, representing an investment of $9555, and the “Alton Bridge” bonds, representing an investment of $1840. Both the plaintiffs and the appellant trustee contend that neither of these investments is such as a court of equity will approve for trust funds of this character, and that the defendant should be required to take them for his own account, and to reimburse the fund with cash. In determining this question we should proceed with the utmost care, for whatever we may say will, no doubt, be invoked for the guidance and protection of other trustees or their beneficiaries, not only in this jurisdiction, but wherever our utterances receive consideration.

The will contained no special direction with respect to investments. It simply directed the trustee “to manage such trust fund, and to make the same productive in such manner as he may deem most safe and advantageous.” It is not nor can it be said that this conferred any other or different power than to use his best judgment in investing in such securities as are approved by the rules of equity as investments for trust funds, and the testator carefully recognized one of those rules by prescribing safety as the first element to be considered.

The defendant says that the rule governing the conduct of the trustee in that respect, as he understands it, “is that he must exercise such prudence and diligence in conducting the affairs of the trust as men of, average prudence and discretion would employ in their own affairs.” This is true so far as it goes, hut it refers to such investments only as trustees may make of the funds of others. In dealing with his own the most prudent of men may grow - rich by the process of discounting personal notes or commercial paper, but, as was said by Lord Kenyon in.Holmes v. Dring, 2 Cox, 1: “It was never heard of that a trustee could lend an infant’s money on private security. This is a rule that should be rung in the ears of every person- who acts in the character of trustee, for such an act may very probably be done with the best and honestest intention, yet no rule in a court of equity is so well established as this.” And this is the rule, enforced with the same uniformity, in this country. [Perry on Trusts (6 Ed.), sec. 453.] It has also been laid down as a rule that “voluntary investments must not be made by a trustee beyond the jurisdiction of the court having charge of the trust, except in cases of necessity for the saving of the fund.” [Perry on Trusts (6 Ed.), sec. 452.] The same author says (See. 460); “If there is a direction [in the trust instrument] to invest trust funds in real securities in a foreign jurisdiction, the court will allow the investment, but if no such power is given, such investment will not be allowed.” And McKinney, in-his■ recent work entitled Liability of Trustees for Investments, p. 12, sec. 6, says: ‘ ‘ The general rule is that a trustee must invest in securities which are located- in the state where the trust is to be administered.” After stating that some of the states allow the practice in particular cases this author says: “In the absence, therefore, of specific authority, either in the trust instrument or by statute, a trustee would not be safe in placing the trust funds in securities which are beyond the jurisdiction of the court.”

ny opinion as to the rule apthe investment of trust funds >ther states of our Union. The uitry, in which the inviolability of contracts is protected by one Constitution and in which resort may be had to its own courts in proper cases.

We have selected the foregoing instances of well established rules governing the investment of trust funds from many we might mention, to illustrate, the application of the definition of “diligence and prudence” given us by defendant as applicable to these investments. It is tersély stated by the Supreme Court of Pennsylvania as follows: ‘ ‘ Common skill and common prudence, as is said in the many cases cited, are all that the law demands of a trustee; that is, the common skill and prudence of an investor of money to be safely kept with such reasonable income as is commensurate with safety of the principal.” [Hart’s Estate, 203 Pa. St. l. c. 486.] It means the skill and prudence of the investor of money to be safely kept and invested for others. In Mattocks v. Moulton, 84 Me. 545, the Supreme Court of Maine expressed the same idea as follows: “True, she left the investment of the trust estate to his judgment, but it was to his judgment as trustee, enlightened and guided by the approved rules applicable to the investment of trust funds, not to his uninformed, personal judgment exercised without reference to legal rules and principles.” It goes without saying that in making these investments the first element to be considered is safety. This does not mean-simply that in the honest course of events the security will be paid. It means that its payment may be enforced through the operation of governmental power to which the trustee has rightful access, and without recourse to 'the laws and governmental machinery of foreign nations. Without this element of value the subordinate one of income becomes uncertain.

Investments in Foreign Nations, V. Without determining or intimating whether the obligations of a foreign government or its subordinate subdivisions or municipal agencies , , ., 7 . may or may not, under possible circumstances, be a proper investment for more than one-half of a small trust fund like the one in question, we will apply the principles we have stated to the investment in Jalisco bonds. That the defendant has failed or * neglected to direct our attention to any instance in this country where an investment of that character for trust funds under a similar power has met with judicial approval, impresses us with the conviction that the general rule forbidding . such investments has met with general acquiescence. The legislative policy of our State, under which trust companies have been established with power to execute similar trusts, seems also to have been to confine the investment of the trust funds in their charge in such securities in our own country. Section 1132 of the Revised Statutes of 1909, which covers this question, provides that the directors of all such corporations ‘ ‘ shall have power of investing the moneys placed in their charge in loans secured by real estate or other sufficient collateral security, in public bonds of the United States, or of this State, or in the bonds or stock of any incorporated city or county in this State. ’ ’

It will not be. contended for a moment that the fact that the credit of our sister Republic of Mexico, or of the States which composed that Federation, was such that they were compelled to pay a higher rate of interest than that prevailing in our own country would be a good reason for a trustee to seek investments there. The record is meager with respect to other reasons. It seems that Little & Hays, brokers of St. Louis, had $300,000 of these bonds for sale and recommended them highly, both by word of mouth and in a circular; that the Mississippi Valley Trust Company was interested as an equal partner in the profit of these sales and álso recommended them, and placed one or more of them in one of its trust funds; that the Franklin Bank was also a purchaser from Little &' Hays, but whether or not it was also interested in their sales does not appear. The evidence shows that one or two other persons said to have good business ability were purchasers on their own account, but to what extent does not appear. It is fair to say that the evidence was slight as to the reputation of these securities and there is nothing to show a necessity for making the investment.

The defendant does say, however, in praise of the securities, that at the time they were bought “ President Diaz was in undisputed command of the situation in Mexico, and in so far as the most prudent investors could see, bonds of the rich State of Jalisco were as safe an investment as bonds of any American State.” We understand from this, his contention to be that President Diaz in the saddle so seasoned the credit of that country that it justified him in going thousands of miles into a foreign country and among a strange people to .obtain for his brother an investment in six per cent bonds at a premium of six points. This justifies a word as to the attractive financial conditions involved in the supremacy of the distinguished President in control.

The repudiation by Mexico of interest on its public debt in 1861 is remembered by some of us. More of us remember the train of woes more direful and numerous than those that the elopement of the fair and fickle Helen brought upon her own unfortunate country, which followed. Maximillian came and went. The interest was paid in the blood of the people, and Diaz came into politics as opponent of Juarez, his chief, in the election for President and was defeated. When Juarez died and his successor had been fairly elected Diaz took the field against him at the head of a great army, driving him from the country, and making himself provisional president; and in that capacity, in 1877, elected himself President under a constitutional provision which limited him to one consecutive term. This he obeyed, retiring until the next election, was then re-elected, and from that time for about thirty years, by amendments to the constitution and elections held under military supervision, maintained himself in that office, in command of the situation. At the time these bonds were issued mutterings of discontent filled the country. From that time until this defendant made his last purchase of these bonds in 1906, the people, wherever5 they dared to speak, were complaining of. the rapacity of the officials; of the farcial-character of his election; of the gathering into great estates, some of which consisted of millions of acres, of lands which they said should be available as homes for the people, who were reduced to a condition of peonage; and in 1904, two years before defendant’s last purchase', they complained that Ramon Corral, who was then elected Vice-President, had been selected by the President to perpetuate the autocracy. As soon afterward as 1908 young Madero issued his book on the Presidential Succession, and the people were rapidly gátkered into the impending revolution. Deserted by Limantour, the minister who founded and builded the financial structure with which we are dealing, Diaz and Corral were both driven from the country, while the life of Madero was sacrificed to his sentimental enthusiasm for reform. The Autocrat “in undisputed command of the situation in Mexico,” the dreamer, the butcher, rapidly succeeded each other, and now the adventurer and the bandit are treading the wine press together. We may take these matters into consideration because they are matters of world history, and many Americans, looking for speculative investment in Mexico during the last fifteen or twenty years, have seen and felt these forces at work. Such conditions do not appeal strangely to Americans, who are in the habit of assuming, without question, that the stability of republican government rests in the loyalty and cooperation of a people accustomed to political liberty.

There is no doubt that the- defendant was perfectly honest in his faith in the Diaz regime when making this investment, but the evidence shows that he was not addicted to taking the advice of his beneficiary in such matters, and we see a reason to depart, for his benefit, from those general rules which the law has prescribed for the protection of those not in a position to protect themselves. It is no hardship for him to take these securities on his own account. If Mexico should become tranquil, and the investment should turn out a good one, the beneficiary, by his course in this suit, has shown that he is perfectly willing that his trustee should reap the benefit. We therefore hold that the finding and recommendation of the special master that he should replace these bonds with cash should have been confirmed.

Buying^ Name. VI. In the matter of the Alton Bridge bonds we are forced to the same conclusion. It is a just and healthy rule that defendant’s successor ought not to be compelled to accept an improvident investment (Craven’s Case, 43 N. J. Eq. 416), and that, having been removed and the propriety of the investment questioned, the burden is upon him to show that it is a proper one, or that he exercised proper care and prudence in making it. [Hart’s Estate, 203 Pa. 480, 486.] In making this investment the defendant violated various rules by which equity seeks to secure trust funds from mismanagement and waste. One of these rules is that the trustee who invests such funds in his own name becomes personally responsible. This is only a corollary of the rule that if he deals with the estate on his own account it must be at his own risk. Were he permitted to do otherwise it would place before him the constant temptation to make the trust fund a dumping ground for his own unsatisfactory ventures. In this case the defendant testifies that it was his habit to purchase securities in his own name, cheeking for payment on the bank account of his own firm, -and afterwards to distribute them to various estates held by him in trust or to his own account as might be indicated by the condition of the various funds. In this case he purchased, on December 7, 1894, five of these five per cent Alton Bridge bonds, each of the par value of one thousand dollars, at ninety-two cents, two of which, being the same now in question, were afterward assigned to the George. A. Cornet trust fund. When this was done is not clear, and we have not considered it necessary to scrutinize the complicated analytical statement of the condition of this fund presented by the master, which might give us light on this subject. It is not denied that the purchase of the five bonds was a single transaction for the personal account of the defendant and that the two bonds in question were at some subsequent time distributed to this fund. They belonged in the meantime to. the trustee, who might at any time have disposed of them to the best advantage for his own' personal account. The rule is imperative that a trustee cannot buy his own property from himself for the purpose of the trust. It makes no difference that the sale is intrinsically a fair one and for a full consideration. “The policy of equity is to remove every possible temptation from the trustee.” [Pomeroy’s Equity Jurisprudence (3 Ed.), sec. 958.]

We have already said that it is not a sound discretion for trustees to invest the trust fund in mere personal securities. Nor is it a sound discretion to subscribe trust funds to new enterprises of which the results are necessarily experimental. [1 Perry on Trusts (6 Ed.), sec. 459.] This investment violated both these rules. The corporation issuing the bonds was organized for the purpose of constructing an independent railway bridge across the Mississippi River at Alton, Illinois. It was purely experimental. The bonds were a part of the original capitalization to provide money for the erection, and the bridge was still incomplete. Whitaker & Company were the financial promoters of the scheme. According to the testimony of one of the members of that company the bonds were “predicated” upon a supposed unsecured personal contract with the Chicago, Burlington & Quincy Railway Company to use the bridge for crossing trains at that point when it should be completed. Irrespective of its use by some railway corporation or corporations the material of which it was composed would be mere mass of stone and steel rendered valueless in its erection. The refusal of the railroad company to use it, which occurred three or four years after its completion, wiped out the income and placed it in the hands of a receiver. -No attempt was made to enforce the Burlington contract so far as is shown by the record. . Six hundred of these bonds were outstanding, with interest due and unpaid to January 2, 1901, amounting, including interest on unpaid coupons, to $148,317.78, or $247.20 on each bond. During that year a reorganization was effected under a plan by which $800,000 of new four-per-cent bonds were to be issued, $750,000 of which were to be used to take up the $600,000 of fives outstanding, at the rate of $1250 of the new bonds for each $1000 bond of the old issue, with all unpaid interest coupons' attached. The defendant joined, surrendering his original bonds and taking four-per-cent bonds in their places. Two of these four-per-cent bonds, of one thousand dollars each, are the present investment.

The fate of the additional $500 of new bonds, issued, apparently, to equalize the interest of the fours and fives, was explained by the special master at the trial as follows: “There evidently was a reorganization of the concern in June, 1901, and on January 2, 1903, Mr. Cornet received $400 and $12.50 interest upon interest, which is accounted for down to the reorganization of the company, and there was substituted for those bonds other bonds at four per cent, which continued down to the present time. There were bonds issued in lieu of interest January 2, 1903; it must have been at the time of the reorganization, interest on the five-per-cent bonds and interest on delinquent interest was all accounted for.” Thus the trustee paid himself the interest out of the principal of his security, and the two bonds now in the corpus of the fund represent what is left after the performance of this financial feat.

The defendant does not explain why he took his little trust fund into this reorganization, nor intimate that he made any attempt to have the investment in the insolvent corporation taken off his hands by the reorganization committee. It does not appear that the bridge was ever used or was available to any other railway company thán the Burlington, which was using it at the time of the master’s hearing under a temporary contract favorable to itself, which it had forced by the threat to build a bridge of its own at that point. It was the only railway having physical connection with the bridge. The bonds were then worth seventy or seventy-five per cent of their face, Mr. Costigan, of "Whitaker & Company, giving both figures in his testimony. The gross revenue of the' bridge had been $205,689 during the year ending June 30, 1911, and had declined to $154,136 in the year ending June 30, 1913.

In making the original investment the defendant took no advice other than that of the promoting brokers. He did not consult his beneficiary — in fact he testifies that he never consulted him, because he did not think he was obliged to under his trusteeship._ He chose arbitrarily to assume the entire responsibility.

While an independent bridge, founded upon the general traffic of a great commercial city like St. Louis, may be immensley profitable, the only evidence in the record upon that question applicable to this transaction is to the effect' that such a project is uncertain and speculative; and when it is “ predicated” on the promise of a single railway company to use it, we wonder why that company did not build it. It is unnecessary for us to enter this field of speculation. It is only necessary to say that we see no reason why the defendant’s successor should be required or permitted to accept these bonds for his beneficiary, and we hold that the defendant must replace the money so invested, with interest at the rate of five per cent per annum on the , face of the original bonds.

VII. T3ie disposition of the foregoing questions enables us to consider the claim of the trustee for reasonable compensation for his services from the more favorable standpoint of a stable and substantial fund from which just claims of that character may be paid.

Trustee's Compensation The first of these questions in natural order arises upon the assignment of error in the ruling of the trial court allowing compensation at the rate of two and one-half per cent on the amount of the corpus of the fund remaining on hand, for its care and preservation. For guidance in this respect, we must look to the provisions of the will which created the trust, appointed the trustee, and provided, in general terms, -the rule for his compensation.

The trial court following, in its interlocutory decree, tho ruling of this court upon the former appeal, directed that the defendant “be allowed the legitimate expenses paid or incurred by him as such trustee on account of such trust property, including reasonable compensation for whatever services he has performed for the trust estate under the direction of said will.” Going to the will itself for information on this point we find that it appointed the testator’s widow and the defendant joint executors, and the defendant qualified and made final settlement, but we do not find that his co-executor joined with him in the execution of the will, and while the special master states in his report that he had examined the settlement we are not favored with any statement as to what it contains. We will assume therefore that they received the compensation allowed by statute for the administration of the entire persona] estate.

The will, a copy of which is included in the report of this case upon the former appeal, to which we have already referrqd, contains two provisions on the subject of compensation. The first, in item three, refers only to the management of the real estate prior to its division among the "devisees, and affords little light upon the question we are now considering. Item four provides, in substance, that tbe personal estate should be divided as soon as convenient among the testator’s wife and children in kind, and that until such division should be made the defendant, as trustee, should account for the income. Item five provides that the share going to George A. Cornet, both of real and personal property, shall be placed in the hands of defendant, in trust for the benefit of said George A. Cornet, “to manage such trust fund, and to make the same productive in such manner as he may deem most safe and advantageous, and the income thereof, after deducting the necessary expenses and a reasonable compensation for his services, to either pay over to the said George A. Cornet in quarterly installments, or at his, said trustee’s option, to lay it out in such manner as he deem most beneficial to said George A. Cornet, and after the decease of George A. Cornet, said trust fund shall go to his heirs in law and thereupon the trust shall cease.”

This last item, it will be seen, covers the entire subject of the compensation of the trustee for the management of both real and personal property. The testator was careful to provide that both his expenses and compensation were to be deducted from each quarterly installment of the income as it should be paid, and was equally careful to omit that requirement in providing that upon the decease of the beneficiary the corpus of the estate should go to his heirs. It was his evident intention plainly expressed, that all expenses of administration of the trust should be paid from the income as it proceeded, and that the body of the fund should be kept intact. The same language refers as well to the real as to the personal estate, and leaves no. room to doubt the intention of the testator to apply the same rule of compensation to both. We must assume that the testator was aware of the legal right of the executors to a commission on the amount of the entire personal estate that went into their hands, and in the light of such knowledge the scheme of compensation which he provided seems to us to have been an intelligent and practical one; but should we construe the will to permit ns to allow the trustee, under proper circumstances, a commission upon and to be paid out of the body of the estate, we would still have to consider the right of defendant, under the circumstances of this case, to appeal to our discretion for that purpose. We have held, and the trial court has adjudged at our direction, that the defendant has been guilty of misconduct in relation to his trust. This misconduct has not been of the kind which proceeds from honest ignorance and manifests itself in an endeavor to protect the interest of his beneficiary. It proceeded rather from a desire to use the influence of his fiduciary relation that he himself might ultimately profit by the wrong. Instead of welcoming the interposition of a court of equity to guide him in his duty, he actively and vigorously opposed the interest of his beneficiary by asserting an adverse claim of his- own, and sought vigorously to impose- the expenses of the litigation which ensued wholly upon his beneficiary. The court, under such circumstances, could not rest upon a mere direction as to his future course, or stop at a mere rebuke, but removed him from his trust for a wrong already done, and placed in the hands of a disinterested trustee the fund he is now asking to deplete to the extent of a sum for compensation which he could only have earned by fidelity to his trust. The true rule in such cases is stated by Perry as follows: “If they are guilty of any breach of trust, or of any vexatious or improper conduct, the courts can withhold all compensation, or they can allow such compensation as will pay for the value of their services so far as they have been beneficial to the estates.” [Perry on Trusts (6 Ed.), sec. 919.] The same rule is expressed by Beach in his Commentaries on the Law of'Trusts and Trustees, sec. 737, as follows: “It is well established that a trustee is entitled to compensation only as he has faithfully discharged the duties of his trust. Where there has been a partial performance of duty that has been of value to the estate and a partial failure to execute the trust in a bona fide manner, he may be allowed a partial compensation. The court will decree such compensation as, in view of all the circumstances, it shall deem just and proper.” This is unquestionably the law of this State.

In this case a long and arduous litigation has been necessary to preserve and protect the rights of the beneficiary with reference to the matters involved in the trust, and we can do no less than to see that the corpus of the fund remains intact as the foundation of a more satisfactory administration. The item of compén- ¡ sation at the rate of two and a half per cent on the / corpus of the estate, amounting to $426.18, will there-/ fore be disallowed.

On Income. VIII. With the fund restored to a productive condition as we have indicated, we see no reason why the defendant should not be allowed compensation at the rate of five per cent on the gross amount of the income during the period of his administration, ancj action of the trial court in the allowance of this item amounting to $773.56 is approved.

Conversion: Penalty. IX. During the entire time the defendant acted as trustee of this fund he was the senior member of the firm of Cornet & Zeibig, real estate dealers and loan brokers, and ;the uninvested funds of this estate were deposited in Tbank in the general checking account of the firm. The undisputed evidence shows that the credit balance of this account was always in excess of the amount of uninvested funds of the estate. During the ■

last five years of the administration the bank paid the firm two per cent interest on its monthly balances. The plaintiff, contends that this amounted to a conversion of the trust fund and that the trustee should be charged compound or at least simple interest at the rate of six per cent per annum on these balances. This contention was disallowed, and the court allowed the interest actually received.

This question should he considered in connection with the finding of the referee, in which, after a careful examination of the evidence, we concur, that the trustee used reasonable care to keep the fund invested, and that it had not been used by the firm for its own profit otherwise than by the payment of interest on bank balances as above stated: We do not see how the trust fund lost anything by this practice! We are satisfied that the trustee was not guilty of the wilful violation of the general rule forbidding the mingling of the trust funds with his own. He was, we' believe, simply ignorant that such rule existed. The imposition of a penalty on that account would necessarily be purely punitive, and not in any sense compensatory. This would be no less true because the penalty would inure to the beneficiary. While it would be our duty not only to compel the restoration of anything .that might appear to have been lost by this practice but also to protect the beneficiary against possible wrong which might have been concealed by it, yet when punishment alone is involved our discretion should be used to avoid unnecessary hardship. The master was correct in his recommendation in this respect and the action of the court in confirming it is approved.

Loaning 'Funds to Trustee’s Corporation. X. Cornet & Zeibig for the convenience of their business organized a corporation called the Standard Realty Company, of which they were the stockholders, having equal interests, for the purpose of dealing in real • estate. The defendant made three loans to this concern, aggregating in amount $8300 at five-and-a-half and six per cent interest. These were renewed from time to time and were finally paid off and the money otherwise invested. We assume that the interest was paid regularly and distributed as other income. No commission was paid to defendant or to Cornet & Zeibig on these loans, although it was usual for brokers placing the money of their customers in that class of securities to charge and receive a commission for their'services of two and one-half per cent for original loans and one per cent for renewals, from the borrower. This, however, was not a fixed rate, for, when the borrower refused to pay it the broker would take what he could get, sometimes as little as one per cent. This commission was not, of course, a necessary appendage to loans made without the intervention of a broker. That real estate loans form the most unquestionable of investments for trust funds is vigorously asserted by the plaintiffs .throughout their brief. That these loans were perfectly secured and bore the highest rate of interest ordinarily obtainable for money in like amounts similarly secured is not denied. The plaintiff insists, however, that the transactions were equivalent to the use of the money by the trustee in his own business, which is contrary, to the policy of the law, and ought never to be permitted with impunity; that if he does so he is accountable for any profits he may make, however great they may be, and that if he does not show the profit derived from such use, compound interest will be charged against him in order that it may be certain that the cestui que trust loses none of the profits of the transaction which the law can give him. [Bobb v. Bobb, 89 Mo. 411.]

As an abstract proposition this is a fair statement of the law, but it needs much trimming to fit it accurately to the proposition before us. The money was not used by the defendant, but was loaned to a corporation having a distinct entity both in fact and in law. Were the rule inflexibly applicable to such a case the loaning of trust money to a corporation in which the trustee owned a single share of stock would, however profitable and advantageous to the estate, subject him to all the pains and penalties attached to a wilful breach of trust. The personal credit of the trustee has nothing to do with the security, for the corporate entity is hedged about by the law of its creation with a credit founded upon its own capital, and the landed security is all that would be exacted from a stranger. Although • the situation- might, like most other innocent circumstances, be used to cloak a fraud, it does not intrinsically differ from the purchase of the bond of a railway company in which the trustee is a stockholder. If there is fraud, it is in the substance of the transaction rather than in its form. There is nothing in this record tending to show that this corporation was not honestly organized for the transaction of general business under its charter, and without reference to the use of this fund. Taking this view of it we find that the investments were good ones, founded upon the very class of security that the .plaintiff prefers, and bearing interest at a rate satisfactory to all. We see no reason why it should be disturbed.

The plaintiff also contends that the trustee should be charged with a reasonable commission upon each of these loans and its renewals. We see no reason why this should be done that does not inhere in every transaction in which the trustee goes directly to the borrower to make a loan without the intervention of a broker. No broker seems to have intervened in this case, although the transaction, like all other transactions involving the trust fund, was entered upon the books of Cornet & Zeibig, where all accounts relating to the fund were kept. The point is a shadowy one and, in our opinion, without merit.

Loans? '"9 XI. Cornet & Zeibig made certain other real estate loans from this fund for which they received commissions amounting to '$298.75. The plaintiff contends that these commissions should be charged to the trustee on the theory that he is bound to account for all profit realized from the trust estate. On the other hand the defendant contends that these commissions were legitimate expenses incurred in the administration of the estate, for which the trustee should have credit. The master found as follows: “Your special commissioner finds that the trustee received one-half of these commissions in the distribution of the profits of the firm of Cornet & Zeibig, and that he is not entitled thereto and should be excluded therefrom, but that he is entitled to credit in his accounting to the other half thereof which Zeibig received for his services, amounting to $149.38.” Both parties have assigned error upon the confirmation of this item in the master’s report. While the amount involved might, in comparison with other issues, be characterized as insignificant, yet the question is an important one and deserves careful treatment. ,

The special master bases his action upon the ease of Gamble v. Gibson, 59 Mo. 585, l. c. 593, from which he quotes as follows: “He [an executor] may employ the services of an agent or attorney, if necessary, and pay for them out of the estate, hut if he undertakes to act in such capacity himself for the estate he can receive no compensation. • The rule is so strict that it has been held that if the trustee has a partner, and employs such partner, no charge can be made by the firm. [Authorities cited.] But if the trustee is excluded from all participation in the compensation, then his partner may be paid for services like any other person.” We are unable to concur in the reasoning by which the learned master arrives at his conclusion. Without questioning the statement quoted from Gamble v. Gibson, supra, intimating that if the trustee has a partner he may be employed for compensation to render services included in the duties of the trustee, we merely suggest that the question was not then before the court as it was in Condict v. Flower, 47 Mo. App. 514, in which a different conclusion seems to have been stated. This case must, however, stand upon its own facts. Cornet & Zeibig were loan brokers. These services were performed in the regular course of its business. It does not appear that Zeibig had any personal connection with the transaction, while it did come directly within the duty of Mr. Cornet as trustee. It does not matter 'what settlement they made as to the division of the amount received from the trust fund in payments of this commission. We have no power to so revise the partnership contract between them that when one-half this fee must be refunded one of the partners must be excluded from participation in the- remainder.

This view does not, however, reach the real question at' issue, which is whether or not under the will which provides only for the payment of actual expenses and reasonable compensation, the trustee is entitled to this or any other sum in addition to the commission of five per cent upon the gross income, which should include these commissions, for making and renewing these particular loans. The value of the services has been fixed by contract as between the trustee and the borrower, but not as between him and his beneficiary, and we see no reason why these particular investments should be made the basis for special compensation to the trustee in addition to the five per cent allowed upon the gross income. It stands upon the same footing, in that respect, as all" other loans.

For the reasons stated the judgment of the circuit court is reversed and the cause remanded with directions to proceed to final judgment in accordance with the conclusions stated in this opinion,

Railey, G., concurs. PER CURIAM:

The foregoing opinion of Brown, C., is adopted as the opinion of the court.

All of the judges concur.