Appeal, No. 421 | Pa. | Oct 11, 1897
Opinion by
In the case of Webb’s Appeal, 165 Pa. 330" court="Pa." date_filed="1895-01-07" href="https://app.midpage.ai/document/estate-of-webb-6242643?utm_source=webapp" opinion_id="6242643">165 Pa. 330, we reviewed at some length the law as to the liability of trustees to be surcharged for loss arising from alleged negligence or fault in the administration of their trust estates. It ought not to be necessary to restate the law on this subject, as it prevails in Pennsylvania, because it is so perfectly well settled and so entirely free from doubt. But as we are not able to reconcile the decision of the present contention with the law as we understand it, we will be obliged to make reference to some at least of the principal cases. In one of the earliest of these, Calhoun’s Estate, 6 W. 185, the general doctrine was stated in reference to all classes of trustees, in these words, “ Executors and administrators or trustees, acting with good faith and without any wilful default or fraud, will not be responsible for any loss that may arise. All that a court of equity requires is common skill, common prudence and common caution. Executors, administrators or guardians are not liable beyond what they actually receive, unless in case of gross negligence; for when they act as others do with their own goods, and with good faith, and are not guilty of gross negligence, they are not liable. ... A court of equity, as is said in Thompson v. Brown, always treated trustees acting in good faith with great tenderness. In Knight v. The Earl of Plimouth, 3 Atk. 480 ; Dickens 120, Lord Hard-wick observes if there was no mala ñdes, nothing wilful in the conduct of the trustee, the court will always favor him. For as a trust is an affair necessary in the concerns between man and man, and which if faithfully discharged is attended with no small degree of trouble and anxiety, it is an act of great kindness in any one to accept it. To add hazard or risk to that trouble, and to subject a trustee to losses which he could not foresee, would be a manifest hardship, and would be deterring every one from accepting so necessary an office.”
In Pleasants’ Appeal, 77 Pa. 356" court="Pa." date_filed="1875-05-10" href="https://app.midpage.ai/document/pleasants-appeal-6234929?utm_source=webapp" opinion_id="6234929">77 Pa. 356, the executors were authorized to invest “ in some safe and productive stock.” They invested in the stock of the bank of the United States. We said: “ Under the powers given to the executors to invest, and an honest exercise of that power, we think it would be a very harsh application of law to their sound discretion, after this lapse of time, to hold the executors personally liable for the loss of the bank stock. They should nót be held responsible for not possessing a knowledge, and not exercising a forethought, superior to the great body of intelligent and prudent business men.” In that case the bank failed about a year after the investment, but we held that there was no liability for the loss, because the investment was apparently good when it was made. In Cridland’s Estate, 132 Pa. 479" court="Pa." date_filed="1890-02-24" href="https://app.midpage.ai/document/estate-of-cridland-6239803?utm_source=webapp" opinion_id="6239803">132 Pa. 479, we sustained the adjudication of the orphans’ court for the reasons stated in the opinion, among which was the following: “A trustee is not required to be infallible in his judgment nor to possess the power of anticipating events not generally looked for. Common prudence and common skill are all that is demanded, and if these are exercised, a loss arising must be borne by the estate which the testator, who is supposed to have contemplated such risks, has thought proper to confide to his care.” We have held in a number of cases that an administrator is not chargeable with the consequences of a disastrous exercise of discretion, unless accompanied with such negligence as raises a presumption of wilful default: Dillebaugh’s Est., 4 W. 177; Hughes’ Appeal, 53 Pa. 500" court="Pa." date_filed="1867-01-14" href="https://app.midpage.ai/document/hughes-minors-appeal-6232859?utm_source=webapp" opinion_id="6232859">53 Pa. 500; Neff’s Appeal, 57 Pa. 91" court="Pa." date_filed="1868-01-23" href="https://app.midpage.ai/document/neffs-appeal-6233146?utm_source=webapp" opinion_id="6233146">57 Pa. 91; Derbyshire’s Est., 81 Pa. 18" court="Pa." date_filed="1876-01-31" href="https://app.midpage.ai/document/derbyshires-estate-6235203?utm_source=webapp" opinion_id="6235203">81 Pa. 18.
The assignments of error practically raise two questions of surcharge and one of costs. The first question of surcharge relates to the Birkbeck stock. The testator at the time of his death owned 1,600 shares of the stock of a corporation called John Birkbeck Co., Limited, whose business was the boiling of molasses for the manufacture of sugar. B. H. Bartol, the decedent, and John Birkbeck, each, owned one half of the stock and carried on the business with much success. Both the partners died within a short time of each other and a reorganization became necessary. As each of the deceased parties owned exactly one half of the stock, it was deemed highly desirable by the accountants, trustees for George E. Bartol and his children, under the will, to preserve the equality of ownership and run no risk of disadvantage arising from a possible acquisition of a majority of the stock by the other parties in interest. In the distribution of the estate' among the six parties entitled, one sixth, 266 shares, of this stock was taken for the trust estate of George E. Bartol, and these shares were subsequently held as a part of the trust estate. The business had been, and still was, very largely profitable, and heavy dividends were constantly earned and paid until the passage of the tariff bill of 1892, after which the profits were so seriously affected that the business was closed out. In the liquidation which followed there was a loss of $1,583.20 upon the stock held as a part of the trust, and for this the accountants claimed credit in their account. The auditor refused the credit on the ground that the accountants had an opportunity to sell the stock to the cestui que trust for its full appraised value, $8,333.33, and declined to do so, and thus lost on the liquidation the sum of $1,583.20, which the stock realized less than its appraised value. This appraised value was twenty-five per cent in advance of its par value, and was made because of the large profits which had been realized from the business. The court below did not sustain the auditor in his reasoning for the surcharging of the accountants, but held that George E. Bartol should sustain the loss personally, and therefore the accountants, while being
We think the learned court below fell into error in this view of the subject by failing to regard one of the provisions of the will. That provision is in the following words, “ It is my will that my executors hereinafter named and my said trustees may in their discretion, if they deem it for the benefit of the estate, retain in their hands as assets any investments which I may have and possess at the time of my death, without liability in case of depreciation or loss, and that they shall' not invest the funds in their hands in coupon bonds of any kind, and that all investments made by them shall stand in the names of all of them.” As the testator expressly directed that the trustees as well as the executors might, in their discretion, retain any of the testator’s investments without liability for loss from so doing, they certainly cannot be held liable for doing what they were explicitly authorized to do, without violating a positive provision of the will. We do not regard either the reason given by the auditor or that given by the court as sufficient to warrant the surcharge in question, and therefore sustain the first seven assignments of error.
The second item of surcharge is the loss occasioned by the depreciation in price of the bonds of the Union Railway Company of Chattanooga, $5,360.30. This was an investment of trust funds made by the trustees in the fall of 1890 to the extent of $7,000. There had been an investment of $10,000 in these bonds made by the executors in May, 1888 after a very thorough investigation of the condition and affairs of that company, George E. Bartol himself participating in the transaction. The latter represented to the executors that his father had agreed to buy $5,000 of these bonds but became sick before he
In 1890 the road had been extended eleven miles, making forty-one miles in all, with a total bonded debt of only $600,000, of which the investment now in question was a part of the second $100,000 issued. There is very much of this testimony which it is not necessary to review in detail because the decision of the court below does not turn upon that question. The learned court was of opinion that the investment was unauthorized, and therefore the trustees were liable to make good the loss which subsequently resulted. The clause of the will upon which this question turns is in the following words : “ It is my will that my trustees may sell any of my investments, and may sell and resell any investments which they themselves may make, when and as often as they may deem it advisable, and further, that they shall have the right to invest and reinvest the
It will be observed at once that the authority to make investments conferred upon these trustees is very broad and complete, and it was intended and expressly declared to be in excess of the authority conferred by law. The investment, therefore, now in question, is not to be governed .either by the limitations imposed by the Pennsylvania statute, or by any other test than that which is exacted by the will. Viewed by this alone we have only to inquire whether the authority conferred by this will was transcended when these trustees purchased the bonds now under consideration. It is not at all disputed that they are mortgage bonds of a railroad company. It cannot be controverted that at the time of the investment the bonds were those of a company which was earning and paying interest upon its entire bonded debt, because in each of the three years preceding, and including the one, 1890, when the bonds were bought, the company not only earned interest on its entire bonded debt, but there was a remaining surplus over and above the interest. This was positively proved and not contradicted. Thus by the testimony of the appellee, O’Brien’s report, it was proved that in the year 1888 there was a surplus of earnings, after all interest was paid, of $9,161. For 1889 the surplus was $5,117, and for 1890 it was $708. In the nine months of the year 1887 ending December 31, 1887, the surplus was $10,395.03.
So far therefore, as this requirement of the will is concerned, the investment in these bonds was strictly within its terms. Both the. auditor and the court below held that the road was not finished when the investment was made, and for that reason surcharged the accountants as to this item. The reasoning adopted by both seems to be that, because in June, 1888 it was
It is matter of public history that all the large railroads of the country are constantly making additions and extensions of their tracks and also increasing their equipment. To hold that such roads must be regarded as unfinished for that reason, would be to antagonize the common sense convictions of the whole business world, and would not be in accord with any legal principles or rulings of which we are advised. We aré constrained to differ with the auditor and the court below on this subject, and must hold as we do that this road was a finished road when the present investment was made. This being so, the purchase of the bonds was entirely within the authority conferred by the will of the testator, and the trustees cannot be- held liable for the subsequent depreciation in the price of the bonds. It must be conceded under the evidence that the trustees used all the care that a person of ordinary care and prudence would use in determining upon an investment of its personal funds. They
The point that these were second mortgage bonds and therefore not first class is not well taken. The will did not restrict the trustees to first mortgage bonds, and it does not at all follow that a second mortgage bond may not be a first class security. In this case the first lien was a mortgage for only $100,000, a most remarkably small charge upon a railroad of thirty miles in length. But the second mortgage was given for $200,000, for the very purpose of raising a fund to pay off the first mortgage bonds, and the whole increase of the debt was but $100,000, and the mortgage was a consolidated mortgage for the security of the whole $200,000, which also was a very small lien upon a road of the length that this was. The propriety of the investment must be judged as it was at the time it was made, and not as viewed in the light of subsequent facts. Of course these trustees could not foresee that a trolley road would be built through the same town, which would largely impair the business of this road, and they are not responsible for not possessing the quality of prevision which would anticipate such a result. All the authorities are to this effect. The testator’s investments which were very large and greatly diversified, contained a large number of consolidated bonds, the object of which was to absorb bonds of prior issue, and they were made without loss. There was no question as to the entire good faith and integrity of the trustees and to their good business qualifications. The auditor and the court below found, and declared repeatedly, that they were without exception in these respects. Upon the whole case we are decidedly of opinion that neither of the surcharges can be sustained, and we therefore reverse the ruling of the court below. The assignments of error are all sustained. In our judgment there was no legitimate reason for imposing any part of the costs of the audit upon the trustees, and we therefore sustain the fourteenth assignment.
The decree of the court below is reversed at the cost of the appellee, and the record is remitted with instructions to correct the decree in accordance with tins opinion.