Graham's Estate

218 Pa. 344 | Pa. | 1907

Opinion by

Mr. Justice Stewart,

David Graham died in Philadelphia on September 21, 1871, leaving a last will which was proved September 30, 1871. Letters testamentary were granted to David Young, David Graham, Jr., and Theodore R. Graham, the executors named in the will. The testator was survived by his seven children. The will, after directing the payment of his debts and a small annuity, gave the residue of the estate, real and personal, to the executors and trustees and the survivor of them, in trust to collect the rents and interest therefrom and pay the net income to his seven children in equal shares. Upon the decease of any or all of testator’s children, leaving lawful issue, the will gave to such issue, upon their respectively arriving at lawful age, such share as they respectively would be entitled to under the intestate laws. The estate given to the issue of a deceased child was to be held in trust, and the income appropriated to the support and education of such issue during minority. The executors and trustees were authorized to sell and convey all or any part of the estate whenever in their judgment it would be for the benefit of the estate, and directed to invest the proceeds in first bonds and mortgages of the United States, or State of Pennsylvania, or Philadelphia. On October 30, 1871, the executors filed an inventory and appraisement of the estate, consisting of household furniture, mortgages, stocks, bonds and good loans, amounting in the aggregate to $246,501.40. David Graham, Jr., one of the exucutors, died July 4, 1886; David Young, another of the executors, died October 4, 1890; Theodore R. Graham, the remaining executor, was dismissed from his office as executor on May 13, 1896. None of the executors ever filed.an account. On May 14, 1896, letters of administration d. b. n. c. t. a. on David Graham’s estate were granted to the Commonwealth Title Insurance and. Trust Company. In August, 1896, and February, 1897, petitions were filed by the administrator and certain legatees for a citation on the executors of David Graham, Jr., and David Young, to file accounts for their respective decedents as executors of David Graham, deceased. The proceedings on these petitions were without result.

Theodore R. Graham, surviving executor, failed to. file an account, and on December 2, 1896, the court appointed an auditor to take proof and state an account for him as executor. On January 18, 1902, the report of the auditor was confirmed showing a balance due from the executor to the estate of $149,675.51.

On May 27, 1902, the administrator and certain legatees again presented a petition asking for a citation on the executors of David Graham, Jr., deceased, and of David Young, deceased, to file accounts of their decedents as executors of David Graham, deceased. From the grant of.letters testamentary, September 30,1871, to the time of the death of David Graham, Jr., and David Young, respectively, it was alleged in the petition that the executors and trustees had been guilty of the grossest mismanagement and direct violation of their duties, and “ were supinely negligent of their duties in failing to inquire as to the assets or securities, the investments or reinvestments of the estate; in putting it in the power of their coexecutor and trustee to embezzle and defraud, and in the culpable omission of every duty which the acceptance of the trust demanded.” It was further averred in the petition, that the embezzlements from the estate began within three years of the assumption of the trust by the executors and trustees, and in 1890, at the death of David Young, had reached the amount of $140,000. Answers to the petition were filed by the executors of Graham and Young respectively, denying the allegations of mismanagement and embezzlement, admitting that Graham and Young had not filed accounts as executors of David Graham’s estate, and alleging that the respondents were without information of the condition, conduct or management of the estate of David Graham, deceased, prior to the death of David Graham, Jr., and David Young. The answers averred that Young and Graham, as executors and trustees, never had any of the funds or assets or any of the accounts of the estate of their testator in their possession or. control, and that more than thirty-one years had elapsed since the granting of letters testamentary in the estate, and praying that the petition be dismissed. Testimony was taken, and the court after a hearing on the petition, answer and testimony, appointed an auditor to state an account for David Young and David Graham as executors and trustees of David Graham, deceased. The auditor’s report was finally confirmed July 17, 1906. The auditor found due from the estate of David Graham, Jr., $175,637.49, and from the estate of David Young, $216,107.66, and both sums he awarded to the Commonwealth Title Insurance and Trust Company as administrator. The court entered a decree confirming the auditor’s report, and from that decree the executors of David Graham, Jr., deceased, and of David Young, deceased, have appealed.

The appellants deny the authority of the court, under the circumstances, to compel the representatives of the deceased executors to file an account; they allege that the auditor erred in not stating the account of all three of the executors to July 4, 1886, the date of David Graham’s death, and the account of the two surviving executors from that date to October 4, 1890, when Young died; that the auditor erred in charging each of the executors of David Graham, Jr., and of David Young with interest covering the same period; that the auditor erred in not requiring the interest payable to Theodore R. Graham, the defaulting executor and trustee, to be withheld from him or his assigns and applied to the payment of his indebtedness to the estate; and that the auditor erred in holding that there was any balance of principal unaccounted for by either David Graham, Jr., or David Young. The appellants further alleged that there is error in the order made by the court to pay the amounts found to be due from the deceased executor.

We have here two appeals, with the same facts presented in each. For purpose of discussion they may be considered together.

From the state of facts above made these conclusions result:

1. Upon the death of David Graham, Jr., in 1886, the entire control and management of the trust estate devolved upon the surviving trustees. The estate of David Graham, Jr., was at law discharged from liability in connection with the trust, except at the suit of the surviving trustees. They, and they alone, had the right to compel an accounting by David Graham’s legal representatives for such part of the trust estate as was in the hands of David Graham, Jr., at the time of his death ; they were the only parties entitled to receive, and, therefore, the only parties to make demand. Not only does the presumption obtain that David Graham, Jr., at the time of his death owed nothing to the trust fund, from the fact that the surviving trustees upon whom the law then cast the liability never made any claim or demand upon his estate, but it is an admitted fact in the case that he owed nothing, no part of the trust funds having been received by him.

2. Upon the death of David Young in 1890, the entire control and management of the trust estate devolved upon Theodore R. Graham, the sole surviving trustee. David Young’s estate was then at law discharged from liability in connection with the trust, except at the suit of the surviving trustee. As in the case of David Graham, Jr., not only does the presumption that David Young owed nothing to the trust estate obtain, from the fact that the surviving trustee, upon whom the law then cast the entire liability, never made any claim or demand upon his estate, but here again it is admitted that no portion of the trust estate passed into his hands.

3. Presumably the entire estate after the death of David Young was intact in the hands of Theodore R. Graham, and so continued until his discharge in 1896. Certainly this was the measure of his liability. “ Upon the death of one of the original trustees the whole estate, whether real or personal, devolves upon the survivors, and so on until the last survivor ; and upon the death of the last survivor, if he has made no disposition of the estate by will or otherwise, it devolves upon his heirs, if real estate, and upon his executors or administrators if it is personal estate. The title in the surviving trustee is complete, and no breach of trust after the death of his co-trustees can be charged upon their estate, nor can the representatives of his cotrustee interfere with his management of the trust estate, even if he is insolvent or unfit for the trust: ” Perry on Trusts, sec. 343.

4. While the death of David Graham, Jr., and David Young operated at law to discharge from liability their respective estates, a liability in equity at once attached, available to the parties directly in interest: Hengst’s Appeal, 24 Pa. 413; Young’s Appeal, 99 Pa. 74; Fesmire’s Estate, 134 Pa. 67. The fact that neither had ever received any money of the estate, would be a sufficient answer to any demand upon their personal representatives by the surviving trustees; but such fact would not exempt their estate from liability to-the parties in interest, if it was through neglect of duty on their' part that no funds came into their hands, and loss had befallen the estate in consequence. The effort here is to fasten an equitable liability on the estates of David Graham, Jr., and David Young for a devastavit committed by Theodore Graham. If such devistavit would not have occurred except for neglect of duty on the part of the cotrustees, the estate of the latter ought in equity to make good the loss whatever it be. Any inquiry must begin with the fact of a devastavit committed by Theodore Graham, and by him alone of all the trustees; but the very first thing to be determined is when the devistavit occurred. It is not a question of joint liability for trust funds, or whether all, so long as they were alive, participated in the management of the trust. Joint liability may be admitted up to the death of Graham and Young, but both died owing the trust nothing, and they were not sureties for the surviving trustee. What was the condition of the trust estate when Young died? Was it intact in the hands of the surviving trustee? If so, of what use carl it be to inquire whether the other trustees were negligent in permitting Theodore R. Graham to have exclusive control of the funds ? The law takes no account of neglect except as loss results. What difference can it make that no account had been filed ? It was, of course, gross neglect of duty not to file an account; but if, notwithstanding, the fund was intact when Young died, his default in this regard came to nothing. Until it be made to appear that the diversion and waste of the fund occurred prior to the death of Young, inquiry as to the methods observed by the trustees in the management of the funds can avail nothing. Were it ascertained as a fact that before the death of Young funds belonging to the estate had been misapplied by Theodore Graham, two inquiries would then follow; first, what was the amount misapplied or diverted and lost, and second, how much of this misappropriation ought Young’s estate, from equitable considerations, make good ? The distinction between the legal and equitable liability is here to be closely observed. For the misapplication of funds by one of three trustees, the other two are not liable until it be first shown that it has occurred through some default of theirs. Each trustee has an equal right with the others with respect to the custody of the funds, so that, with the fact determined that a devastavit by Theodore R. Graham in the lifetime of Young occurred, and the amount of loss, the question would still remain, for how much of it ought Young’s estate in good conscience and equity be held liable ? It may have come about through different transactions at different times, some of which Young, by proper care and vigilance, could have prevented, while with respect to others he would have been powerless to interfere. A specific finding of facts would be required to determine the amount of liability.

5. Now, applying these general principles, we have here an account stated by an auditor charging the estate of David Graham, deceased, with $175,637.49, the entire value of the trust estate at the time of his death; and an account charging the estate of David Young with $216,107.66, the entire value of the estate at the time of his death. Since it is an established fact that not a dollar of the trust passed into the estates of either Graham or Young, these charges to have any warrant at all must rest upon some equitable considerations sufficient to move the conscience of a chancellor. Did the insolvency of Theodore R. Graham occur during the lifetime of either David Graham, Jr., or David Young? Not only is there no such finding, but, so far as we can see, there is no evidence upon which an affirmative finding of such fact could rest. Even were it otherwise, without more, it would not warrant a charge against Graham and Young for the entire estate. "What was their negligence in the matter that occasioned or contributed to the loss ? The question is not what was their neglect of duty generally, but how did their failure to do anything that duty required of them produce the result to the estate ? Did either know or have reason to know that his co-trustee, who was as much entitled to the custody of the funds as himself, was insolvent or likely to become so ? When did either of them ascertain it, or when in the exercise of prudence should he have ascertained it ? Their responsibility and accountability would begin only when their prudence failed; for what occurred before, they were not liable. We have searched through the findings of the auditor, and indeed through the whole record for that matter, without finding any light on these most material questions. The only finding by the auditor that has any bearing on the question is his 26th, which, so far as it goes, is distinctly adverse to the contention of the appellees. The auditor finds that: “ during the entire period of his connection with the said firm ” (which continued for years after the death of David Young), “Theodore R. Graham had the confidence of his employers and copartners and no one, so far as the evidence discloses, questioned his honesty or financial responsibility in any way.” If we look into the evidence we find nothing there on the subject, except the testimony of Mr. Field, the business partner of both Theodore R. Graham and David Young, and the only inference to be derived from his testimony is, that Theodore R. Graham’s insolvency did not occur until long after David Young’s death. He testified, among other things, that up until this later period his integrity had never been questioned. The effort before the auditor was to show a joint liability resulting from the participation of all in the business of the trust; and from an affirmative finding here, it seems to have been assumed that liability of the estates of the deceased trustees resulted as matter of law. But as we have said, this is aside from the issue; joint liability up to the period of death is a conceded fact; but after that joint liability ceased; and if Graham and Young’s estates are to be held, it must be solely because of misconduct or neglect. It may be that this entire loss has resulted from their failure to do their duties as trustees, but there is no evidence of such fact and the law will not presume it.

The contention of the appellees is, that Theodore R. Graham began to misapply the funds immediately upon his' appointment, and that he continued so doing until the sum total of the misappropriation at the time of the death, of Young amounted to $87,725. The assertion has nothing to support it, except the fact that during all this period Theodore R. Graham, as trustee, had been from time to time, with the assent and co-operation of his cotrastees, converting certain securities and receiving into his hands the money therefor, until the total so received amounted to the sum stated. There is no evidence whatever that he misapplied or wasted a dollar of it before Young’s death. Suppose it was negligence in his co-trustees to permit this accumulation of money in his hands, how could such negligence have occasioned the loss if his devastavit occurred at a latter period, when by operation of law, and not by consent of his cotrustees, he was invested with control of the entire estate? As trustee he had a right to receive this money with the assent of his cotrustees, and its- mere receipt with their acquiescence gives rise to no inference of any dolus mal us on their part, or malfeasance on his.

In view of our conclusions the other questions so elaborately argued as to the effect of the lapse of time upon the right to demand an accounting, and the power of the court to decree a payment of the balance found due on the accounts directly to the successor in the trust, need not be considered. We rest our determination in the case wholly upon the ground that the record discloses nothing which in equity and good conscience requires an accounting by either estate here involved. Whether upon the showing made before the lower court, there was sufficient to call for the appointment of an auditor to state these accounts, we need not decide. It is enough to know that from the facts found by the auditor no liability to account results. The effect of our ruling will be to terminate the proceeding.

The exceptions, so far as they question the sufficiency of the findings of the auditor for the accounts stated by him against these several estates, and the decree of the court confirming the same are sustained. The decree is reversed.