In Re Trusteeship Under Will of Jones
“The trustee shall invest and reinvest all principal cash in the trust fund in first mortgages on improved real estate, in municipal or corporation bonds or in any other form of income bearing property, except real estate, but in selecting such investments, the trustee shall exercise its judgment and shall have first regard for the safety of the principal of the trust rather than for a high rate of income.
“The trustee shall be under no obligation to change the investments which come into its hands from my estate, on account of the character thereof, but only when it deems it advisable to do so because of changing conditions and after careful investigation and consideration.”
The court below held that the trustee was not authorized by the terms of the trust to invest trust funds in corporate stocks and decreed that the words ” ‘first mortgages on improved real estate, in municipal or corporation bonds or in any other form of income bearing property, except real estate’ as such words are used in * * * of the last will and testament of Robert Fremont Jones, deceased, be and they hereby are construed as excluding corporate stocks. * * *” The beneficiaries of the trust appeal.
That the trustee may invest trust funds in corporate stocks is predicated upon the grounds (1) that the will creating the trust in the instant case, and (2) the statutes governing corporate trustees, authorize such investment.
1.
In construing the will the important thing is to ascertain the intention of the testator. All provisions should be harmonized and given meaning if possible. Authorization to invest in corporate bonds excludes other forms of corporate investment. The application of the rule of ejusdem generis would confine the expression “any other form of income bearing property” to property of the
2.
Even though the will impliedly excludes corporate stocks, it is contended that the will contains no specific directions as to investments in corporate stocks, and, that being true, the trustee must look to the statute for directions. The contention is that under the statute the trustee has discretionary power to so invest.
The statute,
Provisions which are mandatory in form are often held to be directory, and those which are directory in form are often held to be mandatory because such words as “may,” “shall,” “must,” and
A trust company is a financial corporation.
3.
The fact that §§ 7735 and 7714 are grants of corporate power is determinative not only of the powers and capacities granted to a corporate trustee, but also of those withheld and denied. In considering this aspect of the case, we lay aside entirely the fiduciary character of the powers granted. We consider only the question of power. Trust companies were authorized by
The controlling principle is that a corporation has only the powers and capacities expressly granted to it by law, or incidental to its existence or necessary to the exercise of its express powers. 2 Dunnell, Minn. Dig. (2 ed. Supps. 1932, 1934) § 1998; Rochester Ins. Co. v. Martin, 13 Minn. 54 (59); Bank of Augusta v. Earle, 13 Pet. 519, 587, 10 L. ed. 274; Central Transportation Co. v. Pullman‘s Palace Car Co. 139 U.S. 24, 11 S.Ct. 478, 35 L. ed. 55. Unlike an individual, it has no natural rights or capacities. 14A C. J. p. 246, § 2075, note 67. A natural person can do anything not forbidden by law. A corporation can do only what is expressly or impliedly authorized by its charter. 14a C. J. p. 249, note 74; 7 R.C.L. p. 538, § 521, note 2; New York F. Ins. Co. v. Ely, 5 Conn. 560, 13 Am. D. 100.
A trust company has only the powers which the statute grants. St. Paul Tr. Co. v. Strong, 85 Minn. 1, 88 N.W. 256; State v. Barnes, 108 Minn. 230, 122 N.W. 11; Shearer v. Barnes, 118 Minn. 179, 136 N.W. 861; Federal Land Bank v. Crookston Tr. Co. 180 Minn. 319, 230 N.W. 797; Bowden v. Citizens L. T. Co. 194 Minn. 113, 259 N.W. 815; Kavanaugh v. Commonwealth Tr. Co. 64 Misc. 303, 118 N.Y. S. 758; People v. Knapp, 147 App. Div. 436, 132 N.Y. S. 747; Perkins v. Fuquay, 106 Fla. 405, 143 So. 323. Where the grant of power prescribes the particular mode or manner of its exercise, the statute or charter is the enabling act not only in regard to the power conferred, but also as to the mode prescribed for exercising the power. Farmers & Mechanics’ Bank v. Baldwin, 23 Minn. 198, 23 Am. R. 683; 7 R.C.L. pp. 538, 539, § 521.
Chief Justice Marshall stated the rule in language which has been quoted many times in Head v. Providence Ins. Co. 2 Cranch, 127, 167, 2 L. ed. 229, as follows:
“Without ascribing to this body, which in its corporate capacity, is the mere creature of the act to which it owes its existence, all the qualities and disabilities annexed by the common law to ancient institutions of this sort, it may correctly be said to be precisely
what the incorporating act has made it, to derive all its powers from that act, and to be capable of exerting its faculties only in the manner which that act authorizes.”
A corporate trustee is required by statute to transact its business in conformity to the laws relating to trust companies.
If a corporation is authorized to invest in a particular manner, it must exercise the power of investment within the express terms of the authorization. St. Paul Tr. Co. v. Strong, supra; New York F. Ins. Co. v. Ely, 5 Conn. 560, 13 Am. D. 100; New York F. Ins. Co. v. Ely, 2 Cowen (N.Y.) 678; Pratt v. Short, 79 N.Y. 437, 35 Am. R. 531; Nassau Bank v. Jones, 95 N.Y. 115, 47 Am. R. 14.
The enumeration of the powers which a corporation may exercise excludes all other powers. Powers not conferred are withheld and denied just as much as if the legislature used express negative language for that purpose. Rochester Ins. Co. v. Martin, 13 Minn. 54 (59); Central Transportation Co. v. Pullman‘s Palace Car Co. 139 U.S. 24, 11 S.Ct. 478, 35 L. ed. 55. In St. Paul Tr. Co. v. Strong, supra, we definitely held that the enumeration of the investments which a corporate trustee may make excludes other investments. In Pratt v. Short, 79 N.Y. 437, 442, 35 Am. R. 531, decided in 1880, three years prior to the enactment of c. 107, the question was whether a safe deposit and savings institution, authorized to loan
The contention that the trustee may follow the statute at its option and in its discretion invest in securities not enumerated in the statute is equivalent to saying that a corporation possessing restricted power of investment may invest in any manner not expressly prohibited by its charter. This contention was effectually answered in New York F. Ins. Co. v. Ely, 5 Conn. 560, 572, 13 Am. D. 100, as “an inversion of the unquestionable principle, that such an incorporated company has no rights, except such as are specifically granted, or necessarily implied, and directly contravenes the undeniable position, that the act of incorporation is an enabling act; the law of its nature; giving it all the powers it possesses.” This principle has been applied commonly to banks. The rule is that a statutory enumeration of the powers which a banking corporation may exercise excludes all other modes of banking. 7 Am. Jur., Banks, § 157; People ex rel. Nelson v. Wiersema State Bank, 361 Ill. 75, 197 N.E. 537, 101 A.L.R. 501.
The principle that a corporation has only the powers granted to it, and that those powers must be exercised in the manner prescribed by the statutes conferring them, goes to the very power and capacity of the trustee to act at all. It is not a question of discretion, it is a question of power, and there can be no discretion where there is no power. To hold that a statute permitting a corporate trustee to invest only in authorized securities confers discretion such as is claimed here, it would be necessary to construe that a restricted power of investment is really an unlimited power of the same kind — that to restrict a power, by that very fact makes the power unrestricted. A corporate trustee, under the guise of exercising discretion as to the mode of investment, will not be permitted to take unto itself powers of investment withheld and impliedly denied and prohibited. Such a trustee must invest only in authorized securities as permitted by statute.
4.
The construction that a corporate trustee is limited, in the absence of express directions, to investments authorized by statute, is confirmed by the reënactment of the original statutes in substance and the enactment of other provisions supporting such an inference, in R. L. 1905. Although c. 107 was amended several times, § 9, subd. sixth, was carried forward through G. S. 1894 (§ 2849-sixth), unchanged until 1905. In the revision, the old statute (G. S. 1894, § 2844) enumerating the authorized investments for corporate trustees, was dropped entirely. A new section (R. L. 1905, § 3022) was adopted, providing a list of authorized securities for all cases under the revised laws. This was taken from a section of the old law which listed the investments of savings banks (G. S. 1894, § 2562, as amended), and provisions were inserted therein directing that savings banks shall and that corporate trustees may invest in such authorized securities. The mandatory “shall” is carried over from the old statutes relating to savings banks and hence is without significance so far as concerns corporate trustees. A new section (§ 3040) was adopted for corporate trustees in which the substance of the original statute,
The judicial construction of a statute becomes a part thereof as if it had been written into the statute originally. 6 Dunnell, Minn. Dig. (2 ed. Supp. 1937) § 8936b; Roos v. City of Mankato, 199 Minn. 284, 271 N.W. 582. The statute was reënacted with the known and settled construction which it had previously received so
In the rewriting and reënactment of the statutes governing financial corporations, a trust company is defined as: “a corporation under like [public] control, authorized, within prescribed limitations, to act as a safe deposit company, trustee or representative for or under any court, public or private corporation, or individual, and as surety or guarantor.” R. L. 1905, § 2967. The “prescribed limitations” here referred to are the enumerated powers of a corporate trustee and the restrictions upon the particular mode or manner in which they may be exercised. It includes the prescribed limitations on the power of investment.
The insertion of a provision that a corporate trustee may “in its discretion” retain any investment coming into its possession in any fiduciary capacity clearly indicates that the duty of a corporate trustee is otherwise to invest in authorized securities according to statute. In that sense the word “may” in § 7735 is mandatory and not directory. The use of express words to indicate the discretionary and optional nature of the power of retention was made necessary by the mandatory meaning of the word “may” in the other provisions and is in itself statutory recognition of the mandatory duty of corporate trustees to invest only as authorized by the statute.
R. L. 1905, § 3040, is the present § 7735; § 3022 has been rearranged and rewritten as the present § 7714. We do not deem it necessary to discuss § 7738 further because it relates simply to the investment of accumulations and not to the primary duty of trustees to invest. It is sufficient to say that under that section it is the duty of a corporate trustee to invest accumulations in authorized securities.
5.
The legislative history of this subject shows that it has been the policy of the statute to withhold from financial corporations the power to invest generally in corporate stocks. That power has never been given to trust companies. Only a restricted power to
The legislature has always recognized the rule that trust companies have no power to invest except as specially authorized by statute. At least 17 laws, of which 15 have been subsequent to the revision of 1905, have been passed by the legislature dealing with the subject of authorized securities.7 Most of these acts had to do with the enlargement of the list of authorized securities. It is inconceivable that the legislature would have asserted its power 17 times if that were unnecessary. It is absurd to require savings banks and corporate trustees to purchase authorized securities which comply with all the meticulous requirements of § 7714, as amended, and at the same time hold that they may in their discretion
The limited powers of corporate trustees has been recognized by other legislation. On at least two other occasions laws were passed which recognized the limited power of trust companies. Two years after
The generally accepted opinion and practical construction is that the power of investment of a corporate trustee, where the trust does not contain specific directions, does not include the right to invest trust funds in corporate stocks. This construction is in accord with our decision in St. Paul Trust Co. v. Strong, supra, and has long been accepted and acquiesced in with practical unanimity by the legislative and executive branches of the state government, the bar, and the public.8 There is a strong presumption that that which has never been done cannot by law be done at all. 6 Dunnell, Minn. Dig. (2 ed. Supps. 1932, 1934, 1937) § 8952.
6.
It is suggested that the court has the power to allow and ought to instruct the trustee to invest in corporate stocks. The
“In the creation of corporations of this quasi-public order and in keeping them thereafter within the limits of their charters, the state is parens patriae, acting in a spirit of benevolence for the welfare of its citizens. Shareholders and creditors have assumed a relation to the business in the belief that the assets will be protected by all the power of the government against use for other ends than those stated in the charter. Aside from the direct interest of the state in the preservation of agencies established for the common good, there is thus the duty of the parens patriae to keep faith with those who have put their trust in the parental power.”
Good faith requires that the trust be executed according to its terms — according to the statute. A statute is a command of the law, intended to be obeyed, else it would never have been enacted. Kipp v. Dawson, 31 Minn. 373, 17 N.W. 961, 18 N.W. 96. That judges may disregard a statute has been disavowed by our decisions that judges should obey and comply with statutes, whether directory or mandatory, relating to the performance of their duties. Vogle v. Grace, 5 Minn. 232 (294); Wenger v. Wenger, 200 Minn. 436, 274 N.W. 517. Even though a court might refuse to set aside an act after it has been performed, a court will not decree its performance if the law does not authorize it. In Case v. Kelly, 133 U.S. 21, 28, 10 S.Ct. 216, 220, 33 L. ed. 513, in denying the right of a receiver of a corporation to recover under an ultra vires contract,
“* * * it is very clear that it [the court] will not make itself the active agent in behalf of the company in violating the law and enabling the company to do that which the law forbids.”
In In re Muller‘s Will, 155 Misc. 748, 280 N.Y. S. 345, 349, the court said:
“Despite the broad jurisdiction over trusts now possessed by the Surrogate‘s Court, which is as comprehensive as that possessed by the former Chancellor, I know of no power in any court to disregard the command of the Legislature and to declare an investment to be lawful which the lawgivers have declared to be unlawful. Cruger v. Jones, 18 Barb. 467. If there are considerations which justify the change of the class of legal investments they should be addressed to the Legislature.”
Courts will direct trustees to do what the law itself directs.
7.
A national bank, when acting as a fiduciary, exercises the same powers as a corporate fiduciary organized under state law. The state law determines the extent of the powers of corporate fiduciaries whether organized under state or national law. National banks are authorized by
It has been suggested that national banks are authorized by the Federal Reserve Regulation,9 adopted pursuant to
The power of the board of governors of the Federal Reserve System to make regulations is, by the terms of
Our conclusion is that it is the duty of a corporate trustee, in the absence of directions in the trust instrument, to invest trust funds in authorized securities as directed by statute; that in this respect the statute is exclusive and mandatory; and that a corporate trustee does not have power to invest trust funds in corporate stocks in the absence of specific directions to do so in the instrument creating the trust.
We appreciate the able briefs of amici curiae filed at our request, which have been very helpful in the consideration of this case.
Affirmed.
MR. JUSTICE STONE, on account of illness, took no part in the consideration or decision of this case.
Notes
In 65 Trust Companies, p. 446 (Oct. 1937), Mr. Louis S. Headley, Vice-President of the First Trust Company of St. Paul, writes: “In Minnesota an authorized investment statute which has always been assumed to be mandatory, has been held by several lower courts to be merely permissive.”