Magwood v. Railroad Bank
5 S.C. 379
S.C.
1874
Check Treatment

The opinion of the Court was delivered by

Willard, A. J.

The leading question is, whether a corporation is liable to a cestui que trust under a trust of corporate stock declared on its books, where it transfers such stock upon the authority of a trustee without power to alienate or the consent of the cestui que trust.

The plaintiff, to maintain her judgment, must show that she has a remedy, either at law or in equity, against the defendants.

In equity the corporation is bound to protect the title of a cestui que trust, under a trust of its stock declared upon its books, against the exercise of powers forbidden by or inconsistent with the nature and terms of such trust.

It is not necessary here to affirm, as a general proposition, that, from the very nature of the legal relation subsisting between a corporation and its stockholder, a trust arises charging the corporation with the responsibilities of a trustee towards the stockholder.

A more limited view of the equities springing from the relations of the parties will be sufficient for the purposes of the present case. The validity of a trust of corporate stock is not and cannot be questioned. To such a trust, when declared on the books of the corporation, such corporation cannot be a stranger, from the nature of the trust itself. The declaration upon its books carries at tlñN ^ame time the force of notice of the trust and of an acceptance of a certain undefined responsibility connected with it. To define that responsibility recourse must be had to the nature of the legal duties incident to its relation to its stockholders. The legal duty of th^ ■Corporation to assure the title of its stockholder is moulded to conform to the state of relations between the trustee of stock and the cestui que trust. The corporation is not simply the custodian of the technical title of the stockholder, but of the subsistence of what the stock represents for the purpose of beneficial enjoyment by the stockholder. As the duty of the corporation is commen*391surate with the right of the stockholder to the full beneficial enjoyment of that which is represented by the stock, it would follow that, where the legal title and the beneficial right to the stock are in different persons, the duty of the corporation would extend to the protection of both. The legal duty of the corporation having thus become moulded to conform to the state of relations between the parties to a trust of stock, it is manifest that the corporation is to be regarded as so far a privy to the trust that any act on its part, tending to defeat the object of trust, will subject it to proceedings undertaken for the administration of the trust. J

The line of reasoning adopted in Bayard vs. Bank, (52 Penn., 232,) goes beyond that already presented, developing the characteristics of a trust in the general relation of the corporation to its stockholder. If the reasoning in that case is fully supported, it would necessarily substantiate the view already presented, and, on the other hand, if the discussion in that case should be regarded as taking a range wider than that essential to the decision of the case, the conclusion of the Court would still give authoritative support to the views here advanced.

It is not essential to the views here presented to consider the liabilities of the corporation as of the same nature and extent as those of the trustee. While the trustee is bound to activity in enforcing the powers lodged in him for attaining the object of the trust, the duty of the corporation must be regarded as circumscribed by the nature of its general legal duties springing from its relation to its stockholders: Thus limited, the evil of exacting from the corporation an undue attention to the particulars of the administration of the trust, as commented upon in Hortgo vs. Bank, (3 Ves., 55,) could not arise. Inasmuch as the trust in the present case was^ declared on the books and face of the scrip to th.e extent of naming the cestui que trust, it follows that if the action of the trustee in disposing of the stock was without authority, and tended to defeat the object of the trust, the corporation is liable in equity to the extent of any damage sustained by reason of its co-operation with the/ ytrustee to that end^>

It is not contended that the trustee had any express power to alienate the stock. Can a power to that end be implied ? If so, it must be upon the ground that such a power was within the intention of the trust, as a means of obtaining its object. The object of the trust in the present case was limited to a provision against a *392contingency that had not arisen at the time the trustee assumed to alienate the stock. The trust was for the benefit of an unmarried female. Its object was that in the event of her marriage the property in question should not be subject to the marital rights of her husband. She remained unmarried to the time of the alienation of the stock. ■ Whatever might be the powers of the trustee in the event of the contingency on which the whole life and force of the trust depended, it is clear that while the cestui que trust remained unmarried, sui juris, the trustee had no duty to perform to which power to alienate was essential, and, therefore, there is no ground to imply a power to sell and transfer the stock. Unless the defendants assumed the existence of consent on the part of the cestui que trust to the disposition of the stock they could regard the transaction in no other light than as an assumption by the trustee of a right of control that he did not possess, nor had they the right to assume the consent of the cestui que trust without clear evidence of the fact of such consent.

It must, therefore, be concluded that the defendants are liable for the transfer of the stock, it appearing that such transfer occasioned the loss of the trust estate.

The conclusion of the Circuit Judge, that the purchasers of stock were not necessary parties, would seem to follow from the view already taken.

If the only ground in equity for the plaintiff’s action against the defendants was their complicity in a breach of trust, as strangers to the trust, it might well be that the purchasers should be made parties with the defendants, as they, with the trustee and the corporation, without whose assistance the breach of trust could not be made effectual, would have to be regarded as privies, as it regards such breach of, trust. Here, however, the plaintiff stands upon equities of a different nature, to which the purchasers are strangers, and she is not bound to make them parties.

The Circuit decree should be affirmed.

Moses, C. J., and Wright, A. J., concurred.