Randolph v. East Birmingham Land Co.

104 Ala. 355 | Ala. | 1893

HARALSON, J.

1. Ryland Randolph, Sr., purchased the land in question from J. W. Briggs, for which he paid him $1,760. The purchase was made by him for the use and benefit of his son, Ryland Randolph, Jr. The deed recites, that he was desirous, in making the purchase, to invest that amount of money in this land for the use and benefit of his said’son, and make a donation of it to him and his use. By his own directions, the conveyance was made to him, as trustee for his son. He engrafted upon the trust, the provision, that he should control, manage and direct the property, until the termination of the trust — which was provided to be, when his son. should arrive at the age of twenty-one years, if he should live so long — and, until that time, use and appropriate the rent, profits and income of the same, as he might see proper, for the usé and benefit of the cestui que trust, and to lease, mortgage, or sell the same, and reinvest the proceeds in such manner as he might think best for his said son’s use and benefit. He joined said Briggs in the execution of the conveyance.

The transaction, in its legal effect, is the same as if said Randolph, Sr., had taken the conveyance directly to himself, and had then executed a deed to a third person, in whose honesty and judgment he had confidence, engrafting upon the trust the same power and discretion he reserved in this deed to himself. He occupies in this deed, the same relations, responsibilities and obligations as a trustee to his said son, as a trustee, in the person'of a third person, in the case we have supposed, would have sustained to the son.

2. What obligations, then, did the trustee in this deed sustain to the cestui que trust f The deed itself describes him as á trustee. It gave him the power to .manage and control the trust estate, until the son arrived at the age of twenty-one years, and, meantime, to lease, mortgage or sell the same, and reinvest the proceeds; but, whatever he did, was repeatedly stipulated to be for the use and benefit of his son. It was not imperative on him to lease, mortgage or sell. He had the discretion to do either. He was not a mere naked or dry trustee, but one with active duties to perfoi’m, such as are referred to in section 1832 of the Code. — You v. Flinn, 34 Ala. 409. The power reserved by the donor in this instance, who was also the donee in trust, to sell, was not amere power, purely discretionary with him ; but it was a trust, coupled with an interest, obligatory on the conscience of the donee. — Hill on Trustees, *67 ; 1 Perry on Trusts, § 248 ; 18 Am. & Eng. Encyc. of Law, 882, 887-8.

3. In all cases, as has been held, powers or trusts must be construed according to the intention of the parties , to be gathered from the whole instrument. — 1 Perry on Trusts, § 248 ; Kerr v. Verner, 66 Penn. St. 326; Guion v. Pickett, 42 Miss. 77. And when a gift in a will or deed is expressed to be for the “use and benefit” of another, or to be at the disposal of the donee “for himself and children,” or “towards his support and family,” or “to enable the donee to provide for and maintain” his children ; or where the gift is expressed'to be made, “to the end,” or “to the intent” that the donee should apply it to certain purposes, the terms thus employed have been held sufficient to fasten a trust upon the conscience of the trust donee. — Hill on Trustees, *66, *67.

“Mere powers,” says Mr. Perry, “are purely discretionary with the donee; he may or may not execute them, at his sole will and pleasure, and no court can compel or control his discretion, or exercise it in his stead or place, if for any reason, he leaves the power unexecuted. If the donee executes the powers, but executes them in a defective manner, courts may aid the execution and supply the defects, but they cannot exercise mere naked powers conferred upon a donee. It is different with powers coupled with, a trust. In this class of cases, the power is so given that it is considered a trust for the benefit of other parties * * and becomes imperative. * * Courts will not allow a clear trust to fail for want of a trustee ; nor will they allow a trust to fail by reason of any act or omission of the trustee.” And, as was held in McDonald v. McDonald, 92 Ala. 542, “A court of equity will never favor a construction that confers upon a trustee absolute and uncontrollable powers.” — 1 Perry on Trusts, § 248; 2 lb. % 507, and authorities there cited.

4. But, while the court will not generally decide upon the propriety or impropriety of a refusal of trustees to act, in cases where their powers are entirely discretionary, its failure to exercise its directing and restraining authority proceeds upon the principle, that the trustees are acting in good faith, without fraud or collusion, and without selfish, corrupt or improper motives. Lewin, in his work on trusts, as a summation of the authorities on the subject, states the principle to be, that “There is sufficient ground for the interference of the court, wherever the exercise of the discretion by trustees is infected with fraud or misbehavior, or they decline to undertake the duty of exercising the discretion ; or generally where the discretion is mischievously and ruinously exercised, as if a trustee be authorized to lay out money upon .government, or real or personal security, and the trust fund is outstanding upon any hazardous security. But, when the course pursued by the trustees is within the letter of the power, the onus is un the person challenging their conduct to show that their discretion has been mischievously, or ruinously, or fraudulently exercised.” 2 Lewin on Trusts,. *616, and authorities cited; 2 Perry on Trusts, §§ 508-511; Gossen v. Ladd, 77 Ala. 224.

5. The question just here arises as applicable to the facts of this case : Was the sale of the larnd, the subject of the trust, by the trustee to the East Birmingham Land Company, and taking in payment of its purchase price the stock of said company, such a violation of good faith on the part of-the trustee, as will authorize the court to interfere to set it aside ?

Without statutory direction, or specific authority in the instrument creating the trust, or an order of court 'allowing it, it may be stated as a general rule, that trustees are not permitted to invest trust • funds in the stock or shares of any private corporation, and the rule is not varied by the fact that the stock is considered good by discreet business men who evince their confidence by investing their own funds therein. — 11 Am. & Eng. Encyc. of Law, 813. If there are no directions in the instrument, nor rules of court, nor statutory provisions in relation to investments, they must be governed by sound discretion and good faith. — Perry on Trusts, § 452, and authorities in n. 1.

The rule perhaps can not be better stated than as we find it laid down by the author last cited: “InStates where there are no statutes or rules of court regulating investments, trustees are bound to act in good faith and with sound discretion in investing trust money; and if they so act they are not responsible for any loss that may happen; but to invest in mere personal securities is not a sound discretion anywhere. Nor is it sound discretion for trustees to subscribe trust funds to new enterprises, as for the stock of a new manufacuring, insurance, or railroad corporation, when the undertaking must, in the nature of things, be experimental; and it will not excuse the. trustee that he subscribes his own money to such enterprises, as it is permitted to him to speculate with his own money, if he sees fit.” — Perry on Trusts, § 459. “And whatever may be the apparent advantages of such a course, and however, well-intentioned the conduct of the trustee, there is no question, but that the court will visit upon him any loss resulting from such a step.” — Hill on Trustees, *379.

The policy of the law of the State forbids such investments, for it is provided in the constitution itself, that “No act of the General Assembly shall authorize the investment of any trust fund by executors, administrators, guardians and other trustees in the bonds or stock of any private corporation.” — Art. IV. § 35.

The trustee in this case, embarked the whole trust estate in the stock of a recently formed land company, organized, as is alleged, as a purely speculative venture, the risks in which were extremely hazardous, and it is averred, that the certificates of stock were issued to, and the trustee took them , in his own name. He thereby imperilled it in a way that sound discretion and good faith can not sanction. The failure and winding up of' the enterprise, in the entire loss, as is alleged, to all the stockholders of their capital stock, furnishes evidence of the recklessness of the hazardous risk this trustee assumed.

6. It is averred in the bill, that at the time of the purchase of said lands by the East Birmingham Land Company, the company and its officers knew that said lands were held by the said Ryland Randolph, Sr., in trust for appellant, under the deed of trust which, is exhibited to the bill. It is further averred, that the defendants, Webb and Tompkins, who became the purchasers of the land at the sale by the assignee of the company, and who are now in possesion of it, bought the same at said sale well knowing that the assignee could not convey to them a fee-simple title thereto ; and, cognizant of the facts set forth in the bill, they took and now hold the property subject to the trusts in favor of complainant in the deed to said trustee. If these allegations are true, they are not Iona fide purchasers for value without notice, and cannot claim protection as such. The land company participated and aided the trustee in the violation of his trust, and acquired no rights as against the cestui que trust; the trustee, Summer, in the deed of general assignment by the company, acquired no greater rights than the company had, and Webb and Tompkins, the purchasers at the assignee’s sale, with notice of all the facts, acquired no greater rights than had been conferred by the deed of assignment on the assignee. — Code, § 1843; Dawson v. Ramser, 58 Ala. 573; Shorter v. Frazer, 64 Ala. 74; Stickney v. Adler, 91 Ala. 198 ; Sampson v. Jackson , 103 Ala. 550; Leake v. Watson, (Conn.,) 20 At. Rep. 343.

The demurrer to the bill should have been overruled.

Reversed and remanded.