259 P. 815 | Wyo. | 1927
R. Harvey Reed died on January 30, 1907, a resident of Sweetwater County, leaving a last will and testament, in which he appointed his sons Gail Reed, then about twenty-three years of age, and Penrose Reed, then about twenty years of age, as his heirs, and in which he directed his executor to act as trustee under the will to invest the net estate at interest or in such manner as he should see fit, *111 to pay the interest and profits thereof from time to time to his heirs, and to pay the principal to them when Penrose Reed should arrive at the age of forty years. The will was duly admitted to probate on March 4, 1907. T.S. Taliaferro, Jr., named therein as executor, was duly appointed as such, and he, after giving bond, proceeded to administer the estate, paying the last item of indebtedness, aside from premiums on his bond, on June 30, 1910. An inventory and appraisement was filed on March 13, 1907. The executor filed a report on January 18, 1908, another on May 25, 1916, and his final report on July 14, 1923. He testified that he filed other reports which were lost. Objections were made by the heirs to the final report of the executor and to the supplemental report thereto. A hearing on said reports and said objections was had before the court on December 24, 1924. Judgment was rendered on July 25, 1925, in which the court charged the executor with receipts in the sum of $6355.50, credited him with the sum of $2051.18 expenses, with the sum of $963.23 for money advanced to the heirs and with the sum of $319.75 executor's fees, leaving a balance of $3021.34. On this balance the court charged the executor with interest at the rate of four per cent per annum, compounded annually from July 1, 1909, amounting to the sum of $2653.28. The executor was directed to pay such interest to the heirs and to hold the principal sum of $3021.34 for distribution in accordance with the terms of the will. From this judgment the heirs have appealed.
1. The court, in fixing the principal upon which the interest to be paid by the executor should be computed, first deducted the expenditures, and the sum of $319.75, as fees allowed to the executor under the statute (Sec. 6853, W.C.S. 1920). It is contended that the deduction of the executor's fees should not have been made as of that time; that his fees were not payable until the final accounting, and that interest should have been computed *112
against him, compounded, at the legal rate, the same as on other amounts. The result would be that the executor would not alone lose all of his commission, to which the statute appears to give him an absolute right, but he would in addition be required to pay at least an equal amount thereof to the heirs. Counsel rely upon In re Hagerty's Estate,
"in charging an executor or administrator with interest on funds in his hands at a final settlement, his commission or recompense * * * should be deducted before a balance is struck and the interest is finally computed against him."
2. The executor was and is an attorney at law. He employed two other attorneys, Mr. Preston and Mr. Reavill in connection with some of the matters of the estate, and paid them the sum of $400, divided equally between them. The services were performed mainly in connection with the cancellation of two contracts, made by the decedent in connection with some lands in Idaho, and calling for payments largely in excess of the total amount of assets of the estate. No objection is made to the amount paid to Mr. Preston, but exceptions are taken to the amount paid to Mr. Reavill. The court found that his services were necessary, and we cannot interfere with that finding. Counsel for appellants contend that the total amount that could have been paid to attorneys was, in any event, limited to $319.75, and they base that contention on section 6854, W.C.S. 1920, which provides that *113 the fees that may be paid to the attorneys of an executor shall not exceed the amount allowed to the executor or administrator except in case of actual litigation. Without determining the full effect or scope of the section, or whether there was actual litigation in this matter within the meaning thereof, we take it that the fees that may be paid to attorneys under it may at least equal the sum allowable to the executors or administrators, and that the amount is not dependent upon fees actually paid executors or administrators, for otherwise an attorney could not, at times, be paid at all, if for some reason — in case of waiver, for instance — nothing were paid to an executor or administrator. Now under section 6853, an executor or administrator receives certain commissions — amounting to $319.75 in the case at bar — and the court may allow him fifty per cent thereof in addition. Hence it is clear that the sum paid to the attorneys in this case is not in violation of the amount allowable under the statute.
3. The court, after allowing the executor's fees, claims and expenses paid in the sum of $2051.18 and $963.23 advanced to the heirs, found the balance due from the executor, as already stated, to be the sum of $3021.34, and fixed July 1, 1909 as the date from which such balance should draw interest. The executor's action in charging himself with two per cent interest on the money received by him up to that date was approved. The amount of interest charged is small and the date somewhat arbitrary. The executor, however, held himself in readiness, at all times, according to his testimony, to pay the amount due, and apply it on the contemplated purchase of a home for the heirs; and a number of claims due from the estate were paid even after the date above mentioned, the last item, aside from those due for the bond, being paid on June 30, 1910. The proceeding is one in equity; we are constrained to pay due deference to the views of the trial court, and on the whole we are not prepared to hold that *114
we should be warranted in interfering with the finding of the trial court in these respects. We cannot, however, approve of the action of the court in the charge of interest from July 1, 1909, which was at the rate of four per cent compounded annually. This rate was fixed on the theory that it is the maximum rate charged under our depository law and is the rate usually allowed by banks, and about the rate payable on securities of the United States Government in which an executor is allowed to invest trust money. It is true that trust funds do not, generally, draw a high rate of interest, safety, instead of yield, being considered of paramount importance, and had the funds been invested as above mentioned, we should, probably, not be warranted in interfering with the action of the trial court. But they were not. The executor reported and testified that he mingled the trust money with his own property; that he used the money by putting it into his sheep business, where, he says, "it remains." It has been held that where a bank or trust company is expressly authorized by law to act as executor, administrator or trustee, it is not compelled to deposit trust money in another institution, and is not responsible for a higher rate of interest, while the money is in its hands, than paid on other deposits in its own institution. In re People's Trust Company,
"A trustee is bound to act with good faith. He is not to use the trust property in his own private business, nor is he to make any incidental profits for himself in its management, nor is he to acquire pecuniary gains from his fiduciary position. An important duty of good faith prohibits the trustee from mixing the trust property together in one amount, the depositing trust moneys in his own personal account with his own moneys in bank, and all similar modes of combining or failing to distinguish between the two funds. This rule is designed to protect the trustee from temptation, from the hazard of loss, and of being a possible defaulter, as well as to protect the trust fund."
In view of the fact that a trustee cannot make any profit out of the trust fund, except whatever compensation he may be allowed under the law, it follows that the criterion as to what rate of interest he should be compelled to pay in case he mingles the fund with his own and uses it in his own business, cannot in such case be based on what he could have received if he had invested the fund in securities of the United States or in banks. Since the law attempts to reach all of the possible profits that he has made out of it (24 C.J. 78; Perry on Trusts, sec. 468), the question of interest, in the absence of a showing of what the profits have been, is rather as to what the money has likely earned for him in the business in which he invested it. The cases in the United States in which he has been charged with less than the legal rate are exceptional. That has been true generally only where it was reasonably certain that his money earned less. In the case at bar no showing was made as to what the profits of the money were, and in the absence thereof the rule adopted is that which is most likely to approximate the *116
actual gains. Cruce v. Cruce,
"The evidence shows that the trustee used the money and commingled it with his own for his own profit. Under such circumstances, as a general rule, he would be required to account for interest at the legal rate, as provided by sec. 7952, Burns, 1908, sec. 5200, R.S. 1881."
In Perry on Trusts, sec. 468, the author summarizes the rule applied in the United States as follows:
"If a trustee retains balances in his hands which he ought to have invested, or delays for an unreasonable time to invest, or if he mingles the money with his own or uses it in his private business, or deposits it in bank in his own name, or in the name of the firm of which he was a member, or neglects to settle his account for a long time, or to distribute or pay over the money when he ought to do so, he will be liable to pay simple interest at the rate *117 established by law as the legal rate in the absence of special agreements. The rule is subject to the qualification that trustees cannot make any advantage to themselves out of the trust fund; and if they make more than legal interest, they shall pay more, as, if they make usurious loans, they shall be charged with all their gain from the use of the money. If the trustee cannot show what amount of interest he has received, he shall be charged with legal interest from the time when the regular investment ought to have been made."
The cases on the subject are collected in note 37 A.L.R. 459-465, and clearly show that the executor in this case cannot be charged with less than the legal rate as above mentioned. Simple interest at the rate mentioned on $3021.34 from July 1, 1909 to July 25, 1925, the date of the judgment herein, amounts to $3810.32, instead of $2653.28, the amount charged the executor by the trial court.
4. The heirs insist that they are entitled to interest compounded annually at the legal rate, and this point has given us no little difficulty. The authorities on the subject are divided. A lengthy note, citing numerous cases, is found in 29 L.R.A. 629 et seq. It is true that in the case at bar the court compounded the interest, but it did so at the rate of four per cent per annum, and that is an altogether different proposition from compounding it at eight per cent. The court charged almost the lowest rate that could well be charged, and thereby clearly and definitely absolved the executor from any willful misconduct and clearly indicated that in its judgment the compounding of interest in the case at bar at the legal rate would be unjust. Except for the trust relation, interest should not be compounded. State v. Richardson, 29 Mo. App. 595; Armstrong v. Walkup, 12 Gratt. 608; Tanner v. Skinner, 11 Bush 120; Clay v. Clay, 3 Metc. (Ky.) 548; Myers v. Bolton,
Compound interest in cases like that at bar has been allowed on two different theories. Some of the courts have assessed it as a punishment. Clark v. Clark,
"But as every case must be determined according to the facts and circumstances peculiar to it, I am satisfied that it would be inequitable to order interest compounded at the high rate of ten per cent per annum against the respondent. My reasons for this conclusion are as follows: First the account extends through fifteen years. The result of the computation, like all such arithmetical results, would be surprising and excessive. It would in my judgment exceed what could be expected from any prudent and careful administration of the estate under ordinary circumstances. I think it would be a marvelous achievement for any trustee of ordinary skill and prudence to keep a fund of five or six thousand dollars so constantly and securely invested for a period of fifteen years as to produce the net result of compound interest at ten per cent per annum. * * * The exaction of compound interest at such a high rate, for so long a period of time, would, in my judgment, be a departure from the leading principle which requires the chancellor to approximate as *120 nearly as possible the actual or presumed gains and profits of the fund."
The reasoning and holding in In re Estate J.C. Ricker,
"The medium which shall deprive the trustee of gain without subjecting him to loss, and shall do justice to both parties, is a point which cannot be attained with exactness, by any computation of interest; but in all ordinary cases, simple interest at seven per cent per annum will sufficiently reach that point; and if simple interest does not always attain the justice of these cases, compound interest at seven per centum, will in general immoderately exceed the desired point of equal justice. A guardian is bound to fidelity and ordinary diligence in the administration of the funds of his ward; but as the want of fidelity or diligence, is infinitely varied by the circumstances of different cases, no uniform rule of damages or redress has been established. The most general rule is that which charges the guardian with ordinary interest. When profits are earned from the trust fund, they belong to the ward. Compound interest has been allowed in a few cases of gross delinquency; but such interest when computed at a high rate, becomes oppressive and unjust."
It appears to be a general rule that a trustee will not be charged with compound interest, at least at a high rate, except where his conduct has been willful. That is done, as some of the cases put it, only in extreme cases. 24 C.J. 506; 24 C.J. 87; Myers v. Bolton, supra. A number of courts, however, seem to proceed on the theory, that where a trustee uses trust funds, he is guilty of willful misconduct justifying the imposition of compound interest, at least where it does not appear what the profits were, holding that it is the duty of the trustee, if he wishes *121
to be relieved from the payment of compound interest, to show that he did not realize profits equal thereto. See 24 C.J. 88; Crowder v. Shackleford,
Whatever the diversity of opinion among the courts has been, it has been mainly only as to details and as to methods by which to arrive at the ultimate aim of justice between the parties and to deprive a trustee of any benefit that he may have derived from the improper use of trust funds. Hence, it is recognized that each case must depend somewhat upon the circumstances (Fox v. Wilcocks, 1 Binney 194; Cruce v. Cruce, supra), although in the greater number of cases, perhaps, compound interest has been allowed where a trustee has used the trust funds. The general rule in a case where a trustee has used the trust fund is not stated to the effect that compound interest must be exacted in every case, but that it may be *122
exacted. 39 Cyc. 430; 24 C.J. 88. One of the leading cases on the subject in this country is Schieffelin v. Stewart, 1 Johns. Ch. 620, commented on at length in the case of In re J.C. Ricker, supra. The court allowed compound interest, indulging in the presumption that the profits made by the trustee out of the trust fund justified it. The chancellor remarked that the trustee could have disclosed his profits, but failed to do so. It may be altogether reasonable to indulge in such presumption where a trustee refuses to disclose his profits, and that may be true also where he fails to do so, when he is able. In the case at bar the trust fund was invested in the sheep business, apparently along with other money of the trustee in 1907 and 1908. We are inclined to believe that it would have been most difficult for the trustee to have given any account of what he made or lost on the particular money involved in this case. At least, we feel satisfied that the trustee did not fail to render an account thereof willfully. There was no suggestion on the part of the heirs that he should make such a showing; the case seems to have been tried on an altogether different theory, and under the circumstances we do not feel justified in indulging in the presumption above mentioned merely by reason of his failure to show to the court the amount of profit, if any, that he made out of the trust money, and feel satisfied from the record, that if a suggestion had been made to him at any time to disclose such profits, he would have done so, if possible. Further, the court laid great stress on the provisions of the will authorizing the executor to invest the trust fund in "such manner as he shall see fit," and evidently concluded that, in view thereof and in view of the facts, the executor should not be charged with the lack of good faith. We have found no authority, and none has been cited, which has construed such a provision in the will as a sufficient authorization for an executor to use trust funds in his own business, and yet we are not *123
prepared to say that under the circumstances of this case, and in the absence of judicial decisions on the subject in this state, such provision should not be taken into consideration in determining the good faith of the executor. And we must further bear in mind that the heirs in this case were not minors. They both were of age as early as 1908, and after that time they were no longer under the special guardianship of the law as minors are. State v. Richardson, 29 Mo. App. 595. They were at all times able to protect themselves by applying to the court. In Amos v. Campbell,
Taking all of these facts into consideration, and in view of the deference due to the District Court, we do not feel warranted in modifying the judgment in this case to the extent of allowing compound interest at the legal rate, and believe, without discussing other points mentioned in the brief, that the judgment should be modified only to the extent already indicated herein.
The judgment of the District Court should, accordingly, be modified to the extent that the interest due at the time of the date thereof be fixed at the sum of $3810.32, instead of $2653.28, and as so modified should be affirmed. It is so ordered, the costs of this appeal to be paid by respondent.
Modified and Affirmed.