State v. Washburn

67 Conn. 187 | Conn. | 1896

Hamersley, J.

The State Referee finds that the defendant did not use ordinary and reasonable care and discretion in the purchase of the Barton bonds, if it was “ the legal duty of the defendant Washburn, as conservator, under the circumstances herein found, to make further inquiry of other persons than Bingham (from whom the purchase was made), relative to the securities for the investment.”

There is no rule of law prescribing the sources of information a trustee must exhaust before investing his trust funds ; it is possible his legal duty may be performed by inquiring of a single person, even if that person is the vendor in the contemplated purchase. The finding of the referee is not contingent on this plain proposition, but upon the legal duty of the defendant to make further inquiry “ under the circumstances found.” It appears that no inquiry was made of Bingham, the vendor, except the general inquiry for a perfectly safe investment; so that the real contingency on which the finding is made, is whether, under the circumstances found, the law authorized the conservator to invest the funds of his ward in sole reliance on the general opinion given by the vendor, in whose integrity and good judgment in financial matters the conservator had confidence and had reasonable ground for confidence; or, to state the question a little differently, whether it was the legal duty of the conservator, before investing his ward’s money in promissory notes secured byr mortgage of land in another State and guaranteed by a corporation, to use, in the absence of adequate personal knowledge, ordinary diligence in making some specific inquiries of some one in respect to the pecuniary responsibility of the maker of the notes, the value of the land mortgaged to secure them, and the credit and responsibility of the corporation which guaranteed them.

There can be but one answer to this question. The contemplated investment was not one recognized by either statute or common law as belonging to tbe class of investments generally appropriate for trust funds. In view of the inherent objections to such investments, of the familiar rules of equity which regard them with distrust, and of the careful exclusion of such mortgages from the broad range of permissible trust investments mentioned in the General Statutes (§ 495), we think that loans on promissory notes secured by mortgage of land in other States, and the purchase of such notes, cannot be regarded as prima facie a proper investment of trust funds; and that a trustee must justify such use of his funds by proof not only of good faith, but of due diligence on his part in ascertaining the safety of the particular investment. Clark v. Beers, 61 Conn., 87, 89; Mattocks v. Moulton., 84 Me., 545 ; Dickinson, Appellant, 152 Mass., 184.

The referee finds that the only precaution taken by Wash-burn was to ask Bingham, who offered to sell him the securities, if they were perfectly safe. He made no specific inquiries of Bingham, and no-inquiries of any one else. It does not appear that he had any personal knowledge of the" securities on which he could base his own judgment. The burden was on him to prove such knowledge, and the referee does not find it; on the contrary, the finding that Washburn knew the notes were made by Barton and purported to be secured by mortgage of land in Indiana, and was not aware that the credit of the insurance company had been called in question, but made no inquiry of any one as to responsibility, value or credit, — is, in effect, a finding that Washburn had no personal knowledge which could justify his action. The fact that he was willing to risk his own money in the purchase of such securities from Bingham on his bald assertion that they were perfectly safe, and the knowledge that his neighbors, .prudent or otherwise, invested their own money in the same way, did not justify him in so'risking trust funds, without the use of any diligence in ascertaining the particular facts necessary to the exercise of that sound discretion which the law demanded of him.

The referee also finds that when Washburn received as conservator the estate of his ward, the funds in’ question were invested in savings banks in this State believed to be safe and sound, and that without an order of the Court of Probate he changed this investment, and failed to prove any cause for such change. The powers, rights and duties of a conservator, are such only as are to be found in the statute. Norton v. Strong, 1 Conn., 65, 70. Formerly the statute authorized a conservator “ to take care of and oversee such idiots, etc., . . . and their estates for their support ”; audit was held that a conservator had not power to lease the real estate of his ward; that it was the intent of the legislature “ to procure an income from the use of the idiot’s estate, by its superintendency and oversight; and this trust was to be committed exclusively to the conservator. His power was wholly confined within these boundaries.” Treat v. Peck, 5 Conn., 280, 285. In subsequent Revisions this language has been changed, and as now expressed the conservator “ shall manage all such estate and apply so much of the net income thereof as may be required, and, if necessary, any part of the principal of the estate, to support him and his family, and to pay his debts, and may sue for and collect all debts due to him.” General Statutes, § 478. In Palmer v. Cheseboro, 55 Conn., 114,115, it was held that the words “to manage” such “estate,” enlarged the power given by the words “ to take care of and oversee ” such estate, sufficiently to authorize the conservator to lease his ward’s land for a reasonable time. The statute (§479), authorizes the Court of Probate on finding reasonable cause, to order a sale of the real estate of the ward; and makes it the duty of the conservator ,to invest “ such part of the avails of the estate sold as may not be required for the immediate support of such incapable person or the payment of his debts, in other real estate, to be conveyed to such incapable person, or to invest the same as trust funds may be lawfully invested.” A conservator may keep his ward’s estate invested in the securities received by him, unless otherwise ordered by the Court of Probate, and be exempt from any liability by reason of depreciation of such securities. General Statutes, §496.

We think the general rule of equity which warns a trustee not to sell without sufficient reason the trust fund received by him standing on proper security, applies with peculiar force to a conservator who receives the estate of his ward safely invested in a manner expressly authorized by statute. If under such circumstances, without an order of the Court of Probate, he makes a change of investment, the burden is on him, in an action on his bond, to prove a reasonable cause for the change; and unless he proves such cause, he may be held liable.

As the report of the referee shows that the defendant received as conservator the estate of his ward safely invested in a manner expressly authorized by statute, that he changed this investment without an order of the Court of Probate and without any cause, for one comparatively worthless, which was prima fade a questionable investment for trust funds, and that he exercised no diligence in ascertaining the facts he ought to know before making such investment, —the liability of the defendant in this action is the necessary legal conclusion from the facts found. And the good faith of the defendant, in such management of his ward’s estate, cannot relieve him from this liability.

As to the rule of damages: The right of a cestui que trust to reject an unauthorized investment, is well settled. The plaintiff claims that right. The damages therefore should cover the amount withdrawn from the savings banks and invested in the Barton bonds, and a sum equal to the intervening dividends, i. e., interest at the rate of four per cent, less any interest on the Barton bonds the defendant may have received and used for the benefit of his ward. The claim that interest should be computed with annual rests, cannot be sustained. There must be a gross breach of trust, to justify compounding interest. It is found that the defendant acted in good faith.

The evidence received subject to objection was plainly immaterial, if not irrelevant.

The report of the referee is incomplete in not finding the amount of damages, and the case should be recommitted in order that such fact may be found, unless the parties shall agree upon the amount without a recommittal.

The Superior Court is advised: To recommit the case in order that the State Referee may find the amount of money drawn by Washburn from the savings banks and invested in the Barton bonds; the amount of interest thereon at four pdr cent from the date of such withdrawal; and the amount of interest on the Barton bonds received by Washburn and used for the benefit of his ward; unless these amounts shall be agreed upon by the parties. And upon these facts being established, either by the report of the referee or by the stipulation of the parties, to render judgment for the plaintiff for a sum equal to the money drawn by the defendant Washburn from the savings banks and invested in the Barton bonds, with interest at the rate of four per centum, less the amount of interest on the Barton bonds received by said Washburn and used for the benefit of his ward.

In this opinion the other judges concurred.