American Bonding Co. of Baltimore v. Richardson

• Decision Date: 30 June 1914
• Docket Number: 2441.
• Citation: 214 F. 897
• Parties: AMERICAN BONDING CO. OF BALTIMORE v. RICHARDSON et al.
• Court: U.S. Court of Appeals — Sixth Circuit

214 F. 897

AMERICAN BONDING CO. OF BALTIMORE v. RICHARDSON et al.

No. 2441.

United States Court of Appeals, Sixth Circuit.

June 30, 1914

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

Lawrence Maxwell, of Cincinnati, Ohio, and Edward Duffy, of Baltimore Md., for appellant.

Ferdinand Jelke, Jr., and W. M. Schoenle, both of Cincinnati, Ohio, for appellees.

Before DENISON, Circuit Judge, and EVANS and SESSIONS, District judges.

SESSIONS District Judge (after stating the facts as above).

The master's findings of fact above set forth were approved and reaffirmed by the District Judge, are fully sustained by the evidence, and therefore, under the well-settled rule, will be accepted and adopted by this court.

This suit is not brought by the beneficiaries of the trust, nor by any one in their behalf or in privity with them. On the contrary, the surety for hire upon the separate bond of a defaulting trustee is seeking to recover for itself from a cotrustee, who has been guilty of no active wrongdoing, the amount of the defalcation upon the sole ground that the honest trustee did not prevent the malfeasances of the dishonest one. This fact alone is sufficient to distinguish the present case from Caldwell v. Graham, 115 Md. 122, 80 A. 839, 38 L.R.A. (N.S.) 1029; In re Beatty's Estate, 214 Pa. 449, 63 A. 975; Bermingham v. Wilcox, 120 Cal. 467, 52 P. 822, and similar cases upon which counsel for plaintiff place their chief reliance.

It is settled that, as a general rule, a trustee is responsible only for his own acts or defaults, and, except for his own fraud or negligence, is not liable for the trust property which has been in the exclusive possession and under the sole control and dominion of a cotrustee. Peter v. Beverly, 10 Pet. 532, 563, 9 L.Ed. 522; Movius v. Lee (C.C.) 30 F. 298, 307; Ohio v. Guilford, 18 Ohio, 500, 509; Dyer v. Riley, 51 N.J.Eq. 124, 26 A. 327; McKim v. Aulbach, 130 Mass. 481, 483, 39 Am.Rep. 470.

It is also settled that a trustee's obligation to his trust is met and satisfied by the exercise of the same measure of diligence that a man of ordinary prudence would be expected to exercise in the care of his own property under the same circumstances. King v. Talbot, 40 N.Y. 76; McCabe v. Fowler, 84 N.Y. 314; In re Bartol, 182 Pa. 407, 38 A. 527; Smith v. Bank of New England, 72 N.H. 4, 54 A. 385; Mattocks v. Moulton, 84 Me. 545, 24 A. 1004; Scoville v. Brock, 81 Vt. 405, 70 A. 1014.

But conceding the correctness of these rules of law, complainant insists that the conduct of Richardson does not measure up to their requirements in that the trust was not separable into parts, but was joint, requiring the joint and not the separate management of the trustees, while 'Richardson paid no attention whatsoever to the part of the trust property separately held by Buck, nor to his dealings with it. ' So the real question to be decided is whether Richardson was justified in acquiescing in the division of the trust estate into two distinct and separate parts and in retaining the management of one part and permitting the other part to be and remain under the sole dominion and control of his cotrustee. The determination of this question involves and requires a consideration of all the peculiar circumstances, conditions, and difficulties attending and surrounding the creation, continuance, and management of the trust. The original trustees, Buck and Goodman, were both close and intimate friends and advisors of the testator and creator of the trust in his lifetime. Both had actively assisted him with reference to his investments in their respective localities. Buck was a beneficiary under his will. It was natural that each trustee should take active charge of the property with which he was familiar. The tax litigation arose, and Buck was enjoined by the courts of Indiana from removing from that state any of the assets of the estate in his possession. Large adverse judgments were obtained in the state courts. The final outcome of the litigation was very doubtful. The attorneys for both trustees advised and the probate court of Hamilton county, Ohio, authorized and directed a division of the estate into two parts. Goodman was advised not to go into the state of Indiana, and not to do anything to submit himself or the Ohio property to the jurisdiction of the Indiana courts. This advice was given, and this direction was made in the bona fide belief that such action was necessary for the protection and preservation of the trust property. Pursuant to such advice and direction the division was made, or rather the natural division theretofore actually existing was formally declared and made a matter of record. Thereafter, with the knowledge and approval of the probate court, each of the two parts of the trust estate was treated as a separate trust. Each trustee managed his part without reference to the actions of the other. Each rendered a separate account every six months without reference to the account of the other. Each account was independently approved by the probate court. Separate distributions of the income were made to the beneficiaries. Goodman died, and Richardson was appointed his successor. Then, for the first time, the trustees were required to furnish bonds. Separate bonds were furnished. The AEtna Indemnity Company became surety upon Richardson's bond, and the complainant became surety upon the bond of Buck. In his application to the complainant to become surety upon his bond, Buck truthfully described and set forth the Indiana property in his possession for which the surety was to become responsible. Acting under like advice and direction as had been given to...