St. Paul Trust Company v. Strong
| Decision Date | 13 December 1901 |
| Docket Number | 12,696 - (106)[2] |
| Parties | ST. PAUL TRUST COMPANY v. ABIGAIL S. STRONG and Others |
| Court | Minnesota Supreme Court |
Action in the district court for Ramsey county by plaintiff, as trustee under the last will and testament of Charles D Strong, deceased, to determine the heirs and beneficiaries under said will and trust, and to settle and adjust its first account as trustee. Certain of the heirs and beneficiaries answered, objecting to the trustee's account. The case was tried before Bunn, J., who made findings of fact and as conclusions of law found, among other things, that the trustee's account should be surcharged with the amount of certain investments aggregating $78,200, and with the profits accruing therefrom, amounting to $27,745, and that the title to the real estate and securities representing said investments was in plaintiff individually. From an order denying a motion for a new trial, plaintiff appealed. Modified.
Buyer and Seller at Same Time.
A trustee cannot legally purchase on his own account that which his duty or trust requires him to sell on account of another nor can he purchase on account of another that which he sells on his own account. He is not allowed to unite the two opposite characters of buyer and seller.
The foregoing well-established rule is not changed or abrogated by the provisions found in G.S. 1894, §§ 2841-2854, under which annuity, safe deposit, and trust companies are organized in this state.
Trust Company -- Statutory Restrictions.
The various restrictions and obligations which the statutes impose and cast upon these companies were introduced to safeguard and protect their patrons, and were not designed for the benefit or advantage of the organizations therein provided for. There was no intention to set aside well-settled rules for the conduct of private trustees by these provisions, but, upon the other hand, it was the object and purpose to insure a rigid observance of such rules by statutory restrictions and regulations.
Trust Co. v. Kittson Distinguished.
St. Paul Trust Co. v. Kittson, 62 Minn. 408, distinguished on one point, on the facts, from the present case.
Ratification -- Knowledge.
To establish the ratification of any particular act performed by another, the facts involved must not only be proven, but it must be shown that such ratification was made with full knowledge of all the material particulars and circumstances.
Mingling of Trust Funds -- Interest.
The general rule is that if an executor or trustee mingles trust funds with his own money, or uses the same in his private business, he will be charged with simple interest at the legal rate established by law, in the absence of special agreements, but this rule is subject to certain qualifications. And another general rule is that only in cases of fraud or flagrant breach of trust should a trustee be charged with compound interest.
Interest.
Where a trust company has actually appropriated trust funds by mingling the same with its own when depositing the same in banks, interest should be charged from the day it received the money, because of the fair presumption that it was used by the company from that day for its own profit.
W. J. Hahn, Harvey Officer and Davis, Kellogg & Severance, for appellant.
Humphrey Barton and M. S. Jamar, Jr., for respondents.
This action was brought by the plaintiff, a corporation, as trustee named in the last will and codicil of Charles D. Strong, deceased, for the purpose of having its first account settled and adjusted; and the defendants are the beneficiaries of the trust fund created by the codicil.
The testator died in January, 1890. The estate consisted almost wholly of promissory notes, aggregating in value $105,000, payable in five installments; the last note maturing in February, 1894. The $105,000 represented by these notes was made a trust fund for the benefit of certain specified persons and institutions. The trust created was to collect this fund, to invest and reinvest the amount during the life of the testator's widow, and to accumulate an income to be used in paying to her $2,500 a year during her life, a small annuity to a friend of the testator, while the balance of this accumulation was to be distributed annually among certain specified beneficiaries, relatives of the deceased, and certain institutions. The notes were promptly met as they became due, and the amounts collected were at once credited to the trust estate on the company's books of account, which books were so kept that the actual amount of money in the trust fund could easily be ascertained by mere inspection; but the money itself was not kept separate from that belonging to the company, or from funds belonging to other trusts. All moneys were deposited in various banks to the credit of the company, as such, until February 18, 1898, at which time other accounts were opened in said banks in the name of the company as trustee.
The company made certain investments for the benefit of the trust estate, about which no questions have been raised by the beneficiaries; but as to six notes, secured by real-estate mortgages, the defendants objected, and, repudiating the same as improper investments, asked the court to strike out the amounts thereof, aggregating $78,000, and to surcharge the account on this basis. This was done. All of the items in any way connected with these notes and mortgages were stricken out of the account and rejected. The court also fixed the interest upon the amounts represented by these notes, and to be accounted for by the company, at the legal rate, compounding the same from annual rests. The rate fixed up to November 1, 1899, was seven per cent. per annum, but it was reduced to six per cent. from that time, with the same rests; this reduction being based upon Laws 1899, c. 122.
The facts in connection with the rejected items were that on different days, commencing on November 17, 1890, and terminating June 4, 1892, the company owned these six notes in its corporate capacity, one being $2,000 in amount, one $16,000, and three for $20,000 each. When each note was taken by the company, payable to itself, and secured by a mortgage in which it was named as mortgagee, there were enough trust funds in its hands to cover the amount needed; and with these funds any of these investments could have been made in the name of the company, as trustee, directly for the trust estate. In each instance, soon after the notes and mortgages were taken, they were formally transferred and assigned by the company, in its corporate capacity, to the company, as trustee of the Strong estate, without the authority of the court, or consent of the beneficiaries, some of whom were minors. These transactions were, on the face of each, sales of notes and mortgages belonging to the trust company, as such, to the company as trustee; the latter being charged with and paying the full amount of the principal represented by the notes, with accrued interest. The court found as facts that, when taking these notes and mortgages in its own name, the company charged the mortgagors a commission for making the loans, and that no part of this commission went to the benefit of the trust estate. It was all retained by the company, but the amount does not appear.
1. Obviously, it was the duty of the company to invest the trust funds as the same came into its hands in accordance with the law, and for the purpose of accumulating a sum out of which it could make annual payments to the beneficiaries, and thus perform the other duty imposed and required by the instrument creating the trust. The principal question here is, has this been done? The basis of the objections made by the beneficiaries and sustained by the trial court was: First, that in every instance the company had converted trust funds to its own use immediately upon receiving the same, and therefore could not subsequently make any investments whatsoever as a trustee which would bind the beneficiaries; second, that, as the notes and mortgages were owned by the company itself, it could not transfer the same to itself as trustee without an order of the court or the consent of the beneficiaries, because its self-interest would come in direct antagonism with its duty, the inevitable result being, it is contended, that all transactions made under such circumstances are voidable at the election of the beneficiaries.
The rule of law which forbids transactions whereby the personal interest of a trustee may be opposed to his duty has often been referred to and applied in this court. It was stated in Baldwin v. Allison, 4 Minn. 11 (25), that no rule is more fully settled than that which forbids a trustee's dealing with himself in respect to trust property; that no fraud, in fact, need be shown by the beneficiaries, and no excuse can be offered by the trustee to justify such transactions. The fact established, the result inevitably follows. This proposition has been repeated and affirmed in many cases. In King v. Remington, 36 Minn. 15, 25, 29 N.W. 352, 358, it was put in this form:
"The rule which disables one occupying a confidential or fiduciary relation in respect to property the subject of sale, from purchasing for his own benefit, and regarding him as a trustee if he do purchase, is absolute, and looks to no other facts than the relation and the purchaser."
In Webb v. Paxton, 36 Minn. 532, 32 N.W. 749, it was stated that the doctrine "does not depend upon the existence of intentional fraud, but is an inflexible rule, founded upon the fact that the two employments are incompatible."
It seems unnecessary to refer to other cases in our own Reports or...
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