Diffenderffer v. Winder , 3 G. & J. 311 ( 1831 )

Dorsey, J.,

delivered the opinion of the court.

In disposing of the first point on which a reversal of the decree of the Chancellor has been urged, it is unnecessary' for this court to consider, whether the credit insisted on by appellant, of $2578 77, alleged to have been paid by the former trustee, (in satisfaction of the debts due by Charles Rogers,) out of that portion of the trust fund to which Mrs. Diffenderffer was entitled, ought not to have been discharged by the proceeds of the trust estate, on which those debts were conditionally a lien, accruing before the death of Mrs. Bailey: because it does not appear by the record before us, or any of the proceedings which it refers to, and makes evidence, that the personal estate of the testator was insufficient for the payment of his debts. It has been stated in the argument, that such insufficiency is established by the auditor’s statement of the accounts, of the former trustee, made in the year 1818. But to these accounts, no such operation can he given; having never received the Chancellor’s confirmation, they are no evidence of the facts they are i elied on to prove. This credit therefore was properly rejected.

In discussing the question of interest, it has been strongly contended, that no such charge ought to be made, because Diffenderffer came into possession of the , trust property, as the allotment of his wife, under a division of Charles Rogers' estate, made in pursuance of his last will and testament, by Samuel Vincent, the former trustee, without a knowledge of any other persons being entitled or claiming title to any prut thereof, and that the first intimation of. the kind which he received, was the filing of the bill in Chancery, which is now before ns. What would be Mr. Diffenderffer's rights in such a state of facts, we are not required to determine. He stands not in that predica'ment before us. It is manifest that Samuel Vincent never did make any division under Charles Rogers' will, of the .real estate devised to Mrs. Lee, Mrs. Martin, and Mrs. Diffenderffer, the only property whereof a division was directed;—that every thing done by Hands, and now relied on, as proof of such division, was to point out to Diffenderjfer, at the time he took possession of the trust property, thé forty feet lot on Calvert street, devised in severalty to Mrs. Bailey. That so far froto being in fitter ignorance of the fights, of claims of the'appellees, until their hill was filed in 1825, he was fully and distinctly notified thereof, by the auditor’s statements in 1818, made finder his own eye, and as well, at his instance, as at that, of the former trustee. Had he then believed, as he now alleges, that his wife and children were entitled to the whole of the property confided to his charge, what would have been his course with regard to the auditor’s accounts ? It is só clearly pointed out both by his duty, and his interest, that what it would have been, cannot be the subject of a momentary doubt. He would have caused exceptions to be filed, and the rights of the parties interested to be definitively settled. His failure to have done this, cannot be othef wise regarded, than as a recognition of the title of the appellees. He has therefore, upofi the grounds upon which he has asked it, no claims to lenity at the hands of this court.

Where trustees act bona fide, and with due: diligence, they have always received the favor and protection of Courts of Equity; their áots have been regarded with' the most indulgent consideration. But on the other hand, where they have betrayed their trust; where they have grossly violated their duty; where they have been guilty of unreasonable negligence, they forfeit all claims to the favor and protection of the court. Their acts are inspected with the severest scrutiny, and they are dealt with according td rules of strict, if not of rigorous justice. This course of proceeding, is productive of the most beneficial consequences, and is founded on the soundest principles of policy; It is the surest, perhaps the only means of securing the fidelity, vigilance, and integrity of those, to whose hands are committed the interests of the weakest, and most unprotected portion of the community.

It was held in England, even in the days of Lord Hard-wick, that an executor was not chargeable with interest who had used for his own benefit, money belonging to the estate of his testator. Subsequently a more just and equitable principle was adopted. It was determined, that an.executor or trustee ought not to derive any advantage to himself from the trust property; and that if he used it:as his own', or was guilty of crassa negligentia in not paying it over 'to, dr investing it for the benefit of the cestui que trusts, that he should be charged with the annual interest oí four per cént; that being the established ihterest of the Court Of Chancery; At a subsequent period, it being found that these abuses by fiduciary agents still continued, and that justice was not extended to cestuique trusts, by the rule already established, the court went a step further, and decided, that where an executor or trustee used the trust fund, and refused to render an account of the profits, that he should pay an interest of five per cent.; that being the greatest annual interest which the law allowed, and being the presumed amount of profits, to the whole of which, if ascertained, the cestui que trust was entitled. At a still later period, a decree was passed, (sanctioned by the opinion of at least three Lord Chancellors) in Raphael vs. Boehm, reported in 11 and 13 Ves., by which not only five per cent, was allowed, but compound interest also, against an executor who had. neglected, as directed by the will, to invest money with- the interest accruing thereon by way of accumulation, for thé benefit of the children of the testator. ’Tis true, that the decision in that case, was'made as depending "on .the peculiar provisions of the will, under which the executor acted. But it is equally true, that there was nothing in that will enjoined on the executor, which the law does not impose on him as a duty, without any testamentary injunction on the subject, where money belonging to the deceased’s estate unnecessarily, and for an unreasonable time, remains in his hands. And it requires more than an ordinary degree of astuteness, to discern the distinction in a moral point of view, or in the eyes of a court of conscience, between the acts of him, who violates the duties required of him by a testament or deed, and him who in regard to the same subject matter, violates the same duties imperatively imposed on him by the established principles of law. But the appellant here, is not even entitled to the benefit of this distinction, if any there be, because, like the executor in Raphael vs. Boehm, his duties are enjoined on him by the same authority under which he derives his powers.

In what has been said respecting the legal obligation of investment by executors or trustees, in whose hands large sums have, without any reasonable excuse therefor, been suffered to remain, we do not mean to say, that compound interest is the indemnity to be made for such negligence. The current of English decisions is against it, and the question is not now before us for adjudication. It is hardly necessary to say that Mr. Diffenderffer, by his own acts, and the recognition of his agency by the Court of Chancery, stands precisely in the same attitude in which he would have stood, had he been a trustee regularly constituted by a decree of that court. The doctrine of Raphael vs. Boehm has been elaborately investigated, and learnedly discussed in New York, by that most distinguished jurist, Chancellor Kent, and has been adopted to its fullest extent in the case of Schiefflin vs. Stewart, 1 Johns. Ch. R. 620, where no directions for investment or accumulation are to be found. The allowance of compound interest prevails in like manner in South Carolina, as will appear by Wright vs. Wright, 2 McCord, 185, where two cases are referred to, as having previously decided the same question, visf: Bowles and wife vs. Drayton, 1 Desaus, 489, and Edwards vs. McMorris, Harper's Eq. Rep. 224. In Massachusetts also, the computation of interest is made on the same principles, as is shown by the case of Robbins vs. Hayward, 1 Pick. Rep. 528, in which, where large sums of money had come into the hands of a guardian, and no account had been rendered for many years, there being rents from real estate, and income from public stocks periodically •received, it was ordered that an account be settled with a rest for every yeax-, including principal and interest; and the balance thus struck, carried forward, to be again on interest,' whenever the sum should be so- large, that a trustee, acting faithfully and discreetly, would put thát sum into a productive state.

Do the facts in this causé present Mr. Diffenderffer's conduct as a trustee, in a more favorable aspect, than that ill which appeared the conduct of the several defendants in the authorities referred to? Such a comparison he can have no motive to invite. In Raphael vs. Boehm, the testator died in 1791. The bill was filed against his executor in 1794, so that the funds were in the executor’s hands about three years; and it is not shown that he ever used them for his own benefit. Within three months after the filing of the hill against him, he obtained an order for that purpose, and brought into the Court of Chancery the principal part of the money he had received; and in his answer, after alleging payment of the debts of the deceased, and for the maintenance and education of his wards, he stated that he was ready to pay the balance, and interest for the testator’s money, which he had from time to time in his hands, as the court should direct. Contrast this with the conduct of Mr. Diffenderffer. He assumed the trust in 1815, and from that time until 1828, he had from time to time, every year received large sums of money, which he continually employed in trade and speculation. He filed more than one defective answer, withholding from the complainants thé discovery they sought. lie claimed the whole trust fund as belonging to his wife and children, and endeavored by all the means in his power, to stifle the inquiry as to the use he had made of the money received, or the profits which had accrued from its use. After the present litigation had continued nearly three years, he filed a supplemental answer, setting up an unfounded stale claim in a stranger, to one-third of the trust fund; thus seeking to defeat the just rights not only of the appellees, but of his own children. From the year 1815 to the present day, it does not appear that he ever paid, or offered to pay, to any of the cestui que trusts, one dollar of the $35,373 48, which he received before the 2d of August, 1828, being the income of the original trust estate. In Schiefflin vs. Stewart, the executor himself filed the bill, praying that his accounts might be settled, and stating that he was desirous of paying over the residue to the children of the deceased, or their guardian. It cannot be necessary to draw the strong lines of discrimination between the case at bar, and the eases cited, nor further to prosecute this unpleasant comparison. The interests of the appellant certainly do not urge it.

Is it unjust or unlawful to charge the appellant with compound interest, under the peculiar circumstances of this case ? It is a rule of equity, founded as well on principles of natural justice, as of sound policy, and now too well settled to be controverted, that profits made by an executor, or trustee, by the use of the trust fund, belong to the cestui que trust; and that if an account of such profits be withheld, that interest shall be allowed as an equivalent therefor. What was the trust fund used by Diffenderffer, in the year 1815 ? The amount received from the trust estate during that year. Of what consisted the trust fund used in 1816? The receipts from the trust estate in 1815 and 1816, and the profits made in 1815. Can a reason be assigned why these profits, thus used by the trustee as so much capital, should not bear interest in the same manner, as any other part of the trust fund enjoyed in the same way ? Ought the trustee to have the beneficial use of these profits for sixteen years, and pay no interest therefor? This advantage^ he will unquestionably have enjoyed, if charged with the payment of, simple interest only. Justice cannot be administered to the cestui que trust, their clear equitable rights cannot be sus-, tained, but by allowing them interest on their profits used, by the trustee. And this, is the compound interest for. which, under, the decree of the Chancellor, the trustee, hath been .made answerable. If the appellant.be let off. with the payment of simple interest, it would be offering to fiduciaries, a premium for infidelity. It would in effect: be a decree of this court, giving to .the trustee, several thou-' sand dollars, in addition to his commissions, of the property of the cestui que trusts, as a reward of any thing, rather, than a faithful execution of the duties of his trust., , . .. h

, It may also be remarked, that the established interest of the Court of Chancery in Maryland, is six per, cent.in. allowing compound interest thereon, (unless the delinquen-, cy be of at least twelve, years continuance* nay even in the . case nq\y before us,) the same additional relief is not obtain-' ed by the cestui que trust, that is granted in the familiar", cases to be found in the modern chancery reports of Eng-, land, where the inflamed interest of five per cent.: is exact-:', ed.of executors or trustees, who abuse their trusts.. And. we by no means go to the length to which Raphael vs. Boehm has been carried, where five per cent.-has. been charged*'! and interest compounded at the same rate.- If, in no case,: compound interest is to be exacted, you uproot.the settled.! principle of equity, that all gains from the use of the trust : fund shall inure to.the benefit of the cestui que trust; and you present; the strange anomaly in the law,-that every; shade of delinquency, corruption or .misconduct Of a trustee, no matter how various its consequences, may be.to the; interests of- the cestui que trust, is visited, with the. same measure of retribution. If in England and "New York, where trustees are agents, serving gratuitously-, it be deemed equitable for some delinquencies to subject them to, the payment - of compound interest, ought it to be looked on as a measure of severity, that the same rule should prevail in Maryland, where trustees, by way of commission, are liberally compensated for all the services they render? But this question of compound interest is not now, for the first time, submitted to the consideration of this tribunal. In Darne vs. Catlett, 6 Harr. and Johns. 482, where the decree of the Chancellor had given compound interest, this court said, that they could not “concur with the Chancellor in the allowance of compound interest. It is neither charged nor proved, that the executors had appropriated any of the bequest, or of the proceeds thereof, to their own use, or employed them in their own business, or in any way made any profit or gain from them, or in any manner subjected them to hazard.” The necessary inference from which is, that if these facts had appeared, it would have been deemed a fit case for compound interest. The principle is still more distinctly affirmed in Ringgold vs. Ringgold, 1 Harr. and Gill, 79, 80, where this court thus express themselves: “Where the trustee is directed to invest funds, and to reinvest the dividends; or in other words, where the trust directs an accumulation, and the trustee has used the funds, compound interest will be allowed, as was done in the case of Raphael vs. Boehm, 11 Ves. 92, 108, 109, and S. C. 13 Ves. 407, 590—or whore he has used the trust money, or employed it in his trade or business, he shall be charged in the same manner, as was decreed in Schiefflin vs. Stewart and others, 1 Johns. Ch. R. 620. The grounds of this allowance, as is apparent from these cases, is founded on the gain or presumed gain of the trustees, and that the cestui que trust may be indemnified by the efforts of the court in this wáy, to reach their profits or presumed profits.” Upon principle, therefore, as well as authority, so far as the appeal of the appellant is concerned, we affirm the decree of the Chancellor.

On the appeal taken in this case by Winder and wife, we cannot sustain the decree of the Chancellor. It gives to' the trustee a commission of ten per cent., which is the full allowance that ought to have been made to him, had his conduct been marked by a strict performance of the duties he had assumed. But this is very far from being the posture in which he appears before us. It is the duty of a Court of Equity, in the distribution of its favors, to discriminate between those who violate their duty, and abuse their trust, and those who perform it with skill and fidelity. To the latter a full commission is cheerfully bestowed; to the former half that amount is reluctantly granted. Mr. Diffenderffer having kept full and fair accounts of his receipts and expenditures, find in that respect faithfully discharged his duty as trustee, we do not think he has forfeited all claim to commissions, as he otherwise would have done. We reverse, therefore, the decree of the Chahcellor on the appeal by Winder and wife, on the ground that but five, instead of ten per cent, commission, ought to have been allowed to the trustee.

Upon this reversal, we are called on to exercise, as it were, an. original equity-jurisdiction—to give that decrete on the record before us, which the Chancellor ought to have given. Whilst relieving the appellant, we must do justice to the appellee. If, therefore, by the decision of the Chancery Court, any injustice has been done to him, in remodelling the decree we must extend to him that relief, On which his equities authorise him to insist. That an error to the prejudice of the appellee, John Diffenderjfer, has been inadvertently committed in Chancery, is manifest. He has been decreed to pay two-thirds of the rents and profits of the trust fund to his children, from the 16th of January, 1815, till 1828, whereas their rights first accrued to them on the death of their mother, on the 30th of June, 1818. If it be asked, why on this ground the decree of the Court of Chancery was not reversed on the appeal of John Dijfen1-derjfer ? The answer is obvious; his not having'made it a matter of exception to the auditor’s statements, the act of 1825 precluded him from suggesting it as an error, on his appeal to this court.

That this court may pass a final decree in the cause, we appoint and direct the auditor of the Court of Chancery to state a new account, upon the basis of this opinion, that the expense of such audit be. paid by the appellants; and that the same, as a part of their costs, on their appeal, he taxed by the clerk of this court.

decree reversed.