Streater's Estate , 250 Pa. 328 ( 1915 )

Opinion by

Mr. Justice Potter,

The principal question here raised is whether a trustee has power, without express authority, under the terms of the trust, or an order of court, to sell bank stocks received by him from his predecessors in the trust, and by the latter from the estate of the person who created the trust. Appellee in her petition alleges that the ten shares of bank stock which came into the hands of S. B. Sturdevant, as trustee of the Estate of Charles Streater, were part of the residue of that estate, and that the trustee sold and assigned them to appellant. The court below found that “the consideration paid for the stock was about seventy dollars per share, which was its then value.” It is alleged by appellee, and the court so found, that appellant either knew or was put upon notice that the stock was subject to the trust at the time he purchased it. There is no allegation that he had any knowledge or reason to believe that the trustee intended to misappropriate the proceeds of the stock, or that there was any collusion between them to defraud the estate. The court found that the appellant purchased the stock from the trustee for its full value, and that he was not responsible in any way for the trustee’s subsequent fraudulent conduct.

In the will of Charles Streater he gave all the residue of his estate, including “credits, funds, securities and personal estate,” to his wife for life, “with power to change said funds and securities for her own benefit, and those who from and after her death will be entitled thereto under this my will.” The widow was made sole executrix of the will. After the death of the widow testator gave one-half of the residue to his son-in-law “upon trust to receive and collect the rents, issues and proceeds thereof,” and pay the same over, etc. Sturdevant was a successor of the original trustee. While the bank stock represented an investment originally made by the testator himself, it was not specifically bequeathed, but constituted a part of the general residuary estate. The widow did not exercise the power which she had to change the investment, and upon her death the stock passed into the hands of the trustee named in the will. The record does not show at what valuation it was taken, but it is apparent that it was taken as part of the trust fund instead of cash. It does not appear whether the stock was transferred on the books of the bank to the original trustee, but in 1865 a new certificate was issued to Ricketts, the substituted trustee, and in 1885 another was issued to “S. B. Sturdevant, trustee in the Estate of Charles Streater.” It will not be contended that corporate stocks are legal investments for trust funds. In Worrell’s App., 23 Pa. 44, Mr. Justice Knox said (p. 48) : “It may now be considered as settled law, that in Pennsylvania an investment by a guardian or other trustee, unless authorized by the deed of trust, in the stock of an incorporated company, whether a bank, railroad, canal, manufacturing, or mining corporation, cannot be made at the risk of a ward or other cestui que trust.” In Com. v. McConnell, 226 Pa. 244, Mr. Justice Mestkezat, after citing several prior decisions, said (p. 247): “The doctrine thus firmly established in this State prohibits a trustee from investing the estate of his cestui que trust in the bonds or stocks of a private corporation. The people of the Commonwealth have attempted to enforce the rule by Article III, Section 22, of the present Constitution, which prohibits the general assembly from authorizing the investment of trust funds by a trustee in the bonds or stocks of any private corporation. Time has tested the wisdom of the rule, and, as our cases declare, it is firmly established in this Commonwealth.” The power of a trustee to dispose'of improper securities, and to invest the proceeds in legal securities, does not seem to be open to question. If this be his right, he must have an implied power of transfer, even though no such express authority be conferred in the instrument creating the trust. The power to transfer securities is incident to the proper mahagement of any trust estate. In Kaiser’s Est. (Orphans’ Court Allegheny County), 33 Pitts. L. J. 62, it was held that a trustee had power to assign a mortgage received by him from the testator’s'estate. Over, J., said: “It is evident that it was necessary that this personalty (including the mortgage) should be converted and the proceeds invested to support the cestui que trust, or to pay him the income; and, as the trust may continue for anumber of years, that the securities should be changed •or sold for the purpose of reinvesting the proceeds or ■applying them to meet the requirements of the trust. It follows that the purposes of the trust cannot bé accomplished and it properly managed unless the trustee has such authority, and it is therefore among the general powers which are incident to the office of his trust without being named in the will.” What seems to be a sound '■and reasonable statement of the general rule, is found -in 2 Perry on Trusts (6th Ed. 1911), section 814, whére it is said:' “A trustee may generally sell the personal property belonging to his trust estate, especially if he have authority to change the securities, or vary the iri- . vestments, and if he sells the personal property and receives the purchase-money in good faith, the purchaser will take a good title, and will be protected from loss, ■although the trustee afterwards misapplies the. monéy'. If it appears to the purchaser that he is purchasing a trust property, he will be put upon no inquiry, except to ascertain whether the trustee has power to change or vary the securities. If the instrument of trust is silent upon the power of varying the securities, it is to be determined upon the whole scope and purpose of the trust, whether the trustee has in fact the power to dispose of the property.” In Toronto General Trust Co. v. Chicago, Burlington & Quincy R. R. Co., 64 Hun. (N. Y.) 1, the question was as to the power of a trustee tó sell and transfer railroad stock received by him as .part of the trust estate. Andrews, J., said (p. 8) : “The rule in England and in this State, which forbids a trustee to invest -trust funds in the securities of railroads and other corporations, is a most salutary one; and we. think' the rule is, or ought to be, that a trustee who receives trust property invested in such securities should, if he is not required to sell the same, at any rate have the right to make such sale and invest the proceeds in the same manner that he would be required to do if the trust property received by him consisted of money.” This case was affirmed on the opinion of the court below, in Toronto General Trust Co. v. Chicago, Burlington & Quincy R. R. Co., 138 N. Y. 657. Under the principle illustrated by these authorities, we think the present appellant was justifiéd in relying upon the implied power of Sturdevant as trustee to sell and transfer the shares of bank stock. And in the absence of fraud, or knowledge by the purchaser of any intention on the part of the trustee to misappropriate the proceeds of the sale, the purchaser took a good and valid title to the stock. Marshall’s Est. (No. 2), 138 Pa. 285, and Clemens v. Heckscher, 185 Pa. 476, cited by the court below, were cases of the pledge of trust securities for the payment of trustee’s own debts. They have no application to the facts of the case at bar. The distinction between a clear sale in open market, and an attempt to pledgé trust' property for the benefit of the trustee is manifest. It may be added that after a delay of some twenty-two years, it is rather late in the day to object to the transfer of a particular certificate of stock; especially is this true, in yiew of the fact that the trustee who made the transfer continued in that position for about twenty years, until his death. Had those interested in the estate required the trustee to file accounts at reasonable intervals, the present cause, of complaint would have been discovered many years ago, and if the trustee was in default the remedy could have been promptly, and presumably with effect, applied.

The fourth and fifth assignments of error are sustained, and the decree of the Orphans’ Court is reversed. The costs of this appeal to be paid by Edna Streater Pettebone, appellee here.