Estate of George v. United States Fidelity & Guaranty Co. ( 1936 )

The following opinion was filed December 8, 1936:

Fowler, J.

A petition was filed in the county court to require A. F. Wendt, as trustee under the will of D. H. George, to which his bondsman, United States Fidelity & Guaranty Company, was made a party, to account for securities in his hands as trustee. On final hearing the county court determined that certain securities held by the trustee were improperly held by him, and certain investments made by him were improperly made, both because not such as required by statute for investment of trust funds. The securities were notes of R. A. Upham for $1,600; thirty shares of bank stock; and certificates of deposit in a bank. The judgment of the court required payment of the original or par value of the securities with interest accumulations, aggregating $8,012.11, to be paid by Wendt and his surety into court, and required assignment of these securities by Wendt to the surety company. The surety of Wendt appeals.

The appellant makes two contentions : (1) That the county court was without jurisdiction to enter judgment against a surety company; and (2) that the securities were properly held by the trustee under the will because the will gave to the testator’s widow the power to direct that they be so held and she so directed.

(1) The basis for this contention and the only authority for it cited is a statement in the opinion in Estate of Thompson, 212 Wis. 172, 180, 248 N. W. 167, that “it must be held, therefore, that, so far as the judgment determines the liabilities of the sureties beyond the extent to which such liabilities may be determined by the judgment against the executor, the judgment should be reversed.”

In the instant case there is no judgment against the surety beyond the extent of the judgment against the trustee. Moreover, the statement quoted does not relate to the jurisdiction of the court. The practice in that case was as it is here. That practice has been followed in other cases recently before this, court. Estate of Karkowski, 220 Wis. 45, 264 N. W. 487; Estate of Wittwer, 216 Wis. 432, 257 N. W. 626. The objection to jurisdiction seems to be based on the idea of counsel that the usual practice is first to surcharge the trustee’s account and then sue the trustee and his bondsman on the bond. We surmise that the usual practice is perhaps as here. But however this may be, it does not reach the point of jurisdiction of the county court to enter judgment in an accounting proceeding against both the trustee and his bondsman. We perceive no reason why the county court has not jurisdiction to bring in as a party the bondsman of a trustee lawfully appointed by the county court and render judgment against him for the amount for which he is liable in the proceeding for an accounting. Such proceeding is more favorable to the bondsman than the other proceedings suggested. In such proceeding the bondsman has notice of the claims against the trustee and is thus given opportunity to defend on his own account if he desires. In the other proceeding he may have no notice of the first proceeding, and thus have no opportunity to defend, but is nevertheless bound by the judgment against the trustee. Newcomb v. Ingram, 211 Wis. 88, 109, 243 N. W. 209, 245 N. W. 121, 248 N. W. 171. No prejudice can possibly result to the bondsman from the practice here followed.

(2) The will of the testator under which the appellant claims his retention of the securities was proper contained a clause directing the trustee to convert all of the testator’s property, except his homestead, and except such portion of his property as his wife might desire to have preserved in kind, into interest-bearing securities, and to invest and reinvest all of his property, except as aforesaid, in high-grade interest-bearing- securities; and to pay the entire income of his estate, less the expenses of administration, to his wife, Sarah R. George, during her life; and upon her death, to set aside the sum of $10,000 in one fund and hold it for the benefit of a named grandson until he became thirty years of age; and to pay one half the rest to a daughter; and to hold the other one half in trust to pay the income' for the support of the testator’s son James and his family; and upon the death of both James and his.wife, Agnes, to pay it to the said grandson if he was then thirty years of age and, if not, to hold it in trust for him until he attained that age.

Wendt was not made the original trustee, but was appointed to succeed A. S. Humphrey, who was first appointed and resigned on account of ill health after the death of the testator’s wife, Sarah. The wife survived the testator only a little more than a year after her husband’s death. The court found that “shortly before her death” the widow “orally directed A. S. Humphrey to keep the property intact until paid by the people who owed it, and then to reinvest the proceeds” and that this direction was communicated by Humphrey to Wendt.

■ The court concluded that the direction of the widow to hold the funds intact conferred no power or right to the trustee to hold them intact after her death. She might properly for her own benefit during her lifetime so direct, but she could not by such direction freeze the securities in the trustee’s hands during the remaining period of the succeeding trusts created by the will, one of which was not to expire until the grandson, nine years old at the testator’s death, became thirty years of age, and the other might continue longer. Humphrey held the securities for nearly a year after the widow’s death before resigning, but up to this time there had been no depreciation of the securities.' They were of value when he received them as trustee as set forth in the inventory of the estate, and were of the same value when he turned them over to. Wendt. As the estate was not damaged by Humphrey’s failure to convert the securities and invest the proceeds as required by statute, Humphrey and his bondsmen, who were also parties to the petition for accounting, were discharged from liability and properly so. But the court held that Wendt was required as trustee to convert the securities mentioned within one year from the time he received them and reinvest them in statutory securities. This is in accordance with a generally accepted rule. Estate of Grotenrath, 217 Wis. 109, 258 N. W. 453. From March 5, 1930, to the time of hearing in June, 1934, the bank stock had become valueless, the certificates of deposit had become greatly lessened in value through stabilization proceedings of the bank that issued them, and the notes of Upham had become uncollectible. The court held the trustee and his bondsman liable for the value of the securities when Wendt received them with four per cent interest thereon.

. We are of opinion that the trial court was right in holding that the widow had no power to direct the holding of the securities beyond the period of her lifetime, and that it was also correct in requiring Wendt to account for them at their value when he received them.

Tt is urged that Wendt was only responsible for negligent handling of the securities. But as to the bank stock and notes, the statute itself makes him negligent upon his failure to convert and reinvest them in such securities as the statute requires. Estate of Fouks, 213 Wis. 550, 554, 252 N. W. 160; sec. 231.32, Stats. 1933. However, the court’s findings sufficiently cover the matter of his negligence. The court expressly found that Wendt “was negligent in the management of this trust, and as a result of such negligence the estate of D. FI. George, including the two separate trusts of Dewey George and James F. George and family, have suffered a loss in the sum of $7,704.28 as of February 1, 1956.” This statement is in the judgment rather than the findings, but the findings go into detail as to Wendt’s conduct respecting the three classes of the securities, and make out a case of negligence as to each. They recite that the notes were collectible at all times during 1931 and up to the middle of 1932, during which period they were in Wendt’s hands, and should have been collected during that time; that the certificates of deposit and the bank stock were in a bank of which Wendt was assistant cashier and m the active management; and that the stock of the bank was salable at its face value for more than a year after Wendt received it as trustee. The certificates of deposit ran to Wendt as trustee and were dated November 28, 1931; December 7, 1931; March 9, 1932; March 15, 1932; April 28, 1932; September 15, 1932; and November 15, 1932. The aggregate of their face value is over $4,000. The bank closed February 4, 1933. Wendt as assistant cashier is chargeable with knowledge of its condition. The certificates were not proper subjects of investment under the statute, yet the one first described was held for more than a year. They were payable on presentation, and would have been paid on presentation at any time before the bank closed, and Wendt did not present them. At the date of the later certificates, under Wendt’s intimate knowledge of the bank’s condition, to deposit funds in the bank even for temporary holding, may well be considered negligent. We consider that the county court was not in error in holding the trustee liable for all these certificates. In re Filardo, 221 Wis. 589, 602 et seq., 267 N. W. 312.

By the Court. — The judgment of the county court is af-' finned.