Smith v. Michael

This is an appeal by the executors of the last will and testament of James Smith, deceased, from a decree of the lower Court taking jurisdiction of the estate, appointing them trustees, requiring them to give bond and account in that Court, and to turn over to themselves as trustees the funds belonging to the estate. The testator, after leaving his farm to his wife for life and after her death to his daughter, the appellee, and giving the personal property on the farm to his wife absolutely, made the following provision in his will: "Item — All the rest and residue of my estate real, personal and mixed which I now hold or may hereafter acquire I will and direct shall be held by my executors hereinafter named and kept safely and profitably invested in good interest-bearing securities, mortgages or otherwise as they may deem best and the interest thereon to be paid over to my said wife Harriet E. Smith during her life and after her death the whole amount thereof with any interest then due thereon to be equally divided between my two children William Alexander Smith and Annie F. Michael share and share alike."

Mrs. Michael filed a bill in equity in which she set out the provisions of the will and alleged that the executors qualified and filed an inventory showing that the entire personal estate amounted to $28,542.75, of which $902.75 represented the personal effects specifically devised to the widow; that they had settled an account showing a balance in their hands of $26,356.19, which was according to the account turned over to the widow for life. It is then alleged that under the will the property on the farm, appraised at $902.75, and one-third of the residue belonged absolutely to the widow, and the balance, $16,968.96, was to be held by the executors and invested as provided in the will — the interest to be paid to the widow during her life, and at her death to be divided between her and her son William A. Smith. It then states that she is advised that the said sum of $16,968.96 is held by the executors in trust, and that the said trust should be administered under the orders and direction of the Court and a trustee or trustees to be appointed.

A demurrer to that bill was filed and sustained, but the Court retained jurisdiction and granted leave to the plaintiff to amend the bill. An amended bill was filed, in which it was also alleged that it was the duty of the defendants to have applied to the lower Court, or to the Orphans' Court, for directions with reference to the administration of the trust, but they failed and neglected to make such application; that they had ignored the plain directions of the will in distributing the whole fund to the widow for life; that the action of the said defendants in causing such a distribution of the estate has grown out either of ignorance or design, and is liable to cause confusion and possibly to make litigation necessary on the part of the plaintiff to protect her rights; that the defendants, instead of investing said estate with such ear marks as to make its identification easy and possible, have been investing the same in the name or names of one or the other of them as individuals; that when said executors have fully administered said estate in their capacity of executors it should be paid into the hands of a trustee. It then goes on to allege that the plaintiff apprehends and therefore charges that the assets of said trust are in danger of being lost, wasted or misappropriated.

After an answer was filed and testimony was taken, the lower Court passed a decree assuming jurisdiction over the trust, appointing the executors trustees, to hold the fund distributed to them by the second account, requiring them to give bond in the penalty of $33,000.00, and to file a detailed statement of the funds in their hands showing the investments, etc., and ordering that the "executors forthwith account with and turn over to themselves as trustees under this decree all funds belonging to said estate."

After the demurrer to the original bill had been sustained, and before the amended bill had been filed, the executors filed the second account spoken of above in the Orphans' Court, in which they were allowed for the personal property turned over to the widow ($902.75) and one-third of the residue ($8,484.48) left the widow absolutely — showing a balance of $16,968.96. It is stated in that account that the balance was to be held by them during the life of said Harriet E. Smith, that the income was to be paid to her and after her death to be equally divided between the son and daughter, and it also states that "their first account was in error in stating that the fund of $26,356.19 was turned over to the widow for life which was not, and never had been done."

The Court below was of the opinion that Section 10 of Article 93 of the Code was applicable, and as that is strenuously denied by the appellants, we will at once consider that question. It begins by providing that: "Whenever, under the provisions of a will, it shall be necessary for an executor or an administratorcum testamento annexo to retain in his hands the personal estate, or any part thereof, after all just claims are discharged, as where money or some other thing is directed to be paid at a distant period, or upon a contingency, any Court of Equity in the city or county, or the Orphans' Court shall have the power, on the application of such executor or administrator, or of a party interested, to decree or give directions thereto; and it shall be the duty of such executor or administrator to apply to the said Court of Equity or the Orphans' Court." It then goes on to give the Court to which application is made certain powers over it. Unless the provisions in the will, providing for the investment by the executors, etc., prevents we can see no reason why this section does not apply to this case. It is certainly necessary for the executors to retain in hand the personal estate left after all just claims (including the widow's) are discharged, and if that provision in the statute is to be limited by the clause, "as where money or some other thing is directed to be paid at a distant period, or upon a contingency," the expression must receive a reasonable construction. It does not necessarily mean a fixed distant period, and if a will in express terms or by necessary implication, requires the executors to hold the property during the life of a tenant for life, it is difficult to understand why the section does not apply. A life tenant may live for twenty, thirty or more years — until a very distant period. It was said in Gunther v. State, 31 Md. 30: "It is obvious the main design of the section, and the object to be attained by the exercise in every case of the power thus conferred, is the preservation of the fund so as to secure it to those who, under the will, or by law, shall be entitled to receive it upon the arrival of a prescribed period, or the happening or non-happening of the designated contingencies."

There may be some apparent conflict between the cases in this State as to the application of the law embraced in this section, but they can be easily reconciled when the facts which controlled those decisions are considered. It may be well to examine some of them. In Gunther v. State, supra, there was a legacy of $2,000.00 to an adopted son of the testator, "should he attain the age of twenty-one years." In that case a guardian was appointed for the minor, and the Orphans' Court passed an order empowering the administrator c.t.a. to transfer the legacy to the guardian. The Court said: "It is madethe duty of the executor or administrator having the money or property in hand, to apply to the Court for direction in the premises, and on such application the Court is clothed with`full power to decree or direct in what manner it shall bedisposed of,' to effect the contemplated purpose; but the mode or disposition for safe keeping and security is not prescribed, but left, in each case, to the sound discretion and judgment of the Court." It went on to say: "We have no doubt the simpler, better if not safer practice in all cases to which the section under consideration applies, would be to order the executor or administrator himself to retain the funds, and invest them in some safe security to be designated by the Court, but we are not prepared to say the mode here adopted is wholly without sanction of law, and the order in question utterly void for want of jurisdiction in the Court to pass it." It held that payment to the guardian under the order relieved the administrator's bond from further liability.

In Reiman v. Peters, 2 Md. 104, it was said that a bequest of an annuity to a widow during the term of her natural life, "if she so long remains my widow, but not otherwise," came within the operation of this section. In Brady v. Brady, 78 Md. 461, the bequest was to the widow for and during her natural life, with power to receive, take and collect the rents, issues and profits, and after her death to pay a legacy of $16,000.00 to the testator's son. The Court held that the administrator c.t.a. should have invested the estate, or have retained the investment as made, if safe and reliable, so as to secure the issues and profits to the widow for life and the principal after her death, to pay the son's legacy. It was then added: "If the administrators had complied with the provisions of Article 93, § 10 of the Code, they would have found complete protection, and have followed the plainly expressed intention of the testator." In that will it was provided that the $16,000.00 to be paid to the son three years after the death of the testator's wife, and other provisions looking to that payment showed that the administrators were to hold the property and pay the legacy after the life estate had expired.

In State v. Hewlett, 48 Md. 138, the testator gave the residue of his estate to James W. Hewlett in fee, upon the condition that he should pay Jack Q. Hewlett, the sum of $5,000 upon the arrival of the latter at the age of twenty-five years, and that sum was declared to be a lien or charge upon the residue of the estate, so given to James W. Hewlett. The Court held that section 10 of Article 93 had no application. CHIEF JUDGE BARTOL, in speaking for the Court, said: "Without quoting the words of the section at length, it is sufficient to say that it applies only where by the will, `money or some other thing' is directed to be paid at a distant day, or upon a contingency, and where in the meantime, the legacy is not disposed of, but must, by theterms of the will, or otherwise, remain in the hands of theexecutor, or the administrator c.t.a." He then went on to say that the will did not direct that the residue, or any part of it, should remain in the hands of the executors. That case was manifestly not within this section, as the executor was not required to hold either money or property for the benefit of Jack Q. Hewlett, but the residue of the testator's estate was to be turned over to James W. Hewlett, subject to the charge in favor of Jack Q. Hewlett.

The case of State v. Robinson, 57 Md. 486, is somewhat peculiar, and differs in some important particulars from some later cases where different results were reached. The testator gave to his wife absolutely the household furniture and fixtures, the cash on hand and the bills receivable of which he died seized, and gave to her a leasehold house and lot on Hollins street and two leasehold lots on Baltimore street, in the City of Baltimore, together with the improvements, rents, issues and profits thereof during her life. He sold the Baltimore street property in his lifetime, and a part of the purchase money which remained due at his death was collected by the executors and invested in United States bonds. The Court held that the purchase money so collected passed to the widow, under the term "bills receivable of which I shall die possessed," but that the executors' bond was liable for the proceeds of sale of the Hollins street property, which sale was made by them under an order of the Orphans' Court. Those proceeds of sale were not invested by the executors, but they charged themselves with them. If they had invested them, and distributed the investments to Mrs. Gregory for life, then another question would have arisen, for, although it is not discussed in that case, the principle we refer to has been distinctly announced in later cases.

In Siechrist v. Bose, 87 Md. 284, the testator bequeathed to Margaret Bose a sum of money for life and after her death to be divided equally among her children then living. The executors filed a petition in the Orphans' Court in which, after stating their readiness to pay the said legacy, they prayed for an order directing them to invest the money "so as to meet the requirements of said will and protect the interest of all the parties interested therein." An order was passed directing the executors to invest the sum in United States, State or City stock in the name of the legatee for life, subject to the provisions of the will. The executors stated an account in which they were allowed credit for the amount "invested under an order of the Orphans' Court * * * for the benefit of Margaret Siechrist for life * * * and subject to the provisions of the will of the decedent."

Subsequently the life tenant obtained an order from the Orphans' Court authorizing her to surrender a certificate of Baltimore City stock, which had fallen due, and receive the money. She received the check of the city, but the record does not show that she ever reported the transaction or reinvested the money. The remaindermen prayed the Orphans' Court to require the surviving executrix to show how the legacy was invested, if invested, to bring the investment into Court, and if not, to bring the money into Court. The answer alleged that the sum had been fully administered, and as surviving executrix she had no further concern in it. The Court dismissed the petition and an appeal was taken to this Court. In considering the question after quoting fromEvans v. Iglehart, 6 G. J. 196, and citing Wooten v.Burch, 2 Md. Ch. 196, and State v. Robinson, supra, we said that section 10 of Article 93 "seems to be an application of the general principle, just stated, to cases where it is necessary for the executor to retain in his hands the personal estate or any part thereof, `as where money or some other thing is directed to be paid at a distant period or upon a contingency.'" And again, after saying that the Hewlett case was held not to be within section 10, "because the will in terms or by implicationdid not require that the fund should remain in the hands of theexecutor, but was expressly bequeathed to James," and after quoting at length from Gunther v. State, supra, we said: "But we do not think the provisions of section 10 of Article 93 apply to this case. Those are applicable, as already has been said, to cases where the money or some other thing is to be paid at a distant day or upon a contingency, and must either by the termsof the will or of necessity remain in the hands of theexecutor." The opinion went on to show that the will imposed no necessity upon the executor to retain the fund or to secure the payment of the interest to the legatee for life. It was held that it was the duty of the executors to invest the fund in accordance with the directions of the Orphans' Court and when so invested no right remained in the executors to retain it; that "the bequest was to Mrs. Siechrist for life; the testator intended it should be her property for that period; she therefore was entitled to have the possession of it for that period, on such terms as would protect the interests of those who were also interested in the fund. What she did with it after she received it was a matter that could not concern anyone else than those who were to take the fund at her death. If her treatment of it was such as to jeopardize its safety, a Court of Equity on proper application has full power to require such security to be given as might be needed." The cases of Myers v. Safe Deposit Co., 73 Md. 413, and Oesterla v. Gaither, 90 Md. 40, are to the same effect.

We have thus made more citations and quotations from cases in this State than is usual, because of the apparent misunderstanding as to what the law is on the subject before us, and because it is always important that fiduciaries understand their rights and obligations. The following conclusions may be drawn from previous cases and from what we have said:

1. Independent of Article 93, § 10, "where the surplus bequeathed for life consists of money or property whose use is conversion into money, it is the duty of the executor toinvest the same in some productive fund, or it must be put on adequate securities, and most properly under the direction of the Orphans' Court, or a Court of Equity, so that the dividends or income may be received by the legatee for life and the principal after the death of the legatee for life, may be received by the legatee in remainder." Evans v. Iglehart, supra; Wooten v.Burch, supra, quoted with approval in State v. Robinson,Siechrist v. Bose, and other cases.

2. Section 10 of Article 93 may apply to a legacy for life with remainder over at the death of the life tenant, and whether it does apply in such cases generally depends upon whether by the terms of the will, or of necessity (in order to carry out the intention of the testator as shown by the will), the personal estate or the part thereof so bequeathed must remain in the hands of the executor or administrator, c.t.a. If it is to so remain, then the section does apply, but if it is simply to be invested and then distributed to the tenant for life to be held under the terms of the will, then ordinarily it does not apply. The cases of Reiman v. Peters, Gunther v. State, and Brady v.Brady, above cited, are illustrations of when it does, and those of Myers v. Safe Deposit Co., Siechrist v. Bose, andOesterla v. Gaither, of where it does not apply, and some of the quotations above from Siechrist v. Bose show the distinction.

As the will now under consideration in terms directs the executors to hold, safely keep and invest this residue, and to pay over to the widow the interest thereon during her life. and after her deah to divide the principal, together with any interest then due, between the son and daughter of the testator, we can have no doubt, under our construction of it, that section 10 of Article 93 of the Code does apply to the fund in question, and the executors ought to have applied to the Orphans' Court or to the lower Court for directions as required by that statute. Having failed to do so, the appellee, as a party interested, had the right to apply to either of those Courts, and having selected a Court of Equity, that Court had the right, and it was its duty to assume jurisdiction.

We do not mean to hold that the lower Court has the power to wholly ignore the terms of the will, but in so far as they can be safely complied with, they should be followed. When the statute says the Court shall have power to decree or direct "what part of the personal estate shall be retained or appropriated for the purpose, and in what manner it shall be disposed of," it, of course, refers to cases where only a part of the personal estate is to be so held, and does not mean that it should be disposed of in a manner contrary to a will which makes provision for its disposition. When however, the will provides, that no bond be required of the executor and one was accordingly given for only such penalty and conditions as are required by section 40 of Article 93, but circumstances arise which in the judgment of the Court require a new one to be given with a greater penalty and other conditions, we think a Court of Equity, after having taken jurisdiction of the estate, has the power to so require. The presumption is that the testator knew that an additional bond might be required, and indeed it may be assumed that he expected the Court having charge of the fund to do what it deemed necessary or proper to protect it.

Although we find nothing in this record to justify a suggestion or belief that these executors were intentionally guilty of any wrongdoing, the fact is that when the original bill was filed, they had settled an account in pais by which they credited themselves with "balance in hands of executors turned over to widow for life under will, $26,356.19," the widow being one of the executors. It was doubtless owing to a misunderstanding of their duty in the premises, but under the law it was their account, and they are legally responsible for the mistake. Such a mistake might result in serious loss to remaindermen — when there is no bond for their protection — and such a serious mistake made by them may well suggest the danger, not to say probability, of their making others, unless directed by a Court which had power to direct them, and we can not say there was no danger of the estate or some part of it being lost. A number of the mortgages were in the individual name of Mr. Smith, and were only assigned to the executors the day the testimony was taken, and while that may not be sufficient to justify the charge that any part of the estate had been wasted (State v. Cheston, 51 Md. 352), it does show that the executors deemed their individual responsibility sufficient to protect the estate, which is not what parties interested in estates are required to rely on. So, although we have no reason to believe from the record that the executors were not thoroughly honest, and were not acting as they supposed they had the right to act, there were circumstances which justified the Court in requiring a bond to be given, to which the appellee, or anyone interested, could look instead of merely to the personal responsibility of the executors. It is unfortunate that such differences should arise between members of a family — especially as they might readily have been avoided by more consideration being shown to each other by the appellee and her brother, but Courts must deal with cases as they find them. The course pursued by the appellee was not necessarily a reflection upon the integrity of the appellants, and it will be better for all parties to have the benefit of the direction and protection of a Court of Equity — especially if their unfriendly relations continue. Of course restating the account after the original bill was filed, and the Court of Equity had taken jurisdiction, cannot affect the right of the appellee to have the estate administered by the Court of Equity instead of by the Orphans' Court. Nor can an offer by the appellants to turn over one-half of the fund to the appellee oust the jurisdiction of the Court, or require her to accept it before it is due under the will.

From what we have said, it will be seen that in our judgment the Court below was right in taking jurisdiction and requiring a bond, but we are of the opinion that there was error in appointing trustees. It is true those who are executors are named as trustees, but the decree in effect removed them as executors. The statute does not contemplate or authorize that, but on the contrary means that the executors shall act unless there be some peculiar circumstances which justify the Court in appointing trustees. The will directs that the residue should be held bythe executors, and kept safely, and profitably invested in good interest-bearing securities, as they (the executors) may deem best. Without prolonging this opinion by a further discussion of that subject, some of the cases we have already cited show such to be the case. Among others are Reiman v. Peters, State v.Robinson, Brady v. Brady and Siechrist v. Bose. There may be some circumstances which authorize the Court to direct the fund to be paid over to another by an executor or administratorc.t.a., as was done in Gunter v. State, but in this case the will clearly contemplates that the executors, as such, act. We might say, as was said in Reiman v. Peter: "These acts are to be performed by them in the capacity of executors."

It follows that the decree must be reversed in part, and affirmed in part, and the cause remanded so that a new decree may be passed in accordance with this opinion. We will under the circumstances direct that the costs be paid out of the fund.

Decree reversed in part and affirmed in part, and causeremanded in order that a decree may be passed in accordance withthis opinion, the costs to be paid out of the fund.