Johns v. Herbert

Mr. Justice Shepard delivered the opinion of the Court: 1. The demurrer seems to have been sustained upon the ground that as the defendant Herbert is an executor appointed by the court of Fairfax county, Virginia, where the will was admitted to probate) he cannot be sued as such and brought to an accounting in this court, simply because he may be found in this jurisdiction. It is an established principle of law that an executor or administrator cannot be sued in another jurisdiction than that in which the administration of the. estate is depending, for an accounting, or for acts involving the administration of the estate, or the assets thereof in his hands as such executor or administrator. Vaughn v. Northup, 15 Pet., 1; Bateman v. Plumb, ante, p. 156. But this is not a suit for the settlement of the estate. There is no controversy as regards the executor’s account. There does not appear to be any question of the right of any creditor. Some sixteen years had elapsed since the probate of the will. From the statement of the terms of the will contained in the bill, it would appear that defendant [497] Herbert stood in two relations to tbe testator: first as executor for all the purposes of administration, and second as trustee for the benefit of his legatees, after the estate should be closed, and until the death of Mary Johns. The lapse of time, the facts alleged in the bill, all go to show his assent to the trust created in him by the legacy. Dix v. Burford, 19 Beav., 409; 1 Lewin on Trusts, 205; Wheatly v. Badger, 7 Pa. St., 459. As a trustee of the legacy, then, and not as executor of the estate, he is amenable to suit in the courts of any jurisdiction within which he may be found. 2. The second objection to the bill here urged is that it °does not show a cause of action against defendant as trustee. It is a settled rule that the trustee of a fund for management and investment must act in good faith and in the exercise of a sound discretion. Harvard College v. Amory, 9 Pick., 446; Bowker v. Pierce, 130 Mass., 262. Two special grounds of culpable negligence are alleged in this bill against the trustee: (x) That immediately after the probate of the will he was called upon to sell the bonds, and warned that their value was then speculative and fictitious. (2) That he kept the bonds on hand until they became worthless, though in the meantime he sold bonds of his own, of the same kind, at twenty-six cents on the dollar of the principal. In the absence of a specific charge of bad faith in the trustee’s failure to sell the bonds upon the request urged in May, 1876, we do not think that the facts alleged in the bill on that ground are sufficient to make a case of actionable negligence. The mere fact that he was requested to sell by the life beneficiary, or that the bonds were paying no interest, is not sufficient to make him liable for their depreciation in value. It appears that the interest upon the bonds had been ip default since 1864, with the exception of a small payment in 1872. The testator held on to them himself notwithstanding the failure to collect interest. His codicil, dated April 15, Í876, made a special bequest of them in trust for the use of his daughter-in-law for her life with remainder [498] to the appellants, and made no provision for, or even suggestion of, their sale or conversion into other securities. The trustee himself owned a large number of bonds of the same issue, and his judgment was against the sale at that time. It is true that the conduct of a trustee in the management of his own funds, of a similar character, is not the' test of his liability. King v. Talbott, 50 Barb., 453. But at the same time it is a circumstance that may well be looked to as evidence of his good or bad faith or negligence. It can now be seen that an immediate sale of the bonds would have been best for all concerned; but the trustee’s conduct is to be judged by the situation as it appeared at the time. Bowker v. Pierce, 130 Mass., 262. Again, as we have above remarked, the testator had evinced his own confidence in these bonds, and it is evident he did not intend that the trustee should have the power to sell them at his discretion. The power of a trustee to sell stocks and securities is not to be implied. Duncan v. Jaudon, 15 Wall., 165; Bayard v. F. & M. Bank, 52 Pa. St., 232; see p. 237. Had he then sold them, and they had after-wards risen in value, he could have been compelled to restore the investment at his own loss. Murray v. Feinour, 2 Md. Ch., 419. In that case, the will bequeathed certain stocks in trust, the dividends of which were to be paid to, certain parties for life, with remainder over. Respecting a change of the investment, the court said: “The will gives no power to the trustee to change the investment, and therefore it is supposed to be clear that if without an express authority from some competent tribunal he was to dispose of the stock and invest the money in other securities, he would upon a proper application be decreed to replace the stock; and if the stock be replaced at a less sum he would be compelled to invest the surplus in the same stock to the same uses.” It would seem, too, that Mr. Johns as the representative of his wife, was reassured by the statement of Mr. Herbert, as set out in the bill, with no impeachment of its good faith [499] at the time, and did not file a suit to compel the sale, as he might have done without the co-operation or consent of the executor. It is true that his conduct, either in acquiescing in the views of the trustee, or in failing to apply on his own account to the court for an order compelling the sale, may not bind his wife and certainly could not bind his children, who were minors at the time; but it may also be considered as a circumstance tending to support the good faith and discretion of the trustee in opposing the sale at that time. 3. The fact that the testator contemplated the continuance of the investment as he had made it originally, and that he did not vest the trustee with the power to change it at discretion, will not of itself, however, relieve him from liability if the fund were lost by his negligence. It was his duty to watch the investment with reasonable care and diligence, and to apply to the court promptly for leave to change it whenever his judgment, as a prudent business man, should have prompted thereto. 1 Perry on Trusts, Sec. 465. Upon the second of the foregoing grounds, and upon others, it is not clear that the defendant is not liable. At the time the bonds came into his hands they were worth 117 cents upon the dollar of face value. No interest was ever paid on them, and they continued to go down, until a few years before the suit was filed, when they fell to 26 cents. The trustee sold his own bonds at this price, but held those of his cestuis que trust until they became valueless, making no effort to dispose of them. These facts are sufficient, in our opinion, to make a prima facie case of actionable negligence which it is incumbent upon the trustee to explain. Brice v. Stokes, 2 L. C. Eq., 1753, note. If it be made to appear that after these bonds commenced to decline, the facts and circumstances concerning the want of safety in continuing to hold them, were such as to make it apparent that he should have applied to the court, giving the reasons and asking for authority to sell them and reinvest the money, then he ought to be held for the loss sustained by his failure to do so. [500] 4. It remains now to consider the effect of the allegation of the bill, that “ Mary Johns and the said John Johns have transferred and assigned to the complainants all of their interest in and to the said bonds and the overdue and unpaid interest coupons, so that the complainants are now the absolute owners of the said bonds, or the proceeds thereof, both interest and principal.” There can be no objection to this transfer, so far as it extends. McBurney v. Carson, 99 U. S., 570. The general effect of the assignment, as alleged, is to vest the complainants with the entire claim for both principal and interest against the maker of the bonds. Its special effect, so far as this action is concerned, is to extinguish the life interest of Mary Johns and thereby give the complainants, who are the remaindermen, an immediate right of action for any loss that may have occurred to the body of the fund. The assignment by Mary Johns of the unpaid coupons and her life interest in the principal of the bonds, as above alleged, does not by its terms vest complainants with her right of action for loss of the collection of these coupons or any of them. It is true that a mere right of action, as such, that is to say, the mere right to file a bill, has generally been held not assignable in equity, because in its nature champertous. 3 Pomeroy Eq., Sec. 1276; Marshall v. Means, 12 Ga., 61; Jeffries v. S. W. V. Imp. Co., 88 Va., 862. But if the life tenant had in fact assigned her right of action also for the loss or depreciation of the trust fund, we do not think that under the circumstances of the case it should be regarded as champertous, and therefore incapable of enforcement. It seems to come within the scope of the doctrine of McBurney v. Carson, supra. Without intending to intimate an opinion upon the merits of the case as they" may hereafter be disclosed, we think that' the allegations of the bill are sufficient to put the defendant upon his answer. For the error in sustaining the demurrer and dismissing the bill, the decree must be reversed, with costs to the appellants, and the cause remanded for further proceedings. It is so ordered.