Monroe v. Osborne

The opinion of the court was delivered by Scuddeb, J. The bill in this case is filed to compel David Monroe, a special guardian appointed by the court of chancery, under the statute, to sell the lands of the complainant and her sister, who were infants, and his sureties to pay to the complainant the sum of $916, her one-half share of a bond and mortgage for $1,832 given to secure a part of the purchase-money. The money secured by this mortgage, the complainant charges, has been lost by the breach of trust of the defendant-, who has survived John Snyder, his associate guardian, and since his death has changed the security held by them as guardians for the benefit of herself and sister, Mary Frances Lantz. The land, which was a farm of about one hundred acres, was sold to John Man Blarcom for $5,496, and the sale was reported to and confirmed by the chancellor. Of this purchase-money $1,000 was paid in cash, and the balance — $4,496—was secured by mortgage on the ■conveyed land, dated May 5th, 1868. This mortgage included the value of the dower right of Elizabeth Maines, the grandmother of the infants, amounting to $1,832. After her death, on March 24th, 1883, these granddaughters became entitled to these $1,832, which had been invested for her benefit during her life. In 1869, Man Blarcom conveyed nine acres of this farm to one John Anderson, and in 1870 sold and conveyed the balance to [253] Jacob B. Hagaman, subject to the mortgage for $4,496 held by the guardian, which Hagaman assumed to pay, as part of the purchase-money. Hagaman paid, at different times, $1,164 on account of the principal of the bond and mortgage, besides the interest, reducing the principal sum to $3,332. On May 7th, 1875, Monroe endorsed this payment of $1,164 on Van Blarcom’s bond, also the $1,832 invested for Elizabeth Maines’s dower right, leaving a balance of $1,500 due on the bond and mortgage, and in this form assigned the Van Blarcom bond and mortgage to one Joseph Cole for $1,500. On the same date, May 7th, 1875, another bond and mortgage on the same premises were given by Jacob B. Hagaman to David Monroe, as guardian, for $1,832, the sum representing the dower right of Elizabeth Maines. The effect of this change of the security was to postpone payment of the $1,832 mortgage given by Hagaman until the $1,500 due on the Van Blarcom mortgage was first paid to Cole or his representatives. This is the breach of trust of which complaint is made in this bill and upon which the liability of the special guardian is founded. It is said that he voluntarily gave up the prior security and took a second mortgage for the $1,832 and thereby assumed the risk of its loss. Second mortgages on lands as securities for trust funds have been regarded as improper and questionable investments, not necessarily wrong and conclusive on á charge of breach of trust, but sufficient to cast on the trustee the burden of satisfactorily showing that his act was prudent or unavoidable under the circumstances. Tuttle v. Gilmore, 5 Stew. Eq. 611; S. C., 9 Stew. Eq. 617. Each case must, however, stand on its own circumstances, and a general rule, applicable to all cases, is that a trustee must use the same care, skill, diligence and prudence in the management of the trust and his dealings with the trust property which a man of ordinary care, skill and prudence would use in his own transactions and with his own property under like circumstances. In assuming the duties of an ordinary trusteeship, where he is not controlled by statutes, rules of court or provisions in a deed [254] or will, a trustee is not bound to extraordinary care, nor is he an insurer against loss under all circumstances, but if he is careful, faithful and discreet, the duty imposed on him by law will be discharged. Clark v. Garfield, 8 Allen 427; Hun v. Cary, 82 N. Y. 65; 2 Pom. Eq. § 1070 &c. In applying this rule to the facts of this case, we notice that a large proportion of the purchase-money was invested by the guardians with the order and approval of the court directing the sale of the land and the investment of the proceeds; that there has been a gradual reduction of the principal sum invested from $4,496 to $3,332; that all the money received for principal and interest has been accounted for; that after the guardian had obtained $1,500 by disposing of a portion of the security held by him, the balance, $1,832, remained charged on the same lands with no greater burden than they had previously borne; that payments were made thereby in the order of priority named in the bond:. first, those that were due or to become due to the infants when they attained the age of twenty-one years (Mrs. Osborne, the complainant, being of that age November 11th, 1876, and Mrs. Lantz about three years.earlier), while the share represented by their grandmother’s interest did not become due until her death, March 24th, 1883. The difference of which complaint is made is .that, instead of retaining the mortgage for the whole amount, the guardian divided it into two portions, giving the person who had advanced a part the preference for re-payment out of the trust security. This was effected in the form of a second mortgage on the land which would have been no prejudice to the trust fund if both securities were' in the hands or under the control of the guardian. But if with both securities, or the former bond and mortgage for $3,332 in hand, the trustee would fail in recovering the whole amount of the trust funds, because of the depreciation in the value of the property and the insolvency of the purchaser of the land, he could not be held accountable for the loss, unless by prompt action he might have saved the fund. The reasons that the trustee gives for the change made in the security were that he had, at the time, advanced about $700 to [255] these young ladies, as they had required money from time to time; that he had need for the money; that he called on Hagaman, to whom Van Blarcom had conveyed the farm, to help him with the payment; that he suggested to get some one who would take the mortgage and give him more time, and acting on this suggestion, he saw Joseph Cole, with whom he made the arrangement above described. He further says that he considered the bond of Hagaman better than the bond of Van Blarcom, who was insolvent and had gone away, abandoning his family. But admitting that the guardian had violated his dut}, technically, in making a change of the security held by him, he can only be made to account for the value of such security, or the loss which the complainant has sustained. Wherever a prima facie case of misconduct is made out against trustees, the complainants are entitled to a decree that they shall account for whatever they might have received without such willful default or neglect. Hill on Trustees 528. The investment in this case was not made by the trustee or'guardian originally on his own responsibility, but by the order and approval of the court, and it does not appear that he could at any time have obtained payment of it and a better security. The evidence clearly shows that the land was very poor and unproductive. It is described as limestone, slate and clay, with a very thin covering of soil. The buildings had never been painted and were of little value. It is evident that the original sale was made at a price far beyond its real value and at a time when the price of such land was much higher than it has been at any time since. The witnesses who live nearest to the farm and best understood its value say that when sold originally lands were high, and that this property has greatly depreciated in value; that at the present time it is not worth more than from $2,000 to $2,500. After Mr. Cole’s death, the entire property was sold under a foreclosure of the mortgage, in March, 1879, by his executor, for $1,600; the whole amount due for principal, interest, costs and expenses was $1,911.18. After holding the property for three or four years, and with constant effort to sell at private sale, it was sold for $1,500 by the counsel for the estate, [256] who testified that that was all that could be obtained for it. The widow received interest for her dower up to her death. The three several amounts paid on account of the principal sum and purchase price for the farm make a total of $3,644 received by the guardians and accounted for by them to their wards. Mere speculation as to what would have been the result if the guardian had made further advances, delayed a sale, and himself assumed the risk of the expenses of foreclosure and purchase of the property, will not avail to charge him with a breach of trust in failing to secure the full purchase price of the land. The evidence does not show that it was practicable, with ordinary care and diligence, for the guardians to get more out of the land and the securities held by them than they did. The bill should be dismissed, and the decree reversed, with costs. Decree unanimously reversed.