Felkner v. Dooly

McCARTY, J., after making tbe foregoing statement of facts, delivered tbe opinion of tbe court. Tbe first question presented by this appeal is, did tbe sale of tbe Charles Dickens mine under tbe foreclosure proceedings, and tbe purchase of tbe property by Dooly, terminate bis trust as to tbe two-tbirds of tbe [356] property covered by his mortgage lien? Appellants contend that the sale of the property and its conversion into money did not in any respect change the legal relation of Dooly, as trastee of the property, to the beneficiaries notwithstanding the fact that he purchased the property at the foreclosure sale with the intention of freeing it from the trust, and later on disposed of it as his own to an English syndicate. On the other hand, respondent contends that he purchased the Charles Dickens property at the sheriff’s sale for himself, and not for the benefit of the cestuis que trust, and thereby repudiated his trust as to this particular property, and that thereafter there no longer existed a continuing and subsisting trust as to it, or the money received from the sale thereof to the English syndicate. The rule is elementary that, when a person accepts a trust, he is bound to perform the duties arising therefrom, and he can not by his own acts discharge himself wholly or in part from its duties, or escape its responsibilities. 1 Perry on Trusts, 268-274; 1 Beach on Trusts & Trustees, 383. The defendant in this case having accepted the trust created by the deed from Norton to him, and entered upon the management of the trust property, he was legally bound to execute and carry out the trust, unless released by consent of the cestuis que trust or discharged by the order of a court having jurisdiction to act in the matter. The duties required of respondent as trustee were to sell the trust property, and out of the proceeds, first, pay the costs incurred in the management of the .trust estate, including a reasonable compensation to the trustee for his services; second, to pay the creditors of W. A. Norton; and then pay the residue, if any, to the heirs of said Norton. We know of no rule of law or equity that would permit respondent to exclude or divert any of the trust property from the trust, and by a. series of transactions with third parties, and in a circuitous manner, acquire a title in himself to the property so diverted, freed from the burdens of the trust; but, on the con [357] trary, it is well settled that a trustee can not deal with trust property for his own benefit. 2 Beach on Trusts & Trustees, 520. 1 Perry on Trusts, 195-197; 26 Am. & Eng. Enc. Law, 194, and cases cited in note. If a trustee desires to bid at a sale in order to protect some interest he may have in the property, he must make application to the court, and give the beneficiaries under the trust an opportunity to be heard; and on investigation the court may under such restrictions as it may deem necessary to protect the interests of the cestui que trust, permit the trustee, if it appears his application is made in good faith, to bid on and buy in the property. When a sale of trust property has thus been made to a trustee, and it appears that it has not been conducted with fairness to all parties, but has been so managed as to inure to the benefit of the trustee, to the injury of the beneficiaries, they (the beneficiaries) may appeal to the court; and, upon investigation, if it be found that the sale is tainted with fraud, or that any undue advantage has been taken by the trustee, the court can refuse to confirm the sale, and thereby remedy the wrong. If, however, the trustee, in making the sale acted in good faith, having a proper regard for the welfare of the beneficiaries of the trust, as well as his own interest, he would obtain an indefeasible title to the property purchased. Scholle v. Scholle, 101 N. Y. 167, 4 N. E. 334. This procedure, however, was not followed by respondent when he purchased the two-thirds interest in the Charles Dickens property covered by his mortgage lien. He bought this two-thirds for $28,000, which was only 16 2-3 per cent more than the one-third covered by the McCornick lien sold for; both sales being made at the same time to R. C. Chambers, Dooly’s agent. It also appears from the record that some two or three thousand dollars of the trust fund was used in making the purchase. [357] These qiTéstions were before this court in the case of Hamilton v. Dooly, 15 Utah 280, 49 Pac. 769. In that [358] case the same trust fund was involved, it being the subject-matter of litigation in the suit; and this court held, in an elaborate and carefully prepared opinion, that the purchase of the property by respondent at the sheriff’s sale did not divert it from the trust, or in any respect change his ■ (respondent’s) relation as trustee of the property, to the cestuis que trust. In that opinion, Mr. Justice BARTCH, speaking for the court, said: ‘‘When the defendant [Dooly] accepted the trust under the conveyance from Norton, he at once became charged with the duty of managing and disposing of the property in a careful and prudent manner for the benefit of the cestuis que trust. The property became a trust fund, and could not be diverted from the objects of the trust. His duty in relation thereto was imperative, and the fiduciary relation which thereafter existed between him and his beneficiaries made it impossible for him to lawfully gain any peculiar advantage or benefit to himself out of the trust estate. Under such a trust the trustee is absolutely prohibited from speculating with the trust funds; and if he does, and loses, the loss is his, and, if he gain, the gain belongs to the cestuis que trust. . . . A person in such a situation can not be permitted to act up to the time of the sale, obtain all the information useful to him, and then shake off his character as trustee, and become an unconditional purchaser of the property.” And on page 305 this court again declared: “A mortgagee who is also a trustee is bound to fulfill his trust with the same fidelity as if he were not a creditor. Nor could the defendant act as trustee up to the time of the sale, then disrobe himself of his fiduciary character, and, with the information obtained while in the trust relation, gain, an advantage to himself. . . . As mortgagee, his rights were in no way impaired by the sale. His situation was just the same after as before. He still had the right to payment out of the property, but he had no right to speculate with the trust fund, and, therefore it was his duty to account to the cestuis que trust for the profits of the sale to the [359] syndicate. ’ ’ The decision in that ease, so far as it deals with and defines the character and nature of the fund under consideration, and holds that it is respondent’s duty to account to the cestuis que trust for all funds received by him as trustee, including the proceeds of the sale of the Charles Dickens property, is res ad judicata. Therefore, a further discussion of these questions is unnecessary, as we reaffirm the doctrine announced and the conclusions reached in that case. That decision ought to have terminated the litigation over the trust fund, except as to the accounting, for the rights, duties, and liabilities of the respondent respecting his stewardship of the trust fund were, in a general way,clearly defined and pointed out. 2 3 The grounds mainly relied upon by respondent to defeat a recovery in this case are the statute of limitations and laches. Respondent insists that when he purchased the two-thirds interest in the Charles Dickens property at the sheriff’s sale, as his own, he thereby repudiated his trust to this particular property, and the statute of limitations commenced to run in his favor, and that the action is barred. Appellants contend that this being an express 'trust, and never having been closed and respondent freed from his duties as trustee, the statute of limitations can not be invoked. So far as shown by the record, respondent has never accounted for the trust funds which have come into his possession by virtue of his trust. The trust having never been closed or fully performed, is still a subsisting and continuing trust, against which the statute of limita-tations does not run. The property mentioned in the trust deed and in the will was taken by respondent under the same trust, and he could not continue as trustee in the management of the property, and, whenever he made a sale of any part of it, repudiate his trust as to the proceeds of such sale, and thus compel the cestuis que trust to commence an independent action in order to pevent the running of the statute of limitations against the proceeds of each particular sale. Charter [360] Oak v. Gisborne, 5 Utah 319, 15 Pac. 253; 2 Lewin on Trusts, 863; 2 Perry on Trusts, 863; Allen’s Adm’r v. Wooley’s Ex’rs, 2 N. J. Eq. 209; Eastman v. Davis, (Vt.) 35 Atl. 73. The junior counsel (law firm) for respondent in this case appeared for the plaintiffs in the case of Hamilton v. Dooly, supra, in which, as hereinbefore stated, precisely the same subject-matter and the same facts and questions of law were presented as are now involved in this suit, and, after making a detailed and minute statement of the facts in that case, in their printed argument, declared that ‘ ‘ there .never was a plainer case in the world where a trustee, taking money of the trust fund, bought in property for the benefit of the trust fund and must be held to account for whatever there may be in it.” And again they say: “The statute of limita-tations does not bar a trust established, as between a cestui que trust and his trustee. ’ ’ It necessarily follows that if Dooly, in that case, was legally bound to account for the proceeds of the Charles Dickens property, he is in the case now under consideration. His relations, duties, and obligations to the plaintiffs in this case are the same as they were to Hamilton and Rohrer — no greater, no less. The plaintiffs rely for a recovery upon the identical facts produced in the case of Hamilton v. Dooly, supra, and upon the same principles of law invoked therein, and upon which the cáse was determined and disposed of. [360] The case of Hamilton v. Dooly, supra, was decided July 29, 1897. On March 7, 1899, W. J. Barrette, the administrator with the will annexed of the estate of W. A. Norton, commenced an action in the Third Judicial District court of this State against Dooly, as trustee (respondent herein), to compel him to account for the trust funds received by him. Respondent interposed a demurrer which was sustained by the trial court. An appeal was taken to this court, and the judgment of the lower court was affirmed; this court holding that an administrator could not sue in behalf of the cestui que [361] trust. The opinion was announced and handed down December 13, 1899. Barrette v. Dooly, 21 Utah 81, 59 Pac. 718. This action was commenced January 16, 1900. In fact the record shows that the matters involved have been constantly before the courts of Idaho and of this State ever since Dooly accepted the trust; the cestuis que trust, in first one capacity, and then another, demanding an accounting, and Dooly as persistently refusing. Under these circumstances, we do not think plaintiffs have shown such laches as will defeat their action, especially in view of the fact that the position, or relations of the parties have not changed, and that respondent has not been prejudiced by the delay, for which he alone is responsible. After a careful review of the entire record, including the records of the former cases, we are of the opinion, and so hold, that the findings of the trial court, so far as they are inconsistent with the views herein expressed, are erroneous, and not supported by the evidence. The case is reversed and remanded, with directions to the trial court to set aside the judgment entered, and proceed in accordance with this opinion. Costs of this ' appeal to be taxed against respondent. BASKIN, C. J., and BARTCH, J., concur.