Pennington v. Smith

COXE, District Judge. This action is brought by the complainant, a citizen of New Jersey, as trustee and special guardian appointed by the court of chancery of that state, against the defendants, who are citizens of New York, to impress the trust upon certain funds in their possession and compel the delivery thereof to him. Stated more briefly it is a suit by a trustee to cbmpel a return of property belonging to the trust fund which the defendants improperly withhold therefrom. The right of a trustee appointed by the courts of one state to maintain such an action in the courts of another seems to be established by the decision in Toronto General Trust Co. v. Chicago, B. & Q. R. Co., 123 N. Y. 37, 25 N. E. 198. At page 46, 123 N. Y., and page 198, 25 N. E., the court says: “Having tltus been clothed with the title to the trust estate in Ganada by proceedings !n. the Canadian action, can it, standing upon that title, maintain an action here as trustee? We think this question -was erroneously answered in the negative in the court below. It is the general rule that he who is the legal owner of property may maintain, an action wherever it may be for its recovery, or for damages for its conversion. Generally, his capacity to sue in such cases grows out of his legal ownership. It is believed that there is no exception to the rale where the legal owner sues in his own right and not in a representative capacity. * * Its (the trustee’s) position is not like that of an ex editor or administrator, who is simply a representative of a dead person, gathering in and'administering upon property for the benefit of others. But it is more like that of the legal owner of property who pursues it or brings suit about it for his own benefit.” Was tbe complainant properly appointed? Unless some reason not now suggested is brought to its attention the court does not feel justified in declaring the orders of the New Jersey chancellor void. It must be remembered that the trust was created by Mrs. Sallie Smith., who lived and died a citizen and resident of New Jersey. Her will was probated there. The real estate out of which the fund in question arises is situated there. It was sold under the auspices of the court of chancery of New Jersey, which court appointed complainant’s predecessor special guardian to protect the interests of the infants. A portion of the trust estate is still secured by the mortgage on this New Jersey real estate. It is argued that the New Jersey court lost all jurisdiction in' the premises because the trustee removed to New York and died there. No authority is cited in support of this proposition and none has been found by the court. Unquestionably the surrogate of New York had jurisdiction of the estate of Mr. Smith, but we are dealing here with the estate of Mrs. Sallie Smith. Mr. Smith did not own this property; lie could not dispose of it by will or otherwise; he sim [191] ply held it in trust for the benefit of his infant children. An application to the surrogate of New York to appoint his successor would probably have been met by a suggestion that the petition should be addressed to the courts of the state where the will w'as filed, where the real estate was sold, and where the order appointing the special guardian was made. Unquestionably the New Jersey courts, originally, had jurisdiction of this trust, and it is thought that they did not lose jurisdiction because the trustee died in another state. So, then, we have the case of a legally appointed trustee suing in a court that has jurisdiction to recover a part of the trust estate which has been illegally diverted and detained. It cannot for a moment be pretended that either of the defendants has any title to the trust fund. Even though the defendant, Mrs. Smith, were appointed guardian of her husband’s children under Ms will, it would not give her the right to hold funds which his will could not touch and which he held only as trustee. The complainant holds the commission of the chancellor of New Jersey to act as' trustee and guardian and has given bonds in the sum of $150,000 for the faithful discharge of his duty. The defendants, on the contrary, have no shadow of title and do not pretend to have any. Surely they should not be permitted to bold the fund as against the complainant. No defense on the merits is urged, but tlie attempt is made to defeat the complainant by defenses in the nature of demurrers. It is said that equity will not take cognizance of the action because there is a perfect remedy at common law. Is there a remedy at law? The action is by a trustee. He seeks to have the trust impressed upon a specific fund in the defendant hank, which, in the ordinary course of business, would be liable to the orders of the depositox*. He prays for an injunction restraining the defendants from disposing of said money and for an accounting to ascertain what amount of property belonging to the trust is in the hands of the defendants. All these áre matters of equitable cognizance and in view of them the court is unable to see how a full and adequate remedy can be had at law. Again, it is argued that by the terms of the ivill Mr. Smith had full discretion as to the management and investment of the trust estate and that he had a right to place the money in the hands of his wife for the benefit of his children. Undoubtedly tbe will of the first Mrs. Smith gave him large discretion. He might have wasted the entire fund by bad investments and the complainant would be remediless. It is even possible that had he invested the fund with the defendant, Mrs. Smith, taking nothing but her unsecured note in return, the transaction could not be questioned. But there is no pretense of anything of this kind. A trustee cannot despoil the trust by turning the property into money and handing the money to his wife. Putting the property out of his hands is not investing it. The complainant has found a portion of the trust fund in the possession of the defendants and he seeks to reclaim what is Ms. If they have title it is for them to disclose its nature. So far from asserting ownership Mrs. Smith expressly dis [192] claims any title to the fund in question. Paragraph 7 of the answer is as follows: “And this defendant, further answering said bill, alleges that this defendant has never made any claim of right, title or interest in or to the checks mentioned in the bill, or to the proceeds thereof. On the contrary, this defendant received said checks and deposited the same in her bank, at the request of and for the accommodation of said George Oondit Smith in his lifetime and under the belief that they were the property of the said George Oondit Smith, as they appeared to be under liis absolute control and disposition. After the receipt thereof, and during the lifetime of said George Oondit Smith, this defendant repaid out of the proceeds of said checks to him, and disbursed for him at his request, the entire proceeds thereof, and there was not, at the time of the commencement of this action, on deposit with the defendant the Fifth Avenue Ban t, to the, credit of this defendant, any of the proceeds of said cheeks or either of them.” There is no proof that the money has been disbursed as alleged, and, upon this record, it must be presumed that a large portion of the trust money is still in the custody of the bank. Should it prove to be, Mrs. Smith,-has, by the express averments of her answer, renounced all claim thereto. As to the $5,000 payment, made September 25th, it is thought that the defendant, Mrs. Smith, must be charged with notice. That she knew of the trust generally is sufficiently proved by her letter of August 9, 1893, to the complainant, and that the $5,000 was a part of the trust was sufficiently shown by the fact that the check was made payable to Mr. Smith as guardian and was so indorsed by him. However, she knows now that this $5,000 belongs to the trust estates. She has parted with no value on account thereof, and, assuming the amount to be still in the bank, she has no right to retain it against the trustee even though she at one time supposed that it was her husband’s individual property. In view of Mr. Smith’s de duration of trust and the receipt given by him it is thought that the first payment of $5,000—March 20, 1894—was applied to the extinguishment of his individual interest in the mortgage and that the balance of $856 was paid to him as trustee and guardian. There was nothing upon this check to indicate that it related to ;rust funds, and if the above amount $856 was checked out in good faith by Mrs. Smith she cannot be required to account therefor. It is thought that there should be a reference to determine First, what amount of money belonging to the trust remains in the bank. Should the master find that the full amount now claimed by the complainant, to wit, $5,856.87, is there, he need proceed no further. If, however, he finds less than that amount in the bank he should proceed, Second, to ascertain whether the balance was disbursed by Mrs. Smith with full knowledge that it -belonged to the trust estate and report the amount so disbursed by her. Mrs. Smith should account for the amount belonging to the trust estate which she has used for her own benefit with full knowledge of the trust, but she should not be charged with sums paid to [193] tbe deceased trustee or disbursed by his direction for the purposes of the trust. There should be a decree for the complainant in accordance with these views.