Estate of Fesmire , 134 Pa. 67 ( 1890 )

Opinion,

Mr. Justice Williams :

The testator died in May, 1873. He directed his executors to convert his estate, real and personal, into money, and, as to one third of the proceeds, to invest the same in “good real-estate securities,” aud pay the income thereof semi-annually to his wife, Jane Fesmire, during her natural life, and after her death then over to his children, or their representatives absolutely. He named his executors in these words: “ I nominate and appoint my friend Josiali Kerper, my son Peter Fesmire, and my son-in-law Ephraim Magargal, the executors of this my last will and testament.” In June, 1875, the executors settled their account in the Orphans’ Court, showing the performance of the duties imposed by the will in the sale of the property of the testator and the appropriation of the proceeds, and that they had ready for investment the one third of the entire fund, amounting to $7,806.12, for the purpose of raising an income for the widow. This account was confirmed. The fund in hand was then invested in three mortgages, which, it is conceded, were “ good real-estate securities,” and the executors held these mortgages thereafter as trustees under the trust created for Jane Fesmire by the terms of the will. Kerper lived near the widow, had been the trusted friend of the testator for years, was in active business, and apparently a prosperous man. Fesmire, the son, lived in another part of the county, and at a considerable distance from the widow. Magargal lived in the state of Delaware. Both were farmers, in moderate circumstances, living on and cultivating their farms. Neither of them was able to attend to the collection of the interest on the mortgages and its payment to the widow, without considerable inconvenience and expense. The mortgages were therefore left in the custody of Kerper, as the one of their number most conveniently situated and best qualified to act in the premises, and he undertook to collect and pay over the interest. For about ten years he discharged the duty faithfully, and made prompt payment of the interest collected. In October, 1885, he failed to pay the interest1 falling due, and the widow at once made complaint to Fesmire and Magargal. They gave the subject prompt attention; and soon learned, to their great surprise, that Kerper had attempted to embezzle the proceeds of all the mortgages, and was in failing circumstances. They at once began proceedings to remove Kerper from the trust and to recover the trust funds. The widow is now endeavoring to hold them responsible for the interest which the money embezzled by Kerper should have earned, if he had not gotten it into his own hands, and the court below held that they were liable to her for it, although no part of it has ever come into their hands. It is from this ruling that the appeal in this case was taken.

The general rule in relation to the liability of co-trustees is well settled in this state. They are responsible, ordinarily, for their own acts and omissions, but not for those of their associates. So, an executor will not be liable for a devastavit committed by his co-executor, unless he has contributed in some manner to it: Brightly’s Eq., 359. The statement of the rule by Coulter, J., in Hall v. Boyd, 6 Pa. 270, is referred to by several of the later cases as the best statement of the rule to be found in our books, and it is cited with approval so recently as Wilson’s App., 115 Pa. 95. It is in substance, that the act of one of several executors in relation to the testator’s goods, as in making sale, delivering possession, or receipt of the price, is the act of all, as all have authority to do the act; but each is liable individually no further than assets have come to his hands, except for his own fraud or negligence. It may be necessary for trustees to join in executing receipts for money in many cases, but the fact that they do so join is not conclusive evidence that they are jointly liable; for, in the absence of fraud and negligence, each will be held liable only for what he actually receives : Stell’s App., 10 Pa. 149 ; Wilson’s Appeal, supra. The law requires of a trustee fidelity to the trust, and the exercise of the same measure of diligence that a man of ordinary prudence may be expected to exercise in the care of his own property under the same circumstances : Jones’s App., 8 W. & S. 143. A trustee does not become, by virtue of his acceptance of the trust, an insurer of the trust funds against the possibility of loss, nor a surety for his co-trustee. His undertaking is personal, and requires of him good faith and reasonable diligence. If these requirements are met, he is not liable for losses occasioned by the bad faith or the crimes of his co-trustees. The appellants must be judged by this standard.

The trust funds in this case were invested in three mortgages. One of these was for $4,000, one for $2,500, and one for $806.12, to which we will refer as Nos. 1, 2, and 3, respectively.

In October, 1883, Kerper represented to his co-trustees that the land covered by mortgage No. 1 had been sold by the owner, who wished to pay the money, and have the mortgage satisfied to enable him to make title to the purchaser. He stated at the same time that he had an opportunity to loan the money again on real estate in Norristown. At his instance, both Fesmire and Magargal executed an assignment of the mortgage, and left it in his hands to enable him to satisfy it. He received the $4,000, and, instead of re-investing it, he embezzled it, but paid the interest regularly until October, 1885, to the widow. Neither Fesmire nor Magargal gave any attention to the re-investment of this money, and both of them were ignorant of Kerper’s misconduct until they discovered it after notice from the widow that she had not been paid the interest due her in October, 1885. During the two years intervening, Kerper was in active business and in good repute; and as he paid the interest punctually, there was nothing to call the attention of the appellants to this subject. But, when they put it in Kerper’s power to collect the money on the mortgage, it became their duty to see that it was again invested in “ good real-estate security: ” and if they had not neglected this duty the loss would not have been sustained. They did neglect it. The embezzlement was made possible because they neglected it, and their liability grows out of their negligence. We think the learned judge of the court below was right in holding them liable for the loss of the proceeds of mortgage No. 1.

An examination of mortgage No. 2 disclosed the fact that Kerper had received the money due upon it, and attempted to satisfy it by his individual receipt. He never consulted his co-trustees in regard to the satisfaction of this mortgage, and when they discovered what he had attempted to do, they promptly disavowed his act, and began proceedings for the enforcement of the lien and the collection of the money, which are still pending. If the money is collected, it will be their duty to see to its investment at interest, as required by the will. If it is not collected because of the fraud of Kerper, they have neither done, nor omitted to do, anything which has contributed to render that fraud possible, or which can make them responsible for its consequences.

Precisely the same thing is true of mortgage No. 8. The appellants knew nothing of Kerper’s effort to get the money due upon it into his hands, until they learned it in the course of their investigations in the fall of 1885. It was a circumstance they had no reason to anticipate, and they are chargeable with no negligence in regard to it. The arrangement under which these mortgages were left in the possession of Kerper, and he authorized to receive the interest upon them for the benefit of the widow, was, in the light ©f all the circumstances that led to it, a reasonable and proper one. For ten years it was a satisfactory one. It is not now alleged that it was improvidently made, or that suffering the securities to remain in the hands of their co-trustee, who equally with themselves was entitled to their custody, was an act of negligence on the part of the appellants. There is, therefore, no reason for holding them personally liable for Kerper’s embezzlement, or his attempt to embezzle the proceeds of mortgage No. 3.

The wrong that has been done has been the work of Kerper alone, so far as mortgages Nos. 2 and 3 are concerned. As to No. 1, the appellants put it in his power to satisfy the mortgage, and take the proceeds into his own hands; and then they neglected to perform the duty which the will imposed, viz., to see to its investment in good real-estate securities. Because of this neglect, they are liable for the amount of mortgage No. 1. Their duties as trustees require them to be vigilant and active in their efforts to recover on mortgage No. 2, and to convert into money the securities received from Kerper for the purpose of indemnifying them against his embezzlements. They must use due diligence to restore the trust funds, and provide an income for the widow; but they cannot be compelled to pay out money which they never received, and for the loss of which they are not accountable.

A question is raised over the contract between Kerper and the appellants bearing date March 31, 1886. When charged with his embezzlements, Kerper put such securities as he had in the hands of his co-trustees; and, by the contract between himself and them, he directed in what manner the money obtained on the securities should be applied. The order of application was, first, to the payment of the 14,000 received on mortgage No. 1, which was wholly lost to the trust unless it could be realized from the securities which he turned over under the terms of this contract; next, to the payment of the amount of mortgage No. 3, which had been received by him as the result of legal proceedings taken for its collection; last, to the payment, either to the trustees, or to the mortgagor, if compelled to pay tlie mortgage by virtue of the proceedings now pending, of the amount of mortgage No. 2. As these securities were furnished by Kerper, he had a right to direct their appropriation. In the exercise of that right, he seems to us to have acted properly, and to have been just to his co-trustees, without the least unfairness towards his cestui que trust. The wrong done by him was in the attempt to embezzle the entire fund, which, as trustee, it was his duty to protect. The contract of March 31, 1886, was an effort to make amends for this wrong, and restore the fund, as far as the securities would reach; and the appellants have a right to apply the moneys received upon them in accordance with the terms of the contract.

The decree is reversed, and record remitted, with directions to re-state the account in accordance with this opinion.