Case ID: ohio_18/html/0500-01.html
Source: Caselaw Access Project
Author: {"author": "Spalding, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The State of Ohio v. Nathan Guilford et al.
    Where a loss accrues to a trust fund through the default of one of five trustees, his co-trustees will not he held responsible for such loss if they have acted in good faith and exercised that vigilance over the fund which a man of ordinary prudence will exercise over his own property.
    This is a bill in chancery, reserved in Hamilton county.
    
      The bill charges that Thomas Hughes, formerly of Hamilton county, died in 1824, leaving a will, by which he devised cer tain property for the support of schools for destitute children in Cincinnati.
    The clauses of the will bearing on this matter, were as follows:
    “ It is my will, and I do order and direct, that all the rest and residue of my said land and property aforesaid, shall be appropriated and applied to the maintenance and support of a school, or schools in • the city of Cincinnati, for the education of poor destitute children, whose parents or guardians are unable to pay for their schooling.
    “ The said property, the management of the funds. arising therefrom, the appropriation thereof, and those who are to receive the benefit thereof, I do place under the control of a board of trustees hereafter to be named. And I do hereby nominate, constitute and appoint William Woodward, Jacob Williams, Nathan Guilford, William Greene and Elisha Hotchkiss, all of the city of Cincinnati aforesaid, a board of trustees to execute the trust aforesaid. * * * And I do hereby give and devise to the said trustees above named, and their successors forever, to be appropriated in manner aforesaid, all the rest and residue of my said land and property aforesaid, to be by them kept and the rents and profits thereof applied in manner aforesaid, and for the uses and purposes aforesaid, or to be by them sold and disposed of, and the avails thereof' to be funded, and the interest thereon to be appropriated for the uses and purposes aforesaid, as in their discretion shall best promote the means of education, as hereinbefore set forth.”
    The bill further states that Woodward died in 1833, and George P. Torrence was appointed his successor, and that Jacob Williams died in 1840, and Samuel Lewis was appointed to succeed him. That in July, 1835, money to the amount of $1,000 had come to the hands of the trustees, which they had failed to appropriate, and refuse to account for; that this sum was increased until, in July, 1840, the trustees had received $9,000 more than they had applied under the trust, which sums they directed to their own use, or so neglected the trust that the whole was lost; that Jacob Williams died insolvent, and Milo G. and Thomas Williams, are his administrators. The bill prays answers on oath; that the trustees may be compelled to pay the sums specified to the use of the will, and for further relief.
    Hotchkiss, one of the trustees, being absent from the state, was not served with process and has not answered.
    The answer of Samuel Lewis states that he was not a- trustee at the time of the transactions complained of, and denies that he is responsible for them.
    The answers of the administrators of Jacob Williams deny that he was guilty of any fraud, but admit the defalcation, and ask the court to ascertain the amount by deducting from the sums received by their intestate a reasonable compensation for his services.
    The supplemental answer of Nathan Guilford, filed February 25th, 1847, states substantially, that said Thomas Hughes was persuaded and finally induced by the said Jacob Williams, who had long been his intimate friend, to make the bequest named in the bill of complaint, and that the other trustees were appointed by said Hughes at the instance of said Williams, who at all times before his defalcation and death, exhibited a most active and laudable zeal in the object of such bequest and in the punctilious and faithful execution of the trust. That said Williams, having procured the bequest to be made, and well understanding the wishes and intentions of the testator in relation to the same, and being a man of active benevolence, of sound sense, and in high estimation for honesty and integrity, had deservedly much weight and influence with his co-trustees as to the disposition to be made of the property, and the application of the funds arising therefrom.
    Immediately after the probate of the will and the acceptance of the trust, the defendant and his co-trustees carefully examined the property bequeathed, and inquired into its capabilities, and the probable revenues it could be made to yield.
    
      Said property consists of a tract of land containing about thirty acres, north of and adjacent to the city of Cincinnati, a small portion of which lies at the foot of the hills on the plain of the city, but much the greater part, some twenty-three acres, runs over the precipitous hill which bounds the city on the north.
    At the time of the death of Hughes, in 1824, the settled part of the city had not extended into the neighborhood of this property, which was then - occupied as pasture land and considered of little value. Upon consultation, it was concluded upon by the trustees, to survey, lay off into lots, and sell on permanent leases the portion of said estate at the foot of the hill, and to rent the residue temporarily for pasturage. This plan was carried into effect. In the spring of 1827, the small portion on the plain was laid off into lots, some thirty or forty in number, and the lots were sold at auction on perpetual leases, for a yearly rent of from twelve to thirty dollars each.
    This defendant was at first appointed to collect the rents and keep the accounts with the tenants, and acted in that capacity for about two years, when the said Jacob Williams, then universally esteemed a man of wealth and of unquestionable honesty, was appointed in his stead. Said Williams continued to act as such collector, and most faithfully performed his duties as such for many years, and until the defalcation and fraudulent embezzlement referred to in the bill of complaint.
    That the rents which had accrued anterior to the 7th of July, 1835, had been for the most part appropriated to the support of indigent pupils at the Woodward High School, and at this date the said Williams reported a balance in his hands of something over eighty dollars. About this time, it was determined by the board that the fund should be suffered to accumulate for the purpose of ultimately erecting an edifice and establishing a High School for girls. In 1836, the residue of the land, about twenty-three acres, was sold to one Reeder, by lease, for ninety-nine years, renewable forever, at an annual rent of eighteen hundred dollars.
    
      But little if any thing was received on, this lease for two or three years after its execution, as said Reeder became embarrassed; and sold the same to McLeary & Bissell, who, failing in business,-assigned to Greenbury Dorsey, of New Orleans, who also becoming insolvent, assigned the same for the benefit ■of his creditors. The trustees, therefore, naturally considered the lease as forfeited, and made no order or arrangement for the investment of the funds arising from it.
    That said Williams received the rents due on the Reeder lease from the assignees of said Reeder, constituting the principal part, if not the entire amount of his defalcations, without the order of the other trustees, and without the knowledge or ■consent of this defendant, and without any other authority from the other trustees than what had been conferred upon him by his appointment of collector as before stated, of the •small portion of the estate first leased.
    And this defendant says, that soon after it was ascertained that said Williams had received the money, or a portion of the same, from the Reeder lease, the board of trustees held á meeting to determine upon the best mode of investing said funds, at which said Williams offered to allow six per cent, interest for the same on a loan to be secured by mortgage on his property ■on Main street. But as a majority of the board preferred to have the funds placed where they Could be commanded with certainty when wanted, they directed said Williams to place the amount in his hands in the trust department of the Ohio Life Insurance and Trust Company, at such interest as said •company w-oul'd allow.
    That at a subsequent meeting of the board, said Williams ■exhibited his bank book with said company, to show that he had ■complied with the order of the board.
    And this defendant says, that he had full faith and confidence in the integrity of said Williams until he was informed by the •defendant, Samuel Lewis, that said Williams had, in his opinion, converted a part or the whole of said funds by him received, to his own use; and although said Williams was generally es« teemed a man of property, and good for a much larger sum of money, yet at a meeting of the board held soon afterwards, an order was passed directing him to report the amount of funds on hand, where the same was deposited, how invested, etc.; and this defendant and his co-trustee, Wm. Greene, were appointed a committee to examine into the accounts and funds. This defendant and the said Wm. Greene, made frequent and urgent applications to said Williams for the report aforesaid, and for an inspection of his books of account, but were put off from time to time by said Williams, who said that he was not much of an accountant or book-keeper, but he would get his son to make out the account. After several fruitless attempts to bring said Williams to a settlement, or to get him to render an account, the said Samuel Lewis proposed to make application to the court of common pleas for a citation which would compel him to render an account, and to comply with the order of the court, which this defendant expected would be, that if said Williams had used any portion of the funds, he would be ordered to place the same in the Trust" Company, where the Board had .ordered them to be deposited. A citation, dated June 8th, 1840, was accordingly filed on the relation of the said Lewis. On the following 17th of the month after the date of said citation, the trustees held a meeting and passed an order directing said Williams forthwith to report an account current as to 'the state of the funds in his hands, and the disposition made of the same; and in pursuance of said order, said Williams, on the 20th of said month, made a report and exhibit prepared by the assistance of the secretary of the board of trustees, showing receipts to the amount of $6,255.87, and disbursements to the amount of $1,015.81, leaving a balance in his hands of $5,240.06. The president of the board was directed to file the report in court in answer to said citation. Said Williams was soon after taken suddenly ill, and died in a few hours, and before the hearing in said citation. He denies that he acted negligently or improvidently in the management of the trust, but claims that the'loss, if any, will accrue from a sudden and unexpected departure from the path of integrity, by one in whom a whple community confided, and in whom the defendant and his colleagues had a right to confide.
    The answers of William Greene and George P. Torrence, are in'substance the same.
    Replications are filed to these answers, and testimony is exhibited on either side, which does not materially change the state of facts claimed to exist by Mr. Guilford in his answer.
    
      Chase, Ball Soadley, and Carter, for complainant.
    
      V Worthington, Walker Kebler, and Coffin Mitchell, for defendants.
   Spalding, J.

We have approached the investigation of thia cause with deep solicitude, on account of the very peculiar circumstances by which it is surrounded.

It has once been determined by this court, that the respondents, Guilford, Torrence and Greene, should be held liable for the defalcation of their co-trustee, Jacob Williams, deceased, but at the instance of the defendants, a re-hearing was granted, and the case remanded to the county.

Since that time, (Dec. Term, 1846) supplemental answers have been filed, and additional testimony has been taken, which serves to explain more fully and satisfactorily the transactions of the trust.

The prominent facts are not disputed. In 1824, Thomas Hughes devised some thirty acres of land, in the outskirts of Cincinnati, to trustees, for the support of one or more schools in that city, “for the education of poor, destitute children, whose parents or guardians are unable to pay for their schooling.” The defendants Guilford and Greene, together with Jacob Williams, deceased, the acknowledged defaulter, were among the trustees named in the will. Hughes and Williams were among the first settlers of Cincinnati, and had long been confidential friends. In fact, it seems to be conceded, that the foundation of this charity, so honorable to the memory of Hughes, was created by means of the active intercession of "Williams himself.

In the spring of 1827, a portion of the land, then entirely unproductive, was laid off into small building lots, and disposed of at auction, on perpetual lease, at rents varying from twelve to thirty dollars per lot. The tenants were, for the most part, from the poorer class of laborers, and consequently the collection of their quarterly rents was a business of the most irksome character. It was resolved by the trustees, at one of their first meetings, that the strictest economy should be used in the management of the fund, in order to make it available to its utmost capability, to carry into effect the benevolent purpose-of its founder. To this end, it was determined to save the expense of procuring leases to be drafted, and of employing collectors of rents, by substituting one of their own number to perform the respective duties, without compensation. Guilford swears, in his answer, that he drafted the leases for the lots first rented, and, until 1829, collected the rents without making any charge therefor.

At this time Williams was substituted for him in the capacity of collector and treasurer, and so limited was the income of the fund at that day, that in a period of six years, and up to the seventh of July, 1835, no more than $1512.37 came into his hands, for rents, pasturage and use of stone quarry, all combined.

Of this amount, Williams had disbursed the sum of $1315.-57 upon the orders of the board, mainly to defray the expense of tuition of indigent scholars in the Woodward High School. In 1837, the land which had not been subdivided, about twenty-three acres, was disposed of to one Eden B. Reeder, on a lease for ninety-nine years, renewable forever, at an annual rent of eighteen hundred dollars; and it was principally for money received by Williams on this lease, during the three succeeding years, that he became a defaulter to the trust fund j for which defalcation it is sought to make his co-trustees responsible.

Before I proceed to examine the only material question in the ease, that of the liability of Guilford, Greene and Torrence,, for the default of Williams, I may be permitted to remark that, .although it be conceded by counsel for the state that these three gentlemen are of high character, and eminently qualified by education and experience, to execute the duties of the trust, yet the nature of that trust is such as to enlist in its support all the finer feelings of the heart.

It need only to be mentioned that a fund devoted to the education of “ poor, destitute children,” has been diverted from its sacred purpose, and all our generous impulses take fire at once; thé coolness of reason gives place to the warmth of passion, and we are ready to denounce all who may have contributed to what we deem a sacrilege, by either acts of commission or omission.

It will be the fixed purpose of this court to guard most vigilantly the charities created within its jurisdiction, and in no one would we regard remissness of duty in the administrators, with keener jealousy, than in the management of a fund appropriated by true benevolence, to the elevation in the scale of humanity of the poor and helpless.

But we must, in this class of eases as well as in all others, apply to the individual transaction those general rules which are the offspring of wisdom and experience, and determine, upon the particular circumstance of the case, whether those rules attach a penalty or not.

It is claimed, in the case before us, that the defendants Guilford, Greene and Torrence, (and by the term defendants, I wish for the present to be understood as including none others,) must be held responsible for the loss of $6375.81, with interest thereon from the death of Williams. And for what reason ?

The counsel say they will not controvert or “ draw in question the acts of the trustees prior to the lease to Reeder.” But they claim that their conduct in yielding the whole revenues subsequent to that time, into the control of one of their number, without requiring á bond, or prescribing any mode of investment, or demanding any account, was marked by such supine indifference and gross negligence, that they must be held responsible for the loss.

The rule of responsibility which they wish applied to this case, is found in Story’s Commentaries on Equity, vol. 2, p. 517, sec. 1275: “ A trustee is to act in relation to the trust property, with reasonable diligence; and in cases of a joint trust, with due caution and vigilance, in respect to the approbation of and acquiescence in the acts of his co-trustees: for if he should deliver over the whole management to the others, and betray swpine indifference, or gross negligence, in regard to the interests of the eestuys que trust, he will be held responsible.”

The rule is cited with commendation by my learned predecessor, who pronounced the opinion of this court in 15 Ohio Rep. 593.

I recognize the rule in all its force, but while I have the author before me, shall take the liberty to extract two or three other paragraphs which I deem pertinent to the subject.

In section 1268, Judge Story says: “ In a general sense, a trustee is bound by his implied obligation, to perform all those acts which are necessary and proper for the due execution of the trust which he has undertaken. But as he is supposed merely to take upon himself the trust as a matter of honor, conscience, friendship or humanity, and as he is not entitled to-any compensation for his services, at least not without some express or implied stipulation for that purpose, he would seem, upon the analogous principles applicable to bailments, bound only to good faith and reasonable diligence ; and as in case of a gratuitous bailee, liable only for gross negligence.”

Again, in section 1280, Judge Story says further on this subject: “In cases where there are several trustees, the point has often arisen, how far they are to be deemed responsible for the acts of each other. The general rule is, that they are responsible only for their own acts, and not for the acts of each .other, unless they have made some agreement by which they have expressly agreed to be bound for each other; or they have, by their own voluntary cooperation or connivance, enabled the other to accomplish some known object in violation .of the •trust.”

It was remarked by Lord Hardwicke, the great chancellor •of England, in Ex parte Belchier v. Parsons, (Ambler’s Rep. 219,) that these rules should not be laid down with a strictness to strike terror into mankind, acting for the benefit of •others, and not for their own; and that as a trust is an office necessary in the concerns between man and man, and which, if faithfully discharged, is attended with no small degree of trouble and anxiety, it is an act of great kindness in any one to accept it. To add hazard or risk to that trouble, and to subject a trustee to losses which he could not foresee, and consequently not prevent, would be a manifest hardship, and would be deterring every one from accepting so necessary an office.”

If we apply all these rules to the facts in the case before us, ■can there be any doubt as to the proper determination ? I am not disposed to take the ingenious counsel at his offer, and shut my eyes upon all that part of the history of this trust fund anterior to the execution of the lease to Reeder. Much valuable instruction is derived from a consideration of its inception, rise and progress. In the beginning, Williams procured his friend Hughes to make this munificent devise in his will. He had conversed with the testator touching its nature and objects, .and had named • to him those whom he considered qualified to act as trustees. If, therefore, there was one member of the board who had the special confidence of the testator more than the others, that man was Jacob Williams.

The other trustees being aware of this, and knowing the ardent zeal with which Williams sought to carry out the plan ■of benevolence which he had originated, empowered him at an early day to execute, gratuitously, sundry commissions con nected with the trust.

He first superintended the laying out of the lots at the head of Main street, and the testimony shows that he exhibited as much interest in the matter as if the property was his own. He attended personally to the pasture grounds and stone quarry.

After Guilford declined the collectorship, in 1829, Williams took the irksome duty upon himself, and performed it most punctiliously for a series of years, without any reward or hope ■thereof. The rents during this time were collected as the poor tenants had the ability to pay, in some of them, five and ten dollars, amounting to about three hundred and fifty dollars per annum.

During all this period, Williams was esteemed by business men in Cincinnati to be a man of undoubted responsibility, and as to his character for probity, in the language of the witness, Judge Barnet, who knew him intimately from 1796 until his death, in 1840, “ he was reputed to be an honest, correct and upright man.”

Ought the defendants to have required a bond with sureties at the hands of Williams at any time anterior to the receipt of rents upon the Reeder lease ? He was their co-trustee, possessing character and responsibility, and performing their work gratuitously.

How was it after the execution of the lease to Reeder ? In the beginning of 1837, Reeder himself swears that he assigned this lease to McLeary & Bissell, who assigned to Greenbury Dorsy, and he becoming insolvent, assigned for the benefit of creditors.

In this posture of affairs, the co-trustees of Williams were led to believe that the rents were suffered to go unpaid, and at one time regarded the lease as forfeited for non-payment of rent. So soon as it was ascertained that Williams had any considerable sum of money in hand, they promptly and peremptorily ordered that a deposit of the same and of all moneys that should afterwards come into his hands, should be made In the trust department of the Life Insurance and Trust Company ; and this, too, although at the time Williams proposed to keep the money at six per cent, interest, and to give a mortgage to secure the same,' upon his house and lot on Main street. Subsequently, at a meeting of the trustees, Williams assured them that this order had been complied1 with, and voluntarily produced his “ bank-book ” in corroboration of what he said. By such conduct the defendants were thrown off their guard, and the loss ensued.

It is most probable that if their own private property, to an equal amount, had been thus managed by Williams, they would have taken no greater precautionary measures to insure its safety. So they swear in their answers, and I incline strongly to that belief. If this be so, these three defendants cannot be held liable for the default of their co-trustee under the rules laid down by Judge Story.

But we are at no loss for adjudged cases analogous to the one under consideration, where a defalcation consequent upon the misfortune or bad faith of one trustee was not visited upon the heads of his co-trustees.

In Attorney General v. Randall et al., M. S. Rep. Trin. Vac. 1734, where three trustees were appointed by testatrix to receive a sum of money from her executors and build an alms house in Cornwall for the maintenance of five poor women, the money was paid by the executors to one of the trustees upon the receipt of them all. The one who received the money be'came insolvent, and a loss ensued to the trust fund of £250. On a bill for account against all three of the trustees, the Lord Chancellor said: “ Suppose all the money had been lodged in a banker’s hands, bona fide, and he had failed, should the trustees have been answerable ? And if they intrust one of themselves for convenience or necessity at a time when he is solvent, which is no more than making him their banker, shall equity punish where there is no default ? and he said he saw no reason why trustees may not make one of themselves their cashier where there is no fraud.”

He decreed the trustee who received the money to be alone-chargeable.

In Jones’s Appeal, 8 Watts & Sergeant’s Rep. 143, which’ was an appeal by one of two guardians, cited to settle his account, Chief Justice Gibson, in delivering the opinion of the-court, says: “ Parents, guardians, executors, receivers, and all who manage the estates of infants, are responsible as trustees, and held to the same diligence. * * * * The instances-in which a mere trustee has been charged with the defaults of his colleague, are comparatively rare. ***** q’jjg appellant, therefore, is not chargeable merely for having declined to meddle with the moneys in the first instance; and the next inquiry is, whether he ought to have interposed before he began to doubt his colleague’s solidity; or whether he ought to have been satisfied with the explanation given when he called-on him for information about the state of the property. The-result will depend very much on what is the proper degree of a trustee’s vigilance.

“ In Palmer v. Jones, 1 Vern. 184; Mann v. Ballet, Ibid 44, and Howard v. Webster, Select Ca. in Ch., 53, it is said that he is to be charged only for his own receipts, or for supine negligence, and when the proof of it is strong. * * * *

“ He inquired into the disposition made of the money, and was told by his colleague, whose truth had never been doubted, that the whole was invested in bonds, secured by a mortgage on a landed estate, which was pointed out.

To require him to have dealt with his colleague as a rogue, by calling for the securities, would require of him the highest and most exact vigilance ; a degree of it that would ruin every guardian. No rate of commissions would compensate the risk of such a trust, and no man of prudence would accept it. * * The principle of accountability for the omission of every meas ure of imaginary precaution which human sagacity might have foreseen, would be impracticable in a country where counsel ■cannot be consulted at every step without incurring an expense •that would often .swallow up the estate. * * * Here there was reasonable vigilance and good faith, and we direct the appellant to be charged with no more than his receipts.”

We make application of all these wholesome rules of conduct to the circumstances spread before us, and, upon the whole case, both in regard to the law and the evidence, after a careful examination, we find ourselves forced to the conclusion, that upon none of the grounds which have been assumed by coun sel for complainant, are the defendants Guilford, Greene and 'Torrence, to be charged with the loss sought to be fastened upon them. They have acted with entire good faith, and with reasonable vigilance. The bill as to these three defendants and Samuel Lewis will be dismissed with costs. A decree may be taken against the administrators of Jacob Williams, for the amount found due the Hughes fund from him at the time of. his death, with interest, after deducting the sum allowed him by the court of common pleas for his services.

Caldwell, J., having been of counsel, did not sit in the case.