Opinion ID: 2341546
Heading Depth: 1
Heading Rank: 1

Heading: Medley's Personal Liability

Text: Medley and Aetna rely upon Clark on Receivers as supporting their contention that the receiver is not personally liable because he acted under an order of court. Their reliance is misplaced. It is true that Clark in general discussions in the chapter Liabilities of a Receiver states broadly in § 388 and § 392 that it is not conceivable that such receiver would be liable personally for an act done pursuant to the lawful order of the appointing court. However, in the instant case, the order for distribution was obtained ex parte on the basis of the very representations that are said to have been negligently made. It seems plain that the rule stated by Clark has no application to a fiduciary who negligently distributes to persons other than the beneficiary as the result of a course of action pursued by the fiduciary himself that was bottomed upon an order obtained through incorrect information submitted by him to the court. The correct rule as to personal fiduciary liability is set forth in Restatement of the Law of Trusts, 2d, in § 226: § 226. Liability for payments or conveyances made to persons other than the beneficiary. If by the terms of the trust it is the duty of the trustee to pay or convey the trust property or any part thereof to a beneficiary, he is liable if he pays or conveys to a person who is neither the beneficiary nor one to whom the beneficiary or the court has authorized him to make such payment or conveyance. Comment (b) to the cited section reads as follows: b. Mistake of law or fact. The trustee is liable although he makes the payment or conveyance under a reasonable mistake of law or of fact. If he is in doubt as to the proper person to whom a payment or conveyance should be made, he can apply to the court for instructions and will be protected by the order of the court against claims of all persons who were made parties to the proceedings. The trustee is liable although he reasonably believes that the person to whom he pays or conveys is the beneficiary or that the payment or conveyance is authorized or directed by the beneficiary or by the termination of the trust. [Italics supplied] That Maryland subscribes to the doctrine announced in the Restatement is apparent from Prince deBearn v. Winans, 111 Md. 434, 472, 74 A. 626, 632 [1909]: If    the trustees were in any doubt as to the proper disposition to be made of the fund in their hands, they should have applied to a Court of equity, in accordance to the long-existing practice in this State, by a bill convening all parties in interest, and procured a construction of the deed of trust and a disposition of the fund under the direction and supervision of the Court. If they had adopted that course and made the distribution of the fund under the Court's decree, they would have been protected and the appellant would have been concluded by it. See also County Corporation v. Semmes, 169 Md. 501, 523, 182 A. 273, 283 [1936], wherein receivers, empowered by court order to continue the operation of a business, were found accountable where subsequent operations of that business produced substantial operational deficits:    when, in the exercise of such caution and diligence as would commonly be expected under the known facts and circumstances, a reasonably prudent person, who was in charge of the affairs of the utility, would, except through his default, have known of the actual financial loss then incurred and involved in the further operation of the business of public carrier; and would, in consequence of such knowledge, have submitted    these facts to the court and requested its further direction   . A receiver is personally liable for an improper distribution of assets.