Court Opinion

ID: 6819721
Source: CourtListenerOpinion
Date Created: 2022-07-23 19:05:43.801096+00
Date Added: 2024-06-11T16:04:04.527324
License: Public Domain

Hudgins, J.,
dissenting.
The effect of a release by the beneficiary of one of two trustees for the loss of trust funds has not been considered by this court prior to this case. Consideration of the question, as applied to this class of persons jointly liable, should be determined on its merits, uninfluenced by the harsh rules of the common law applicable to ordinary joint tort-feasors.
In Bland v. Warwickshire Corporation, 160 Va. 131, 136, 168 S. E. 443, we examined prior decisions of this court declaring the effect of a release of one of two or more ordinary tort-feasors and, without enlarging upon the previous discussion of the rule, held, in effect, that we were bound thereby. In the concluding paragraph of that opinion we said (page 444): “There is much conflict of authority on *505this point in other States (see note, 50 A. L. R. 1057; Cooley on Torts (Students’ Ed.) section 43; 6 Thompson on Neg., section 7381; Burks’ PI. & Pr. (2d Ed.) p. 6) ; but after a careful review of the question the court is of opinion that the doctrine laid down in Ruble v. Turner, supra, should be adhered to.”
In the light of the decision in that case, and the prior decisions of the court, I think the excerpts quoted in the majority opinion correctly state the law applicable to the class of tort-feasors then before the court, but I do not think the same rule should be applied to the release of one of two fiduciaries for the loss of trust funds.
“ * * * nor can any acquiescence be inferred until the cestui que trust has actual knowledge of the breach, for the reason that it is the duty of the trustee to execute the trust, and it is not the duty of the cestui que trust to make any inquiries. So if the cestui que trust gets what he can from the wreck after a breach of the trust, and receives a part of what he is entitled to, he does not thereby waive his right to sue for the whole, when he can obtain it. * * *
The principles of law controlling the relation of the parties are different. The fiduciary relation to the cestui que trust is voluntarily assumed, and assumed, as in this case, for a consideration to be paid out of the trust estate. In construing a release of an ordinary tort-feasor by the party who has suffered loss, the courts apply the rules of construction governing a simple contract between parties dealing at arm’s length. These rules of construction do not apply to a release of the fiduciary executed by a ward or other cestui que trust. The general rules applicable to the latter class of releases are stated in Perry on Trusts and Trustees (7th Ed.), vol. 2, pp. 1452, 1453, thus:
“So it is said that the cestui que trust may for a good consideration waive a breach of the trust. But all agreements or contracts between trustee and cestui que trust are looked upon with suspicion by the court, and are closely scrutinized; therefore, in order that the release, confirmation, waiver, or acquiescence may have any effect, the *506cestui que trust must have full knowledge of all the facts and circumstances of the case. The cestui que trust must also know the law, and what his rights are, and how they would be dealt with by the court. * * * The cestui que trust must be sui juris, as an infant cannot be bound by a release or other act; and if the cestui que trust has just come of age he ought to have proper legal advice.”
In Waller v. Armistead’s Adm’rs, 2 Leigh (29 Va.) 11, 21 Am. Dec. 594, this is said: “We think therefore that an acquittance or release given shortly after a ward comes of age, or before or at the time of giving up the estate, so far as it may be sought to be used, either as evidence of a fair settlement or a discharge from the obligation of making such a settlement, stands on the same footing as a direct gift or gratuity. But in addition to the great principle of public policy, the acquittance, in this case, stands reprobated by all the circumstances of fraud, which we have already mentioned as attaching to the deed of gift.”
These principles, applicable to contracts between a party who occupies the relation of trust and confidence to another, and such other, are restated and applied in Stiers v. Hall, post page 569, 197 S. E. 450 (opinion by Mr. Justice Holt announced at this term of court).
If a cestui que trust is thus protected in executing a release directly to his trustee, it would seem to be illogical not to extend him the same protection and give him the same rights against a solvent trustee, where, without full knowledge of all the facts, or his legal rights, he had acquiesced in the release of the insolvent trustee in consideration of payment of part only of the loss sustained.
A co-trustee ordinarily is not liable for the loss of trust funds in the hands of the other trustees. Such a trustee is liable only in the event that his own breach of duty to the trust estate results in loss. “As a general rule a trustee is responsible only for his own acts or defaults; but if, by any affirmative conduct or any omission of duty, he facilitates, though innocently, a breach of trust, which a due attention to his duty would have prevented, he is liable for the result*507ing loss to the beneficiaries whose interests were confided to his protection.” Caldwell v. Graham, 115 Md. 122, 80 A. 839, 841, 38 L. R. A. (N. S.) 1029. See 26 R. C. L., section 198; 83 A. L. R. 625.
The two trustees in this case qualified on the estate in October, 1926. Some time prior to October, 1933, the Bank of Waverly ascertained that its co-trustee had purchased securities from itself with trust funds, and that the value of these securities had so depreciated that they would be a substantial loss to the estate. Thereupon the Bank of Waverly, in the performance of its duty as a fiduciary, together with others, instituted a suit against its co-trustee to recover the amount of the loss. In that suit the solvent trustee, the Bank of Waverly, by agreement accepted a judgment in its own name against the insolvent trustee for one-half the loss.
The action in this case was instituted by the beneficiaries and another trustee, against the Bank of Waverly to recover the balance of the loss to the estate, and is based not on the ground that the Bank of Waverly used trust funds to purchase securities from itself, but on the ground that the Bank of Waverly was negligent in failing to ascertain, in time to prevent a loss, that its co-trustee had made an illegal use of trust funds. As a bar to recovery for its own act of negligence, the Bank of Waverly pleads its own contract in making a settlement with its co-trustee, who was then insolvent.
The Bank of Waverly attempts to evade the force and effect of its own act in making the compromise, by contending that it did not authorize the suit to be instituted against the insolvent trustee. Parol testimony was introduced for the purpose of proving this assertion. The Bank of Waverly introduced, as evidence, pertinent pleadings and decrees in the former suit, for the purpose of establishing, by the record, that the Union Trust and Mortgage Company had been released of its liability to the Partridge estate, and by that record defendant is bound. Defendant can not claim that so much of that record that shows release of the in*508solvent trustee is correct, and-that so much of it that shows that defendant participated in the compromise settlement is erroneous. The complete answer to this contention is, “that a record imports such absolute verity that no person against whom it is pronounced shall be permitted to aver anything against it. In 1st Inst. 260, Lord Coke says, the rolls being the memorials of the judges, import in themselves such • absolute verity as they admit of no averment to the contrary. And if such a record be alleged, and it be pleaded there is no such record, it shall be tried only by itself.” Quinn v. Commonwealth, 20 Gratt. (61 Va.) 138; State v. Vest, 21 W. Va. 796, 800; Walker v. Commonwealth, 144 Va. 648, 131 S. E. 230.
However, if it were not estopped to deny its participation in the former suit, the Bank of Waverly was negligent in a failure to begin the suit after it ascertained the breach of duty by its co-trustee. So, in any event, this action is based upon the failure of the Bank of Waverly to perform its duty to the beneficiaries, independent of the breach of the Same duty owing to the beneficiaries by its co-trustee.
Where two trustees are liable to the beneficiary for á breach of trust, and one is more at fault than the other, and the one least at fault makes redress, he is entitled to contribution, and may be entitled to indemnity from the other (A. L. I. Trusts, sec. 258). But where the trustee entitled to contribution obtains or participates in a compromise settlement whereby the defaulting trustee is released, he should not be permitted to plead such a release in an action against him for his own neglect of duty, unless it appears that the beneficiary was fully informed of all the facts, and of his legal rights and, after obtaining this information, he accepted the settlement as a complete discharge of all liability for the breach of duty.
For these reasons I am constrained to dissent from the conclusions stated in the majority opinion.