Court Opinion

ID: 6820298
Source: CourtListenerOpinion
Date Created: 2022-07-23 19:06:21.047232+00
Date Added: 2024-06-11T16:04:05.992478
License: Public Domain

Campbell, C. J.,
dissenting.
I cannot concur in the opinion of the court, insofar as it holds that Frank Marshall should not be charged with the loss sustained by the estate of his decedent, in his unwarranted investment in the Grace Securities Bonds.
Here we have a fiduciary admittedly purchasing bonds in his own name, and not until there was default in the payment of the bonds, do we find that he reported them as assets of the estate. The record clearly shows that the first Grace Securities Bonds purchased by Marshall were coupon bonds purchased in the year 1931, and that he did not make any report to the commissioner of accounts between the period beginning 1931 and ending 1935. His explanation of his purchase of the bonds is as follows:
“Q. The first investment you made in the securities with the Grace Securities Corporation were in coupon bonds?
*158“A. They were.
“Q. Then, the next evidence of your investment was in registered bonds?
“A. The coupon bonds were called in and registered bonds issued in lieu of them.
“Q. Were they registered in your name or as administrator?
“A. They were registered in my name.
“Q. Please state why you had them registered in your name?
“A. I had had some experience in having stocks and bonds, and stocks especially, transferred, which would be the same thing as registered bonds, and the trustee or registrar agents usually required affidavits or other evidences to show to whom the bonds or stocks belonged. If these bonds had been registered in my name as administrator, I would have to secure orders of court or copies to show my authority for endorsing them, and there is right much red-tape getting these things through, and when the registered bonds were received I marked on them to what estate they belonged in pencil. In fact, I did that on coupon bonds as well, and kept them in a separate envelope from any other papers. The object of the owner being in pencil was so it could be erased when finally sent in for transfer or any other purposes.
“Q. Did you ear-mark them separately from your assets?
“A. Kept them entirely separate. In a different envelope. Kept them in an envelope similar to this (the witness holds up envelope to the attorney). This is not it, I handled so many papers it has come unfastened.”
The question of the wisdom of his investment, which the majority opinion defends at length, may be conceded. The vice in his action was in purchasing the bonds in his own name and in receiving checks for interest on the bonds and curtailment thereof which checks were made payable to Marshall individually. The fact that he ear-marked the bonds in pencil and placed them in an envelope, should not relieve him of liability if we are to adhere to the rule adopted *159in Ammon's Adm’r v. Wolfe et als., 26 Gratt. (67 Va.) 621. The facts of that case are thus stated in the syllabus:
“Land of infants is sold in 1859, upon credits extending to January 8th, 1862. Their guardian collected a part of the money in May 1862, and he invested it in March 1863, $3,500 in seven per cent. Confederate bonds, which were found after his death enclosed in a paper endorsed Wolfe’s heirs; but the bonds were taken in his own name. Held:
“There is no sufficient evidence that the investment when made was intended for his wards.”
Judge Moncure, in delivering the opinion of the court, said:
“These bonds bear date on the 13th of February 1863, and appear to have been obtained by Y. C. Ammon on the 2d of March 1863, before the date of the act of assembly aforesaid. They are payable to him individually, and not as guardian of the complainants. They are the same in form with a large amount of other Confederate bonds issued during the war, and found also by the said administrator among the papers of his intestate, and claimed to be the property of the said intestate. The endorsement, ‘Wolfe’s heirs $500,’ made by said Ammon on each of the seven bonds of that amount as aforesaid, may have been made, so far as appears from the record, long after the bonds were issued, and even long after the war, as the guardian did not die until 1866 or ’7; and it is of course not evidence that the ward’s money was invested in the said bonds. * * *.
“By taking them in the guardian’s own individual name it would have been in his power to claim them as his own individual property if Confederate bonds had appreciated, instead of becoming, as they did, of no value.”
The overwhelming weight of authority is to the effect that it is a breach of trust for a fiduciary to invest trust funds in his own name and that he is liable for losses resulting from such investment. See 106 A. L. R. 271.
In Morris v. Wallace, 3 Pa. 319, 45 Am. Dec. 642, the prevailing rule is thus succinctly stated:
*160“Granting that Mr. Morris (the Trustee) acted bona fide, which I am not disposed to deny, yet this is a practice which we unequivocally condemn, and have always done so, and if persisted in, it must be at the peril of the trustee. The rule which makes them personally liable is intended to prevent fraud, avoiding the temptation to put the profits of the investment in their own pockets, and throw the loss, if any, on others: a temptation to which those who act in a fiduciary capacity are exposed and producing an injustice which may be perpetrated, if allowed, almost without the possibility of detection. It is said that guardians frequently purchase stock in their own names, with the money of their wards, intending it, at the time, for the exclusive benefit of the latter. If so, the sooner there is an end put to the practice the better, as it may lead to fraud, and can answer no good purpose whatever. It does not deserve the countenance of a court of justice for another reason. When the funds of a cestui que trust are invested in the name of the trustee there is always a difficulty, sometimes insurmountable, in tracing the money to the benefit of the cestui que trust;.the consequence of which is, that the funds of the cestui que trust are taken to pay the debt of an insolvent trustee. As this is contrary to every principle of equity, it should be avoided, if possible; we, therefore, wish it to be distinctly understood that we regard such an investment as a legal fraud, liable to all the consequences as such, without regard to the intention, or integrity of the trustee, or the honesty and good faith of the particular transaction.”
See also, Groves’ Estate v. Groves and others, 120 W. Va. 373, 198 S. E. 142; 26 R. C. L. 1313, 21 Am. Jur., section 273.
For the reasons stated, I am unwilling to place the stamp of my approval upon the conduct of a fiduciary who engages in the beneficial game of “heads I win, tails you lose”.