Collin, J.
The judgment entered upon the report of the referee was affirmed at the Appellate Division by a divided court. Because of this absence of unanimity, we are constrained to determine from a study of the record whether or not any finding of fact is entirely devoid of support in the evidence, or any proposed finding of the appellants, sustained by uncontradicted evidence, would have required a legal conclusion favorable to them, if found additionally to the existing findings.
(People ex rel. Town of Colesville
v.
D. & H. Co.,
177 N. Y. 337;
Arnot
v.
Union Salt Co.,
186 N. Y. 501.) The evidence answers each inquiry in the negative and for us the facts are conclusively established as found.
(Hawkins
v.
Mapes-Reeve Const. Co.,
178 N. Y. 236.)
The learned referee, in finding that the surviving partners and trustees and John H. Costello in making the transfer to the latter, in selling to the United States Leather Company and in crediting John H. Costello with the interest of the trust estate in the assets of the firms, acted in good faith and without any intention to defraud or injure the beneficiaries of the trust, found in effect that positive or actual fraud, to which the intention to defraud and deception are essential
(Lefler
v.
Field,
52 N. Y. 621), did not enter into or invalidate the transaction.
The transaction, free from actual fraud as it was, may, nevertheless, have been unlawful and invalid because it was violative of a legal or equitable duty of the trustees. The appellants were not bound to show, in order to become entitled to the relief they asked, that it was iniquitously conceived and executed. If the findings established that
the trustees, in making the transfer to John H., acted in contravention of principles which the law charged them to observe, and to the injury of the appellants, they were guilty of constructive fraud, as a necessary consequence, regardless of their motive or intention. Constructive fraud, although a breach of a duty, may be consistent with innocence. The purpose to defraud need not enter into it because the law regards the act which gives it rise as fraudulent
per se.
Of such class of acts is the dealing by trustees for their own benefit in 'matters to which their trust relates, or the gift by an insolvent debtor of his property.
It appears from the findings that the trust estate, as devised, consisted of a twelve and one-half per cent share or part of the interest of the testator as a partner in the partnership property. This interest, as property, was the right to his share as fixed by the agreement of the partners, of any surplus that might remain after the firm debts were paid and the rights of the partners, as between .themselves, were adjusted, and the incidental right to procure the share through an accounting or other lawful remedy. The death of the testator dissolved the firms and the interest passed to his executors. The title to the assets or property interests of the firms was thereafter in the surviving partners as legal owners and not as trustees in the strict sense of that term although the law imposed upon them certain obligations of a fiduciary nature. The title to partnership property is not in the individual members of the firm, so that either may assign or transfer to another an undivided share in any specific articles, but it is in the firm as an entirety subject to the right of the partners to have it applied to the payment of the debts of the firm and the equities of the partners, and surviving partners succeed to the exclusive possession and control of the assets and the right within the limits of good faith, of disposing of the assets and closing the partnership affairs.
(Williams
v.
Whedon,
109
N. Y. 333;
Russell
v. McCall, 141 N. Y. 437;
Morrison
v.
Austin State Bank,
213 Ill. 472.)
The testamentary provision for the continuance of the trust estate in the partnership business after testator’s death did not create new firms or constrict the title or rights of the surviving partners. It permitted the surviving partners as such to continue the business for the benefit of the estate and themselves, using the capital and share of the deceased partner therein until the trustees thought fit to extract it and made it liable for the debts meanwhile contracted as well as those existing at testator’s death. The property which the trustees transferred to John H. Costello was the right to have delivered by the surviving partners the twelve and one-half per cent of the surplus remaining after the firm debts existing April 29, 1893, were paid and the equities then existing between the surviving partners and the trustees were adjusted. No rule of partnership law forbade the transfer. (S
tewart
v.
Robinson,
115 N. Y. 328;
Menagh
v.
Whitwell,
52 N. Y. 146.)
When Alfred Costello, Patrick C. Costello and John H. Costello as surviving partners decided to sell to the Leather Company the assets of the firms (with certain insignificant reservations), two methods of realizing and securing to the trustees the value of the trust interest in the entire partnership assets would seem to have been available to Alfred Costello and Patrick 0. Costello as trustees. Their duties and responsibilities as surviving partners and as trustees were as distinct and different as if they had been different individuals. The one method was to sell the interest; the other to passively await the closing and adjustment of the partnership affairs and accounts, the disposition of the firm assets essential to the accomplishment of that result, and the proper distribution of the surplus between the surviving partners and the trustees. They in adopting either method were not arbitrarily and inflexibly inhibited by law or rules of equity
from accepting shares of the capital stock of the Leather Company, as the respondents assert and argue. It is true that the range of legal securities for the investment of trust funds is too contracted to have included them under the conditions than existing. The statutory provision and the rules of equity characterizing the securities in which trust funds may be invested were adopted in the light of experience and we do not intend to weaken them or increase their elasticity. They are not, however, absolutely exclusive, arbitrary and inflexible and must yield to the rule of necessity or safety. A more fundamental and broader principle, superseding in emergencies or justifying conditions the specialized rule, is that trustees are bound in the management of all the matters of the trust to act in good faith and employ such vigilance, sagacity, diligence and prudence as in general prudent men of discretion and intelligence in like matters employ in their own affairs. The law does not hold a trustee,- acting in accord with such rule, responsible for errors in judgment.
(Matter of Denton
v.
Stanford,
103 N. Y. 607;
Ormiston
v.
Olcott,
84 N. Y. 339;
Litchfield
v.
White,
7 N. Y.
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Collin, J.
The judgment entered upon the report of the referee was affirmed at the Appellate Division by a divided court. Because of this absence of unanimity, we are constrained to determine from a study of the record whether or not any finding of fact is entirely devoid of support in the evidence, or any proposed finding of the appellants, sustained by uncontradicted evidence, would have required a legal conclusion favorable to them, if found additionally to the existing findings.
(People ex rel. Town of Colesville
v.
D. & H. Co.,
177 N. Y. 337;
Arnot
v.
Union Salt Co.,
186 N. Y. 501.) The evidence answers each inquiry in the negative and for us the facts are conclusively established as found.
(Hawkins
v.
Mapes-Reeve Const. Co.,
178 N. Y. 236.)
The learned referee, in finding that the surviving partners and trustees and John H. Costello in making the transfer to the latter, in selling to the United States Leather Company and in crediting John H. Costello with the interest of the trust estate in the assets of the firms, acted in good faith and without any intention to defraud or injure the beneficiaries of the trust, found in effect that positive or actual fraud, to which the intention to defraud and deception are essential
(Lefler
v.
Field,
52 N. Y. 621), did not enter into or invalidate the transaction.
The transaction, free from actual fraud as it was, may, nevertheless, have been unlawful and invalid because it was violative of a legal or equitable duty of the trustees. The appellants were not bound to show, in order to become entitled to the relief they asked, that it was iniquitously conceived and executed. If the findings established that
the trustees, in making the transfer to John H., acted in contravention of principles which the law charged them to observe, and to the injury of the appellants, they were guilty of constructive fraud, as a necessary consequence, regardless of their motive or intention. Constructive fraud, although a breach of a duty, may be consistent with innocence. The purpose to defraud need not enter into it because the law regards the act which gives it rise as fraudulent
per se.
Of such class of acts is the dealing by trustees for their own benefit in 'matters to which their trust relates, or the gift by an insolvent debtor of his property.
It appears from the findings that the trust estate, as devised, consisted of a twelve and one-half per cent share or part of the interest of the testator as a partner in the partnership property. This interest, as property, was the right to his share as fixed by the agreement of the partners, of any surplus that might remain after the firm debts were paid and the rights of the partners, as between .themselves, were adjusted, and the incidental right to procure the share through an accounting or other lawful remedy. The death of the testator dissolved the firms and the interest passed to his executors. The title to the assets or property interests of the firms was thereafter in the surviving partners as legal owners and not as trustees in the strict sense of that term although the law imposed upon them certain obligations of a fiduciary nature. The title to partnership property is not in the individual members of the firm, so that either may assign or transfer to another an undivided share in any specific articles, but it is in the firm as an entirety subject to the right of the partners to have it applied to the payment of the debts of the firm and the equities of the partners, and surviving partners succeed to the exclusive possession and control of the assets and the right within the limits of good faith, of disposing of the assets and closing the partnership affairs.
(Williams
v.
Whedon,
109
N. Y. 333;
Russell
v. McCall, 141 N. Y. 437;
Morrison
v.
Austin State Bank,
213 Ill. 472.)
The testamentary provision for the continuance of the trust estate in the partnership business after testator’s death did not create new firms or constrict the title or rights of the surviving partners. It permitted the surviving partners as such to continue the business for the benefit of the estate and themselves, using the capital and share of the deceased partner therein until the trustees thought fit to extract it and made it liable for the debts meanwhile contracted as well as those existing at testator’s death. The property which the trustees transferred to John H. Costello was the right to have delivered by the surviving partners the twelve and one-half per cent of the surplus remaining after the firm debts existing April 29, 1893, were paid and the equities then existing between the surviving partners and the trustees were adjusted. No rule of partnership law forbade the transfer. (S
tewart
v.
Robinson,
115 N. Y. 328;
Menagh
v.
Whitwell,
52 N. Y. 146.)
When Alfred Costello, Patrick C. Costello and John H. Costello as surviving partners decided to sell to the Leather Company the assets of the firms (with certain insignificant reservations), two methods of realizing and securing to the trustees the value of the trust interest in the entire partnership assets would seem to have been available to Alfred Costello and Patrick 0. Costello as trustees. Their duties and responsibilities as surviving partners and as trustees were as distinct and different as if they had been different individuals. The one method was to sell the interest; the other to passively await the closing and adjustment of the partnership affairs and accounts, the disposition of the firm assets essential to the accomplishment of that result, and the proper distribution of the surplus between the surviving partners and the trustees. They in adopting either method were not arbitrarily and inflexibly inhibited by law or rules of equity
from accepting shares of the capital stock of the Leather Company, as the respondents assert and argue. It is true that the range of legal securities for the investment of trust funds is too contracted to have included them under the conditions than existing. The statutory provision and the rules of equity characterizing the securities in which trust funds may be invested were adopted in the light of experience and we do not intend to weaken them or increase their elasticity. They are not, however, absolutely exclusive, arbitrary and inflexible and must yield to the rule of necessity or safety. A more fundamental and broader principle, superseding in emergencies or justifying conditions the specialized rule, is that trustees are bound in the management of all the matters of the trust to act in good faith and employ such vigilance, sagacity, diligence and prudence as in general prudent men of discretion and intelligence in like matters employ in their own affairs. The law does not hold a trustee,- acting in accord with such rule, responsible for errors in judgment.
(Matter of Denton
v.
Stanford,
103 N. Y. 607;
Ormiston
v.
Olcott,
84 N. Y. 339;
Litchfield
v.
White,
7 N. Y. 438.) In the present case, in which there was not the voluntary investment of trust funds with the view merely of placing them at interest, but the compulsory conversion or collection of the trustees’ interest in the firm assets, if the application of the above-stated rule would have guided the trustees to a decision and action necessitating the acceptance by them of shares of the stock, they would have been immune from liability on account of it. The trustees chose, however, the method of selling the interest to John H. Costello as and upon the terms stated and it remains to determine whether or not they thereby acted illegally or failed, under the facts as found, to conform to the rule defining their duties.
No principle of law forbade the sale by the trustees to the life beneficiary.
(Albany Exchange Savings Bank
v.
Brass,
59 App. Div. 370; affirmed, 171 N. Y. 693;
Franklin
v.
Osgood,
14 Johns. 527.) The findings are to the clear effect that they in making it were not dealing with the trust estate for their direct or indirect benefit or advantage. The question whether or not the trustees were culpably negligent should be determined with reference to the situation at the time the sale to John H. was made, and not in the light of such subsequent events as could not through compliance with their duty have been anticipated. A wisdom developed after an event and having it and its consequences as a source is a standard no man should be judged by.
It appears from the findings that on and prior to April 29, 1898, the surviving partners and the trustees knew substantially the number of the shares of the stock of the Leather Company the former were to receive upon the sale of the partnership assets to it, the aggregate amount of the partnership debts and that the par value of twelve and one-half per cent of the surplus shares would exceed very greatly the sum of $174,708.26. If the trustees legally ought to have known, were obligated to know, that such twelve and one-half per cent would yield to the trust estate a sum substantially greater than $174,708.26, they were, in accepting, the latter as the consideration of the sale of their interest to John H., guilty of actionable negligence and a fraudulent breach of trust. Obviously, it is immaterial, in considering the sale to John H., whether the partnership assets at the time it was consummated consisted of the plant and property sold by the surviving partners to the Leather Company or the shares of stock received by them and the reserved assets. The liability of the trustees may be based as justly and firmly upon their knowledge that the shares were to become partnership assets as that they had become such.
The essential and controlling features of the situation existing when the sale to John H. was made were: The Leather Company was organized under the laws of the state of New Jersey to complete a movement or promo
tion inaugurated some time prior to January 25, 1898, to consolidate the tanneries of all those who could he induced to enter into the consolidation. It did consolidate over seventy per cent of the tanning interests in the United States. The authorized capital stockwas $128,000,000 of preferred eight per cent cumulative and the same amount of common. The surviving partners of the Costello firms, though not promoters, were among the original members of and helped to organize it. All the plants and properties conveyed to it under the organic scheme were paid for in its preferred stock under a purely arbitrary method of valuation unrelated to their real value and formulated for the purpose of distributing upon a common basis the preferred stock so far as it was applied to the purchase of property. With each share of preferred stock a share of common stock was issued as a bonus, though nominally for good will wholly unappraised. The surviving partners and the trustees knew on and prior to April .29, 1893, that the valuation of the plants and properties to be acquired by the corporation under the scheme was not to ascertain their actual value, but the amounts or approximately the amounts of stock which it was to issue in payment to their respective proprietors and that the par value of the stock largely exceeded the fair cash value of the plants and properties, although they during the process of liquidating the affairs of the firms carried the shares on the books of the firms at their par value and as the property of the surviving partners and the trustees, except the trustees were not credited, as were the surviving partners, with a share of the so-called surplus profits arising from the sale, that is, with the difference in the value of those properties before the sale as carried on the books and the par value of the stock received upon the sale. Such, however, was a bookkeeping act only and the parties did not thereby state or intend to state the value or the ownership of the stock. In the course of time the fact devel
oped, that the selling value of twelve and one-half per cent of the surplus stock exceeded $174,708.26 in an amount not found. The surviving partners and the trustees believed at the time of the sale that the competitive operation of the Leather Company would imperil the assets of the firms. They were advised by their counsel and believed that there was danger that neither the preferred nor the common stock was fully paid under the laws of the state of New Jersey and free from a contingent liability on the part of the holder to creditors of the Leather Company. Manifestly the Leather Company was a creation of a novel character, the future of which was highly problematic, the stock of which had and must continue to have until it had achieved success and stability, if ever it did, a speculative, uncertain and dubious value.
The trustees and John H. Costello arrived at $174,708.26 as the value of and the sum the latter should pay for the former’s interest in the partnership assets through the valuation of the interest upon the basis of the book accounts, as kept for years by the firms. It was the aggregate of the book credits or balances of the trustees as they appeared on April 29, 1893, and was the valuation of the interest as fixed by a decree of July 29, 1892, of the Surrogate’s Court. Neither the executors nor the trustees had at any time appraised the interest independently of the books of the firms, hut the valuation of $174,708.26 was fair and reasonable, and the trustees did not anticipate that the value of the twelve and one-half per cent of the surplus would exceed that sum. John H. was solvent at the time of the sale to him, and the payment of his promissory note for the 'entire purchase price was secured, not alone by twelve and one-half per cent of the surplus, but by twenty-five per cent thereof. The note was paid to the trustees, who upon the delivery of the trust estate to a successor were discharged. All men of honesty, prudence and enlightenment do not think alike, and it assuredly would be beyond fair dealing or justice to
adjudge that the trustees failed to exercise those characteristics in making the sale to John EL, and were, consequently, guilty of culpable and fraudulent negligence. We think the conclusions of law are cogently supported by the findings of fact.
The conclusion we have reached makes unnecessary a discussion of the other positions taken by the parties.
The judgment should be "affirmed, with costs to the respondents.
Cullen, Ch.. J., Gray, Werner, Hiscock, Cuddeback and Miller, JJ., concur.
Judgment affirmed.