State ex rel. Dorsey v. Banks

24 A. 415, 76 Md. 136, 1892 Md. LEXIS 11

• Court: Court of Appeals of Maryland
• Decided: June 7, 1892
• Status: Published

Opinion

McSherry, J.,

delivered the opinion of the Court.

Daniel B. Banks died in 1875, leaving a last will and testament, whereby he devised portions of his estate, including one-third of the residuum, to Andrew Banks, in trust to collect the income thereof, and after defraying proper charges, to pay the net income to the testator’s daughter, Margaret W. Dorsey, during her life. He further devised the corpus of this trust estate to her children after her death, with a limitation over in default of issue. In October of the same year the trustee filed a bill in the Circuit Court of Baltimore City against all of the cestuis que trust under the will, for the administration of,the trusts by the direction of the Court; and in 1877 a decree was passed whereby the Court assumed jurisdiction of the trusts, and directed the trustee to account for the trust funds which had then been received by him, and thereafter to account regularly, according to the usual course of the Court. Some ten years later proceedings were instituted to have the trustee file reports, of the, principal and income of the trust estate, and these resulted in such reports being made, upon which auditor’s accounts were based, and these accounts were subsequently ratified. The amount of the income found to he clue to the cestui que trust by these accounts was paid to her, or paid into Court for her. In 1888, the Court, upon application passed an order requiring the trustee to give bond in the penalty of fifty thousand dollars for the faithful discharge of his duties, and the bond now in suit was accordingly executed, and delivered on the sixteenth day of April, in that year. Prior to that date the trustee had acted without bond. On April, the twenty-fourth, 1890, Mr. Banks having become embarrassed financially, filed his final report and relinquished the trust; whereupon new trustees were appointed in his place. A year later two accounts were stated by the auditor; one, based upon the several reports previously filed by Mr. Banks, showed that he still owed the cestui que trust, four hundred and fifty-eight dollars and four cents as the balance of net income duo to her; and the other, founded upon sundry omissions of debits and credits in the trustee’s former reports, exhibited a balance of fifteen hundred and nine dollars and seventy-four cents of additional income as duo Mrs. Dorsey. To recover these sums the pending action was brought against Mr. Banks and the sureties on his bond. To the declaration which assigned the non-payment of these two sums of money as the breach of the bond, the defendants’other than Banks pleaded that the income mentioned in the auditor’s accounts referred to in the declaration— the two accounts just alluded to — was not income belonging to said Margaret W. Dorsey which had accrued, subsequent to the delivery of said bond; nor was it income belonging to said Margaret which was in fact collected or received by the said trustee subsequent to the delivery of said bond, but, "on the contrary, said items of income had been collected by said trustee before the delivery of said bond in the several years covered by said reports, whereon the auditor’s accounts had been stated, and the same finally ratified and confirmed as aforesaid, but which items had been omitted from said reports through the inadvertence of said trustee, and the fact of such omission was not discovered until long after the delivery of said bond, and the relinquishment of said trust by him; that, at the time of the delivery of said bond by .said trustee, said items of income were not in his hands, the same having been previously used by him, he having, through business reverses become insolvent.” They further pleaded that they delivered the bond sued on in the full belief that all the income of the said Margaret W. Dorsey which had been collected by the trustee had been fully reported and accounted for and paid over to the cestui gue trust; and that for this belief they relied on the ratification of the auditor’s reports as conclusive evidence that the same were full and complete reports of income for the years which they professed to cover. The plaintiff demurred to these pleas; the Superior Court of Baltimore overruled the demurrer; the plaintiff then filed a traverse of each plea, upon which issue was joined, and the Court, sitting as a jury, found a verdict for the plaintiff for two hundred and forty-eight dollars and thirty-six cents-, upon which judgment was duly entered. From that judgment the plaintiff has taken this appeal. The record contains one bill of exception, which brings up for 'review the rulings of the Court on two prayers, submitted by the plaintiff, and rejected by the Court. The defendant, Banks, pleaded his application for the benefit of the insolvent laws.

The principal question in controversy arises on the demurrer; and that question, as the statement we have made of the pleadings shows, is whether the sureties are liable for defaults committed by the trustee prior to the date of his giving bond for the faithful discharge of his trust. It has been insisted very earnestly by the appellant’s counsel that the final ratification of the auditor’s reports referred to in the declaration was, on the authority of Butler and Belt vs. State, use of Contee and Bowie, 5 Gill & J., 511, and Taylor and Bradford vs. State, use of Miller, 73 Md., 208, an adjudication in rem, or in the nature of an adjudication in rem, conclusively binding on the trustee and his sureties, and finally ascertaining and fixing their liability: That the sureties were not therefore at liberty to question the correctness of the order of ratification, and were confined to the inquiry whether such an order had been passed, and whether the money found to be due by the trustee thereunder had been paid. The doctrine thus invoked would be a complete answer to the pleas, if the case fell within the principle which controlled the decisions just referred to; but the case at bar involves this additional consideration, that the default for which the suit was brought occurred, according to the averments of the pleas and the admission of the demurrer, before the sureties undertook to be responsible for the trustee’s fidelity, and this obligation is, on its face, not retrospective in its terms. What was said in the cases cited as to the conclusive character of an order of ratification of an audit had reference to cases where the default of the trustee was within the terms of the sureties’ contract; but no form of adjudication against a principal can preclude a surety from showing that the breach of duty upon which that adjudication is founded occurred prior to the date of the bond, and is not within the terms of the surety’s contract, if the bond be not retroactive. And this is so because the liability of the surety is one of strict contract, which cannot be extended by implication, nor enlarged beyond the limits which its words fairly import. This is a fundamental principle which has become axiomatic law, and we need make no references to adjudged cases to support it.

We are therefore brought to the bond itself, filed with the declaration and forming part of the pleadings. Its condition is in these words: “now the condition of the above obligation is such that, if the above bounden Andrew Banks do and shall well and faithfully perform the trust reposed in him by said will, or that may be reposed in him by any future decree or order in the premises, then the above obligation to be void,” &c. This language is prospective; it relates to no past- default, liability, or duty, and the sureties assumed under it no obligation with respect to any acts of the trustee except such as might be done after the date of the bond. The record in the equity case, as it stood when the bond was given, in fact showed that the trustee had accounted in full up to that date for all the trust funds which had come to his hands; and that there was, therefore, no antecedent default to which the bond could be made to apply. But aside from this circumstance which is averred in the pleas and admitted .by the demurrer, the legal effect of the bond was not retroactive. Farrar & Brown vs. United States, 5 Peters, 389; United States vs. Boyd, et al., 15 Peters, 208; Same Case, 5 How., 29; Rochester vs. Randall, 105 Mass., 295. If it had been intended to cover past derelictions of duty, it should have been made retrospective in its language. Now, the pleas allege that after Banks had relinquished the trust and after new trustees had been appointed, two audits were stated, wherein, by charging the original trustee with items which he had inadvertently omitted to debit himself with before he gave bond, and which sums by reason of his failure in business he had lost before giving bond, he was made to appear as in default in not having paid over all the income he had received; and that these sums are those for the recovery of which the sureties were sued. These averments of the pleas the demurrer admitted, and thus the distinct question was presented as to whether the sureties could be held for a default which they did not guarantee against —a default, committed and fully consummatde long before they executed the bond. For the reasons we have given, and upon the authorities to which we have above referred, we are of opinion that the Superior Court was right in holding by its ruling on the demurrer that the sureties were not bound for such a default.

The second prayer asked the Court to declare that the sureties were liable for the income collected by Banks before he gave bond, and which had not been ascertained to be due the equitable plaintiff by auditor’s accounts as stated earlier. This prayer was properly rejected, for the same reasons that the demurrer was overruled. It sought to hold the sureties liable, notwithstanding Banks had lost the funds before the bond was given. It is true they would have been answerable even though the funds had been collected prior to the date of the bond, if he had had those funds in hand at the time the bond was delivered, and had misapplied them afterwards; Bruce vs. U. S., 17 How., 437; but there was no evidence to support that hypothesis.

The first prayer involves an interpretation of auditor’s account R. The Superior Court on the trial allowed the sureties a credit of $534.60 on the balance claimed against them. This sum the sureties insist was part of the commissions to which Banks was entitled under the order passed in 1877,’ when the Circuit Court assumed jurisdiction of the trust estate; whereas, the equitable plaintiff contends that this sum of $534.60 forms no part of the commissions at all. The allowance of commissions was a matter wholly within the jurisdiction of the equity Court, and upon the trial of this case at law the Superior Court was absolutely bound by what the other Court had done in this respect. But what had the Court of equity done? The answer must be found in the auditor’s report. In the charges against the income in account R, occurs the following item:

“To the trustee for his commissions at 6 per cent, on income collected per

contra....................................... $1,105.70

Less counsel fees, testimony, Court costs, &c., itemized in statement M. W. D. No. 2, herewith filed, properly chargeable to the trustee.. 534.60”

And the difference..................;...... $571.10

is carried out in the column of debits. By this mode of stating the account full commissions were allowed, but part of the gross sum so allowed was applied to the payment of certain costs and fees which the trustee's conduct prior to his having given bond induced the auditor and the Court to conclude ought to be paid by him, and not by the trust estate. Accordingly these items were deducted from his commissions, and instead of the total of the commissions actually allowed being carried out, only the difference between that total and the deductions just specified was entered in the column of debits; whereby, though full commissions were actually allowed, only a part of the amount was charged against the income. As a result of this, the apparent balance due by the trustee was made just that much larger, although the five hundred and thirty-four dollars and sixty cents charged against the trustee, and made payable out of his one thousand one hundred and five dollars and seventy cents of commissions, were in fact paid, not to him, but to others for him. As the trustee did not actually get that portion of his commissions in hand, this was merely another way of paying part of them— the two sums, $571.10 charged in the audit and the $534.60 retained to pay costs, fees, &c., as debts due by Banks, aggregate precisely the total of six per cent, commissions allowed in the audit. If the sureties are obliged to make up to the income account, as contended by the appellant, this $534.60, then they pay the debts due by the trustee, which debts were specifically decreed to be paid, not by them, nor by him personally, but out of the commissions allowed to him; and the trustee gets not six per cent, commissions, allowed by the order of the Court, but only a fraction over three per cent. This would materially modify the face of the auditor’s report. As we understand that report, the full commissions were allowed, but a portion of them — nearly a half— was seized upon by the Court to pay costs and expenses charged against the trustee. "When applied to the payment of these charges, it was his money thus applied, and the fund did not lose its identity as commissions; and having been appropriated, as it was, the sureties were not thereby deprived of the right to insist that it should, even after its appropriation, be treated as part of those commissions. Treating it in this way, it properly formed no part of the income payable to the cestui que trust, and therefore ought to have been deducted from the amount due to her. It can make no possible difference what was done with the commissions after they had been allowed. When allowed, they were payable out of the income, and, to the extent of their allowance, properly diminished the amount of income payable to the cestui que trust. And this would be so even though every dollar of them, instead of only a half, had been applied by direction of the Court, to the payment of costs and fees charged against the trustee. If the whole of the commissions had been thus applied, the net income payable to the cestui que trust would not have been a single cent larger than if all the commissions had been paid in cash into the hands of the trustee. The payment of his obligations out of a part of his commissions could not, upon any principle of correct accounting, swell the net income. The net income is that which remains after deducting proper costs, expenses, and commissions, and it can not therefore include a part of the very items which must he deducted in order to produce it. Hence the moment it appears that full commissions have been allowed — as it does appear in this audit — it must be conceded that those commissions form no part of the net income at all, and do not belong to the cestui que trust. Had the purpose been to reduce the percentage of the trustee’s commissions, and not to-pay these costs and fees out of the full commissions, a different mode of stating the account must necessarily have been pursued.

(Decided 7th June, 1892.)

But there is another objection to the prayer: It specifically asks for the rendition of a verdict for $762.92. This sum purports to be made up of the $534.60, and the-net amount of income collected by the trustee after the delivery of his bond, but inadvertently omitted to be accounted for by him, as already stated. An examination, however, of the items of collection and expenditure, not previously accounted for during the period intervening between the date of the bond, and the retirement of the trustee fails to show such a net balance as will, when added to the $534.60 make the amount $762.92 claimed in the prayer. The difference,, it is true, is not large, but it is sufficient, as the prayer is framed, to cause the prayer to he inaccurate, even on the theory of the appellant; and this alone, would have been enough to have warranted its rejection.

Whether the amount ascertained by the verdict was right or not is not a question open for inquiry on this appeal — it was a finding of fact by the Court sitting as a jury, and its correctness cannot be investigated in this Court.

Finding no errors in the rulings excepted to, the judgment of the Superior Court will be affirmed.

Judgment affirmed, with costs.