Leake v. Watson

A trust fund, consisting of railroad stocks and other securities, was held by a testamentary trustee for the benefit of W, a daughter of the testator, the income to be paid to her and the remainder to go to her heirs ; the will providing that she might, if she deemed it necessary, from time to timé receive portions of the principal, not to exceed $1000 a year, nor to exceed in all half of the principal. The trustee and N used the C trust fund in stock speculations, the defendants acting as their brokers I in the matter, and receiving stocks from them for the purpose, eharg- ’ ing a commission which they shared with a New York firm of brokers, who were members of the stock exchange, and through whom the purchases and sales were made. The result was a loss of the trust estate. In a suit brought by a trustee for the children of W, to recover of the defendants the value of the trust property which they had received and disposed of, it was held— 1. That so far as the defendants sold the stock as mere agents, in good faith, without knowledge, actual or constructive, that other persons interested in the trust were being injured, or that the sale was not for a legitimate object, and had fully accounted, they were not liable. Otherwise if they knew, or were in the circumstances chargeable with knowledge, that the stocks were being sold in violation of the trust. 2. That if the trustee sold the stocks for the purpose of using the proceeds in stock speculations or of permitting 2f so to use them, and the defendants purchased them knowing the purpose, they participated in the breach of trust, and were liable for the stocks received by them. And in the same way were liable if they received the stocks or security and subsequently sold them, using the avails to make good losses on other stocks held by them on margins for the trustee and N. 3. That the defendants were bound to inquire as to the ownership of the property, and as the will, which gave to 2? her interest in it, also gave the remainder to her heirs, and could have been found on the records of the probate court, they were chargeable with knowledge of the rights of the heirs. 4. That it was of no consequence, upon the question of notice to the defendants, that there was a doubt as to who would take the remainder, and as to whether the gift over was valid; it being enough that there was a remainder, and that there were possible parties besides N who had an interest in the property. 5. That it did not affect the case that the court of probate had distributed the property to “ trustees for N,” such distribution being in terms made under the will, which gave JV only a life estate, and the court making no distribution of the remainder. 6. That any property which had been bought and added to the trust fund by a former trustee in the place of trust property sold, and which came into the defendants’ hands, stood upon the same ground with original trust property. Where property is given to a trustee for a certain person for life, with remainder over, the trustee is charged with the duty of safely keeping the property until it is delivered to the remainder-men. But the remainder-men in such a case would not be strictly beneficiaries under the trust. Where the court Of probate is acting upon the acceptance of the resignation of such a trustee and his discharge from the trust, it is not necessary that notice should be given to the remainder-men as parties in interest.

Action by the plaintiff as trustee of certain estate for Georgiana Nichols, under the will of her father Charles Bulkley, against the defendants, to recover the value of sundry stocks and bonds, belonging to the trust estate, which had been received and sold by the defendants as brokers, with alleged knowledge that they were being disposed of in violation of the trust; brought to the Superior Court in Fairfield County. The defendants in their answer averred their ignorance of the existence of the will in question; that the stocks and bonds were received by the defendant Watson as a broker in the regular course of business from the said Georgiana and Elizabeth Bulkley, then trustee, with orders to sell the same in the market in New York city, and that he so sold them in good faith and accounted to them for the proceeds before he had any notice of the plaintiff’s claim. The case was heard before Fenn, Jl, who made the following finding of facts. Charles Bulkley of Fairfield in this state died in 1875, leaving a will, which was duly probated, and which, after providing for his widow, proceeded as follows:— “ Fourth. All the rest, residue and remainder of my estate, real and personal, I give, devise and bequeath unto trustees, as hereinafter named, for the uses and purposes hereinafter set forth, as follows:— “ One fifth to be held in trust; and the income, use, interest and improvement thereof to be paid over annually, or in more frequent installments if deemed expedient and convenient by the trustees, unto and for the use and benefit of my daughter, Mary Elizabeth, wife of Isaac Jennings; the remainder to go to her heirs forever; provided that said Mary Elizabeth may, if she shall deem it expedient and necessarjq from time to time take and receive portions of the principal, not exceeding in all one-half of such principal, and not to exceed the sum of one thousand dollars in any one year; such portion of the principal to be paid over by the trustees upon notice in writing so to do, and the receipt of said Mary Elizabeth to be a sufficient voucher to the trustees in the premises. Three other parts, of one-fifth each, to be held in trust in the same manner as aforesaid, with the same privilege of receiving portions of the principal, for the use and benefit respectively of my other daughters, Elizabeth Whitney, wife of Rev. Frederick S. Hyde, Georgiana, wife of William B. Nichols, and my aforementioned daughter Catharine, with remainder to their heirs forever.” The remaining fifth was given to trustees for the benefit of the children of a deceased son. The will appointed Elizabeth Bulkley, the wife of the testator, and Oliver Bulkley, his nephew, executors and trustees, with a direction that no bond should be required of them. The property was afterwards on the 1st day of February, 1876, distributed by order of the probate court, the distribution commencing as follows:—“Estate of Charles Bulkley. The subscribers, distributors on said estate, having been legally sworn, have set out and distributed the same according to law and to the will of the said deceased, as follows.” The distribution to Mrs. Nichols was headed as follows:—“We set to Elizabeth Bulkley and Oliver Bulkley, trustees for Georgiana Nichols ”—and then followed a list of stocks and bonds, amounting to $44,981.81. All the property thus set out to trustees for Mrs. Nichols was received and taken into possession by Oliver Bulkley, one of the trustees, being received by him as trustee from himself as executor. On the 21st day of August, 1885, Mr. Bulkley rendered his account as trustee to the court of probate, which was accepted, and he was on the same day, upon his application previously made, discharged from the trust. By his account thus rendered it appeared that $17,480.58 in value of the trust property then in his hands was made up of new investments since the commencement of the trust, the rest being the same property that was described in the distribution. New certificates of the stocks had been taken in 1876 in the names of the two trustees. Upon his resignation as trustee Mr. Bulkley surrendered the certificates (with one exception) and procured new ones issued in the name of “ Elizabeth Bulkley, trustee for Georgiana Nichols,” which were delivered by him to Mrs. Bulkley. Mr. Bulkley, while acting as trustee, made ten annual payments of $1,000 each, commencing March 9th, 1876, ending January 30th, 1885, to Mrs. Nichols, from the principal of the fund, designed by him and accepted by her as payments of principal under the provisions of the will in reference to the $1,000 per year. Georgiana Nichols was born in 1838, married in 1857, became single again in 1877, and has since so remained. She has three daughters, the youngest born in 1864, now the wife of Richard P. Leake, the plaintiff trustee, and one son aged fifteen. The defendant Watson resides in Bridgeport, and carries on business there under the name of T. L. Watson & Co. There is in fact no company, the business being his own exclusively. The defendant Smith is not a partner, but only an employee at a fixed salary. Watson is also a partner in the firm of Watson & Gibson, doing business in the city of New York. His business in Bridgeport has been established over twenty years, that in New York about ten years. The business is that of private bankers, brokers and dealers in stocks. The defendant Smith became an employee in May, 1884. He resides in New Haven. He has been the cashier, manager and confidential agent of Watson in the conduct of the Bridgeport business, to the details of which the latter, being occupied with his New York business, has given little attention, except an oversight of its general conduct. Watson has never been a member of the New York Stock Exchange, but his stock transactions were conducted through a firm called Prince & Whitely, members of the Exchange, having an office in New York with which Watson’s Bridgeport office was connected by private wire. Prince &.Whitely were the representatives of Watson on the floor of the New York Stock Exchange. In buying and selling stocks for customers Watson charged three sixteenths of one per cent, or eighteen and three quarter dollars for each one hundred shares, of which one sixteenth was his own share, and the remaining two sixteenths was paid to Prince & Whitely, being the established rate paid to members of the exchange on transactions. All of which early became known to Mrs. Nichols, and she also knew that the securities held on margins were from time to time, as the exigencies of the margin account required, sent and transferred in accordance with the custom of such business, by the defendants to Prince & Whitely. The defendant Smith first became personally acquainted with Mrs. Nichols in the early part of September, 1885, when she called at the banking office, and with her mother, Mrs. Bulkley, some two or three weeks later. Watson became acquainted with them in the spring of 1886. In reference to the items in the plaintiff’s bill of particulars, and the transactions connected therewith, I find as follows:— [The court then made a detailed statement of the particular transactions with the defendants with regard to the several items of the trust property which came into their hands.] During the entire time covered by the transactions above detailed, from September, 1885, down to the summer of 1887, both Mrs. Bulkley and Mrs. Nichols had stock accounts with Watson, as a broker, doing business under the name of T. L. Watson & Co., and their stock transactions with him in his Bridgeport office, conducted mainly through Smith acting for him, in buying or selling on margin or speculation, were frequent and numerous. The accounts were kept in their individual names respectively, each having stock or margin accounts in addition to the bank, check or deposit account of Mrs. Nichols. There was also still another account in the name of Elizabeth Bulkley, trustee for Georgiana Nichols, which was a mixed account, commenced by paying in some cash with which stocks were bought as investment. Then more stocks were bought and the former used as margin to float the latter. There was no other account of this nature with any customer on the defendants’ books. All stocks on margin were held on condition that the defendants should have a right to dispose of them without notice whenever the margin was reduced below a stipulated per cent. These stock speculations through the defendants were mainly directed by Mrs. Nichols, both on her own account and that of her mother, who was an aged lady, apparently fully dominated by her. Mrs. Nichols had had a previous experience in stock speculations and relied unduly upon her own judgment and sagacity. Her orders to the defendants were peremptory, and were complied with quite as fully as margins would allow. I do not find that the defendants ever induced or encouraged her to speculate; she ueeded no such inducement. On the contrary, they in some moderate measure endeavored to dissuade and restrain her. She made some fortunate speculations, but the general result was total disaster, both to the trust fund, which constituted her only individual resource, and to her mother’s private means. All these transactions with the trust property were with her full knowledge and approval. All certificates transferred were signed by the trustee in form to correspond with the description in the certificate, and such signature to the power of transfer was generally witnessed by both Mrs. Nichols and by Smith. These powers were signed and witnessed in blank, when the certificates were left in pledge, on margin, or for disposition, and filled out whenever there was occasion to sell out the margin or otherwise dispose of them. In addition to the transactions which appear herein, the defendants received other money and stocks as margin, being the private property of Mrs. Bulkley, and received money as dividends on trust stocks while held, and credited it to Mrs. Nichols, and also paid out money to and for her, for insurance, living expenses and otherwise, in checks and other ways, so that the above is not a complete statement of all the transactions between the parties,- but I find generally that if it is lawful for the defendants to charge Mrs. Nichols for money advanced to or for her personally, or credited on her margin, or on her private account, as a counter-charge or offset for money received by them derived from the sale of trust certificates and property, with the approval or concurrence of Mrs. Bulkley, then, but not otherwise, they have fully accounted for the items hereinbefore specified and set forth. I find that both the defendants at all times knew that the securities belonged to, and stood in the name of, “ Elizabeth Bulkley, Trustee for Georgiana Nichols; ” but they did not know, nor did they inquire with regard to, or use any means whatever to ascertain, the origin, nature, terms or limitations of the trust, and neither of them had actual, as distinguished from constructive notice and knowledge, of the existence of the will of Charles Bulkley, or the proceedings of the probate court in reference thereto. They knew where Mrs. Bulkley and Mrs. Nichols resided, which was in the town of Fairfield, and both on one occasion visited them in their house, and on another occasion in their rooms, while temporarily residing at the Atlantic Hotel in Bridgeport. Both ladies, especially Mrs. Nichols, were well known in Bridgeport and Fairfield, and were members of a family of large reputed means. ' Although the business of T. L. Watson & Co. was very large and their customers numbered by the hundreds, yet the circumstance of having women customers as stock speculators was quite exceptional, though not without a precedent in their business. There was no other such customer at the time these transactions took place. If the law is so that, upon these facts, and as a conclusion therefrom, the defendants can be charged with notice of the facts relating to the trust, its nature and terms, I am of the opinion, and therefore find, that they should be so charged. I find upon evidence offered by the defendants and objected to by the plaintiff, but received, if such evidence is admissible, that it is the custom of brokers and bankers, in the financial community where these transactions took place, in dealing with and transferring certificates of stock and other securities, standing in the name of a trustee named in the instrument, with transfer and blank power of attorney accompanying the same, regularly executed by such trustee, and acquiesced in by the person named as beneficiary, to transfer the same without any further information, knowledge or inquiry whatever. I find that the expectation of life of Mrs. Nichols on November 19th, 1887, was twenty-two years. The value of her life interest in an estate, according to recognized tables of such expectancy, is sixty-three per cent., and she is apparently in good health and vigor. On November 10th, 1887, Elizabeth Bulkley was removed by the probate court from the trust, and the plaintiff was appointed trustee in her place. The questions of law arising upon the record, and as to what judgment or decree should be passed, including all questions as to the admissibility of testimony objected to by either party, were reserved for the advice of this court.