Notes for Trustee Powers Duties and Responsibilities

8/3/2019 Notes for Trustee Powers Duties and Responsibilities

1/47

74) THE TRUSTEE-HIS QUALIFICATIONSCHAPTER X

THE TRUSTEE: HISQUALIFICATIONS, APPOINTMENT AND REMOVAL

74. The Trustee-His QuaHflcatiODS.

75. Trust wlll Not Fall for Want of Trustee.76. Orlgtnal Appointment ofTrustee.77. Trustee's Bond.78. Acceptanceby Trustee.'19. Res1lDatioD by Trustee.80. Removal ofTrustee. .81. Death of Trustee.82. Vacancies in Trusteeship-Appointment of Suceesson.

THE TRUSTEE-HIS QUALIFICATIONS

74. Any person capable of taking and holding the title to propertymay be a trustee.

The crown in England, the United States, or a state may be atrustee, although the trust may be unenforceable in thecourts.Corporations, both private and municipal, may accept trusts for

purposes within their corporate powers.An unincorporated association has not the capacity to be a trustee,

but a trust naming such an organization as trustee willnot fail for that reason.Married women, infants, aliens, and lunatics may be trustees,subject to the disabilities which affect them in all theirtransactions... The settlor may declare himself a trustee, or may make the beneficiarytrustee. Where the cestui que trust is the sole beneficiary,

the trust willbe destroyed by a merger of the legaland equitable interests of the trustee-beneficiary. Butwhere the beneficiary is only one of several trustees, thetrust will continue, although the trustee-beneficiary will,according to the better view, be incompetent to act wherehis private interests are concerned.What are the qualifications of a trustee? What persons, naturaland artificial, may hold the office of trustee?Any person capable of taking and holding the title to real or personal

property may be a trustee. Ifone has the power to becomethe owner of property absolutely and for his own benefit, he maylikewise become seized of property in trust for another.

The sovereign in England may be a trustee, although the beneficiaryhas no power to enforce the trust against the crown. Recentstatutes 1 have provided against escheat to the crown upon thedeath of a trustee without heirs, and have also made it possible forthe crown to transfer the duties of a trusteeship to another.By way of dictum the New York Court of Appeals has said thatthe United States is incapable of J:101ding property in trust for theestablishment of a school. "Is it, therefore, within the scope of its[the federal government's] political corporate capacity to administer


2/47

indefinite charitable trusts? It seems to me there can be butone answer. The United States exists under grants of power, expressor implied, in a written Constitution, and the functions of allthe departments are definitely limited and arranged. It is notwithin the express or implied powers of the government, as organized,to administer a charity." I

While there seems to be a dearth of law on this subject, there isno reason in principle why the federal government may not hold

property in trust for governmental purposes, and leading writersagree that it has such power.'A state may be a trustee,' as for example, when the holder of

property in trust to establish a home for insane persons,- or whentaxes are illegally collected,' or when money is given for the benefitof the children living in the state, T or when the foreshore of theocean is held for the public,8 or where land is held for the benefit ofsoldiers.'"It may be stated as a general proposition of law that a corporationcapable of holding real estate is capable also of executing acharitable trust, unless the statute or the articles of incorporation

prohibit it. And, unless specially restrained, municipal corporationsmay take pnd hold property in their own right by direct gift, conveyance,or devise, in trust, for purposes germane to the objects ofthe corporation, or which will promote, aid, or assist in carryingout or perfecting those objects." 10

Instances in which gifts to cities to hold in trust for governmentalor other charitable purposes have been sustained are frequent.11These trusts are generally in aid of objects which the municipalityis under a duty to forward or might well forward. Thus, one trustwas for the establishment of a hospital for foundlings,lI another forthe purppse of making loans to needy young artificers,1I and still a

third for the planting and care of shade trees in the city.aA town or village may become a trustee to carry out purposesfor which it was incorporated.lI CIA trust for the support ofschools, or of a particular school as a high school, or for any purposeof general public utility is a valid trust. So towns can hold

property in trust for purposes within the general scope of their corporateexistence." 1.It is obvious that a private corporation may be a trustee wheneverthe purposes of the trust are consistent with the objects of thecorporation. Ifcarrying out the trust is within the powers grantedto the corporation by its charter or certificate of incorporation, thenthe corporation may validly act as trustee.U But a corporation which was empowered to establish an institutionin the town of Newmarket for the instruction of youth may not be a trustee for

the purpose of aiding missionaries. Such a trust would be beyondthe powers of the corporation.lI

Unincorporated :Association'The question has frequently arisen whether an unincorporatedassociation may be a trustee. Such a body is not recognizedby thelaw as a legal entity. It has a shifting membership. The decisionshave, however, almost uniformly sustained a trust in which an unincorporatedassociation was named as a trustee, sometimes merelywith a statement that such a trust was valid; 11 in other cases with


3/47

the assertion that, while the association could not act as ,a trustee,equity would hold the heirs or devisees as trustees for the purposenamed; 10 and on other occasions the court has stated that it wouldappoint new trustees in place of the incompetent association.lI1The correct view would seem to be that a trust ought not to fail

because an unincor~orated association was named as its trustee.

Such an association is not a legal entity. The title to the trustproperty could not rest in it, but would necessarily rest in the membersof the association, if the association were allowed to be a trustee.But such members are constantly changing, and there is no

provision for the transfer of the title to the property on the changeof membership. But, even if it be conceded that an unincorporatedas~ociation is not competent to serve as a trustee, the trust maywell be saved under the established principle that equity will not allow a trust to fail for want of a trustee.1I The

better method ofdealing with such attempts to create a trust would seem to be toappoint new trustees. .Married women, even at common law, were capable of becomingtrust~es, although hampered in the administration of trusts by the

rules restricting their dealing with property apart from their husbands.11 Under modem legislation, giving married women powerto take, convey, and manage their property as if single, marriedwomen may, of course, act without any disability as trustees, andthey frequently are appointed. UAn infant may be a trustee, although subject to the usual disabilitiesof infancy, and not accountable for acts of maladministration.III Equity will, on application, decree that the infant conveyto a new trustee of full capacity.atA lunatic may be a trustee, although subject to the same incapacitiesand disabilities as if acting with reference to his own property.lIf As a trustee the lunatic cannot alone or with the cestui que

trust do any valid act.n Equity will remove the title from the lunatictrustee and vest it in a competent person."An insolventao or bankruptl1person may be a trustee, althoughequity will ordinarily remove him on application.1I Such a personhas the capacity to hold and manage property, although his financialcondition makes it highly dangerous to the cestui que trustthat he continue in the trust office.An alien may be a' trustee to the same extent that he may own

property absolutely: In most of the American states friendly alienshave full property holding rights, and the .ancient disability ofaliens to take and hold real property has been abolished.aa

Frequently a settlor of a charitable trust provides that the trustee

shall be a corporation to be created in the future:. In such casesthe trustee is not in existence when the trust takes effect. Neverthelessequity does not allow the trust to fail, but considers the

property held by the grantor, or testator's heirs, or by the courtitself in trust, pending the creation of the corporation which is to

be the trustee.""There is no rule of Jaw that prohibits the donor from constitut.ing himself a trustee for the donee, and in such case no further deliveryis necessary, provided the trust is expressed." II


4/47

Merger

Frequently the trustee is also named as a bcmeficiary ofthe trust.Is a cestui que trust competent to act as a trustee? The questionmay arise in several ways. A. may have been appointed a trusteefor himself alone. In such case the sole trustee is also sole beneficiary.There can be no doubt about the result in such an instance.

The equitable estate merges in the legal, and A. becomes the ownerof the property freed from any trust.88 "The trustee and the

beneficiary must be distinct personalities,- or, otherwise, there couldbe no trust, and the merger of interests in the same person wouldeffect a legal estate in him, of the same duration as the beneficial

interest designed. * * * That the legal and beneficial estatecan exist and be maintained separately in the same person is a,n inconceivable

proposition." 17 And so a gift to a corporation in trustfor its corporate purposes will be construed as an absolute gift,

rather than as a trust. IS But if the settlor appoints A. and B. astrustees for A., and B. fails to qualify, leaving A. as the sole trustee,there will be no merger. The court will appoint a new trustee narily

refuse to appoint a cestui que trust as trustee of his owntrust.UA different question is raised where A. is appointed trustee forA. and B. Here A.'s legal estate is not the same as his equitableinterest. Upon this case there are a variety of holdings. In somecourts the validity of the trust has been sustained, and A. treated

as a. normal trustee. U In other cases the courts have held that apartial merger 'arose in such a situation, and that A. became theabsolute owner of part of the property, freed from th~ trust, but

continued to be trustee as to the balance for the benefit ofB.uIn Woodward v. James the testator's widow was made trusteefor herself and certain other relatives. The widow was to have

one-half the income from the trust property. The court said: "Itis undoubtedly true that the same person cannot be at the sametime trustee and beneficiary of the same identical interest. To saythat he could would be a contradiction in terms, as complete and violentas to declare that two solid bodies can occupy the same spaceat the same instant. Where, however, the trustee is made beneficiaryof the same estate, both in respect to its quality and quantity,the inevitable result is that the equitable is merged in the legal estate,and the latter alone remains. If, then, it be granted that, asto her half of the income, the widow was not trustee, and tookwhat was given to her by a direct legal right, it does not followthat her trust estate in the corpus of the property is in any man- .ner destroyed, or that there is any the less a necessity for its existence.

She can be trustee for the heirs, and that trust rangesover the whole estate for the purpose of its management and disposition."6.1

Still a third view has been expressed, namely, that A. may act forB., in the situation described, but is incompetent to act for himself,and that the court will act with respect to trust questions involvingthe interests of A. alone. U In a later New York case Uthe Court of Appeals indicates by way of dictum that its view is that A. would not be competent to act at allwhen he was appointedas trustee for himself and for B.


5/47

The authorities on this second class of cases ar~ thus seen to bein considerable conflict as to the correct theory to be followed, althoughthe trust has been usually sustained as a valid trust.A third possible trust, namely, one where A. and B. are appointedtrustees for A. alone, does not seem to have arisen often in litigation.A trust of this kind seems to h\Lve been sustained as a valid

trust by way of dictum in one case."The fourth and last contingency is that in which A. and B. areappointed trustees for A. and C. A. here has conflicting interests.He has a private interest as a, beneficiary and an official interest asthe representative of C. A variety of views have been expressed

by the courts relative to the effect of such a settlement. ,The majorityof courts which have had occasion to consider the questionhave held that the trust was a valid trust and that no merger occurredas to A.'s interest.7 "The title held by the trustees is joint,and there is no merger of separate interests in the different trusteesarising out of the fact that they are also beneficiaries." ..Two objections to a merger of the trustee-beJ.1eficiary's interestsare urged in a New York case, namely, that the doctrine of merger

is aimed at passive trusts only, and that the title of the trustees isjoint, whereas the interest of the cestuis que trust is separate andseveral." In some cases, however, the courts have taken the positionthat, where A. and B. are trustees for A. and C., there is a

partial merger, and" A. becomes the absolute owner of part of theproperty dedicated to the trust. U The New Jersey court, in makingits decision, says: "It may be he is trustee for his children, buthe cannot be trustee for himself. He is one of the beneficiaries ofthe trust, and also trustee, and therefore, to the extent of his personalinterest in the trust property, both the equitable and legalestates are vested in the same person. This union works a mergerof the equitable estate. Where the equitable and legal estates unite

in the same person, the equitable sinks or merges into the legal,provided the legal estate is as extensive as the equitable." 11 Lastly, with respect to class four of these trustee-beneficiarycases, there are some cases which maintain that the trust is valid,

but that the trustee who is also a beneficiary is disabled from actingwhere his interests as a beneficiary are involved, but may act in allother cases. The noninterested trustees must act alone when therights of the combination trustee and beneficiary are at stake.1lI"But, however this may be, it is clearlythe law that where two ormore trustees are appointed to execute a trust, and one or both isunder the infirmity of being a beneficiary, neither the trust nor itsexecution fails, as each may act for the other where disqualificationexists, and all can act with respect to that portion of the property in

which they have no interest." IIIt would seem that, where a trustee is also a beneficiary, a con-. flict of interest exists which is dangerous to the cestuis que trustwho are not trustees. The trustee who is also a cestui q"ue trustshould be disqualified from acting where his private interests may

be involved. This disqualification may be effected either by wipingout the trust as to the trustee beneficiary by applying the doctrineof merger, or by holding that the trust still exists, but that thetrustee beneficiary may not act with respect to that trust, but the


6/47

administration of it must be left to the noninterested trustees.

TRUST WILL NOT FAIL FOR WANT OF TRUSTEE75. Equity will not allow a trust to fail for want of a trustee. Ifno trustee is named, or the trustee named is nonexistent orincompetent or refuses to accept the trust, chancery willsupply a trustee, and the settlor's intent willbe effectuated.

No trust can exist without a trustee, but the failure of the settlorto select a trustee or his selection of a" trustee who cannot or willnot act is not fatal to the trust. Ifthe settlor has clearly indicatedan intent that a trust.shall exist, equity will, because of its desire tosupport the trust, supply the trustee in case of need. This principleis generally expressed in the maxim that "equity will not alIowatrust to fail for want of a trustee.".. Whether A. or B. is the trustee to administer the trust is nat especiallyimportant. Anycompetent and honest man can carry out the intent of the settlor.Thus, where the settlor describes the trust completely, exceptthat he fails to name any trustee, equity will supply the want andappoint a trustee to 'administer the trust. II And by virtue of thesame rule, ifthe trustee named by the settlor is a corporation which

has passed out of existence, or a body which has no legal existence,It orifsu


7/47

the trust," or because he is disqualified Be or incompetent,TO equitywill supply the trustee. In some cases, also, the number of trusteesappointed by the settlor is not sufficient to manage the trust, ilnd insuch instances equity may appoint additional trustees to assistthose whom the settlor has selected.T1The subject of the filling of vacancies in the trusteeship wi1l1ater

.be considered. n At this point only the original appointment of thetrustee is discussed.TRUSTEE'S BOND17. In the absence of statute the court of equity may in its discretionrequire the trustee to give a bond for the faithful Pel"fonnanceof his duties. In many states the occasions whena trustee must give a bond are now set forth in statutes.Whether a trustee will be required to give a bond for the faithful

performance of his duties is, in the absence of statute, in the discretionof the court of equity. Ifthe character and situation of thetrustee seem to render security necessary, the court may require it.IftJte trust property does not appear to be in any danger, equitymay dispense with the bond.n Where the trustee is insolvent or

of weak or doubtful financial condition, the court will generallyrequire a bond.1 4, Ifthe trustee is a nonresident of the state having jurisdiction of the trust, the court will beinclined to require security.TII But ifa trustee has been appointed by a Massachusettscourt and given bond in that state, it is within the discretion of anIllinois court to relieve the trustee from giving a bond in Illinois.TeThat the trustee has refused to obey an order of the court,'lT orthat the cestuis que trust are infants. T8 may easily influence thecourt to require security of the trustee.It is improper for the court to require the trustee to give a bond.when no reason for apprehension as to the safety of the fund exists,and the administration of the trust' has been entirely satisfactory.u

The settlor may provide in the trust instrument that the trusteeshall not be obliged to give a bond. and this direction will be respectedby the courts.80 And in some instances the consent of thecestuis que trust has been held sufficient authority for excusing thetrustee from giving security.81In many states trustees are required by statute to give bond forthe faithful performance of their duties. IX It is impossible here tostate the various statutory provisions. II

Ifthe same person be named as executor and trustee, he mustgive separate bonds for the faithful performance of the duties ofeach office.

The failure of a trustee to give bond when required to do so doesnot defeat the trust. II Ifthe trustee accepts the trust, the fact thathe later fails to give the bond required does not divest him of thetitle to the trust property." But the court may remove a trusteewho fails to furnish security when required, IT and in many statesthe failure to give bond is deeltle


8/47

ACCEPTANCE BY TRUSTEE78. It is not necessary to the validity of a trust that the particulartrustee named by the settlor accept the trust. Equity willnot allow the trust to fail for want of a trustee.But it is necessary that a trustee accept the trust before the titleto . the trust property vests in him and before he is bound

by the trust obligations. Acceptance ofa trust by thetrustee is presumed, and may be shown as well by anyacts expressly or impliedly recognizing tho existence ofthe trusteeship.The trustee may refuse to accept the trust. He cannot be compelledto undertake the duties of the trusteeship against his will. toIfhe clearly indicates that he declines the trust, he will not becomea trustee. And the trustee may also accept the trust upon a condi-. tion, as, for instance, upon the condition that he be allowed' to re-previously

been shown," a trustee is presumed to accept a trust .. Thispresumption is based on still another presumption, namely, thatevery grant is presumed to be, beneficial. In the absence of anyevidence of refusal, therefore, the trustee named will be presumed

to have accepted the trust. IIIGenerally, however, there is evidence of acceptance or refusalon the part of the trustee other than mere presumptions. Some

positive acts on the part of the trustee are usually to be found.,Thus it has been held that an oral acknowledgment by the trusteethat he had accepted the trust," failure to object to the trust afterknowledge of its existence for some time,OI taking out letters testamentarywhen the trustee was also the executor under the will,"the writing of the trust deed under which the trustee was ap-. pointed,1IT accepting the delivery of that deed,o. joining in the executionof the trust deed," taking possession of the trust propertylor exercising control over it, or the performance of any acts

which amount to a carrying out of the trust,' are all acts on thepart of the trustee which show an acceptance of the trust by him.In many cases where the question of acceptance was in dispute,acts of a similar nature have been held to show an acceptance ofthe trust.

In some cases doubt has arisen as to whether certain actsamounted to a refusal of the trust by the trustee. It has been heldthat the failure to qualify or to give a bond 8 may show a rejectionof the trust. But a refusal to act as executor, when the sameoerson is appointed trustee and executor, does' not prove a refusalof the trusteeship. T Where a trustee refused to take any stepsunder his appointment for more than two years, or to file a bond, or

take possession of or manage the property, and suffered the buildingsto become out of repair and untenantable and the land to besold for the payment of taxes, his acts justify the inference that hehas declined the trust.' In numerous other cases similar acts have

been held to show a rejection of the trust duties by the trustee.'The validity of a trust is not affected by the acceptance or rejectionof the trust by any particular trustee, except in the rare caseswhere the trust is personal and can be carried out only by the trusteenamed.lO Ordinarily, ifJohn Doe decline to accept the trust,


9/47

Richard Roe may be substituted for Doe, and the trust carried out without difficulty.ll The refusal of the trustee to accept the officedoes not cause the title to the trttst property to vest in the cestuique trust,llI but it remains in the settlor(ifthe trust was createdinter vivos) or passes to the heir or next of kin sl1bject to the trust(if the trust was' created by Will).l1 Equity will then, upon application, appoint a new trustee to execute the

trust in the placeof the trustee who has declined the trust. h Iftwo trustees arenamed in the original settlement, and one rejects the trust, the titleto the trust property vests in the other trustee as if the trusteewho declines had not been named. 11While acceptance is unnecessary to the validity of the trust, this

principle should be carefully distinguished from the doctrine thatacceptance of the trust is necessary to the vesting of the title to thetrust property in any particular trustee and to the fastening of thetrust duties upon him. In order that John Jones may become theowner of the trust property,1' and in order that he may assume theoffice of trustee,l T he must accept the trust and consent to become atrustee. Ifhe declines,' the trust will proceed to its execution by

another trustee; but it cannot be carried out by him without anexpress or implied acceptance of its duties on his part.When the trustee does accept, his title relates back to the time ofthe creation of the trust, so that he is deemed to have been the ownerof the property from the time when the will or deed creating the trust took effect.18It is axiomatic that when a trustee has once accepted the trusthe cannot by a later act reject it. Having manifested his intent toassume the trust duties, he can only be relieved of his trust by aresignation or removal, and not by a mere casting off of the trustupon his own motion. 111 And, having once disclaimed the trust, thetrustee may not thereafter change his mind and accept it.20 His

action of acceptance or renunciation is final.

RESIGNATION BY TRUSTEE79. The trustee may resign the trust by obtaining a decree of acourt of equity accepting his resignation, or by securingthe consent ofall the beneficiaries, if they are competentto give their consent. The trustee cannot by his own actdischarge himself from the obligations of the trust. Equitywill aceept a resignation for good cause shown and onsuch terms as seem to it just.When and by what method may a trustee resign a trusteeshipand be freed from its obligations? Chancery has the power to accepta trustee's resignation and discharge him from the trust.11 It

may use its discretion in accepting or rejecting the resignation ofa trustee. His resignation will notbe accepted as a matter ofcourse. The mere filing of the resignatfon with the court, or notificationof the cestuis que trust of his resignation, does not releasethe trustee. 2:The rule is generally stated to be that the trustee cannot resignwithout a decree of the court permitting his resignation or the consentof all the cestuis que trust.11 "But it is a settled rule of lawthat a trustec;, after he has accepted the office, cannot discharge


10/47

himself from liability by a subsequent resignation merely. He musteither be discharged from the trust by virtue of a special provisionin the deed, or will, which creates the trust, or by an order or decreeof the court of chancery, or with the general consent of all

persons interested in the execution of the trust." 2~ "The authoritiesare clear that a trustee cannot divest himself of the obligation

to perform the duties of the trust, without an order of the court, orthe consent of all the cestuis que trust." 21The statements sometimes made that the trustee cannot resignwithout an order of the court andthe consent of the cestuis que even though the beneficiaries, or some of them,object to such acceptance.II Where the cestuis que trust are infant'S, or otherwiseincapable of giving consent to the resignation 9f the trustee, noresignation based on their consent alone will be valid. In such instancesresignation can only occur through a decree of the court. IfThe usual method of resignation is by 'application to the courtrather than by securing consents from the beneficiaries. In somestates statutory proceedings for resignation are now provided."The trustee must allege some cause for his desire to resign.1t If

it appears that a resignation at that time will be disadvantageousto the beneficiaries, the court will refuse to allow the trustee to resign.An example of such a situation is found in the cases where

pending actions brought by the trustee or other unsettled mattersrender it desirable to retain the trustee in office until the conclusion

of the unfinished business.lo The following have been held to besufficient grounds for resignation: That continuance in office would

be inconvenient to the trustee; 81 that the trustee is unwilling tocontinue and that there has been an increase in the amount of thetrust property since the original acceptance; 12 that the trustee isabout to leave the United Sta,tes; IS that there is friction and disagreement

between the trustee and the cestuis que trust.'

A trustee may, at any time before the court has taken final actionon his resignation, withdraw it and resume his duties as trustee."I

In the proceeding to obtain a release from the trust the cestuisque trust are necessary parties." The court may impose a conditionupon the acceptance of the trustee's resignation, as, for example,that the trustee waive his commissions." Whete the resignationis solely to promote the convenience of the trustee, thecourt will oblige him to pay the costs of the proceeding; IIbut inother instances, where the cause for resignation is not personalwith the trustee, the court may direct that the costs be paid out ofthe trust estate."

REMOVAL OF TRUSTEE80. Unless the power of removal is expressly reserved to the settlor,beneficiary, or other person, in the trust instrument, acourt of equity alone may remove the trustee against hiswill.Equity will remove a trustee, upon notice to the trustee and allother parties interested in the trust, ifthe trustee is shownto have been guilty of such 'misconduct in office that thefinancial interests of the cestui que trust are endangered.


11/47

The general rule is that the sole power of removing a trusteerests in the court of equity. That court is admitted to have plenary

power to revoke the trustee's authority, upon cause shown.toNeitherthe settlorU nor the c@stui que trust U has the implied power to remove a trustee, but the settlor may reserve tohimself4S orvest. in the cestui que trust, U or in the cestui que trust and a cotrustee,

4B the authority to remove a trustee from office. All reasonableprovisions which the settlor makes regarding removal in thetrust instrument will, of course, be respected.

No attempt can be made here to show in what courts in the severalstates the general equity jurisdiction which gives the right ofremoval is vested." In many states there are now statutes whichstate the procedure to be followed in removal cases and the groundsupon whi


12/47

Where trust duties are attached to the office of executor, andthe executor is removed or resigns, he willbe treated as having

been relieved of his duties as trustee also; 81but if the offices of executor and trustee are expressly madeseparate by the will, but tltesame person occupies both offices, the revocation of the appointmentas executor will not affect the trusteeship."

Proceeding for RemovalThe application for the removal of the trustee may be made byanyone having a financial interest in the execution of the trust. Itmay be made by one or all of the cestuis que trust,l6 whether theirinterests are vested or contingent. iii The Attorney General shouldapply for the removal of an improper trustee of a charitable trust. IIThe settlor, unless a beneficiary, has not the interest requisite toen~ble him to apply for the removal of the trustee. ITIn a proceeding for the removal of the trustee, the cestuis quetrust should all be made parties or their interests represented; IIand all other persons interested in the trust should be joined in theaction.1 Ifone of several trustees is to be removed, the cotrusteesshould be made parties to the proceeding.eo T\le trustee surely

should be given notice of the proceeding to remove him, in orderthat he may have the opportunity to defend himself. I!A trustee who unsuccessfully resists an application for his removalmay be held liable for the costs of the proceeding; 81but, ifhe shows that there is no cause for his removal and that he has heen performing his duties satisfactorily, thecourt m'8.y charge thec~ts of the proceeding to the trust estate."

DEATH OF TRUSTEE81. The death of the trustee does not affect the life of the trust.Equity will fill the vacancy, and the trust will continue.In the absence ofstatute, upon the death ofa sole trustee, thetitle to the trust property vests in the trustee's heirs or

p'erBonal representative, depending upon the nature oftheproperty, whether real or .personal. Where one of severaltrustees dies, the surviving trustees become the sole ownersof the trust property by virtue ofthe right ofsurvivorshipin joint tenancy.By statute in several states, on the death of a sole trustee thetitle to the trust property vests in the court of equity.

The~e is no right ofdower orc~y in the estate of the trustee.The death of the trustee will not terminate the trust. The continuanceof the trust is not dependent on the life of any particulartrustee. Equity will supply a successor.UAfter the trustee's death, however, it is obvious that the legaltitle to the trust property which has been vested in him can no

longer remain there. It must be transferred to some one upon thetrustee's death. It cannot remain in suspense.By common law the holding is that the ownership of the trust

property devolves upon the persons who would take the absoluteproperty of the deceas~d. "The general principle is not questionedthat trusts of real estate upon the trustee's death devolve upon hisheir at law, and trusts of personalty devolve upon the executor oradministrator for the preservation of the title, until the appointment


13/47

of a new trustee. * * * .. III That the heir becomes the ownerof real property" held in trust, and the personal representative the owner of personal property," upon the deathof the trustee, is wellrecognized.Due to the inconveniences which would arise from tenancy incommon, it is generally provided by statute or decision that trus.teeshold as joint tenants. Where there are several trustees, andone dies, it is preferable that the surviving trustees, who haveknowledge of the trust and have been selected by the settlor, shouldadminister the trust, rather than that the administration should becontinued by such survivors in common with the heirs or personalrepresentatives of the deceased trustee. Such heirs or personalrepresentatives may have no special fitness for the task of carryingon the trust. It is only when the title can rest nowhere else that thetrust devolves upon them.It is, of course, a characteristic of joint tenancy that, upon thedeath of one of the joint tenants, the title to the property remainsin the surviving joint tenants as a whole, and that no rights descend

to the heirs or personal representatives of the deceased jointtenant. Thus, in cases of trusts, ifA., B., and C. are trustees, andA. dies, B. and C. will hold the title to the trust property, free fromany claims by the heirs or personal representatives of A. II "Uponthe death of one of several cotrustees, the office of trustee will devolve,with the estate, upon the survivor, and ultimately upon theheir or personal representative of th.e last survivor. Trusts of real estate, upon the death of the trustee, devolveupon his heir at law.Trusts of personalty vest in his executor or administrator." l1li.Even in states where joint tenancy is generally abolished, it stillexists among trustees,1 and in other states, where all grants to twoor more persons are presumed to be to them as tenants in c;ommon,there is an exception in the case of trustees, and they are to hold as

joint tenants.-In several states statutes modifying the common-law rule regardingthe devolution of trust property have been enacted. Thesestatutes vest the title to trust property, upon the death of thesole trustee, in the court having general equity jurisdiction, and requirethe court to appoint a trustee to carry out the trust to itsconclusion. .Where the title to the trust property passes to the heir or personalrepresentative of a deceased trustee, the court may, upon

proper application, appoint a new trustee to carry on the trust andrelieve the heir or executQr.'It is now provided by statute in England that, ifa trustee dieswithout heirs and the property escheats to the crown,' the trustshall not be destroyed thereby, and such doubtless is the rule inAmerica, although there is a dearth of authority upon the question.It is well settled that the widow of a trustee is not entitled todower in the trust property,' and that the widower of a trustee has no rights of curtesy.7 The seizin of the trusteenot being beneficial.and his title being the dry legal title only, there is no basis for theaward of dower or curtesy. "Where a person holds land in trustfor another, the husband or wife of such trustee is not entitled todower in such premises."


14/47

VACANCIES IN TRUSTEESHIP-APPOINTMENT OFSUCCESSORS82. The settlormay reserve to himself or vest in others the poweroffiUing vacancies in the trusteeship. U be makes no such

provision. the court ofchancery will appoint the new trustee.In appointing a trustee, equity will prefer unbiased persons of

full capacity.The application for the appointment is generally required to bemade by aparty financ:ially interested in the trust, uponnotice to all others so interested.An administrator with the will annexed does not ordinarily succeedto trust duties conferred upon an executor.A trustee appointed by the court becomes vested with the titleto the trust property by virtue ofthe ckcree ofthe court.

No conveyance from the retiring trustee is necessary.The question next arises as to the method of filling a vacancy ina trusteeship. Ifthe original trustee is removed from office bynatural or artificial causes, voluntarily or involuntarily, by whomand in what way will his successor be appointed?

The settlor may devise a method of filling vacancies, 'and thismethod must be respected, ifreasonable.'

Neither a surviving trustee 10 nor a cestui que trust 11 has impliedauthority to fill a vacancy in the trusteeship. Only when expresslyempowered may they appoint the successor trustee.The persons whom the settlor may empower to fill vacancies arenumerous and restricted only by the settlor's imagination. He mayreserve to himself the right to fill vacancies,12 or may vest such right in the surviving trustees,!' or in thesurviving trustees andthe cestuis que trust,t4 or in the beneficiaries alone.lII The creatorof the trust cannot vest this power in a court which has no jurisdictionover the subject of trusts,lI for this would be allowing

an individual to enlarge the jurisdiction of the courts; but the settlormay provide that a court of chancery shall fill vacancies,1 T orthat the court shall perform this duty, subject to the approval ofthe interested parties,u or that the trustees shall nominate the-successorand the court appoint. 11 But in cases where the power ofappointment is given to the trustee or cestui que trust the courtwill nevertheless supervise the filling of the vacancy.toIn the event that the settlor forms no plan for the filling ,of vacanciesin the trusteeship the court of chancery has jurisdiction tosupply a new trustee.u On the death of a trustee,U or his resignation," or declination U of the trust, or when heis unable to administerthe trust, II or is removed,u or, being a corporation, ceasesto exist,IT equity will appoint a new trustee. In many states statutes

prescribe when and how equity may appoint trustees." It isimpossible here to enter into a discussion of the jurisdiction of thevarious state courts over the appointment of new trustees. Thissubject has been litigated in many cases which are here cited forthe convenience of the investigator.n The location of generalequity jurisdiction is a purely local question.Whether or not equity will appoint a new trustee is a matter wliolly within its discretion.lo Even though atrustee may have

been removed from the trusteeship, the court may deem it unwise


15/47

to fill his place. Thus, ifthere is a sur-viving trustee who is administeringthe trust successfully, chancery may deem it unnecessaryto fill the vacancy; 81 and if the only duty left to the trusteesis to transfer the property to the beneficiaries, equity may deem itsuperfluous to appoint new trustees and may transfer the propertyitself. III

Ifequity does fill the vacancy, it will, of course, select a trustee,who will be apt to administer the affairs of the trust with fairnessand ability. It will not choose a prejudiced or incompetent person.Thus the court will not appoint, as a trustee of a religious charitabletrust, a person hostile to the religion to be promoted; II nor willthe court name as a succeSSor a person who is biased and apt tofavor one or more of the cestuis que trust as against the others."It is the better practice to appoint a resident of the jurisdiction,"

but circ~mstances may justify the choice of a nonresident.e Thecourt should consider the wishes of the interested parties in itsappointment, though not bound to follow them. IT

Proce~ding for Appointment .The application for the appointment of a new trustee may be

made by anyone interested financially in the execution of thetrust. Thus a cestui que trust, II or the guardian of an infant cestui que trust," may apply, and, in the case of a-religious charitabletrust, a member of the church to be benefited may make application,' although the fact that a person is a citizen and taxpayer inthe county where the charity is to be carried on does not show

sufficient interest to enable one to secure the ear of the court. '1The question of notice upon the application for the appointmentof a new trustee is one affected by statute to a large extent, andthe courts have not been in accord in their views upon the subject.In many instances they have held that the notice necessary to begiven was entirely in the discretion of the court,U while in other

cases notice to all interested parties has been required.n Occasionallynew trustees seem to have been appointed ex parte." Ithas been held that the beneficiaries are necessary parties to the application,' but not if their interests are of a future or contingentnature." So, too, the heirs of the deceased trustee whose place isto be filled have been called necessary parties," as well as the AttorneyGeneral in the case of a charitable trust.n But a person claimingthe trust property adversely to the trustee is not a necessary

party when the question of filling a vacancy in the trusteeship isbeing considered. UFrequently an executor is given the duties of a trustee, and latera vacancy in the executorship occurs. In such a case an administratorwith the will annexed is appointed. The general rule is thatunder such circumstances the administrator cum testamento annexodoes not succeed to the position of trustee, which the formerexecutor held; but that such administrator is vested only with the duties of the executorship, and that a newtrustee must be appointedto undertake the separate duties of the trusteeship.IIO However,in some cases the administrator with the will annexed has

been held to become vested with the trusteeship as well as withthe position of the deceased executor. 111 These latter cases seem to

proceed upon the ground of a distinction between cases where the


16/47

trust duties are attached to the office of the executor and caseswhere the trust duties are attached to the executor personally andare separated from the executorial functions. .This attempted distinction is 112 illustrated by the statements of a

New York court: "The Revised Statutes provide that, in all caseswhere letters of administration with the will anneXed shall be

.granted, the will of the deceased shall be observed and performed;and that the administrators with such will shall have the rights and

powers, and be subject to the same duties, as if they had been

named as executors in such will. * * * There can be no doubt,therefore, that in cases where the execution of a trust, or of a powerin trust, is confided by a testator to his executors as such, theycannot execute the trust without also taking out letters testamentary,and assuming the office of executors. In such cases the administratorwith the will annexed is probably entitled to execute allthe trusts of the will, in the same manner as if he had been namedtherein, by the testator, as the executor and trustee. The difficultyin the present case, on that subject, is that the testator appears to

. have intended to give to the three individuals named in his will adistinct character as trustees, entirely independent of their character

of executors. * * *.. It is difficult to see how an executorcan be a trustee, also, without having a distinct office and character.His successor in the executorial office ought not to succeedto the trust duties as incidental.When the new trustee is appointed to fill the vacancy, his title No conveyance from the retiring trustee isneeded in order to vestthe property rights in the succeeding trustee. II Where one isappointed trustee in place of another who has declined the trust,the title to the trust property vests in the appointee as of the dateof the inception of the trust, by virtue of the doctrine of relation.

CHAPTER XITHE POWERS OF THE TBUSTJllIII

83. Powers of Trustee Classlfled.84. Estate of. Trustee. '86. CUstody of Trust Res.86. Repairs and Improvements.

87. Powerto BlDd Estate In Contract orTort.88. Power to Sell.89. Power to Mortgage.

90. Powerto Lease.91. Powerto Represent Beneficiary.92. Miscellaneous ImpUed Powers.93. Maintenance of Actions.94. Powers as Affected by Peculiarity ofTrustee's Status.

95. Discretionary Powers may Not be Delegated.96. The Court's Supervision of Powers.

POWERS OF TRUSTEE CLASSIFIED83. The powers of the trustee are called general if they are attachedto the office by implication of law, and special iftheyare expressly granted to the trustee by the trust instrument.The tnistee's powers are also classified as discretionary and intrust. Discretionary powers are frequently called naked

powers, and may be exercised or not, at the option of the


17/47

trustee. Powers in trust, or in the nature of a trust, on theother hand, are imperative, and must be exercised by thetrustee.In the chapter on the powers of the trustee it is intended to discussthe authority of the trustee to perfonn acts while in office. Thequestion desired to be answered by the material presented in this

chapter is: Has the trustee authority to perform the act in question?In a separate chapter on the duties of the trustee, the rulesand standards of action which trustees must observe in exercisingtheir powers are stated. Thus, if A. is a trustee of land and hassold it as trustee, at least two questions may 'arise regarding the

propriety of the sale. It may be asked whether A. had authorityto sell the real estate, either by virtue of the tenns of the trust instrument,or because of a power granted by implication of law.This question will be answered by the material found in the chapteron the powers o~ a trustee. In the second place, the inquiry may be made whether A. has properly conductedthe sale by givingnotice of it and obtaining the best possible price. This questionhas to do with the duties of a trustee and the rules with respect to

that subject will be stated in the chapter entitled "The Duties of aTrustee."The powers of a trustee may be classed as general and special.The general powers are those which the court of equity considersattached to the office of trustee by implication. The special powersare those vested in the trustee by virtue of express provisionsof the trust instrument. Thus, where a farm and dwelling houseare conveyed to a trustee for the benefit of the wife of the grantor,the purchase of furniture, stock, and farming utensils, for the

purpose of operating the farm and making the house habitable, iswithin the general powers of the trustee. The trust could not becarried out as the grantorobviou~ly intended, unless such a pow-

. er were implied.1

On the other hand, if a testator devises land to A. in trust for thepurpose of supporting his children, and declares in the will that A.shall have the power to sell the land, this authority is called sp~cial.

DiscretiontJl'1 POfI/W, .The powers of trustees are also divided into discretionary powersand powers in trust. Discretionary powers are also called naked

powers. "A power annexed to the trust, which may be executed ornot in the judgment or discretion of the trustee, is a mere naked

power, and will not devolve upon a trustee appointed by the courtupon the death of the original trustee. Such a power must be executed

by the original trustee, and by no one else, and, if not executedby him, fails." J Thus, where trustees are authorized to convey

the real estate of the testator at such times as they shall thinkproper, and such sale is not required for the purpose of effectingany provisions of the will, the power is a mere naked. power to selland entirely discretionary.-A power given to a trustee in trust is one which is imperativeand must be executed. Thus, where a fund is given to a trusteewith a direction that the income be used for the support of thedaughter of the settlor and with power in the trustee to pay tosuch daughter any portion of the principal of the trust fund which


18/47

the trustee shall deem proper for the support and comfort of thebeneficiary, the power to pay over the principal is imperative anda power in trust. When the original trustee dies without executingit, his successor, appointed by the court, may do SO.

The powers of a trustee are, of course, limited by abnormalities

or disqualifications which may exist with respect to him. Thus, ifthe trustee be insane, he has no power to do any valid act, no matterhow much authority may be attached to the office of trusteewhich he occupies.' ,. A person dealing with a trustee is under the .duty of learning the

powers of such officer and wilt be charged with notice of the extentof his authority. Ifhe acts without knowledge of the trustee's

powers, he does so at his peril.'"\Vhere express powers are named in the trust instrument, tqetrustee should follow specifically the directions there given. T Ifexpress power to do an act is not given, the trustee will have implied

power to do such act, if it is reasonably necessary for the executionof the trust. "Where a trustee conforms with the provisions

of the trust in their true spirit and meaning, he has authority'to adopt measures and to do acts which, though not specified inthe instrument, are implied in its general directions, and are reasonableand proper means for making them effectual.' .. IESTATE OF TRUSTEE84. The estate which the trUstee has is governed by the needs ofthe trust. Ifa fee is required in order that the trust may

be properly executed, the trustee will be deemed to havethat estate, regardless of the wording of the trust instrument.The settlorwillbe deemed to have conveyed to thetrustee an interest in the property sufficient to enable himto perform the trust.

Since the trustee holds the trust property for the benefit of othersand has no personal interest therein, the trust property isnot liable for the payment of his debts.On the death of the trustee intestate and without heirs, the crownor state takes subject to the rights of cestui que trust.

The powers of the trustee are affected by the nature of the propertyrights which he holds in trust. Whether the estate granted tohim in trust is a fee, a life estate, or other interest, is ordinarily determined

by the trust instrument. But the important principle thata trustee takes such an estate or interest as is necessary to enablehim to perform the trust should be observed.' Ifthe trust can beadministered only through the ownership of a fee simple, such an

interest will be deemed granted,lD although the limitations of thedeed or will may not clearly show that a fee simple was transferred.

Ifa life estate will suffice to enable the trustee to perform hisduties, such an estate will be deemed vested in the trustee, regardlessof the particular wording of the trust instrument.llOrdinarily, of course, the legal estate is vested in the trustee,Ualthough a trust may be created with an equitable interest as thesubject-matter. The principle that, where the trust is rassive, thelegal estate vests in the cestui que trust by virtue of the Statute of


19/47

Uses or its modern successors, has been explained at anotherpoint.n Attention has also been directed to the merger whichsometimes takes place when the trustee is also the sole beneficiary,or one of several beneficiaries. HThe estate of the trustee being a bare legal interest, and not a

beneficial interest, his creditors cannot satisfy their claims from

the trust property. A judgment against the trustee personally isnot a lien upon trust real estate.lII The modern rule is that, ifthe trustee dies without heirs and escheat takes

place, the crown orstate holds for the beneficiary of the trust.1I

CUSTODY OF TRUST RES85. Except in unusual cases, where possession of the trust property

by the beneficiary is directed by the settlor orispeculiarlyadvantageous to thebeneficiary, the trustee is entitled tosecure and retain posaession ofthe trust res.On~ of the important general or implied powers which the trustee

possesses is that of taking and retaining possession of the trustres. There can, obviously, be no doubt about the power of a trusteeto take and retain such possession as against a stranger to the

trust. The only cases of difficulty arise where the beneficiaryclaims tobe entitled to the custody of the trust property.Ordinarily the very nature of the trust requires that the trusteehave custody of the property. His duties generally include collectionof the profits of the property and care and maintenance of it.These functions cannot be performed without possession.17 Butoccasionally the nature of the property or peculiar purposes of thetrust entitle the cestui que trust to the custody of it against thetrustee. Thus, beneficiaries of a trust of slaves have been held entitled to the possession,18 as in one case wasthe cestui que trust of atrust of a fann and the stock and utensils. 18It is elementary that the settlor may expres~lyprovide that the

cestui shall have the custody of the trust property."The power of the trustee to take and retain possession of thetrust property includes the authority to receive the rents and profitsof such property.1l .

REPAIRS AND IMPROVEMENTS86. Where repairs and improvements are reasonably necessary forthe maintenance and profitable conduct ofthe trust estate,

the trustee willbe regarded as having implied power tomake them.A trustee has implied or general authority to make reasonable,necessary repairs to the trust property. "A trustee cannot ordinarilymake improvements, and charge the cost thereof to the beneficiary,unless clearly authorized by the instrument creating the

trust. * * He will, however, be allowed for repairs, whensuch repairs are necessary to the preservation of the estate." IIThe trustee should consider the value of the trust property, the

probable length of the trust, and the effect of the repairs upon theincome of the trust property. If, in view of these considerations,a reasonable man in the conduct of his own business would repairthe property, the trustee has implied power so to do." "Regardshould be had to the probable duration of the trust in determiningwhether temporary and slight, or more permanent and thorough


20/47

repairs, IIhould be made."" Occasionally the trustee is given expressauthority to make repairs."A trustee also has implied power to make permanent improvements on the trust property when such action isreasonable. Hereagain the condition of the trust property, its productivity or: nonproduc:tivity, the duration of the trust, and other similar facts must

determine the reasonableness of improvipg the property.' Thus,in a case where buildings are ancient, unsafe, and untenantable,and the property is in an unproduc:tive condition, the trustee will

be considered to have implied power to use a portion of the principalof the trust fund for the purpose of constructing new building.son the land. ITIn other instances the peculiar conditions of the trust have madethe expenditure for improvements unreasonable and the trustee has

been held to have exceeded his powers in making improvements. IIThus, the expenditure of $850,000 in erecting a new building uponland when the value of the entire trust property was only $920,000,has been held to be unreasonable and not within the authority ofthe trustee. It The Massachusetts court stated its position regarding

improvements in general in these words: "We have no doubt

that a trustee under a Massachusetts trust would be justified 4ttearing down an old building owned by the trust and erecting anew one in its place, when a prudent business man would do so tosecure a fair return by way of income, and at the same time tomaintain the corpus of the portion of the principal so invested intact,having regard to the relation which such an investment, whenmade, would have to the amount of the principal of the trust fundas a whole." 10In some states statutes expressly authorize chancery to empowera trustee to sell or mortgage the trust property for the purpose ofmaking repairs or improvements.

POWER TO BIND ESTATE IN CONTRACT OR TORT87. The trustee is personally liable on all contracts made by him inthe administratioft. of the trust, unless the contract expresslyexcludes individualliabUity, and except in extraordinarycases such contracts do not bind the trust estate .. The trustee is also personally liable for the torts ofhimself or his. employees in the trust administration and the trust propertymay notbe taken to satisfy claims for damages for suchtorts.The trustee is entitled to be indemnified for money spent or liabilityincurred in the proper conduct ofthe trust affairs;and also for tort liabilities sustained in the reasonably prudent

and skillful administration of the trust. In some instanceswhere the trustee had no funds of his own or wasempowered to carry on a business, the courts have allowedhim to charge the trust estate by his contracts. A creditorof the trustee upon a contract which the trustee was authorized to make in the course of the trust, or 'upon a tortclaim, where the trustee himself would be entitled to be indemnifiedfrom the trust estate if he paid the claim, mayavail himselfofthe trustee's right of reimbursement, ifin


21/47

the case of a contract claim the estate has had the benefit ofthe contract, and if the trustee is insolvent or a nonresident,so that action against the trustee is useless or inconvenient.If the trustee is in default or arrears, he himselfwould have no right of indemnity and the creditor can receivenone through him. When this right. of reimbursement

is open to the creditor, he may proceed directlyagainst the trust estate in equity. Statutes regulate theeffect of the contracts of trustees in Alabama, California,Connecticut, Georgia, Montana, North Dakota, and SouthDakota.The pCiwers of the trustee do not ordinarily include the authorityto bind the trust estate or the beneficiaries by his contracts. Eventhough the contracts be executed "as trustee," and be impliedlyor expressly authorized by the trust instrument and for the benefitof the cestuis que trust, as a general rule the trustee alone will beliable to an action upon the contracts.n "The general rule is well settled in this state that executors or trusteescannot, by their executorycontracts, although made in the interest and for the benefit

of the estate they represent, if made upon a new and independentconsideration, bind the estate, and thus create a liability not founded

upon the contract or obligation of the testator. * * *While, as between the executor and the person with whom he contracts,the latter may rely on the contract, the beneficiaries are notconcluded by the executor's act, but the propriety of the charge andthe liability of the estate therefor must be determined in the accountingof the executor. In an action at law against the executor,the legatees and persons interested in the estate have no opportunityto be heard." laThe reason for this rule is well explained by a Mississippi court.It states that "while the trustees have a lien on die trust estate for

all costs and expenses legitimately incurred by them in its administration,this privilege does not extend to agents employed by them,

but such agents must look alone to the trustee for reimbursement. * * Ifthe trust estate was liable to beattacked and impleaded

by every person who had dealt with the trustee, and forced to litigatewith them the nature, value and beneficial character to the estateof the services alleged by them to have been rendered, it would

be involved in endless complications, and be perhaps swallowed upor seriously injured by the accumulations of costs. The law, therefore,compels such persons to look to the trustee with whom theydealt, and against whom alone they have a legal demand. Iftheir claim is recognized and enforced against him,he presents it to the

proper tribunal, and with him the beneficiaries of the estate will litigatethe question of the propriety of its allowance against themselves."U

"A trustee is not an agent. An agent represents and acts" for hisprincipal, who may be either a natural or artificial person. A trusteemay be defined generally as a person in whom some estate, interest,or power in or affecting property is vested for the benefit ofanother. When an agent contracts in the name of his principal, the

principal contracts and "is bound, but the agent is not. When a


22/47

trustee contracts as such, unless he is bound no one is bound, forhe has no principal. The trust estate cannot promise; the contractis therefore the personal undertaking of the trustee. As a trusteeholds the estate, although only with the power and for the purposeof m,anaging it, he is personally bound by the contracts he makesas trustee, even when designating himself as such." II

The trust estate may not be rendered liable on the trustee's promiseby an action at law or in equity against the trustee in his representativecapacity or against the cestuis que trust, with the exceptionshereinafter noted'" The remedy of the promisee! is an actionRt law against the trustee as an individual. .Persons contracting with the trustee for the rendition of servicesor the delivery of goods to him must, as a general rule, IQok solelyto his individual property for their reimbursement. The trustee,after having been obliged to pay for such services or goods, maythen present a claim therefor upon his accounting, and, if theclaim is allowed as a fair and proper one, the trustee will be reimbursedfrom the trust estate. This procedure gives the cestui quetrust the right and opportunity to object to the expenditure as unreasonable

or unnecessary.Ifthe contract was not authorized by the trust instrument, expressly or impliedly, but was improper and beyondthe powers ofthe trustee, it is obvious that he and he alone wilL be bound." Ifthe trust estate receives the benefit of the unauthorized contract, itmight be held liabk ... to the trustee for the reasonable value of the

benefits received on quasi~contract principles; but this right of thetrustee is doubtfuI.B

TortsThe trustee is also personally liable for torts committed by himselfor his agents or servants in the administration of the trust, andhe has no power to make the trust estate liable for the damages occasioned

by such wrongful acts.11 1;hus, if the trustee is guilty ofnegligence in the maintenance of the trust premises, to or of libelwhile acting as trustee,U he will be liable; but the trust estate willnot.To cancel obligations incurred in the trust administralion thetrustee may payout the trust funds,u or he may employ his ownmoney to satisfy the creditors and then reimburse himself from thetrust income." Upon the accounting the trustee is entitled to beindemnified for all moneys expended and all liabilities incurredin the proper~ecution of the trust.


23/47

Bxclu.riofl of Liobility. .Ifthe ,person contracting with the trusteeis willing to treat wrththe trustee on such terms, the trustee may provide expresslyagainst any personal obligation upon his part and the trustee cannot

be held individually liable for the performance of the contract.61 "It is equally clear, on the other hand, that although one

may covenant as trustee, he may limit and qualify the characterin which he is to be held answerable; and where it plainly appearsfrom the face of the instrument that he did not mean to bind himself personally, courts will construe the covenant according to the

plainly expressed intention of the parties, and this, too, in caseswhere the covenantor had no right to bind himself in a fiduciarycharacter. Ifthe plaintiff be without remedy in such cases, he hasno one to blame but himself, in accepting a covenant of such acharacter. He certainly has no right to rely upon the individualliability of the covenantor."" Where personal liability is thusexcluded, it would seem that the only right of the promisee would be against the trust estate in equity. so"Where the parties expresslycontract that no personal liability shall attach to the trustee,

the creditor would necessarily depend upon such liability asmight lawfully be created against the estate, and it is possible thathis remedy might be limited to a suit in equity." 11In rare cases the trustee has been allowed to obligate the trustestate by his contracts; that is, his promises have resulted in creatingrights on behalf of the promisees to proceed directly againstthe trust property. Thus, in Jessup v. Smith 12 a trustee who wasout of funds employed an attorney to perform services beneficial tothe estate and expressly stipulated that the estate alone should b~liable. It was held that the trust property could be subjected tothe payment of the debt; the court saying: III CIA trustee, who

pays his own money for services beneficial to the trust, has.a lien

for reimbursement. But if he is unable or unwilling to incur liabilityhimself, the law does not leave him helpless: In such circumstances,he 'has 'the power, ifother funds fail, to create a 'charge,equivalent to his own lien for reimbursement, in favor of another

by whom the services are rendered.' * ." And in Rand v.Farquhar16 the trust instrument provided that contracts of thetrustees should bind the trust estate alone. The trustees executeda contract excluding personal responsibility and providing for liability

by the trust estate only. It was held that the object desiredcould be accomplished under the circumstances. And in somecases where the settlor has directed the carrying on by the trusteeof a certain business, and the contract in question has been made

by the trustee in connection with such business, the trustee hasbeen held to have power to charge the trust estate by his contract.1ISubrogation of Creditor' ' '" , 'It is generally conceded that the creaitor woohas a claim againstthe trustee because of his contract is entitled to the benefit of thetrustee's right of indemnity under some circumstances;" The courts have not clearly defined the circumstances,nor have they

been unanimous in their views. But the large majority of cases inwhich the creditor has been allowe.d to step into the trustee's shoesand claim part of the trust property have been cases in which (a)


24/47

the remedy against the trustee individually was worthless or difficultof enforcement; (b) the trust estate had had the benefit ofthe creditor's services or property; and (c) the trustee was not indebt to the trust estate, and so would have been entitled to indemnityhimself, had he paid the claim}1T "A trustee, express orimplied, cannot, in the absence of express power conferred upon

hJm, by his contracts or engagements impose a liability upon thetrust estat.e. Ifhe make a contract which is beneficial to the estate,the creditor, or person with whom he contracts, has no equity tocharge the estate unless he be insolvent, which must be shown bythe exhaustion of legal remedies against him, and the estate is indebtedto him. In that event, a court of equity may subrogate thecreditor to the right of the trustee to charge the trust estate.""The above statement would seem to be erroneous in requiring

present indebtedness by the estate to the trustee. It would seemsufficient that the estate would have been indebted to the trusteeif he had paid the creditor's claim.In cases where the trustee has had a right of indemnity and hehas been without the jurisdiction, the difficulty of pursuing the

remedy against the trustee has indu(,ed some courts to allow thecreditor to avail himself of the trustee's right of indemnity and collectfrom the trust estate. GIl In other cases the insolvency of thetrustee has been the moving cause for allowing direct action inequity by the creditor.eO In other cases the fact that the settlor directed the carrying on of the business in whichthe contract wasmade was emphasized as a reason allowing action against theestate, when the trustee was irresponsible. ItNo necessity for suchemphasis is seen, since the question should be whether the contractwas within the powers of the trustee, and not whether it was inthe management of a continued business.In Norton v. Phelps II the Mississippi court states the rule to be

that, "where expenditures have been made for the benefit of thetrust estate, and it has not paid for them, directly or indirectly,and the estate is either indebted to the trustee, or would have beenifthe trustee had paid, or would be ifhe sh~uldpay, the demand,. and the trustee is insolvent or nonresident, so that the creditorcannot recover his demand from him, or will be compelled to followhim to a foreign jurisdiction, the trust estate may be reached directly

by a proceeding in chancery. The principle is that, whilepersons dealing as creditors with the trustee must look to himpersonally, and not to the trust estate, yet where the estate hasreceived the benefit of expenditures procured to be made for it

by the trustee, and it has not in any way borne the burden of theseexpenditures properly chargeable to it, and to fasten the charge

upon it will do it no wrong, but simply cause it to pay what it isliable for to the trustee, or would be liable forifhe had paid it, orshould pay it, and because of the insolvency or nonresidence of thetrustee, our tribunals cannot afford the creditor a remedy for hisdemand, he may proceed directly against the trust estate, and assertagainst it the demand the trustee could maintain if he had paidor should pay the claim, and should himself proceed against thetrust estate."But some courts have not proceeded upon the notion that the


25/47

creditor was to be subrogated to the rights of the trustee, and thattherefore the creditor could have no rights ifthe trustee was in defaultto the trust estate. These latter courts have allowed theclaimant to proceed against the trust estate upon mere proof of theinsolvency of the trustee and the propriety of the claim. II Theyhave reasoned that the debt was a proper one, the trust estate had

had the benefit of the creditor's goods or services, and the remedyagainst the trustee was useless. On equitable principles they have allowed recovery from the trust property, andmade the beneficiariesstand the loss, rather than the creditor.Yet other courts have held that, if the trust estate has had the

benefit of the creditor's services or property, it will be liable to theclaimant, regardless of the solvency of the trustee." These decisionsseem to discard the indemnity theory entirely, and to resttheir results on principles of quasi contract and general equity.The Massachusetts courts allow' the creditor to reach the trust

property where the debt was authorized by the trust instrumentand the trustee is not in arrears, without proof of impossibility ordifficulty of collecting from the trustee, due to his absence or insolvency."

They give the claimant the trustee's right of indemnityas an alternative to suit against the trustee individually.In at least seven states the power of the trustee to bind the trustestate by contracts is now covered by statute."lfthe cestuis que trust authorize IT or ratify" the contract made

by the trustee, the trust estate will be liable therefor. The authorityof the trustee to make contracts and thereby bind the trustestate m~ybe questioned only by the cestui que trust.

POWER TO SELL88. A power of sale willbe implied whenever it is necessary to enablethe trustee to carry out the purposes of the trust.

Ifa powerofsale expressly or impliedly exists, it should be exercisedby the trustee with the pru~ence ofa reasonable manin the conduct of his own affainl. A purchase by the trusteeat his own sale is voidable at the option of the beneficiary.The power to sell the trust property may be expressly given tothe trustee." No technical words are necessary to confer this authorityupon him, it being sufficient that the settlor's intent isclear.71A power of sale in favor of the trustee is implied in equity wheneversuch power is necessary to carry out the trust. fa "While it istrue that under the original theory of a trust the powers and dutiesof the tru~tee were confined substantially to holding and caring forthe property, it is equally true that the purposes of the modem

trust are of a much broader character, requiring ordinarily muchgreater powers on the part of the trustee, including a power ofsale, which is generally expressly given. .The power of sale, wherenot expressly given, will be implied from the fact that the trusteeis charged with a duty which cannot be performed without a powerof sale." 11But a power of sale by the trustee is not to be presumed. "Atrustee ordinarily holds the property intrusted to his charge to collect the rents, issues, dividends, or profitsthereof, and to apply


26/47

them to some specified use. Brokers, administrators, and executorsfrequently have the power to dispose of the property intrusted totheir charge. Trustees commonly have no such power. ,Hence thelegal presumption is that a trustee has no power to sell or conveythe property which he holds in his fiduciary capacity, and the factthat he holds it as trustee is a warning and a declaration to all the

world that he is without the power of disposition, unless that poweris specifically given by the instrument creating the trust, or bythe assent of those whom he represents. The legal presumption isthat the trustee has no power of sale." T6It is impossible to give details of the instances in which a power.of sale has been implied. In many cases where the question of theexistence of such a power has arisen, the court has thought itnecessary to the proper execution ,of the trust and has held that itexisted,TII while in others the court has considered a sale unessentialand unauthorized.78Whether the trustee of a charitable trust has an implied powerof sale depends upon -whether the particular property is necessaryto the carrying on of the trust and whether there is any necessity

for a sale of it. Where a settlor has dedicated particular land forlodgeroom, church, and graveyard purposes, the trustees willnot

be held to have an implied power of sale under ordinary conditionsj 17but where the land devised in trust for a cemetery becomessurrounded by blast furnaces and quarries, and all the bodies are removed from it, the court nlaY order a sale

ofit, in order thatother land may be purchased to be held for burial, purposes.711Equity may order a sale of property held to charitable \1Ses, eventhough the trust instrument eJGPressly forbids such sale."

Authoritj ofChanceryChancery has authority to direct the trustee to sell the trust

property whenever it appears to be necessary for the protection of

the interests of the beneficiaries.IIO In maqy states there are statutesregulating sales by trustees and providing when equity maydecree a sale of the trust property.'l "Every trustee for sale is

bound by his office to bring the estate to a sale, under every possible

advantage to the cestui que trust, * * * and when thereare several persons interested, with a fair and impartial attention to

the interest of all concerned. * * * He is bound to use, notonly good faith, but also every requisite degree of diligence and

prudence, in conducting the sale." IIIfthe trust instrument gives directions as to the manner of sale, naturally the trustee must follow such

directions.1 Ifthe instrumentis silen! concerning the details of the sale, the trustee should

exercise his discretion. The court may direct a private sale, 81and, ifsuch a sale will be advantageQus to the cestuis que trust, thetrustee may conduct such a sale without court sanction." Ifthesale is made for a grossly inadequate price,l7 or the considerationaccepted is irr?roper as, for example, stock in a speCUlative company"or a bond and mortgage, when cash should have been insistedupon," or the property is sold as a whole, when it wouldhave sold for a much greater sum if divided into lots," the courtof chancery will set aside the sale. Ifthe trust estate has had


27/47

the benefit of the consideration paid by the purchaser, the sale willbe set aside only upon the repayment of such consideration.uThe cestui que trust may, .of course, be estopped to question thevalidity of a sale, as when he accepts the proceeds of the sale withknowledge of the facts surrounding it.1IThe trustee should not purchase the trust property at the sale

conducted by himself or under his authority. Ifhe does so, evenif the consideration paid is adequate and the sale bona fide, equitywill set aside the sale upon the application of the cestui que trust." This subject is more fully discussed in thesections dealing withthe duties of the trustee in carrying out the trust.' The cestui que trust alone can raise the question of the power-of the trustee to sell the trust property or the propriety of the saleas conducted.1I The sale maybe expressly required to be made-only when the cestuis que trust consent, in which case such consentmust be procured before a valid sale can be made."It is generally held that the lack of power on the part of thetrustee to sell the trust property may be supplied by showing theconsent of the beneficiary in advance that the sale take place; 117but

in some instances such consent has been held insufficient to renderthe sale valid." After the sa.1e has taken place, the cestui que trustmay ratify" it, or estop himself to attack its validity.1 Thus,acceptance of the proceeds of the sale with full knowledge of thefacts'shows an estoppel to assert that the sale was invalid.2 Wherethe trustees are given power to sell land and distribute the proceedsamong the beneficiaries of the trust, the beneficiaries may elect torevoke the power of sale and take the land, rather than the proc~edsthereof.'

POWER TO MORTGAGE89 The trustee willbe allowed to exercise an implied powerto

.mortgage the trust property when the necessities ofthetrust require such action.Frequently the trustee is given express authority to mortgage thetrust property. It is elementary that a mortgage executed undersuch a power must, in order to be valid, be given only for the purposenamed.' For instance, a power to mortgage for the benefit ofthe trust estate, does not render valid a mortgage, the proceeds ofwhich were applied to the personal use of the trustee.'The express grant of a power to sell is ordinarily held not to ineludethe power to mortgage, T nor does the power to change theinvestments of the trust property permit the trustee to mortgageit.'The trustee will be held to have an implied power to mortgage

the trust property whenever the wording of the trust instrumentor the necessities of the trust indicate that the settlor meant thatsuch power should exist.' A "trustee has 'authority to adopt measuresand do acts which, though not specified in the instrument, areimplied in its general directions, and are reasonable and propermeans for making it effectual.' "111 Thus, when a trustee is given

power to take charge of, manage, and control property for the benefit of a beneficiary, he has implied power tomortgage. In such acase a court has $aid that, "so long as it was deemed to the interest


28/47

of the beneficiaries that the trustee should manage and control theproperty, the power to do so included the power to improve and repair,and if in the exercise of the discretion allowed him underthe deed appointing him, he deemed it to the advantage of the beneficiariesthat they procure the necessary funds by mortgaging theland he had the power and authority to do so." 11 The burden is

upon the person taking the mortgage to satisfy himself that thetrustee has power to mortgage. "Ordinarily the legal presumptionexists that a trustee has no power to sell or mortgage the trustestate. Prospective purchasers and mortgagees must therefore exercisereasonable diligence to ascertain whether the trustee has authorityto sell or incumber the real estate." IIIfno power to mortgage, express or implied, is vested in thetrustee, a mortgage by him will, upon objection by the cestui quetrust, be held to be void. lI In some cases a purchase-money mortgage

by the trustee has been held impliedly authorized.uChancery has authority to permit the trustee to mortgage thetrust property when such action is necessary to preserve the propertyor to enable the trustee to execute the trust as the settlor intended

he should. tilAn example of the cases in which the court autliorizes a mortgagemay be found in a recent case in which a testator left all his

property to his widow in trust for herself and her children. Debtsof the testator were a lien upon certain land which he had devisedto the trustee, and the creditors were threatening suit. Equity authorizedthe trustee to mortgage the trust property to raise the money necessary to payoff the debts of the settlor andthus preservethe trust property intact.1I The beneficiaries are necessary

parties to a proceeding to procure the consent of the court to amortgage of the trust property."Ifthe cestuis que trust join with the trustee in the mortgage. or

consent to it, or accept its benefits after it is executed, they willbeestopped to assert its invalidity.lI

POWER TO LEASE'90. The implied authority to lease the trust property exists in thetrustee whenever such a step is a reasonably necessary incidentofthe trust management.Power on the part of the trustee to lease the trust property isfrequently found in the trust instrument in plain terms. In suchcase there can be no doubt about his authorityY' Even though theauthority to lease is express and the length of the lease limited bythe trust instrument, equity may direct that a longer lease be given

by the trustee, if it appears to be for the benefit of the trust estate.llo

A lease is not a "sale or disposal" of the trust property withinthe prohibition of a trust instrument.21Implied power to lease the trust property exists whereverit is necessary to enable the trustee to perform his trust duties. "Itappears from these authorities that the la~ is that trustees possessgeneral power to lease trust property, -and as they do possess this

power, their leases, ifexecuted according to law, are valid unlessthey exceed the quantity of the estate vested in the trustees, or theleases are unreasonable." II "The general doctrine, applicable to


29/47

the matter under discussion, is that an express power to lease given to a trustee, confers authority to make alease for any reasonable

period,. considering the kind of property and the custom of thecountry and all the circumstances bearing on the subject. An implied

power to lease growing out of the creation of a trust in realestate without power of sale, but in contemplation of its being administered

to produce income, confers the same power to lease asin the first situation. 'Entire control, management, and charge'conferred on trustees, as in this case, affords discretionary powerto lease within such reasonable boundaries as the trustor wouldhave done." II The power to lease is frequently a necessary incidentof the management of trust property."It is often a difficult question to determine whether a trustee of acharitable trust has implied power to lease the property which heholds. II Thus, where buildings held in trust for charity are dilapidatedand the trustees have no funds for repairs or maintenance ofthe charity, a lease of the property to persons who agree to erectnew buildings and use the property for the purposes of the trust

willbe upheld j"but, in another case, it has been held that where

land was conveyed to trustees to provide a site for a schoolhouse toeducate children, a lease of the premises, in consideration of a nominalrent and on the agreement of the lessee that a church should

be there erected to be used to educate colored youth, was void, asnot impliedly authorized by the deed of trust. IT As with the privatetrust, so with the charitable, the authority of the trustee tolease depends upon the necessity of the lease. Ifthe execution ofthe charity requires a lease to carry out the intent of the founder,implied power to lease will be held to exist.Courts of equity have power to authorize a trustee to lease andfrequently exercise such authority, upon proof of its necessity.

Ordinarily the trustee has no power to lease the trust propertyfor a term extending beyond the life of the trust. II Where he doesmake such a lease, the excessive period-that is, the period beyondthe end of the trust-will be considered void and the remainder ofthe lease will stand.80 But in a few cases it has been held that thetrustee may, in exceptional instances, with judicial advice, createa leasehold estate to extend beyond the termination of the trust.11An Iowa court has summed up the law as follows: "(I) Thetrustees may lease for such reasonable terms as are customary andessential to the proper care of and to procure a reasonable income.from the property. (2) Such terms should not, save on showingof reasonable necessity .to effectuate the purposes of the trust, extend

beyond the period the trust is likely to continue. (3) Sho

Documents

Notes for Trustee Powers Duties and Responsibilities