By his will W left to a trustee about $400,000 worth of personal property, including stocks, bonds, notes, book-accounts, farming utensils, cattle and horses, the net income of which was to be paid to the testator's son, J, with a direction that in "so far as practicable" the trustee should allow J to have "the management and possession" of the trust estate, and should be exempt from any liability on account of loss sustained while such estate, or any part of it, was so "managed, controlled, or in the possession" of J, "or for any loss by investment or reinvestment" by the trustee. At J's death legacies to the testator's grandchildren were to be paid from the trust estate, if it was sufficient, and if not, from real estate of which J was given the life use. Certificates of stock were turned over by the trustee to J, who pledged some of them to the defendant bank to secure loans made by it to him. J stated to the bank that he intended to use the money — and he did in fact use it or a large part of it — to pay for subscriptions to the increased capital stock of a manufacturing company named after W and in which W's estate was largely interested. The stock thus subscribed for was issued to J, who turned over 2,200 shares of it to the trustee, and he in turn transferred it, after J's death, to the plaintiff as executor on W's estate. In his account in the Probate Court, the trustee credited himself with securities turned over to J "for reinvestment," and charged himself with the 2,200 shares of the manufacturing company's stock. The bank, after J's death, offered to surrender the stocks pledged to it, if the plaintiff would pay what remained due upon J's notes; but the plaintiff refused to do this and sued the defendant for a conversion of the stocks. Held: — 1. That the provision respecting J's management and possession was not limited to the live stock, farming utensils and other tangible property, but applied to every part of the trust estate. 2. That the trustee was authorized not only to turn over the shares of stock in dispute to J to manage, but also for sale and reinvestment in such manner as the trustee in his "best judgment and discretion" might approve; and for that purpose might make J the agent of the estate. 3. That the fact that the bank was not in privity with those through whom the plaintiff acquired the manufacturing company stock, was immaterial, inasmuch as the defense set forth in the answer did not rest upon contract relations, but upon acts creating rights of property which could only be divested through judicial action on equitable terms. 4. That whether the pledges made by J to the bank were valid in all respects or not, the plaintiff could not equitably retain the 2,200 shares of the manufacturing company stock, which resulted from the bank's loans to J, and at the same time, while refusing to pay the balance still due thereon, force the bank to respond for the value of the stocks which J had pledged to it to secure such loans. 5. That the statements made by J to the bank, of his intended use of the borrowed money, were properly received, as well as evidence that the bank knew that W's estate was largely interested in said manufacturing company and loaned the money in the belief that it was to be used for the purpose stated by J. A testamentary power of sale, standing alone and unaided by other provisions in the will, does not authorize a mortgage or pledge.
BALDWIN, J.
The trustee under the will of Elisha N. Welch was empowered to "manage, invest and reinvest" the trust property "upon his best judgment and discretion," and directed "as far as practicable" to allow James H. Welch "to have the management and possession" of it with an exemption of liability on account of any loss to any part of the estate occurring while it might be "managed, controlled, or in the possession of" James H. Welch, or by reinvestment. It is contended that the testator only intended to provide for putting his son in control of the animals and utensils upon his farm. The terms used are too broad to admit of such a construction. They apply equally to every part of the estate.
The trustee had therefore special testamentary authority to entrust the stocks in dispute to James H. Welch for management. He could also entrust them to him for sale and reinvestment in such manner as might be approved by his (the trustee's) "best judgment and discretion," and make him for that purpose the agent of the estate. In his account rendered to the Court of Probate, after the death of the latter, the trustee credits himself with them as delivered to him for reinvestment, and debits himself with other stocks received from him, including 2,000 shares of preferred stock and 202 shares of common stock in the E. N. Welch Manufacturing Company, to the value of $55,050. The facts found show that these stocks cost James H. Welch that amount, it being their par value, and that the loans by the defendant were made and largely used to assist in paying for them. Except from the account rendered to the Court of Probate, it does not appear that when the trustee delivered the stocks in controversy to James H. Welch, he authorized him to use them for purposes of reinvestment. The account, however, states that he received them for that purpose, and, with its debit entries, operates as a full ratification of what he did.
A testamentary power of sale, standing alone and unaided by other provisions in the will, does not authorize a mortgage or pledge. O'Brien v. Flint, 74 Conn. 502, 505. But by the will now under consideration not only was the trustee given the full title to the estate, and a large discretion as to its reinvestment, but he was directed to turn over the control of the whole property, so far as practicable to James H. Welch, without accountability for losses due to the latter's disposition of it. In determining what the provision means, the circumstances surrounding the testator when he made the will and codicil are to be taken into account. Fritsche v. Fritsche, 75 Conn. 285.
It is not improbable that he may have anticipated what afterwards happened to the manufacturing company which bore his name and in which a considerable portion of his property was invested. When the working capital of such a concern is found inadequate, an issue of new shares is naturally thought of; and, if issued, they must ordinarily be taken by those already interested in it. By his original will he had provided for putting the control of the company in the hands of his son. By the codicil, he enabled the trustee to furnish him means that he could use, if he thought proper, in supporting its credit or enlarging its business. The language employed is entitled to a liberal construction to carry into effect the general intention of the testator, which is sufficiently manifest, to throw the power and responsibility of control upon the son as to whatever part of the estate the trustee might deem it reasonable and proper to turn over to his keeping. It received such a construction from those interested in the residuary estate when they united, in 1893, with James H. Welch in requesting the trustee to pledge some of the stocks to procure discounts of the company's notes. The other stocks, pledged later to the defendant, were made over to it under whatever authority the trustee could give, and also whatever power the will conferred upon the cestui que trust. These pledges, whether properly or improperly made, resulted in the acquisition for the trust estate of two large blocks of the company's stock. The plaintiff has received them as part of it. He has, so far as appears, never offered to return them to the trustee, or to transfer them to the defendant, but holds them now as part of the testator's residuary estate. If he can also force the defendant to respond for the value of the securities received in pledge, he will enjoy the fruits of the loans made upon them, without recompensing either borrower or lender. The defendant has offered to surrender to him the stocks pledged, on his paying what is still due on the notes of James H. Welch, as security for which it received them. He can ask, under the circumstances which have been stated, for nothing more.
The appellant contends that the bank can take no benefit from his acquisition of these stocks, for want of privity between it and those through whom they came to him, citing Baxter v. Camp, 71 Conn. 245, 249, 71 Amer. State Rep. 169. But while the complaint presents a simple cause of action at law, the answer, admitting all the averments to be true, sets up in avoidance the circumstances to which reference has been made. Such a defense does not rest on privity of contract, but on acts which, independently of any contract relations between the parties to this proceeding, have created rights of property which can only be divested through judicial action on equitable terms.
It is immaterial to the issues in this suit that the new shares in the E. N. Welch Manufacturing Company, now held by the plaintiff, were subscribed for by James H. Welch in his own name, in view of the fact that he transferred them to the trustee.
It is unnecessary to determine whether the pledges to the defendant were valid in all respects. They certainly gave it the means of acquiring the legal title to the stocks, which it holds. The plaintiff cannot treat the acquisition of it, or the refusal to transfer the stocks to him without payment of the loans to secure which they were pledged, as a conversion, while he is holding, as part of the testator's estate, other stocks procured with the money lent, and to pay for which the loans were sought and made.
Evidence that James H. Welch, when he applied for these loans, informed the defendant that he wanted the money to put into the E. N. Welch Manufacturing Company; that the defendant lent it believing it was to be so used in paying for preferred stock in it subscribed for by James H. Welch; that the estate of the testator was largely interested in the corporation; and that the defendant knew this, was all properly admitted. It was relevant to the issues raised upon the answer, and tended directly to support the defendant's lien upon the stocks pledged, by showing that, when it received them, it acted in good faith and with knowledge of facts which had a material bearing on the question of the right to make the pledge.