Story Case

Henry Burkhart had been, during his life, a director and generous contributor to the Parkside Orphan's Home, a private corporation. Upon his death, his will was found to contain the provision that his executor should transfer certain of the stocks and bonds which he owned to the Parkside Orphan's Home. This organization was to hold them as trustee for the benefit of all the orphan children in the home at the time of the death of Mr. Burkhart, to allow the interest to accumulate, and to keep the fund reinvested; then to pay out of the principal, $1,000 to each child, as he reached the age of twenty years, the time when, according to the rules of the home, he would be required to leave and seek independent support. The corporation, as trustee, was directed to deliver any balance remaining after the payment to the last of the children included in the gift, to the endowment fund of the corporation. The executor of Mr. Burkhart's estate intended to transfer the securities to the corporation as directed, but before he had completed the business, an application was made to the Probate Court, under whose direction the executor was acting, for the Court to order the executor not to make the transfer, but to give the securities to the petitioner, Henry Burkhart, Junior, the son of the deceased and the one entitled under the will to whatever was not otherwise disposed of. The basis for this application was the contention that the corporation was not a trust company, that acting as trustee was no part of its power to conduct an orphans' home, and that it would therefore be unable to carry out the trust. The petition then alleged that because of this, the corporation could take the funds and disregard the directions of the trust; that the purpose of the donor would be therefore defeated and the gift would fail; that it should therefore be disregarded by the Court and the funds paid over to the petitioner, Henry Burkhart, Junior, as though they had not been given by the will. The Court must decide two questions, (1) Can the corporation act as trustee and carry out the gift, and (2) If not, what should be done with the money?

Ruling Court Case. President And Directors Of Georgetown College Vs. Browne, Volume 34 Maryland Reports, Page 450

Mary E. Browne executed a will by which she gave all of her property to the corporation, entitled the President and Directors of Georgetown College, and she named that corporation as her sole executor. The corporation, after her death, applied to the probate court for official appointment and authority to act as executor, but its power to act was denied by the brother of Mary Browne, Charles C. Browne. Mr. Browne asked the Court to deny the application of the corporation and to appoint him as administrator, because of his interest in the estate and relationship to the deceased.

The Court held that the corporation was not entitled to act. The office of executor or administrator is essentially a position of personal responsibility and trust, and can not be delegated by the one appointed.

But since a corporation can act only through its agents, it could not perform the duties without delegating them. Therefore, it will be presumed that it is not capable of filling the position, and it is only where a statute, by so many words, establishes the contrary that it is empowered to act. The power is not one which can be implied, but must be clearly conferred.

Mr. Justice Miller, delivering the opinion of the Court, said: "We take it to be a well settled rule that a corporation can not become an executor or an administrator." Thus the application of the President and Directors of Georgetown College was denied, and Charles Browne, as the nearest relative, was appointed administrator.

Judgment was given for the defendant, Browne.

Ruling Law. Story Case Answer

In practically every state, the statutes provide that a corporation may be formed for the purpose of doing a trust business and that every corporation formed for that purpose or a similar one may be appointed as an executor by a will, as an administrator by a court, as a trustee by will, deed, or order of court, and even, in many states, as guardian, to the same extent that any natural person could be so appointed. There is no question that a company, not covered by the terms of such a statute, or any companies where no such statute exists, can not fill the position of executor or administrator. In the development of the law, through history, these positions have always been regarded as positions of personal responsibility. Although they are to-day very often purely financial responsibilities, which a corporation is well fitted to assume, the law nevertheless, unless changed by act of the legislature, must continue to regard them as personal trusts, which can not be administered by an impersonal corporation. As to the position of trustee, the law is not yet clearly settled. The ordinary trust relations of business, such as that of a mortgagee or a transferee without consideration, are commonly and lawfully assumed by corporations formed for mercantile, manufacturing, or any other purpose. But such corporations would clearly not have the power to accept trust obligations which required many transactions, much responsibility, and the exercise of functions inconsistent with the corporate purpose. For instance, a corporation formed to manufacture furniture, would not have authority to act as trustee under a will in which it was given a large estate and directed to manage, care for, and cultivate the estate, sell its produce, and pay the income over to the wife and children of the deceased donor during their lives. Between these limits, the courts have decided many cases, not all easy to reconcile. But the general rule may be stated to be that a corporation, not a trust company, has no power to act as trustee where the execution of the trust would require powers inconsistent with the general powers of the corporation.

In the Story Case, as the Parkside Orphan's Home is not a trust company, and may carry on its business of operating the home without also holding the fund given by Mr. Burkhart, the Court would hold that it had no power to execute the trust and, consequently, no right to accept it. The answer to the second question is not part of the law of corporations, but it may be said here that the principles of the law of trusts would require the Court to appoint a trust company or responsible individual to take this gift, and would not allow it to be taken away from the philanthropic purpose of Mr. Burkhart to be given to his son. The executor would not be allowed to give it to either the Parkside Orphan 's Home or Mr. Burkhart, Junior, but would be directed as to its disposition.