Deegan v. Capner

44 N.J. Eq. 339 | New York Court of Chancery | 1888

The Chancellor.

The object of this suit is, in short, to secure to the estate of Thomas Capner the farm purchased by the executor, Joseph Capner; to obtain an accounting by the executors; to determine the amount of the residue of the estate, and to whom it is to be distributed, and to procure a distribution of it.

The first objection urged is, that all necessary parties to such a suit are not before the court.

No objection is made because those who have receipted and released to Joseph Capner for their shares of the residue have not been made parties, but it is shown that Frank Hughes is dead, and it is insisted that his father, Gideon Hughes, should be a party, as his representative, and also that the children of Jane Deegan, by her first husband, Margaret, Mary, Sarah and Lavinia Lord, should be parties. The testimony shows that Frank Hughes died after he had attained the age of twenty-one years; that he was the illegitimate son of the testator’s daughter Sarah; that shortly after his birth, Sarah, and Gideon Hughes, who was the natural father of Frank, intermarried, and that Sarah died in her father’s lifetime. Under this state of facts, neither Frank nor his representatives could be interested in the residue of the estate of Thomas Capner after the payment of the legacies. But the legacy of $400 to Frank was due and payable to him at his death, and should go to his executor or administrator. It does not appear that Gideon Hughes acts in either of these capacities. If he docs act in either capacity, he should be made a party. It is alleged that the funds, which were set apart for Frank’s legacy, have been used by the executors, or one of them, in a private venture, and mixed therein with funds which belong to the residuary legatees or next of kin. The personal representative of Frank should then be made a party, not only to take part in the accounting but also that it may be determined, as between him and the residuary legatees or next of kin, what interest, if any, he has in the profits that were made by the use of the mixed trust funds. Until such determination is had, the residue for distribution cannot be ascertained. The object of the bill is' to obtain a general accounting, followed by distribution. I think that Frank’s representative is a necessary party to such a suit.

Margaret, Mary, Sarah and Lavinia Lord stand in a different situation. Their mother claims that, as to the principal of the $5,000 which was invested for Margaret Capner, Thomas Capner died intestate, and that therefore she is now entitled to a portion of it as one of his next of kin, and that the money she may thus take is not to be ultimately divided among her said children. This claim raises the question whether the principal of the $5,000, which was to be set apart for the widow, is included in the residue that is disposed of by the fourth paragraph of the will. If it is included therein, whatever Jane Deegan may take by reason of it must be invested for her and be divided ultimately among her said children. Those children are then interested in the solution of that question, and are entitled to be heard upon it. They are necessary parties, and they must be brought in, not only before it is determined whether their mother shall take as one of the next of kin or under the residuary clause of the will, but also before an accounting by the executors, for, in the event of their mother taking under the residuary clause of the will, they will be directly interested in the amount of the residue. They should also be brought in, in order that they may be bound by the executors’ accounting and the decree thereon. To a suit in which the ascertainment and disposition of the residuary estate, is sought, all persons interested in the residue must be made parties. Story’s Eq. Plead. § 89; Calvert on Parties 171; Reed v. Patterson, 17 Stew. Eq. 211.

In considering the validity of the purchase of the mortgaged farm by Joseph Capner, one of the executors, we are at once confronted by the well-established rule that a trustee shall not be permitted to derive advantage from the administration of property committed to his charge. Here," Joseph Capner became sole acting executor, and, while acting in that capacity, instituted a suit to foreclose a mortgage that he held as executor. He controlled the suit, brought the mortgaged pi’emises to sale, attended the sale, and bought the property in his own name. He did not bid the full value for the property, and did not either pay the sheriff the amount of his bid, or set that amount apart for the benefit of the estate. He does not pretend that he has ever been ready to pay the purchase-money, but, on the contrary, when applied to for a settlement of the estate, has admitted the use of the mortgage in his purchase, and has urged delay in order that the property purchased may increase in value for the benefit of his cestuis que trustent. The facts pertinent to the rule I propose to apply to this transaction are, that he not only bought property of whiph, as trustee, he caused the sale, but used the trust funds in its purchase. Where such facts appear, the court will not inquire into the fairness of the transaction, nor look for profits to show the intent with which the purchase was made. The cestuis que trustent will not be put to the proof of fraud. If trust property has been dealt with by the trustee and a profit has been made, the transaction will, at the instance of a cestui que trust, be held to have been entered into for the benefit of the trust. A trustee will not only be deprived of all profit in such a proceeding, but will be obliged to make good any loss that it may occasion the trust.

The law upon this subject grows out of the public policy of elevating the trustee above temptation, and holding him in such a position that to deal honestly with respect to his trust shall not be a strain upon him.

In Staats v. Bergen, 2 C. E. Gr. 554, it appeared that a trustee invested trust funds in a second mortgage upon a farm, and that subsequently, at a sale in a suit to foreclose the fourth mortgage, to which suit all the holders of the mortgages upon the farm were parties, he bought the mortgaged premises for less than the amount then due upon the first and second mortgages. His cestui que trust was personally interested in the third and fourth mortgages. The trustee did not pay the trust moneys, and refused to convey the farm to the cestui que trust. The cestui que trust filed a bill to compel a conveyance to her upon equitable terms, or to compel a payment of the trust moneys, with interest. In that case, in the court of errors and appeals, Chief-Justice Beasley stated the general rule applicable to such sales to be, that, if a trustee or person standing in a similar capacity sell, a trust estate and become himself interested, either directly or indirectly, in the purchase, the cestui que trust is entitled as of right to have the property resold, or, at his election, to acquiesce in the sale, and said, that it makes no difference in the application of the rule that the sale was at public auction, bona fide, and for a fair price. It is also held, in that case, that, where the trustee is bound in duty to protect his mortgage at a foreclosure sale, and buys the-mortgaged premises, he is within this rule.

The case before me is more decidedly within the rule thus-stated than Staats v. Bergen, for here the foreclosure, as has been said, was instituted, conducted and controlled by the trustee, who-was bound to protect the mortgage he sought to foreclose, while-in Staats v. Bergen the foreclosure sale was brought about by another mortgagee, and the trustee merely followed in t-he suit, and attended the sale to protect the trust mortgage.

In that case the chief-justice further says: “There is also another ground of objection to this claim of the defendant. The purchase was made by the use of the mortgage, which was, in. equity, owned by the complainant. That mortgage the defendant could not lawfully use in his own concerns, so as to make a-profit to himself. If a trustee use trust funds in the purchase-of property or in the transaction of business, it is a violation of his duties as trustee, and the profits of such purchase or business must enure to the benefit of the oestui que trust.”

■ In Lewin on Trusts 289, it is said : “ If trust money be laid out by a trustee in buying and selling land, and a profit be made-by the transaction, that shall go, not to the trustee who has so applied the money, but to the oestui que trust whose money has been applied. So, where a trustee or executor has used the fund committed to his care in stock speculations, though any loss may fall exclusively upon himself, he must account to the trust estate-for every farthing of profit. If he lay out the trust money in a commercial adventure, as in buying and fitting out a vessel for a voyage, or put it in the trade of another person from which he is to derive certain stipulated gains, or if he 'employ it himself, for the purposes of his own business, in all these cases he must account to the cestui que trust for the profits.”

In Perry on Trusts § 209, this accountability is said to extend to all bonuses and gratuities that may be given to a trustee by strangers, for contracts made with them in relation to the trust property.

The purchase by Joseph Capner was effected by the use of the •trust mortgage. He states that at the sheriff’s sale some other person bid $6,050 for the farm, and that but for his bid of an .additional $5, that person would have become the owner of the farm: In this situation it is manifest that it was necessary for him to use $6,055 to secure the farm. He frankly admits that, beyond the payment of the costs of foreclosure and the sheriff’s fees, he paid nothing for the farm, yet had credited upon the execution in the sheriff’s hands, $6,055. Clearly, then, he effected this purchase mainly with the trust fuuds. I have no hesitation in deciding both upon the ground that he used the trust moneys in effecting that purchase, and upon the ground that he purchased at the sale he conducted as trustee, that the farm must be held to belong to the trust and be sold for its •benefit. Its rents, issues and profits must also be accounted for, with interest. Credit will be allowed for the costs and sheriff’s fees paid, and also for whatever has been paid for necessary repairs and proper and permanent improvements and taxes, with interest.

The solution of the remaining question in this case, namely, whether at the death of the testator’s widow the principal of the $5,000 went into the residue disposed of by the will, or whether, as to that $5,000, Thomas Capner died intestate, will be reserved until all the parties entitled to be heard upon it shall be before the court.

An accounting by the executors, including an accounting for the rents, issues and profits from, and the expenditures upon, the farm will be then decreed. Upon the coming in of the Master’s report upon the accounting, the liabilities of the several •executors will be determined, and the parties to the suit will be ■heard upon the construction of the wil'l.