32 N.J. Eq. 611 | New York Court of Chancery | 1880
The bill is filed by Amelia L. Gilmore, late wife of James R. Gilmore, and her infant son, for relief against the defendant, George E. Tuttle, as trustee under a declaration of trust dated March 2d, 1869. The other defendants, besides the trustee, are the other children of Mr. and Mrs. Gilmore. By the declaration just mentioned, it was recited that a separation had taken place on the 5th of December, 1867, between Mr. and Mrs. Gilmore (they were subsequently divorced, on her application, in or about 1871; and, within a short time thereafter, Mr. Gilmore married again), and that, in pursuance of the terms and agreement for separation, Mr. Gilmore and his wife, in order to secure a fund for her and their four children, on that day (December 5th, 1867), conveyed to Mr. Tuttle, in fee-simple, three tracts of land in the town of Orange, in this state, one containing seventeen and thirty-four one-hundredths acres, another two acres and seventy one-hundredths, and the third, a lot of fifty feet front by two hundred and forty feet deep.
The trust, in respect to the property-, was declared by Mr. Tuttle substantially as follows: That he held the premises only in trust, first, to raise and pay, within six months from the date of the declaration, a specified sum for counsel fees and legal expenses theretofore incurred by
“ And, lastly, it is understood and agreed, as a condition of the trust hereby assumed and declared, that I, the said George F. Tuttle, shall not be liable or responsible for any other cause, matter or thing, except my own willful and intentional breaches of the trust herein expressed and contained.”
The bill avers and charges that the raising of $12,000, with interest from the date of the declaration of trust, by sale of the property, or part of it, and the payment thereout of $2,000 to Mrs. Gilmore, with interest, and the investment of the remainder of $10,000 for her for life, the payment to her of the income thereof, and the raising and payment to her of the sum allowed for each of the children residing away from their father, as mentioned in the fourth section of the declaration of trust, were, by the terms of the declaration, made the first and paramount duties of the trustee. It states, also, that all the management of the trust was left by Mrs. Gilmore entirely to the trustee, and that she has received from him certain sums of money over the $2,000, and part of the income of the residue, and part of the sum due her for the maintenance of the children, irregularly up to two years before the filing of the bill, when the arrears had accumulated to over $1,200, and that, about June, 1871, the trustee gave her possession of the house where she now resides, which he had purchased as the homestead, as the bill states, at an expense of $8,700, subject to a mortgage of $600 thereon.
The bill states that, with the exception of the sums paid over to Mrs. Gilmore, the complainant, as before mentioned, the whole of the consideration of those deeds -was, from time to time, accepted by the trustee in second mortgages, whicli have since proved utterly worthless, and is entirely lost, while the lands have long been in the hands of honest purchasers, against whom no lien for the purchase-money could.be enforced; that the lots so sold were taken out of the property in such manner as to leave the balance of the tract in small parcels, which are almost valueless at the present time, or in any event or manner, unless the whole neighborhood were improved and built up in such small lots. It states, also, that the sales and the receipt of the consideration moneys in worthless securities, were entirely without the knowledge, assent or consent of the complainants, and that they had nothing to do with
The bill prays an answer, and that the trustee may set forth a just and true account of all his dealings with the trust property, and that it may be decreed that the sales and transactions mentioned aud complained of in the bill were improper and illegal, and that the trustee is accountable for them, and that he may be decreed to account, as trustee, in this court, for and pay over all moneys which have been so lost, and the loss and damage to the trust estate, and to come to an account of all moneys or property for which he is accountable as trustee, and to pay to the complainant Mrs. Gilmore all arrears due her for interest or support of the children, and that a proper decree may be made, upon the accounting, by this court, for the enforcement and fulfillment of the trusts bj’ the trustee, or some other proper trustee, to be appointed by'the court, and that, the complainants may have other and further relief, and especially that, if it be thought advisable, a sufficient portion of the remainder of the lands be sold, by order of the court, to make up such sums as to this court it seems equitable should be made up.
The trustee, by his answer, admits the execution by him of the declaration of trust, and that he entered upon the execution of the trust accordingly, and that he has sold the property in question, stated in the bill, to Dennis and Michael Kennelly and Mrs. Amelia B. Gilmore, and alleges that he has received all of the consideration for the conveyances to the ICennellys in cash, and charged himself therewith as trustee, and expended it in payments .required to be made by him under the declaration of trust; and that the
On the hearing, the liability which it is sought to establish in this suit was put upon two grounds only: one, the manner in which the sales of the lots on the tract of seventeen and thirty-fotír one-hundredths acres had been made, and the other the character of the securities taken as consideration for the sales to Mrs. Amelia B. Gilmore. As to the first, it does not appear that there was any want of discretion on the part of the trustee in so making the sales. No witness is produced who testifies that such a method is injurious to the property, and there is reason to assume that, in view of the fact that it was proposed to sell the property in building lots, for improvement, that that method was not only unobjectionable, but the most advantageous that could have been adopted under the circumstances. At ail events it was a fair subject for the discretion of the trustee, and he appears to have exercised his discretion in regard to it, fairly.
As to the second ground: It appears clearly that, by the sales to Mrs. Amelia B. Gilmore, a large part of the tract of seventeen and thirty-four one-hundredths acres was almost entirely lost to the estate. Out of all the securities (they were all second mortgages) taken for the consideration thereof, only $1,000 were realized by the trustee, and that money was obtained by the assignment of one of the mortgages. For the rest nothing was realized, the first rnort
It appears, by the testimony of the trustee, that the complainant Mrs. Gilmore did not know of the sales in question ; that she never made any request that they should be made, though she did make requests, in general, that sales should be made of the property to' raise the $10,000. He says he did not inform her that he had made those sales until after the deeds were passed, and, indeed, that that was the fact in regard to nearly all the sales which he made. He says, also, that at the time of the transaction of the sales to Mrs. Amelia B. Gilmore, he had very considerable doubts about them, and spoke to a lawyer, who was acting as his adviser; that the latter told him, as his counsel, that the securities which were offered to him (the second mortgages) were proper securities—proper investments ; that the intention at the time was, that this (the accepting of second mortgages) would be a mere temporary matter, and that productive, absolute securities were to be speedily substituted for those which he was asked to accept; that he endeavored for some time to get those securities, but never succeeded, and that the crash of 1878 came, and after that it was utterly impossible to get any change of the securities at all. To the question, whether his counsel told him that second mortgages were legal investments of trust funds, he
Whether this transaction be considered as a sale of trust property for second mortgages for payment, or as an investment of trust funds, the liability of the trustee cannot be doubted. The indemnity clause, to which reference has been made, providing that the trustee is not to be liable or responsible for any other cause, matter or thing, except his own willful and intentional breach of -the trust, will not exonerate him from the consequences of a breach of his trust. Hill on Trustees 314, 383; Mucklow v. Fuller, Jacob 198 ; Langston v. Ollivant, Cooper 33; Fenwick v. Greenwell, 10
In Drosier v. Brereton, a farmer became bankrupt, and two friends, in order to assist his family, purchased the stock and crops from his assignees, and continued to carry on the business at their own risk and expense, and sold off the stock, and, in consequence of a fortunate harvest, realized a profit of about £1,400, which they invested in several mortgages; subsequently they executed a deed, by which they agreed and admitted that .they would stand possessed of the sum of £1,000 on trust, to invest it in the funds or on “ real securities,” and receive the dividends and pay the same to the bankrupt and his wife, for life, and afterwards pay the capital to their children. The deed contained a proviso, that it was “ declared and agreed that the trustees should be chargeable only for such moneys as they should actually receive, notwithstanding their signing any receipt for the sake of conformity, and that any one of them should not be answerable for the other of them, or for the acts, receipts, payments, neglects or defaults of the other of them, but each for his own acts &c. respectively, and that they, respectively, should not be answerable for any banker &c., nor for the rise or fall in the prices or value of stocks, or the insufficiency or deficiency in the title or value of any security or securities, stocks or funds in or upon which the trust moneys or any part thereof, should be placed out or invested, nor for any other misfortune, loss or damage which might happen in the execution of the trust, or in relation thereto, except the same should happen by or through their own willful default, respectively.” They loaned the trust moneys on a second mortgage on house property greatly out of repair, and the principal part was lost. It was held that they were liable as for a breach of trust, notwithstanding the indemnity clause, and that it made no difference how the trust was created, whether it was for a valuable consideration, or, as in that case, by the voluntary gift of' the trustees themselves.
In Mucklow v. Fuller, there was an indemnity clause declaring that the trustees were to be chargeable with or accountable for such moneys only as they should actually receive, and not to be answerable or accountable for each other, but each for his own acts, receipts, payments, neglects or defaults only, and not for any moneys for which they should join in any transfer, or sign any receipt for conformity; and they were not to be answerable for any banker with whom they might deposit the trust moneys, or for any other loss, unless it should happen through their willful default. It was held that that clause did not exonerate one of the trustees (there were two) from the loss occasioned by a debt, due from the other, having been suffered to remain outstanding until it was lost. The lord chancellor said in that case: “ The question is, whether, looking at the contents of the will (the trust was created by will), and at his (the trustee’s) having proved it, he has not involved himself in a liability that he had no conception of. I cannot but think it most dangerous to lay it down that, with such a clause as this, he can prove the will, and then say that some one else shall perform the trusts.”
In Langston v. Ollivant, there was an indemnity clause declaring that the trustees should not be answerable for any loss which might happen without their willful neglect or default. The trust was created by the will of a father, who
In the case in hand, a very considerable and valuable portion of the trust estate was sold and the price, invested in second mortgages, and the consideration for the conveyances has been entirely lost, and the property is lost to the trust estate. The trustee was aware, when he made the investments, of the requirement of the declaration of trust, that his investments should be made on good securities, and he knew what the law demanded of him in that respect. He had doubts as to the propriety of the investments. He says he had “ very considerable doubts ” about it, and, though he was advised by his counsel that the securities which he took were proper investments, he was not himself satisfied with them, but intended that they should be merely temporary, and that, to use his.own language, “productive, absolute securities” should be speedily substituted for them. The financial panic frustrated this design. He contemplated no fraud, but, nevertheless, he has involved himself in liability, and it is incumbent on him to make good the loss which has been sustained. In accepting the trust, he
But it is insisted, by his counsel, that, if he is liable, the measure of indemnity to the trust estate will be the value of the property at this time. When it is considered that there is no sale for it now, owing to the depressed condition of the real estate market consequent upon the revulsion, and that there was an active demand for it at a high price at the time when the trustee sold it, it is manifest that such a rule would be unjust to the eestuis que trust. The measure of indemnity is the value of the property at the time when it was' sold, and the trustee, while he should pay interest upon that value, should, of course, have allowance for any moneys which he may have paid on account of the consideration, whether collected upon the mortgages or otherwise.