203 A.D. 807 | N.Y. App. Div. | 1922
Lead Opinion
The court is agreed upon the power of the court at Special Term to remove a testamentary trustee upon a motion made in an action brought by trustees for a judicial settlement of their accounts, and also that the record disclosed facts sufficient to require drastic action by the court. We differ only in this, that the majority of this court are of opinion that the admitted and uncontroverted facts fully justified the decision of the justice at Special Term that George J. Gould should be removed as testamentary trustee of the trusts created by the last will and testament of Jay Gould, while the minority are of opinion that he should have been suspended pending the action.
In my opinion the court cannot suspend a testamentary trustee. The Surrogate’s Court is given power to remove a testamentary trustee. (Surr. Ct. Act, § 99; Code Civ. Proc. § 2569.) No power is granted to suspend such a trustee. Likewise the Supreme Court is given broader powers to remove a trustee and appoint his successor.' (Real Prop. Law, § 112.) No provision is made for his suspension. The reason for this is apparent. If a trustee is deprived of his power to execute the trust, its execution devolves upon the Supreme Court, which can only discharge the duty of administration through the appointment of a successor trustee or receiver. Furthermore the court should not take such drastic action unless it clearly appears that the trustee has violated or threatened to violate his trust, or unless for any other cause he shall be deemed to be an unsuitable person to execute the trust. (Real Prop. Law, § 112.) If it does so clearly appear that he is unsuitable,
In the present case there were sufficient facts admitted by the trustee to show that he was an unsuitable person to execute the trust, and to justify the order for his removal. We will not discuss many of the facts presented by the voluminous record. A few of the more prominent derelictions will be sufficient.
In considering the transactions of this trustee with the property, it is well to have in mind what was said by this court in Pyle v. Pyle (137 App. Div. 568, 572; affd., 199 N. Y. 538): “ It is a fundamental rule relating to the acts of a testamentary trustee that he must not only act for the benefit of the trust estate, but also in such a way as not to gain any advantage, directly or indirectly, except such as the law specifically gives him, for himself. He owes an undivided duty to his beneficiary, and he must not, under any circumstances, place himself in a position whereby his personal interest will come in conflict with the interest of his cestui que trust. [Citations.] The purpose sought to be secured by this rule of law is to require a trustee to assume a position where his every act is above suspicion and the trust estate, and it alone, can receive not only his best services, but his unbiased and uninfluenced judgment. When he has acted otherwise, or when he has placed himself in such a position that his personal interest has or may come, in conflict with his interest as trustee, then, so far as I have been able to discover, the court never hesitates to remove him. Under such circumstances the court does not stop to inquire whether the transactions complained of were fair or unfair.”
The trustees of the estate of Jay Gould held 210,028 shares of the stock of the Western Union Telegraph Company of the par value of $21,002,800. As of the date of April 29, 1909, said shares of stock were sold by a majority of the said trustees to one Winsor, who acted for the American Telephone and Telegraph Company, for $85 per share. This sale had been negotiated by an attorney employed for the purpose by George J. Gould, whether individually or as trustee does not appear. The agreement for the sale of said shares required that the trustees, together with certain other
The utter lack of understanding of the obligation of a trustee to the estate, shown by the above transaction, characterized his dealings with the money and property of the estate throughout his administration of the trust. He mingled the money of the estate with his own. He sold securities of the estate from time to time through his personal accounts with stockbrokers, and the proceeds were credited to him personally in his margin accounts, not accounting to the estate for many months, and in some cases for more than a year after the sale of the stock. These debit balances ran as high as $3,000,000 or $4,000,000 at times, and gave him the opportunity to himself speculate with ample capital. He used this trust money as his own, and took to himself whatever profits were, derived from the use thereof in personal enterprises
It also appears that he personally made short sales of stock, and frequently some time afterward delivered stock belonging to the trust estate in satisfaction of the contract of sale. Mr. Justice Smith refers to these transactions in his opinion, and while not palliating them upon any facts shown, seems to hold that this use of the property of a trust estate may be justified as having been indulged in in good faith and without resultant loss to the estate, and whether it would justify the removal of the trustee should be reserved “ for decision in the administration action, where all the parties are before the court and the matters may be inquired into more particularly than in affidavits presented upon a motion.” The reply to that contention is obvious. This motion was made in the action for an accounting, and, therefore, is in the “ administration action.” All the parties are before the court. And the question is not whether the trustee personally benefited, or the estate in fact suffered a loss. The trustee had no right to speculate with the stock of the estate. The added vice of the situation is that he speculated in his own name, and thus made it possible, if the price of the stock fell, to take the profit; if it advanced, to deliver the stock of the estate and receive therefor a price less than the market price, and escape a personal loss at the expense of the estate. A trustee cannot place himself in such a position that the temptation and opportunity to personally profit by his dealing is presented. Whether these transactions, as a matter of fact, were conducted for his personal profit cannot now be ascertained with any degree of certainty. The transactions were with stockbrokers in accounts carried either in his name or with fictitious designations. The record of his dealings in short sales was not carried on the books of the estate, but on his personal books and records.
Letters testamentary were issued on this estate on January 13, 1893. No accounting was had by the executors and trustees until this action was brought in 1916. In 1912 George J. Gould took his personal books, papers and records from his office to his residence on Fifth avenue, and, with the assistance of one of his sons, burned them in the furnace. For this reason he was unable to produce any books or other records of his personal transactions,
There were numerous other transactions of an improper nature for a trustee to have indulged in, but it does not seem necessary to add to those discussed above. In my opinion they show that George J. Gould was an unfit person to discharge the duty of a trustee; that he had personally profited largely out of, and at the expense of, the estate; that he has not the slightest conception of the fiduciary duty of his position; and that the order removing him as such trustee was a wise exercise of the power of the court in the protection of the interest of the cestuis que trustent.
That some of the adults may have had knowledge of these transactions, and that the enjoyment of the interest vested in the infants may be remote, affords no excuse for the failure of the court to act promptly to conserve the trust.
The order should be affirmed, with ten dollars costs and disbursements.
Clarke, P. J., and Greenbaum, J., concur; Smith and Finch, JJ., dissent.
Dissenting Opinion
I have no doubt of the power of the court in this action to make this order for removal, if facts are conceded sufficient to show that the appellant trustee has acted in bad faith and that the interests of the estate and of the cestuis'que trustent require such removal. This action is an action brought by the trustees for an accounting and for a ratification and confirmation of the acts of said trustees and asking that the will be construed and that the interests of the beneficiaries be ascertained; that the action of the trustees in deferring the, physical division thereof into separate trust funds be approved and that the plaintiffs may obtain such advice and
That the court has power to remove a trustee in an administration action as relief incidental to the relief which the parties may seek in that action, is stated in 2 Lewin on Trusts (8th ed.), 848, and in Lewin Law of Trusts (12th ed.), 1088. In Perry on Trusts' (6th ed.), section 282, the text reads: “ Courts of equity, having jurisdiction to remove and appoint trustees, may be applied to either by bill or petition; or, if a bill is already pending for administration of the estate, application may be made in those proceedings, by motion.” And this power has been held to exist although such relief be not asked either in the bill or in any counterclaim interposed. (See Lewin Law of Trusts [12th ed. by Dale & Streetem], 1088.)
Where the power to remove a trustee exists in an administration action as incidental thereto, the power to suspend or restrain the trustee from acting during the pendency of the action must be implied therein.
In section 768 of the Code of Civil Procedure it is provided: “ Any proceeding which is required by statute to be instituted by petition may also be instituted by an affidavit setting forth the matter which it is required that the petition shall contain, accompanying a notice of an application for the relief which would properly be prayed for in the petition; and in like manner a pro
Again, a trustee is not to be removed for every breach of trust or “ because the trustee has transgressed the strict line of his duty, providing there was no wilful default, but merely a misunderstanding.” (2 Lewin Trusts [1888 ed.], *849, and cases cited; Lewin Law of Trusts [12th ed.], 1089.)
George J. Gould had been associated with his father before his father’s death for fifteen years and had managed in large part Lis estate. His father expressed in the codicil to his will great confidence in him and had even provided that in case of disagreement among his trustees George J. Gould should control any action of the estate. It is claimed that he had a dominant influence over the other trustees. Not once did he exercise the right of stock control by a dominant vote as was given him in the will during all the term of the trust. Upon the record, his dominance, if it existed, would seem to have existed by reason of a deference to an older brother who had longer experience and better knowledge of the various properties which his father held and of the intricate problems arising therein. It does not appear that any act of his was ever questioned by any of his brothers and sisters during the existence of this trusteeship, until the bringing of this suit in 1916. His acts were concurred in by all the brothers and sisters, except that the sale of the Missouri Pacific and the Western Union were made without the knowledge of Helen Gould, by reason of her sentimental feeling that the financial interest of the estate should be retained by the estate in the properties which her father in part built up and in which he took a very great interest.
I will discuss only one of the grounds upon which his removal was made, to wit, that he had habitually subordinated the interests of the estate to his own private interests. While Gould denies the charge and swears that all transactions of which complaint are made were executed by him in good faith and with strict fidelity to the obligations of his trust, facts are charged in the moving affidavits which are not fairly met by such general denial. He was not authorized to mingle trust funds with his own. He might easily in his stock accounts have adopted another name, as he did in other instances and have kept those accounts separate. There would then have been no opportunity for his claiming the benefit of a profitable investment and placing upon the estate the burden of an unprofitable investment. The law does not permit a trustee to so commingle the trust funds with his private funds as to create such an opportunity. It matters little whether or not he availed himself of that opportunity at the expense of the estate. The fact is that by thus mingling the trust funds with his own in these accounts he created an opportunity so to do and this conduct endangered the trust, and unless further explained, should require his removal. It is denied on the part of Gould that these matters in which the funds were commingled were speculative accounts. They were called short sales. It is claimed, however, that these short sales are not what is ordinarily known as short sales “ upon the street,” but are sales for delivery at a later date, and that they were made for the purpose of getting rid of the stock of the Missouri Pacific railroad, which stock he should eventually have sold. But a short sale is always to an extent speculative. It is further claimed by appellant that they were not made in his own name, in order that it might not be known that the Gould estate was disposing of its own stock in this road and its connections. This answer is not satisfactory. Whether this transaction, as well as other transactions of which complaint is made in the moving affidavits, was made in bad faith, and whether the interest of the estate as it now exists may require his removal from the trusteeship, are questions for decision in the administration action, where all parties are before the court
I am unable to see any reason why this matter has dragged along so slowly. Two years is more than sufficient time to finish the direct examination of George J. Gould upon his so-called examination before trial. If he had not consented to the examination it is very doubtful if the court would have permitted it. Inasmuch as all of these matters can be brought out fully upon an examination in the accounting proceeding, that action should be brought to a hearing and the matter determined therein as quickly as possible, even though this preliminary examination has not been finished.
There are other specific charges of grave import made against this trustee. Most of the acts complained of were committed with the knowledge of some, if not all, of the other children for whom the trust was being administered and without dissent on their part. All of these charges are under review in the accounting action and I can see no reason for a final disposition of the question on this interlocutory application where by interlocutory order all the interests of all parties will be fully protected until the final determination of the pending action and the trustee will be given a fair opportunity to explain more fully such charges than is possible in affidavit.
In my judgment the order should be modified so as to suspend the trusteeship of George J. Gould pending the determination of the administration action, and striking therefrom the order for absolute removal from his position as trustee, without costs to either party.
Finch, J., concurs.
Order affirmed, with ten dollars costs and disbursements.