79 N.J. Eq. 521 | N.J. Super. Ct. App. Div. | 1912
Ordinary.
In an accounting before the orphans court by Edmund C. Hill and Charles W. Howell, trustees under the will of Thomas C. Hill, deceased, they charged themselves with the sum of $53,625, received from S. P. Dunham & Company as proceeds of the sale of a parcel of real estate known as No. 11 North Broad street, in the city of Trenton (the nominal price being $55,000, with a discount of two and one-half per cent, for cash payment), and they prayed allowance for $1,375 paid to Messrs. Case & Cain, real estate agents, for commissions on this sale.
To this account three exceptions were filed by Thomas C. Hill and Raymond D. Hill, sons of the testator and beneficiaries under the will. The first alleged that the accountants received a much larger sum from Dunham as the purchase price of the property
The orphans court, after a full hearing, sustained the first exception to the extent of surcharging the trustees with the amount of $12,000, sustained the second exception by disallowing the item of $1,375, commissions paid to Case & Cain, and surcharged the trastees to the extent of $2,700, by reason of the matters set up in the third exception.
From the whole of the decree thereupon made the accountants have appealed to this court.
The respondents, in their answer to the petition of appeal, have alleged by way of cross-appeal (as permitted by rule 2 of this court) that the decree is erroneous, in that it should have surcharged the trustees with $20,000 (instead of $12,000) for purchase-money received from Dunham over and above the amount acknowledged by them in their account.
The evidence taken before the orphans court upon the hearing of the exceptions is quite voluminous. It is very fully reviewed in the learned and able opinion delivered by Judge Eellstab in that court,, of which, for convenient reference, a copy is hereto appended.
The testator, Thomas C. Hill, died some years before the transactions that are in question, seized of the lot of land No. 11 North Broad street, in which he had carried on a bakery and restaurant business in partnership with his son Edmund C. Hill. By his will he gave this property in trust to his executors, Edmund C. Hill and Charles W. Howell, authorizing them to sell it, with a proviso that it should not be sold during his wife’s lifetime for less than $15,000. After the testator’s death, Edmund C. Hill
As will appear below, E. C. Hill was sole proprietor and manager of this company—he and it were identical.
Leases of the property were made from time to time by the trustees of the estate to the Thomas C. Hill & Son Company; but until April 1st, 1900, these leases did not include the rear of the lot. Adjoining properties were occupied by the large mercantile firm of S. P. Dunham & Company, and this firm leased the rear of the Hill property from the trustees for a number of years and down to April 1st, 1900. From that time until July 1st, 1905, the entire premises No. 11 North Broad street were under lease from the trustees to the Thomas C. Hill & Son Company (at an advance of $200 in the rent), but Dunham & Company were permitted to remain in possession of the rear portion. During the last nine months of the year 1900 they paid no rent so far as appears. From and after January 1st; 1901, the Hill company leased the rear to Dunham & Company, at a rental of $800 per annum. The orphans court charged the trustees with this difference of $600 per annum from January 1st, 1901, until July 1st, 1905, a period of four and one-half years, making a total of $2,700.
It is objected by counsel for appellants that this surcharge goes beyond the claim of the exceptants, which, as set forth in the exception, was that the accountants should be charged with $600 per year, on this account, only from January 1st, 1903, to April 13th, 1905, viz., $1,421.67. The exception was framed without full information as to the facts, and since the merits were fully tried, and the evidence justifies the conclusion reached by Judge Rellstab upon the facts, I will allow an amendment of the exception to make it conform1 to the facts as found.
It is contended by counsel for the respondents that the trustees were without power to make a lease of the trust property to one of themselves, and that for this reason the lease to the Thoinas C. Hill & Son Company was invalid. I agree that, except so far as the respondents are estopped to make objection by reason of the circumstances presently to be mentioned, the lease referred to
But, as already pointed out, leases of the premises (not including the rear portion) had been made by the trustees from time to time ever since the death of the testator, being made at first to E. C. Hill in his own name, and afterwards to his corporation. And, as shown in the opinion of Judge Rellstab, these leases were, under the circumstances, calculated to produce a greater income for the estate than if the same premises had been rented for other purposes and to other tenants. So far, therefore, as they included the premises used by E. C. Hill in his business as baker, restaurateur and confectioner, and reserved a full rental, the leases promoted the general interests of the trust. These facts, taken in connection with the fact that the leases were known to the cestuis que trustent who are now excepting, and had been impliedly approved by them, have the effect, I think, of estopping the except-ants to question the propriety of the general policy of leasing the bakery premises to E. C. Hill’s company for successive terms of years, so long as the rentals were equivalent to the full value of the premises demised.
But the estoppel, I think, goes no further than the course of business, thus known and assented to by the cestuis que trustent, may be reasonably deemed to extend it.
The evidence shows that the act of the trustees in refusing to renew the lease of the rear of the premises to Dunham in the spring of 1900, and in leasing that part to Hill’s company, was inconsistent with the previous course of business, was not necessary for the purposes of Hill’s business, and not assented to by the exceptants. For this reason, if for no other, the inclusion of the rear of the premises in the lease to the Hill company is not covered by the estoppel.
But aside from this, and supposing the respondents to be es-topped, by their previous acquiescence in the practice of leasing to Hill’s company, from objecting to the present lease as a lease, it does not seem to me that they are thereby debarred from claiming for the estate the extraordinary profit derived by E. C. Hill
It is only on the theory that the lease reserved a full rental that the cestuis que trustent, because of their knowledge and implied approval of prevous leases, are estopped to object. The estoppel goes no further. And there is nothing in the circumstances to sanction so extraordinary' a profit as $600 per annum upon a sublease of property let by the trustees to one of themselves at $200 per annum. The law is most strict in denying to trustees any profit to be derived through any kind of traffic in the property of the trust estate. In addition to the references above given, I may cite a feyv decisions, out of many that might be cited, to shoyv how resolutely the court of last resort in this state has enforced the rule under any and all circumstances. Staats v. Bergen, 17 N. J. Eq. (2 C. E. Gr.) 554, 558, 559; Marshall v. Carson, 38 N. J. Eq. (11 Stew.) 250, 253; Bohle v. Hasselbroch, 64 N. J. Eq. (19 Dick.) 334, 336; Marr v. Marr, 73 N. J. Eq. (3 Buch.) 643, 648.
It is a fundamental part of the doctrine of equitable estoppels that the estoppel extends only so far as may be necessary to protect from loss the party entitled to assert it. He may claim indemnification, but not profit. Den v. Baldwin, 21 N. J. Law (1 Zab.) 395, 403, 405; Phillipsburg Bank v. Fulmer, 31 N. J. Law (2 Vr.) 52, 55; Campbell v. Nichols & Co., 33 N. J. Law (4 Vr.) 81, 88; Cowley v. Smyth, 46 N. J. Law (17 Vr.) 380, 383; Central Railroad. Co. v. McCartney, 68 N. J. Law (39 Vr.) 165, 175, 176; Ruckelschaus v. Oehme, 48 N. J. Eq. (3 Dick.) 436, 442; Robeson v. Robeson, 50 N. J. Eq. (5 Dick.) 465; Dixon v. Bentley, 68 N. J. Eq. (2 Robb.) 108, 123; Baker v. Wood, 157 U. S. 212, 219; 16 Cyc. 783.
And this strict limitation to indemnification ought, I think, to be most, rigidly insisted upon yvhere the estoppel is asserted by a trustee in contravention of his duty to refrain from making a profit out of the administration of the trust estate.
Assuming, therefore, that when trustee Hill, in the spring of the year 1900, caused the rear portion of the premises in question
The next question relates to the sale of No. 11 North Broad street to the Dunham firm in the year 1905. At this time that firm was in possession of the rear portion of the premises under the sublease just referred to, the Hill company being lessee from the estate of the entire property under a lease that had still about three years to run. On or about January 1st, 1905, Messrs. Dun-ham & Company made overtures (through Messrs. Case & Cain, real estate brokers, employed by them for the purpose) to Edmund C. Hill for the purchase of the premises. Mr. Hill thereupon called on his co-trustee, Mr. Howell, and asked him to make inquiries respecting the market value of the property. Mr. Howell accordingly gathered the opinions of three or four persons, as the result of which he expressed himself to Mr. Hill as. willing to sell the property for $55,000, the highest price mentioned by any of his informants. The evidence renders it clear to my mind that Mr. Hill had reason to believe, and did believe, that Dunham & Company would give much more than $55,000 for the property and more than what would be considered its ordinary market value. It does not appear that he discussed this with Howell, although both knew that Dunham was the would-be purchaser. Mr. Hill at once resumed the negotiations with Case & Cain, by whom he was referred to Mr. Dunham, and from Dunham he secured an offer of $75,000, which, as apportioned by Mr. Hill, was $55,000 for the reversion and $20,000 for his own interest. At the same time he received a cheek for $500 to bind the bargain.
Notwithstanding the failure to procure the assent of the cestuis que trustent, the trustees entered into agreement with Messrs. S. P. Dunham & Company for a sale of the property (including the leasehold and the reversion) at $75,000. But in form there were two agreements (both dated January 14th, and simultaneously delivered about a week later), each agreement being ex
“that when said deed is delivered the said Thomas O. Hill & Son Co., who are now in possession of property, for and in consideration of the sum of $20,000, will deliver possession of and release all claim that said corporation have or may have in said property to said Sering P. Dunham & Co. It being fully understood and agreed that this agreement is part of and dependent upon the sale of said property, and if said sale is not consummated, then this agreement to be void and of no effect.”
It was further agreed therein that the Hill company would remove from the premises all machinery and fixtures used by them in their baking business, excepting the rear brick oven, which was to remain the property of Dunham & Company. The agreement further provided for a discount of two and one-half per cent, for cash. The other agreement was made between Hill and Howell, as trustees of the Hill estate, and the Dunham firm, agreeing to sell the property for $55,000, payable $500 in cash on the signing of the agreement, $20,000 by the assumption of a mortgage upon the property, and $34,500 upon the delivery of the deed, but with a discount of two and one-half per cent, upon the $55,000 for payment in cash. It contains this clause: “It is hereby agreed that the vacation and release of said property by the Thomas C. Hill & Son Company is made a part of this agreement.” Other clauses provide for the delivery of the deed on July 1st, 1905, and that the purchasers might enter upon the property on that date.
It seems to me plainly erroneous to treat this as being in any substantial sense two transactions—as if the Hill trustees were selling the reversion for $55,000, less two and one-half per cent, for cash, and as if the Thomas C. Hill & Son Company were separately selling the leasehold (with or without good will or fixtures of the business) for $20,000, less two and one-half per cent, for cash. Mr. Edmund C. Hill testified something to the effect that the money paid by Dunham & Company over and above the $55,000 represented in part the value of the fixtures or good will of Thomas C. Hill & Son Company, and not merely its lease
As between the Hill estate and the purchasers, the negotiation was conducted (after the first overtures) between Mr. Edmund C. Hill and Mr. S. P. Dunham, and it is plain that so far as the purchasers were concerned, it contemplated but a single transaction, the purchase of the entire property, with the right to immediate possession upon the delivery of the deed. Mr. Dunham’s testimony is clear and emphatic that the price was given to him in gross, that there was but one price paid, $75,000, and that he did not know at the time that there were to be two articles of agreement drawn up.
The evidence does not, I think, justify the inference drawn by Judge Rellstab, that upon the consummation of the agreement, the purchaser, besides paying to the trustees $53,625, paid to the Hill company $19,500 for the possession and its rights under the .lease.
As I read the evidence, the amount paid in excess of $53,625 went to Edmund O. Hill individually, and does not appear to have been turned over by him to the Hill company or to anybody else. It is not pretended that the $500 paid by Case in January was actually turned over to the T. C. Hill company at any time. Manifestly, it could not be turned over to that company prior to the closing of title (even on Mr. E. C. Hill’s own theory as to his rights) without the plainest breach of his duty to the estate; for on his own showing it bound the bargain for the estate, and it is mentioned in the estate’s agreement with the Dunham firm as paid on account of that agreement. Yet the $500 is not entered upon the trustees’ account as having been placed to the credit of the estate at any time. The only item with which the trustees charge themselves on account óf the sale is $53,625 received from S. P. Dunham on June 29th, 1905. This date no doubt refers to
“Q. At the time of the settlement, in what manner was the payment made, or payments?
“A. The two agreements were concluded separately, and there were checks drawn to cover two agreements separately.
“Q. You heard the testimony of Mr. Dunham as to that; is that substantially correct?
“A. Yes, sir.”
What Mr. Hill did with the $500 paid to him in January by Mr. Case, and with the $18,975.36 paid to him on or about July 1st by Mr. Dunham, does not appear by direct evidence, excepting that E. C. Hill testified at a later stage of the hearing that he paid to one Lynch, a photographer, who at the time of the sale was in possession of two rooms as a subtenant, the sum of $300 to vacate the premises. Mr. Hill was asked particularly:
“Q. Did that come out of the company’s money?
“A. No, I paid it personally.
“Q. You paid him to vacate the premises?
"A. Yes, sir, to vacate the premises.”
It will be observed that while the agreement between the Hill company and Dunham & Company called for a payment of $30,-000, less two and one-half per cent, for cash, or $19,500 net, the check turned over by Mr. Dunham to Edmund C. Hill was for $18,975.36. Adding to this the $500 paid by Case to Hill in January, we have $19,475.36. The difference of $34.64 necessary to make up the sum of $19,500, is not accounted for. No point has been made of this in argument, and it would be improper to base a'reversal upon it, since it was in effect conceded throughout the hearing below that Mr. E. C. Hill, or his company, received the entire consideration of $19,500.
But to my mind it would make no difference, for the purposes of this accounting, if it did appear that the money in question was turned over by Hill to his company. Nor, in my opinion, is it of material consequence whether the excess rent, referred to in the third exception, was paid by Dunham & Company to the Hill company or was paid to Mr. Hill individually. For the evidence shows that in truth Edmund C. Hill and the Thomas C.' Hill & Son Company were one and the same. Mr. Hill was admittedly the owner of all the capital stock, except qualifying shares standing in the name of his wife and one or more of his employes. These qualifying shares, he says, were only two, or, perhaps, ten in number, out of a total issue of six hundred shares; and it seems to me the only reasonable inference to be drawn from all the circumstances disclosed in the evidence is that in fact E. C. Hill was the equitable owner of the qualifying shares also, the holders thereof being his “dummies.” The evidence throughout shows that whatever corporate existence the company may have at law, Mr. Hill was its sole proprietor, as well as manager, and the corporation constituted simply the guise under which he carried on his business.
The accounting of a trustee respecting the1 administration of his trust of course must proceed according to the truth of the matter, and he will not be permitted to shield himself behind so transparent a cloak. Whether he accounts in the orphans court or in the court of chancery the account is to be dealt with on
The case, therefore, resolves itself into this: a trustee being in possession of land belonging to the trust estate, under a lease made by himself and his co-trustee, a lease good as against the cestius que trustent only because made in the ordinary course of business and for a full rental, pursuant to a course of practice to which they had impliedly assented—this trustee finds a purchaser for the property at a price materially above what he asserts to be the fair market value of the property. He assumes to concede to his estate, for the "reversion,” a sum equivalent to the alleged market value, and retains for himself the excess as compensation for the surrender of his leasehold.
It seems to me the well-established rule already adverted to— that a trustee will not be permitted to profit out of his administration of the estate-—forbids this.
The cestuis que trustent, in assenting to the practice of leasing to E. C. Hill, estopped themselves from objecting to any ordinary profit he might have made as tenant over and above a full rent paid to the estate. But the estoppel is, on grounds already mentioned, strictly limited to this.
The burden of appellants’ argument upon this point is that trustee Hill, being in possession under the lease, could not be "compelled” to give up any of his rights in favor of the estate; was “not required to sacrifice for the benefit of the estate a property right already possessed by him;” that he “might refuse to give up the leasehold at any price,” &e. This argument, however, does not meet the case before us.
Eor present purposes we may assume, without conceding, that although he knew of Dunham’s desire to purchase the property upon terms of immediate possession, and knew that the estate might reap a great advantage if he as lessee would consent to surrender the lease, Mr. Hill was still under no legal obligation to consent to its surrender prior to the expiration of his term.
Nevertheless, the fact remains that he did consent, and made such surrender one of the terms and conditions of the sale of the property to Dunham. He thereby commingled his own
His attitude at the time was, and still is, that since the sale was made to Dunham at what may be called a “fancy” price, the special profit thereon should inure to him, or what is the same thing, to his company. He proposes to concede $55,000 to the estate upon the principle of the quantum valebat, retaining the whole of the special profit to himself. In my judgment this position is wholly untenable. Since he consented to throw the leasehold into “hotch potch” with the reversion for the purposes of the sale (a sale made in solido for $75,000, for that was the essence of the transaction), I think he must now accept compensation for wliat lie has lost on the principle of the quantum valebat, and must concede the whole of the special profit to the estate of which he is trustee.
It does not lie in his mouth to say that he consented to a surrender of the lease only on terms of getting $19,500 for it. As already pointed out, a trustee’s accounting depends upon equitable principles, and it is not equitable for him to take the position that except for the prospect of an illicit bonus to accrue to himself he would not have consented to that which was otherwise beneficial to the estate. Such an attitude would be an attempt to take advantage of his own wrong.
Counsel for the appellant cites Marr v. Marr, 73 N. J. Eq. (3 Buch.) 643, where the court of errors and appeals, in the case of a director of a corporation who was also its creditor, and who obtained judgment against the company, and on execution sale bought in its property for a consideration not exceeding one-half of its value, held that the director took title subject to an option on the part of the cestui que trust to have the benefit of the purchase. In the opinion, which was prepared by me, occurs the following language (3 Buch. 650), upon which counsel relies:
“Conceding, as we do, that a director may, under such circumstances as are1 presented in the case before us, become a creditor of his corporation, it followed ex necessitate that he
I am unable to find anything in this language that supports in the least the contention of the present appellants. In the first place, I am not prepared to concede that there is the same necessity for a lessee to take a position antagonistic to his lessor that exists where the relationship is that of creditor and debtor. But without stopping to discuss this point, the fatal weakness of Mr. E. C. Hill’s position lies in this, that he did not openly assume a position antagonistic to the interests of his cestuis que trustent. He did not openly relinquish his trust pro hac vice, nor give any fair notice either to the cestuis que trustent or to his co-trustee. His policy throughout was to conceal from them the basis of his negotiations with Dunham & Company. When Mr. Case first called upon him and inquired about the property, Mr. Hill at once surmised that he was acting for the Dunham firm, and in response to his inquiry Mr.
He never permitted Howell to know what Dunham’s price for the entire property was, and Mr. Howell was in ignorance of the amount paid to Hill for the surrender of the leasehold until the price was disclosed upon the hearing in the orphans court.
Mr. Hill, while he concealed from his co-trustee and from his brothers the state of the negotiations with Dunham, at the .same time not only persisted in acting as trustee, but claimed to be acting as a careful and prudent trustee. It appears from his own evidence that during the week that intervened between the signing of the agreements of sale and their delivery, he had a conference with his brothers, on January 13th, at which he submitted a statement (Exhibit A 10) showing the income and outgo and the condition of the estate, made up as of January 1st, for the purpose of demonstrating that a sale at $55,000 would be beneficial to the estate. As he puts it:
“Three of my brothers wanted to know how much I received from the business, but I insisted that it was my own private property; that if X took scrupulous care of the estate, with my own private business i ought not to acquaint them.”
And he testifies that during the same week he went about getting written estimates (Exhibit A 11) from various persons conversant with real estate values, placing values ranging
“that they took every precaution to ascertain what in the judgment of competent men was the real value of that property, so that they might act with due deference to the interest of all concerned.”
When we remind ourselves that at the moment of securing those estimates Mr. E. C. Hill had in his pocket agreements already signed evidencing a sale of the property for $75,000, with a check for $500 to bind the bargain, and that he was concealing the facts from his co-trustee and his cestuis que trustent, so as to compel the estate to accept $55,000 out of this amount, further comment is superfluous.
Mr. Hill of course knew (the evidence shows this clearly) that Dunham & Company liad no desire to buy the leasehold separate from the reversion, and no desire to buy the reversion separate from the leasehold. He knew that what that firm wanted was a clear title to the property with immediate possession. He also knew, what is perfectly obvious from all of the evidence, that any person buying the leasehold only would not pay for it any sum remotely approximating $19,500. He knew from all the circumstances that if the property was to be sold to Dunham & Company at $75,000—a price substantially above its value in the general market if Dunham’s firm were not competing—it would be a matter of some nicety, and perhaps of difficulty, to determine how much of that price ought in fairness to go to the estate of T. C. Hill, and how much of it ought in fairness to go to himself, E. C. Hill, or his company. He knew that it was a matter of indifference to Dunham & Company how the purchase price was divided so long as the firm got a good title; and-so the separate valuations as embodied in the agreements were no evidence of the market value of the leasehold. He also knew that he himself, by reason of his interest, was disabled from acting as an impartial judge in the matter. Yet he persisted in keeping his co-trustee and his cestuis que trustent in the dark; one of the latter, indeed, be
It seems to me, therefore, absurd to contend that Mr. Hill is within the rule indicated in the passage quoted from the opinion in the Marr Case. By his conduct he rendered it impossible that the interests of the Hill estate should bo protected, as against his interests, during the conduct of the negotiations and before the sale to Dunham was consummated. It follows, as of necessity, that his share of the purchase price must in equity be limited to fair compensation for that with which he parted, and that all special profit that arose from the transaction must be given to the estate of which he was the trustee.
Counsel for tire appellants criticise the decree under review on the ground that besides sustaining the first exception to the extent of $12,000, out of the $19,500 received on the sale of the property in excess of the amount acknowledged in the trustee’s account, the court further ordered that this should be divided and distributed' among the residuary legatees named in the will of Thomas C. Hill, deceased, in the proportions provided in the will. This insistence is based upon the fact that the exceptions were filed only by Thomas C. and Raymond D. Hill, and that Harry A. Hill and Lyman P. Hill, the other brothers, have not appeared.
The appellants have failed to include in the record as presented to me any copy of the will of the testator, and I do not know that Harry A. Hill and Lyman P. Hill are among the residuary legatees. Assuming, however, that they are such residuary legatees, and in that manner benefited by the order of the orphans court which requires the $12,000 surcharged against the executors to be passed over to the residuary estate; it does not seem to me that Harry A. and Lyman P. Hill are to be prejudiced at all by the fact that they did not appear in the orphans court or in this court. If their interests are identical with those of Thomas and Rajrmond, then the latter in presenting and supporting the exceptions were litigating in behalf of their brothers as well as of themselves.
With respect to the first and third exceptions, counsel for the appellants insists that the orphans court had no jurisdiction to determine them, on the ground that in order to do so it was obliged to charge the trustees with moneys that they did not actually receive, and wras also obliged to (in effect) set aside as void the lease that had been made by the trustees to the Thomas C. Hill & Son Company.
1 have already shown that the moneys were actually received by trustee Hill, and that his responsibility to the estate arises out of his duty as trustee, although the lease be treated as valid.
The orphans court is invested by statute with full jurisdiction over the accounts of executors, administrators, guardians and trustees, with all incidental powers necessary to effectuate this jurisdiction. P. L. 1898 p. 715 § 2; p. 757 §§ 114-134; p. 765 § 138; p. 767 § 140, &c.; p. 782 § 174, &c.
It is established that the jurisdiction of that court over the subjects committed by statute to its cognizance is a general jurisdiction, similar to that of the chancery and prerogative courts, and that its authority over the accounts of trustees under wills is as ample as that of the court of chancery. Pyatt v. Pyatt, 46 N. J. Eq. (1 Dick.) 285, 288; Dunham v. Marsh, 52 N. J. Eq. (7 Dick.) 256, 261; affirmed, 52 N. J. Eq. (7 Dick.) 831.
It goes without saying that the accounts of a trustee under a will must be stated and settled on equitable principles, according to the truth and substance of the matter in controversy, and
The cases cited by counsel for the appellants upon the question of jurisdiction do not support his contention.
It is said that the orphans court cannot charge an executor or trustee upon the ground of negligence, to which point Suydam v. Bastedo, 40 N. J. Eq. (13 Stew.) 433, and Duncan v. Davison, 40 N. J. Eq. (13 Stew.) 535, are cited. In the former case Vice-Chancellor Van Fleet merely held that the court of equity had jurisdiction under the circumstances, citing, arguendo, the latter case, where Runyon, ordinary, held in this court that one execu-, tor, who had received no part of the estate, and had separately accounted, could not be charged (at least not in the orphans court) for mere negligence in allowing his co-executor to receive and hold separately the assets of the estate and to waste them by ■failure to make investments.
Woolsey’s Case, 67 N. J. Eq. (1 Robb.) 574, 579, is also cited, but the decision of this court there reported (which was rendered on appeal from the orphans court in an'accounting) was reversed by the court of errors and appeals in 68 N. J. Eq. (2 Robb.) 763, and that court required the account of the executors to be restated in a manner to give effect to an equitable estoppel arising out of the transactions between the executors and the beneficiaries. Afterwards, .an attempt being made by bill in equity to open the account as thus restated, it was held by the court of chancery, affirmed by the court of errors and appeals (Woolsey v. Woolsey, 71 N. J. Eq. (1 Buch.) 609; 72 N. J. Eq. (2 Buch.) 898), that the matter was res judicata because of the former decision; that the orphans court had as ample jurisdiction to examine into the account and deal with it on equitable principles as was possessed by the court of chancery, and that the executors might have availed themselves in the orphans court of the matters they set up in the subsequent equity suit as ground for relief. See, also, Woolsey v. Woolsey, 78 N. J. Eq. (8 Buch.) 517; affirmed, 78 N. J. Eq. (8 Buch.) 579.
The other cases cited for appellants are clearly distinguishable. In Field v. Field, 61 N. J. Eq. (16 Dick.) 154, the court of chancery took the accounting out of the hands of the orphans court
I conclude that the controversy in the case before me was clearly within the jurisdiction of the orphans court, when it arose in the course of an inquiry into the fairness of the account exhibited to that court by the appellants.
There is no defect of parties. .Even if the T. C. Hill & Son Company could be treated as having any existence for present purposes independent of Mr. E. C. Hill, the rights of the company will not be affected by any decree made herein. Moreover,, if the company is a necessary or proper parly to the controversy, the trustees cannot object on that account, for it was they who' brought the accounting before the orphans court, with plain notice, as evidence shows, that they would be called to account by the exceptants with respect to the matters that form the subject of the first exception.
I think, therefore, that the orphans court was right in holding that Mr. E. C. Hill could not retain out of the purchase-money received from Dunham any sum beyond that which would fairly compensate him for the loss he incurred through the surrender of' his leasehold and the disturbance of his business incident thereto.
It is contended by the appellants that even on the theory of compensation the order under review does not make adequate allowance. But this contention is not supported by any analysis of the evidence sufficiently exhaustive to enable me to form a satisfactory judgment upon the question; and my own examination of the evidence leads me to the view that the result reached by Judge Rellstab, upon grounds elaborately stated in his opinion, is at least not manifestly erroneous. As the learned judge points out, he made a special request for evidence to elucidate this question; yet, as the record shows, the evidence submitted was in some respects quite unsatisfactory. Upon the whole, I cannot see any sufficient ground for disturbing his finding at the instance of the appellants.
The respondents in their argument attack the credits allowed to the accountants against the $19,500, only upon the fundamental ground of the alleged invalidity of the lease from the trustees to the Hill company. Their contention in this behalf I have overruled on the ground of estoppel. They do not raise any particular question respecting the propriety of the credits allowed by Judge Rellstab to the accountants if the lease is to be taken as valid.
The opinion points out, however, that the computation that was carried into the decree contained an error to the extent of $500 in favor of the accountants. This error should be rectified in this court upon the cross-appeal of the respondents.
The only remaining question is-that exception which dealt with the claim of the accountants for an allowance of $1,375, for commissions paid to Case & Cain, the real estate brokers, through whom the property No. 11 North Broad street was sold. Upon this question I concur in the( views expressed by Judge Rellstab, and have little to add. The evidence renders it plain that Case
Thus far I ha.ve not dealt with the question whether Mr. Howell is responsible to the estate with respect to the matters involved in the first and third exceptions.
Hpon this subject the rule established by our decisions, as I understand it, is that each trustee must exercise reasonable diligence with respect to bis approbation of and acquiescence in the acts of his co-trustee. Laroe v. Douglass, 13 N. J. Eq. (2 Beas.) 308; Schenck v. Schenck, 16 N. J. Eq. (1 C. E. Gr.) 174, 184. It has been held to be the duty of one trustee to protect the trust estate from any misfeasance by his co-trustee, upon being made aware of the intended act, by obtaining an injunction against him. Crane v. Hearn, 26 N. J. Eq. (11 C. E. Gr.) 378, 381; Smith, v. Pettigrew, 34 N. J. Eq. (7 Stew.) 216, 218; Bechtold v. Read, 49 N. J. Eq. (4 Dick.) 111.
The rule that for some time obtained in this state, that where executors jointly settled their final account and the orphans court adjudged that a certain balance was due from them, such decree was by force of the statutory provision now found in P. L. 1898 p. 761 § 127, conclusive evidence as to their joint liability for the balance thus ascertained, was overruled by the court of errors and appeals in Weyman v. Thompson, 52 N. J. Eq. (7 Dick.) 263. The present accounting is not by executors as such, but by trustees ; and it is not in its nature a final accounting. It is, however, a joint accounting, and the decree thereon would seem to be prima fade evidence of the joint liability. It may therefore be reviewable on appeal in this respect.
As to the transactions that are under inquiry on the first exception, it seems to me the conduct of Mr. Howell was such as to render him, as well as his co-trustee, liable to the estate. Mr. Howell was well aware that Mr. Hill had a personal interest at stake in the conveyance of the property to Dunham & Company, and that such personal interest was antagonistic to the interests of the estate. For the very reason that Mr. Hill was thus disabled from impartially representing the estate in the matter, it was
It is plain, I think, that Mr. Howell knew there was something wrong about his co-trustee’s mode of conducting this business, and it seems to me he was so grossly negligent as to practically connive in the breach of trust.
Under these circumstances he is properly to be held liable jointly with the delinquent trustee. Beside the cases above cited, reference may be made to 28 Am. & Eng. Encycl. L. (2d ed.), tit. “Trusts dnd Trustees ” 1070, and to an interesting and exhaustive note in 11 L. R. A. (N. S.) 296, to the case of Cheever v. Ellis, 144 Mich. 477; 108 N. W. Rep. 390.
With regard to the surcharge for profit gained by E. C. Hill through his sublease to Dunham & Company (the third exception), I think Mr. Howell is likewise jointly liable with him to the trust estate. Mr. Howell’s own testimony shows that he actively participated in the making of the leases to Hill’s company, and had personal knowledge of the change that resulted in the final lease. Indeed, it is quite plain that Mr. Howell’s duty required him to take an active interest in these transactions in which his co-trustee was personally interested. Presumably, he knew of the sublease to Dunham & Company, and there is no evi
As between themselves, the question of proportionate liability is reserved by the decree, and this of course includes the order of liability. See McCartin v. Traphagen, 43 N. J. Eq. (16 Stew.) 323, 335; affirmed, McCartin v. McCartin, 45 N. J. Eq. (18 Stew.) 265.
The decree under review, so far as appealed from by the trustees, will be affirmed, with costs. Upon the cross-appeal it will be reversed by adding $500 to the surcharge under the first exception, as above noted; and upon this appeal the order will be modified with respect to its recitals, so that instead of showing that upon the sale $20,000 was paid by the purchaser to the Thomas C. Hill & Son Company, it will show that $19,500 was paid by the purchaser to the respondent Edmund C. Hill.
The respondents are entitled to their costs.
APPENDIX.
Bellstab, «T. Thomas C. Hill and Bay D. Hill, two of the sons of the late Thomas C. Hill, deceased, and beneficiaries of the last will and testament of the deceased, have filed three exceptions to the third account of Edmund C. Hill and Charles W. Howell, trustees of said will. The exceptions are as follows:
“First. On June 29th, 1905, the accountants charge themselves with the receipt of cash from S. P. Dunham proceeds of sale of 11 North Broad street $55,000 (less two and one-half per cent, if paid in cash), $53,625, whereas said trustees, these accountants, received a much larger sum of cash from said S. P. Dunham, for said premises No. 11 North Broad street, which premises belonged to the estate of Thomas C. Hill, deceased, and with which the said trustees should have charged themselves in said account, but the exceptants do not know the exact amount received by said trustees, these accountants, for the reason that said trustees, these accountants, although often requested by the exceptants so to do, have nevertheless failed and refused and still do refuse to inform the exceptants of the exact sum received by them from said S. P. Dunham for said premises No. 11 North Broad street.
“Second. For that the'said accountants have credited themselves in their said account with the sum of thirteen hundred and seventy-five dollars, commissions- paid to Case & Cain, real estate agents, for selling the*546 property of the estate; whereas, by law, the said executors and trustees were obliged to perform the service of selling without compensation to agents therefor.
“Tldrd. For that the said accountants should be charged with the sum of six hundred dollars per year, the difference between the rent for part of the premises of the estate leased to one of themselves, Rdmund C. Iiill, at two hundred dollars per year, and the price ho, said executor, obtained for himself from S. I\ Dunham & Company to whom he assigned or sublet his term therein, at eight hundred dollars per year, to wit, from January first, nineteen hundred and throe, to April thirteenth, nineteen hundred and five, namely, fourteen hundred and twenty-one dollars and sixty-seven cents.”
First. As to tne exception which challenges the payment oi $1,375, as a commission to the real estate agents for selling the testator’s property. Ify the will the trustees were authorized to sell the premises No. 11 North Broad street either at public or private sale, but with this limitation, that it should not be sold during the lifetime of the widow for less than $45,000. The property was sold for $55,000 at private sale to S. P. Dunham & Company.
It is the duty of executors to preserve the estate and administer it without unnecessary expense. In such administration they are allowed for actual expenses, and a commission as compensation for their services. Sections 128 and 129 Orphans Court act (P. L. 1898 p. 715). Such expenses, however, must not only be actual, but reasonably necessary in transacting the business of the estate. They must have been necessary or incurred for the benefit of the estate. On a sale of the testator’s land the intervention of a broker may or may not be necessary. If not necessary, the brocage paid will not be allowed, unless i t can be shown that by employing a real estate agent the estate has been benefited in a pecuniary sense to at least the amount of the expense incurred by such employment. Whether the intervention of a real estate agent in making the sale was necessary or beneficial to the estate, depends upon the facts of the particular case. The property to be sold may be of such a character, or so situated as to require the aid of one possessing greater skill or knowledge concerning real estate transaction, than that possessed by ordinary persons. In such a case the employing of such an agent would be beneficial to the estate; in fact, the failure of a trustee to avail himself of such
In passing upon such employment, the test on the question of compensating the agent out of the estate is, was it necessary or was it to the interest of the estate ? If it was, the expenses thus incurred are allowed; if not, they will be disallowed. Upon this question the burden of proof is upon the accountants. Eor New Jersey cases on this subject see 3 N. J. Dig. Ann. Div. Ex’rs & Adm’rs § 92. And for cases in other states see 7 Am. & Eng. Encycl. L. 431; 18 Cyc. 272, and cases noted in 64 L. R. A. 554.
Applying this test to the facts in this case, .the brocage paid cannot be allowed. Eor several years previous to such purchase by the firm of S. P. Dunham & Companjq it rented the rear of said premises, using it as a means of access between its properties fronting on Broad street to the north of the testator’s property, and those fronting on State street to the south thereof, the whole being used by said firm in carrying on what is known as a general department store. Such rear part of testator’s premises was first leased to said firm by the testator, later by the trustees, and last by the corporation known as the Thomas C. Hill & Son Company, which, at the time of the execution of the last lease, was the lessee of the w'hole of such premises.
From this recital it is apparent that the testator’s premises bore a peculiar relation to the premises occupied by Dunham & Company. The trustees knew the nature and character of the business of said company, the use which was being made of that portion of the testator’s premises which it had leased, and the peculiar relation which the testator’s premises bore to that occupied by said company. Under the facts in this case, the likelihood of said company’s becoming a prospective purchaser of No. 11 North Broad street was more than a mere possibility. Several years previous to the sale it had manifested a. purchasing interest in said property. Negotiations were opened by it directly with the trustees, but nothing came of them because of the company’s unwillingness to pay the minimum price fixed by the testator’s will. There was no necessity pressing upon these trustees that required an immediate sale of the premises. When, in the judgment of
Second. As to the exception seeking to charge the accountants with the sum of $1,421.67, said to be the difference in rent received by Edmund C. Hill from S. P. Dimham & Company, and that accounted for to the estate. For a number of years prior to the 1st day of April, 1900, the firm of Dunham & Company occupied the rear of the premises No. 11 North Broad street under a lease from the trustees, paying therefor as rent, $200 per annum'. During the same period the rest of said premises was occupied by a corporation known as the Thomas C. Hill & Son Company, under a lease from such trustees. On April 1st, 1900, Dunham & Company’s lease expired, and from that date the Thomas C. Hill & Son Company, under another lease from the said trustees, rented the entire premises, including that theretofore leased to Dunham & Company, paying an additional sum of $200 as rent, this addition being the same as theretofore paid by said Dunham & Company for the rear part of the premises as aforesaid. The testimony is contradictory both as to the time when Dunham & Company ceased paying rent direct to the estate and when Hill & Company took over the entire premises. The year is fixed by trustee Hill both as 1900 and 1903. This latter date is clearfy a mistake, as the lease corroborates his testimony that such time was 1900.
The accountant Edmund C. Hill was the principal stockholder of the Thomas C. Hill & Son Company. His testimony shows that out of six hundred shares of the capital stock of such company he owned all but two or ten of them. After April 1st, 1900, Dunham & Company continued to occupy the same part of the premises. This occupation for a time was without rent, but from and after January 1st, 1901, the occupation was under a lease from said Thomas C. Hill & Son Company, at a rental of $800 annually. It is this difference between the $200, the increased price paid by the Thomas C. Hill & Son Company, and the $800 which it received from Dunham & Company for the said rear part of the premises, that these exceptants seek to charge against these accountants.
The position of trustee is one of trust and confidence; and it
“It is the universal rule that, a trustee must not put himself in a position in which he will be tempted, from the influence of self-ini erest, to take advantage of his cestui que trust.”
And the late Chief-Justice Beasley, in the opinion written in that case, on this subject, said:
“The rule is one of public policy. The trustee is not prevented * * * on the ground simply 'of a supposition of actual' fraud, but because the law has established, as an inflexible rule, applicable to every emergency, that he shall not place himself in a suituation in which he will be tempted to take advantage of his cestui que trust. This is a wise public regulation, intended to protect a species of property which, otherwise, would be constantly exposed lo peculiar hazard. The trustee, therefore, must submit to this regulation, and if he does an act in violation of it, no matter how pure his intentions may be, such act is voidable at the instance of the person whom he represents. * * * The cestui que 'trust is not bound to prove that the trustee has made a bargain advantageous to himself. The fact may be so, and yet the party not have it in his power distinctly and clearly to show it.”
The moral standard thus raised by the law in the administration of trust estates may be in advance of the ethical standard deduced from the average of commercial transactions, but that is no reason why it should be lowered or abandoned because in a given case the trustee may not be guilty of moral culpability. The fact that the trustee took to himself the profit made possible because of the straiegic position the premises of the estate occupied with relation to the properties and business of Dunham & Company, using the language in the last-cited case, "was in itself a breach of trust, and it would be a violation of principle to suffer the trustee to take any gain from such misconduct.” In the presence of such a condition of facts, the query whether the trustee acted innocently is aliunde this question.
The trustees not having accounted for the extra $600 a year received from Dunham & Company during the period that trustee Hill leased said premises at that increased rental, their account must be surcharged with said difference in rental. The testimony shows .that this period began January 1st, 1901, and ended with the 'delivery of possession of the entire premises on July 1st, 1905, a period of four and a half years, making the surcharge $2,700, and not $1,421.67 as stated in the exception.
Third. As to the exception which charges a failure to account for all the consideration received on the sale of the premises No. 11 North Broad street. The reversion was sold by the trustees to S. P. Dunham & Company for the sum of $55,000, less two and a half .per cent, for cash. The actual amount received was $53,-625. At the time of the sale the purchaser was in possession of a part of the premises, as a subtenant of the Thomas C. Hill & Son Company, which had a lease from the trustees covering the entire premises, under which the lessees had the option of extending the demised term to January 1st, 1908.
The testimony shows that after several unsuccessful attempts on the part of S. P. Dunham & Company to negotiate a purchase of said premises, two written agreements to purchase were entered into on the 14th day of January, 1905. One of these was between the trustees and Dunham & Company, and was for the
The exceptants contend that the lease to the Hill company was invalid; that trustee Hill was practically the proprietor of the company, owning all the shares of its capital stock save the few necessary to give it legal existence; and that the lease to it was practically a leasing by the trustee to himself and therefore illegal. They also contend that even if a, leasing to said company were legal, the trustees could not grant a term beyond the date that a sale of the premises became necessary; and that as neither trustee Hill nor the corporation had any possessory title to sell other than that which they had illegally derived under such lease, such payment was nothing more or less than a bonus or royalty paid by the purchaser to get immediate possession, and could not be retained by said Hill or his company, but must be turned over to the estate.
The accountants, on the other hand, contend that the reversion was sold for all it was worth; that the total amount of the purchase-money received therefor had been turned into the estate and accounted for ; that the lease made to said company was within the powers of the trustees, and valid;' that the lease was the property of the said Thomas C. Hill & Son Company, and that the estate had no interest in what the lessee obtained as a consideration for the surrender of the unexpired term of the lease.
The contention here raised must be settled by the application of the principle heretofore announced and followed in determining the exception last considered.
Whether trustees, in leasing, would be justified in granting terms of several years’ duration, depends upon the terms and purposes of the trust. The cases on this subject aré not numerous. The greater number are cited and discussed in Hubbell v. Hubbell, 135 Iowa 637; 13 L. R. A. (N. S.) 496. In this case Mr. Justice Todd summarized them as follows: “First. The trustees may lease for such reasonable terms as are customary and essential to the proper care of and to procure a reasonable income from the property. Second. Such terms should not, save on showing of reasonable necessity to effectuate the purposes of the trust, extend beyond the period the trust is likely to continue. Third. Should they extend unreasonably beyond such period, the excess only will be void. Fourth. Only upon a showing of such reasonable necessity when not given such power by the instrument creating the trust will the trustees be authorized to bind the estate so as to effectually deprive those ultimately entitled thereto of the property itself.” In the management of a trust estate, it is fundamental that while the interests of all the parties are
In the present case the real estate itself was not to be turned over to the remaindermen at the conclusion of the intermediary estates. Before the remaindermen took, the properties were to be converted into cash. As already stated, the power of sale during the widow’s life was limited by the minimum price fixed, and the ■evidence leaves no doubt that for jorany years such limitation operated to prevent a sale. Leasing the properties, therefore, was the only means to derive the income required to carry out the trust provisions. The evidence shows that the income derived from the properties at the time of the testator’s death would have to be increased if all the terms of the will were to be carried out.
Confronted with the need of increased revenue, and restricted to leasing as the means of obtaining it, the direction of the lease, as well as the uses for which such premises were best adapted, were of the utmost importance. The premises had been used as a bakery, restaurant and confectionery for many years. For the purposes of the former it had been equipped with large bricked-in ovens. To a balcer, restaurateur and confectioner such equipment and good will would appeal, and a renting for such purposes was reasonably calculated to produce a greater income than if the premises were rented for any other purpose.
To secure such a tenant the duration of the lease would be an important consideration. The interests of the tenant as well as the landlord would have to be considered. To make the term defeasible on sale of the property would place the tenant at the mercy of a contingency, the happening of which would be beyond both his control and probable cognizance. No business man would submit to such an exaction, except at a low rental. A month to month rental would be out of the question, and one from year to year little better in securing the higher rent, besides being capable of extending the term beyond the time of sale. If without a lease for a reasonable number of years the rental required to meet the trustor’s purposes could not be obtained, and such a lease would do so, it would be the duty of the trustees to grant such a lease, unless by so doing the cash value of the prem
In leasing the property some time had to be fixed. It was not. fixed by the will. In view of the limitations and terms imposed by the trustor himself, and the exigencies in handling an estate of this character, it must be presumed that leases for a reasonable’ number of years were in the contemplation of the trustor.
In my opinion the leases made by the trustees, so far as their duration is concerned, are in accord with the customs and methods prevailing among prudent persons in like enterprises, and were necessary to the accomplishment of the purposes of the-trust. If in this case the lease had been made to a corporation in which neither of the trustees had any pecuniary or beneficial interest, and the trustees had sold the premises subject to the lease,, the mere fact that said tenant had, by reason of such long term lease, been able to make profit by a sale of the unexpired term, would not have justified the charge that the' trustees had abused their trust or wasted the estate. In the present case, however,. Edmund C. Hill, one of the trustees, was, as already stated, practically the lessee. He owned all the issued shares of the capital stock of the Thomas C. Hill & Son Company other than the few that were needed to effect the incorporation. The leasing by the trustees to such corporation was to all practical intents and purposes the same as if the lease had been made to the trustee Hill himself.
Because of this it is insisted that the lease was invalid. The facts in this case do not permit the application of this rule. For some years before the testator’s death he and his son Edmund (the trustee in question) had carried on +he baking, confectionery and restaurant business in copartnership, using these premises, for such purpose.
After the death of the father the son bought the interest of the deceased, and continued the business at the same place, such purchase being provided for in the articles of copartnership. The co-partnership articles indicate that the trustor contemplated the possibility of his son being the executor of his will. The will creating the trust was executed during the continuance of this copartnership. By this instrument his partner was made the sole
It was never objected to, so far as appears, by any of the cesiuis que trustent, chat one of the trustees or his corporation was a lessee, though they were fully cognizant that such was the case. The trustees have accounted several times, and until the exceptions filed to the present account no objections were made to their conduct in any respect. The failure to object to past accounts, as well as the character of the objections originally made to the allowance of the present account, evinces that the fact that one of the trustees was himself or his corporation was the lessee was not objectionable. However, the assumption by Edmund C. Hill of the dual relation of trustee and lessee, beneficial as it was to the estate at its inception, brought him within the rule that required him to make his own interests subordinate to the interests of the trust estate. In the administration of the Hill trust a sale of the premises at some time would have to be made. The time of sale was not arbitrarily fixed by the trustor. It was left to the discretion of the trustees, subject only to the aforesaid price limitation during the widow’s life. During the entire time covered by the present account the widow was alive. For many years the price fixed by the testator was prohibitive of a sale. There is nothing in the case that suggests that at the time trustee Hill assumed such dual relation he was actuated by any motive to make his interests paramount to that of the trust estate. Neither is there anything in the testimony that indicates that at the time of the making of the last lease the trustees knew, or should have known, that before the expiration of such intended lease a sale was likely. Before the execution of such lease the subject of sale had been broached by Mr. Dunham and a Mr. New,
I am of the opinion that the execution of the last lease was, under all the circumstances of the case, a proper exercise of the¡ trust power, notwithstanding that one of the trustees was the practical owner of the lease, and that during the leased term a good, and I might add, rare opportunity for sale presented itself. This conclusion, however, does not dispose of the exception now considered; for the question, when reduced to the last analysis, is not whether one of the trustees could take a lease, but rather will he be permitted to use the position gained by the lease to further his own interests. Tn the administration of a trust it is the duty of the trustee to keep himself clear of those entangling alliances which tempt to make the interests of the cestui que trust subordinate to his own. And if lie innocently enters into a relation which may conflict with that high standard of service required of trustees, it is his duty, when such conflict appears, to disassociate himself from one or the other of such relations. If he fails to do so, and it is made possible for him while occupying this dual relation to receive for himself a benefit which might have been obtained for the estate if such dual relation and interest had not existed, and he appropriates such benefit, he holds it for the estate.
The negotiations for the sale came at a time when the lease had three years to run. They were opened with trustee Hill by a representative of Dunham & Company. The peculiar situation of Dunham & Company’s properties in relation to the Hill property, and the business needs of the Dunhams for more room, have already been stated in considering the second exception, and need nor now be repeated. It is sufficient here to say that immediate possession, with the taking over of the title, was undoubtedly a controlling factor in influencing the purchaser to pay the price that was paid to secure the property.
It was at the time of the negotiations for sale that the dual relation occupied by the trustee became conflicting. At this point
Trustee Hill was now in a position where personal interest vied with duty. Human nature is not constituted to meet such a strain, and it is for that reason that the courts insist that a trustee must keep himself clear of such dual or antagonistic relations, or clear himself of them when they become inevitable.
From the evidence it appears that trustee Hill himself recognized the need of abstaining from fixing the price of the real estate, for he called in his co-trustee and asked him to ascertain what the real estate was worth, before a price should be named to the prospective purchaser.
This, clearly, it xvas his duty to do; and probably nothing more would have been required of him had such prospective purchaser not required that with the title he should receive immediate possession. The price named by his co-trustee after consulting with men having knowledge of the general conditions affecting values of properties in the same neighborhood was the highest given him by any such persons. It is to be noted that this price is $10,-000 more than the minimum fixed by the trustor, and considerably more than that above the highest price that had theretofore been offered for such premises.
Candor compels the admission that as far as general conditions affecting the value of properties in that neighborhood were concerned, the price named was a good one for the estate. But the estate was entitled to not only what a purchaser would give, having no special reason for buying, but what one having, special needs to meet was willing to give, if known to the trustees. Such special needs existed in this case, and trustee Hill knew of them. In submitting the figures obtained from his co-trustee, to the agent of Dunham & Company, he stated that the property would be sold subject to the lease, and that if it wanted to buy the lease he would be willing to enter into negotiations for that also. The purchaser would not take the property unless it was cleared of the lease.
Confronted with this ultimatum the plain duty of trustee Hill was to acquaint his co-trustee with all the facts in his knowledge hearing xxpon the prospective purchaser’s needs for this par
There is no contention that Dunham & Company would have paid $20,000 for a lease having less than three years to run and a bricked-in oven of doubtful value, without also obtaining the re
This he did not do, and his whole conduct in negotiating the price of his surrender of the lease and his subsequent refusal to tell the cestuis- que trustent the amount he was getting for such surrender, is in accord with his present insistment that that was a matter which concerned none but himself. In this insistment, as well as in his attitude toward his co-trustee, Mr. Hill erred. He may have believed that $55,000 was a fair price for the reversion and that if he got that for the estate he was entitled to get all he could for his lease. His sincerity or motive is not involved. His self-interest in the transaction made him legally incapable to act as a judge. In Creveling v. Fritts, 34 N. J. Eq. (7 Stew.) 134, 136, Vice-Chancellor Van Fleet, on the subject of the right of an executor to buy the property of the estate, said:
“The situation of the trustee gives him an opportunity of knowing the value of the property, and also the necessities and straits of the cestui que trust, and as he acquires that knowledge at the expense of the cestui que trust, the law requires him to use it for the benefit of the cestui que trust, and not to his harm.
“The rule is now universal, that, no matter how fair the purchase by the trustee may be, nor how ample the consideration he
In the cited case the attack on the executor’s conduct related to the purchase by them’of their testator’s property. The question decided, however, is indistinguishable in principle from that now being considered. All that was said in that case, with but slight paraphrasing, is as pertinent in the present case as in that Mr. Hill should not have entered upon the negotiations with Dunham & Company at all. Or if, by his dual relation to the subject-matter, it became necessary or advisable that he should act, he should have called in not only his co-trustee but the cestui que irustent and frankly laid the whole matter before them, insisting that they should act with him throughout the entire negotiations.
Such knowledge would have put the co-trustee and the cestuis que trustent to the inquiry whether the estate was getting its due share of the $75,000 which Dunham & Company was ready to pay
This conclusion is in harmony with the decisions defining the duties of trustees in matters where their personal interest come into conflict with the interests of the estate. In addition to the New Jersey cases already cited, see Wyckoff v. Wyckoff, 44 N. J. Eq. (17 Stew.) 56; Blauvelt v. Ackerman, 20 W N. J. Eq. (5 C. E. Gr.) 141; Trenton Banking Co. v. Woodruff, 2 N. J. Eq. (1 Gr. Ch.) 117; Ellicott v. Chamberlain, 38 N. J. Eq. (11 Stew.) 604; McGulloch v. Tomkins, 62 N. J. Eq. (17 Dick.) 262.
For other cases, see Jarrett v. Johnson, 116 Ill. App. 592; Sloo v. Law, 3 Blatchf. C. C. 459; Farley v. St. Paul Railway Co., 4 McCra. 138; Mason v. Martin, 4 Md. 124; Parshall's Appeal, 65 Pa. St. 224; Cogbill v. Boyd, 77 Va. 450; Ames v. Downing, 1 Bradf. (N. Y.) 321; Manning v. Manning, 1 Johns. Ch. 527; Sherman v. White, 62 Ill. App. 271; Woolf v. Barnes, 93 N. Y. Supp. 219; Ex parte Bennett, 10 Ves. Ch. 381; Docker v. Somes, 2 Myl. & K. 655; Gubbins v. Creed, 2 Sch. & L. 212; Bentley v. Craven, 18 Beav. 75, Ex parte Andrews, 2 Rose B. Cas. 410; Hamilton v. Wright, 9 Cl. & F. 111; Middleton v. Spicer, 1 Brown Ch. C. 186; Ellis v. Barker, L. R. 7 Ch. 104; Williams v. Stevens, L. R. 1 P. C. App. 352; Sugden v. Crossland, 3 Sm. & G. 192; Townend v. Townend, 1 Gif. 201; Armstrong v. Armstrong, 7 L. R. Ir. Ch. 207; Keech v. Sanford, 3 Eq. Cas. Abr. 741.
Trustee Hill being entitled only to a reimbursement or compensation for the losses actually incurred by him in surrendering his lease and removal from the premises, the only question is, how
After both sides had rested, the court having taken the matter under consideration, advised both parties that the testimony in certain particulars, including value of goods used by the Hill company in the business, was too meagre to assist the court in ascertaining the amount to which the company was entitled on surrender of its lease. More testimony was thereupon furnished, with but little better results.
The barden on this inquiry was on the accountant, and if the figures accepted by the court in the discharge of this duty are less than they should be, the blame rests on the accountant, for failure to prove the extent of the loss incurred.
How much will it take to adequately reimburse this company for surrendering its lease and removing from the premises? What is the value of the leasehold? It cost the lessee $2,000 a year. He did not lease another place and remove his business there. Therefore, the cost of a lease at another place as satisfactory from a business standpoint is beyond our cognizance. He abandoned all the departments other than the baking business, selling, with few and trifling exceptions, the stock and trade fixtures employed therein. He retained and removed the baking plant to a place purchased by him, where he has since conducted it on an enlarged scale, using additional capital for such purpose.
In the matter of profits the company seems to have lost nothing by abandoning some part of its business and removing the other to another place. The testimony shows that the baking business was the most profitable, and that the yearly profits of all the company’s business for the last three years before the agreement to sell was made, averaged $6,000. This seems to have been the profit of the baking business at the new place at the beginning, becoming larger thereafter year by year, reaching as high as $10,-000 the last year. The testimony of trustee Hill is that the bakery at the new place netted between $5,000 and $7,000 the first year, and between $10,000 and $12,000 the last year. While these profits for this business were -undoubtedly due in part to the increased capital employed in its prosecution, it does not appear how much is due to that and how much to the energy and skill
“I told him (Mr. Dunham) that I thought that $30,000 would be a fair price to pay us for the vacation of the lease, which at the profit we had been making at $6,000 a year was $18,000, and that the property we had there he could have himself, and everything except the books.”
At this time his purpose was to sell to Dunham & Company all his stock, good will, &e., and the inference is that $12,000 represented his idea of the value of the stock and trade fixtures. It is also to be noted that at the end of the negotiations, the price to be paid to Hill k Company was $20,000, and that nothing but the surrender of the lease passed to Dunham & Company for said sum. True, trustee Hill testified that Dunham & Company had the right to take any of the goods it wanted. The written agreement states otherwise. It is unbelievable that as sagacious a business man as Mr. Dunham would not have availed himself of the opportunity of taking the goods which subsequently netted Mr. Hill several thousands of dollars, if, under the agreement, he was entitled thereto. The fact that Dunham & Company had no use for such goods in its business would not prevent its selling them, and thus reducing by the amount realized therefrom the sum they had agreed to pay to get rid of Hill k Company’s rights in the premises. The conclusion is irresistible that the written agreement requiring Hill & Company to remove all goods from the premises gives the true situation, and the further inference is justified that $10,000, the difference between the sum asked for by Hill & Company when a sale of all was contemplated,‘and
In other parts of h.is testimony he gave an estimate of from $6,000 to $10,000 as the cost to, replace the goods that Dunham & Company was at liberty to take. It is not clear just what lines of goods Mr. Hill here intended to include, but his leeway is so great that the estimate is worthless in ascertaining values.
Under the stress of such evidence and manifest self-interest, any estimate of the value of the goods employed in Hill & Company’s business is largely a guess. Just why trustee Hill should leave this branch of the inquiry so barren of definite information, in view of the intimation given by the court at the time it asked for additional facts, is difficult to understand, except on the theory that it was to his interest to so leave it. If the actual value of the goods, irrespective of their being a part of a going and profitable business, were the question to be determined, a much less sum than $10,000 would be accepted, but as the good will of a profitable business has a value, it is but just, and not at all illogical, to take such increment into consideration in fixing the value of the goods with which it is necessarily connected, when, as in a case like the one now being considered, such increment will depreciate in value, if it does not become entirely valueless, upon a dismantling of a plant in the profitable running of which such increment had its origin and development. I haye, therefore, concluded to accept the sum of $10,000 as a justifiable estimate of the value of such goods to such company at the time trustee Hill agreed to surrender the lease. The evidence shows that when the dismantling took place some of the goods were taken by Dunham & Company, others by Hill & Company to its new place of business, and the remainder was sold. Dunham & Company took some of the show cases and candy, fixtures, but just how many is not proven; however, the inference that the value thereof was trifling, is justified, and I have estimated this value at $200. Hill & Company took with it the horses, delivery wagons and some of the baking equipment. Trustee Hill estimated the value of the baking equipment, outside of the horses, &c.,’at about $1,000. No value is placed on the excepted equip
On this basis accountant Hill should be charged with $12,500 of the $19,500 received of Dunham & Company on the surrender of the lease, &c., in addition to that already accounted for, as per the following tabulation:
Dr.
Amount received from Dunham & Company.... $19,500 00
Value of goods retained, part of baking equipment, horses, wagons, &c.................. 2,200 00
Cash received for goods sold.................. 3,200 00
Value of entire equipment as a going concern.. $10,000 00
Loss during last six months’ business.......... 2,000 00
Amount paid tenant to surrender sub-lease.... 200 00
Estimated value of goods taken by Dunham & Company ................................ 200 00
$12,400 00
Amount to be surcharged..............$12,500 00
The conclusions filed, by an error, make the amount of the surcharge $12,000 instead of as above. Such conclusion, as well as the decree founded thereon, should be corrected in this particular.
The question as to the proportionate share of such surcharge to he borne by each of the accountants, is reserved for future determination, either having leave to apply to fix said share.
