79 N.J. Eq. 247 | New York Court of Chancery | 1911
This suit is an administration suit, the hill being filed by Richard C. Jenkinson, the surviving executor and trustee of George B. Jenkinson, deceased, for an accounting- and settlement in this court. The questions now to be determined relate to the interest of George B. Jenkinson, Jr., one of the children of the testator, in the residue of the estate, and the settlement of the priorities of defendants who claim as assignees of his share under assignments either of specified portions of the share or by way of charge or mortgage upon the share. A preliminary question
The Fidelity Trust Company, an assignee claiming under an assignment from the legatee, admitted to be prior to the executor's claim as well as prior to all of the other assignees above named, except L. F. Eobertson & Sons, is also a defendant to the bill, and by an order in the cause, made by consent of all the other assignees, except L. F. Eobertson & Sons, payment of their claim was made by the executor.
As to the preliminary question, the amount of George B.’s share, for which complainant as executor is accountable to them, it is contended that a sum of $5,000, which George B., Jr., received from the executor out of the funds of the estate, should not be deducted before paying the portions of the estate under the assignments. The facts bearing upon this issue, which is one partly of fact and partly of law, are as follows:
The testator made several specific devises and bequests, none of which are now material to be considered, except the third, eleventh, twelfth and thirteenth clauses. In the third clause of the will he directed his executors to invest or set apart from any investments he might hold at his death, a sum sufficient to pay to his wife $7,500 yearly during her life, and in lieu of dower. On her death these investments are, by the twelfth clause, to form part of the residuary estate. The widow, who is still living, accepted the provisions of the will, and has received the yearly payments as directed. The executors have not, however, set aside investments to pay the annuity, but by the consent of the residuary legatees, who were also the legatees of the excess over $7,500 of the income on the investment directed to be set apart, have
The three executors were authorized by the eleventh clause to sell all real estate, the proceeds of sale to form part of the residuary estate.
The residuary clause of the will is as follows:
“Thirteenth. I give, devise and bequeath all the rest and residue of my estate, including both real and personal (subject to the power of sale hereinbefore given), to my said son Bichard G. Jenkinson, and my son-in-law, James T. Bali, and the survivor of them, in trust, nevertheless, and to and upon the uses and trusts following, that is to say, to invest and to keep invested my personal estate, hereby giving' them full power to charge investments and reinvest from time to time in their discretion, and to take charge of and let my real estate until sold, and until such time to keep the same sufficiently insured and to make such necessary repairs thereto as they may think requisite, and to pay all taxes and charges against the same out of the income of my residuary estate, and then, first, to pay to each of my six children—Eliza J. Holmes, Charlotte A. Smyth, Fanny J. Taylor, George B. Jenkinson, Junior, Eleanor Jenkinson and Harry L. Jenkinson—the interest of thirty thousand dollars, at the rate of six per centum per annum in half yearly payments for the period of ten years after my decease, or until the decease of my said wife, if that shall occur within that time; and at the end of that time, or upon the decease of my said wife, if that shall first occur, to pay to each of my said six children the principal sum of thirty thousand dollars. If any of them shall have died leaving lawful issue, then to pay to such issue the share the one or ones so dying would have received if living; and if any of them shall so die without leaving issue, leaving a husband or wife surviving, then to pay to such husband or wife the sum of ten thousand dollars, and the balance of twenty thousand dollars of any such share to pay over to my surviving children and the issue of them who may have died, in equal shares, such issue to take the parent’s share! In case any of my said six children shall die without leaving issue, or husband or wife then living, the share of such one to he paid*251 over as directed by tbe next subdivision of this clause; and second, to pay over the balance of my said residuary estate at that time, in equal shares, to all my children then living, and the issue, if any, of such of them as may have then died, such issue to take the share the parent would have taken if then living.”
The testator died on January 30th, 1896, leaving a widow and eight children, all of whom are living and are parties to the suit. The widow was one of the three executors named by the testator, the complainant and James T. Ball, a son-in-law, being the other two, and tire persons named as trustees in the residuary clause. The widow renounced the appointment of executrix, and James T. Ball died in January, 1898. The complainant, as surviving executor, and under the power of sale given by the will, has sold real estate as well before as after the expiration of the ten years fixed for the time of payment of the principal sums of $30,000 to the six of the eight children, to whom tire balance of the residuary estate is to be paid, under the second subdivision of the thirteenth clause.
At the filing of the bill (January 28th, 1908) the executor had in hand as George’s share the principal sum of the legacy $30,000, and the additional amount of $1,971.49, from which the executor claims a deduction or payment of $5,000 received by the legatee from the funds of the estate between J airuary 23d and April 30th, 1904, besides interest. Up to January 30th, 1906, when the legacy of $30,000 was payable under the residuary clause, and up to the filing of the bill, the executor had received $112,950 as proceeds of sale of real estate, which under the will fell into the residue, and to one-eighth of which George is entitled. Since filing the bill the executor has received from proceeds of sales of real estate made up to June, 1911, the additional sum of about $171,877.50, to one-eighth of which George would be entitled. On October 14th, 1909, an order was made by consent in writing of all parties in the cause except L. F. Robertson & Sons, which, after reciting that the complainant had in his hands funds available to be distributed out of the share of George B. in excess of $60,000, and that the total claim of L. F. Robertson & Sons with interest would not exceed $7,000, directed the executor (after reserving from the funds in his hands distributable to the share of George
The right of the complainant to retain the claim of the estate is disputed by the New York Finance Company and Banes, and the priority of the L: F. Eobertson & Sons claim, first in order of time, but last in order of notice, is disputed by all the subsequent assignees, because of this failure to give notice and because their respective assignments were taken in good faith and for value, and without notice of the prior assignments. As between the assignees subsequent in date to Eobertson & Sons, there is no dispute in relation to their respective priorities, which are determined both by the order of time as (veil as notice.
First. As to the right of the executor to first deduct from George’s share the amount of $5,000 received from the executor and for which he holds George’s note dated January 22d, 1904, payable on demand to the order of the estate, with interest at five per cent. As collateral security for the payment of this note the executor received an assignment of seventy-five shares of the capital stock of the corporation T. B. Peddie & Company, which has been declared insolvent since the filing of the bill. Nothing will be realized on the stock. It is contended on behalf of Banes that the transaction was an advancement to George on account of his share of the estate, but upon the evidence I conclude, that it, was not an advancement, but was a loan by the executor.
It is also contended that if the transaction was a lo.an, it was a loan io George upon the personal security of his note, with collateral, and that there is therefore no right of retention from George’s share in the funds of the estate as against his subsequent assignees. As the loan was made without notice of the previous assignment to L. F. Eobertson & Sons, and was in fact,, made previous to all of the other assignments, the general rule, that assignments of equitable interests in a fund held by the trustee are subject to the equities of the trustee arising before notice of the assignment, would, in the absence of special equities, be of itself decisive as to the right of the executor to retain
An assignee from a cestui que trust who is a debtor to the estate cannot claim the beneficial interest without discharging the debt. 2 Lew. Trusts *60-6. The right of the estate to be protected against breaches of trust by the trustee is enforced even to the extent of holding the assignment by a legatee who is also the trustee, to be subject to the liability of the trustee to make good all breaches of trust, as well after as before the assignment. Morris v. Livil (1842), 1 Y. & C. Eng. Ch. 380; Knapman v. Wreford (1880, C. A.), 18 Ch. Div. 300. As the
The finance company and Banes, its. assignee, claim, however, that special equities exist between them and the executor, which entitle them to insist that as against them, and because of the circumstances under which the assignments to them were made, the executor is estopped from claiming the right to retain, as against either the first assignment now held by Banes, or the second assignment. The facts relied on to sustain this claim of estoppel are these: George B. applied to the finance company to raise money by sale of a portion of his share in the estate. The attorney for the finance company desired a statement from the trustee, as to assignments of which he had notice, and upon George, the legatee, stating that such inquiries, if made by him (the attorney for-the finance company), would not procure the desired information, the attorney suggested that the legatee himself procure-the information and turn it over to the finance company. George B. accordingly procured from the trustee the following letter to himself, which he afterwards delivered to the finance company:
“Dec. 1, 1904.
“ill;-. George B. Jenkinson, 2nd, South Orange, N. J.:
“Dear Sir—If it will be of any assistance to you and help you pay off the Bernheim claim and settle with the Newark Banking- Company, I am very willing to state that to the best of my knowledge and belief the two assignments you made to the Fidelity Trust Company and the National Banking Company respectively are the only ones of which I have received a notice in writing, and beyond that the only other papers I recall affecting your interest in the estate, are those in connection with the suit of the Hamilton National Bank, by which I am restrained from paying you the annuity.
“Yours truly,
“It. C. Jenkinson, Ear.”
What statements were made by George B. to the trustee, upon the faith of which the letter was obtained, does not appear, but, as bearing on the question of estoppel, it will be noticed that in this letter there was no reference to the amount of any assignment proposed to be made, and it would appear from this letter that the executor supposed the money proposed to be procured by
Considering this claim purely on the basis of the principles of estoppel, my view would be that the letter, the only .act of the executor on which the estoppel is based, should not be held to estop him from setting up the claim for payment of the amount then due from him.
Before giving the letter any such effect, it should be shown, I think, that the attention of the executor was directed to the matter of the amount of tire assignment to be made. This might have called to his attention the question of the effect of it on the claim of his estate, which seems to have escaped his attention and at the moment was not recalled “as a paper affecting George’s interest in the estate.” The Bernheinr claim, for which the money was to be raised, was under $7,000, and there was no apparent reason for referring to the estate’s claim for $5,000, even if it was in the executor’s mind. But as the letter itself shows, the claim on the note, whether from carelessness or want of recollection, was not at the time considered as a paper or notice of the kind about which information was desired.
As to the second assignment made in March, there can certainly be no basis for holding the executor to be estopped. Had
Second. I come now to the principal question, that relating to the priorities as between the assignees of the fund.
In its general aspect, the question involved is that of priority between successive assignees of a legacy or equitable interest, when the assignee prior in point of time lias omitted to give no
As to these, also, while there is some difference of opinion, the clear weight of authority is, I think, that the prior assignment, so far as the assignor and such adverse claimants under him are concerned, is complete and effective without notice, and the claimant by the subsequent assignment, whose estate is necessarily, by the circumstances of its creation, only that of assignor, is also subject to the prior assignment. This is the rule settled in our courts. Board of Education v. Duparquet (Vice-Chancellor Pitney, 1892), 50 N. J. Eq. (5 Dick.) 234, 242; approved in Miller v. Stockton (Court of Errors and Appeals, 1905), 64 N. J. Law (35 Vr.) 614, 622; Cogan v. Conover Manufacturing Co. (Court of Errors and Appeals, 1905), 69 N. J. Eq. (3 Robb.) 809.
The real difference of opinion in the courts arises when the subsequent assignees claim to stand upon a footing which gives rise to the application of what is claimed to be a special and peculiar equitable principle, as against the prior assignee who has failed to give notice.
The special equity now alleged to exist against the prior assignee is one claimed to arise by reason of his conduct in failing to give notice, and in the consideration of the question those cases in which some further special circumstances existed giving rise to equities in favor of the subsequent assignee, other than the mere failure to give notice, may be treated as not decisions on the question in hand.
The division of opinion among courts and judges as to whether any special equity arises from this mere failure to give
• In this state of the authorities, I shall not examine any of the cases in detail, except the English cases, where the doctrine of notice originates, and those in our own courts. Counsel upon both sides rely upon decisions of our own courts as settling the question in favor of their respective contentions and an examination of these at some length will therefore be necessary.
In the leading English case, Dearle v. Hall (Plumer, M. R., 1827), 3 Russ. 1, where the doctrine of priority according to notice was first laid down, the grounds were stated, and one of these grounds (for two or three are given) is the ground upon which the rule has been finally rested in England and those courts which adopt the same rule. In this case, set out fully in 2 Pom. Eq. Jur. § 695, note 1, the beneficiary of a sum of money invested in the name of trustees assigned it for value to the complainant, who gave no notice of the assignment to the trustee. Subsequently the beneficiary assigned his interest in the fund to another purchaser, who purchased in good faith
“It is impossible, I think, to read these judgments without seeing that the leading consideration Avhich induced the court to lay down the rule that he aaIio gives notice has a better equitable right than a prior encumbrancer aaülo has given no notice, was this, that any other decision would facilitate fraud bt the cestui que trust and cause loss to those who might have used every precaution that was possible to ascertain, before parting with their money, that the title they were taking was a valid one, and who might have done everything they could to render that title secure. It is true that reference Avas made to the fact that the party giving notice had done all that AAras necessary to perfect his title, whilst he who had not given notice had not perfected it. But even here, I think the point upon which stress was laid was this, that the party giving notice had taken the property out of the apparent ownership and possession of the cestui que trust."
A case in the house of lords subsequent to Dearie v. Hall was Foster v. Cockerell (1835), 3 Cl. & F. 456, and this was referred to as haying finally settled the rule that as to choses in action and such interests in land as can only reach the beneficiary in the shape of money, priority of notice determines the title. And as to this case, it is said that Lord Lyndhurst, in delivering the opinion, ■ puts in the forefront as the ground of the decision in Dearle v. Hall, the apparent possession left in the cestui que trust Avhich enables him to commit a fraud. Lord Macnaughtcn in examining Dearle v. Hall, says that the master of the rolls on the first hearing relied principally on the ground of the fault of the first assignor in not giving notice, Avhich caused the mischief complained of, but that in the second hearing this consideration was fortified by others of more or
Ward v. Duncombe seems to have settled that the basis of the rule ,in Dearle v. Hall was the consideration of the effect of negligence or default in the prior assignee in not giving notice to the trustee. This neglect left the assignor as still the' apparent owner of the fund, which might be used by him to perpetuate a fraud on subsequent purchasers or encumbrancers which they would have no means of protecting themselves against, and the fraud if committed was thus due to neglect. This is the substantial ground, I think, now adopted by all the courts which adhere to the rule as its true equitable basis, the other considerations mentioned in Dearle v. Hall not being relied on to any extent, and the difficulties and complications resulting from the priority being put on the grounds of notice as necessar}'- for perfection of title, or of constituting the trustee a trustee for the assignor, probably make these grounds untenable. To the learned discussions in the cases I will add only one suggestion in favor of the English rule. The assignability of equitable interests is a purely equitable doctrine and seems to be based on the view that free transfer ought to be an essential right of the owner of equitable interests. The value of this transferable right will be substantially impaired in the hands of the transferrer unless the transferee can be protected by the exercise on his part of reasonable and ordinary diligence. If such transfer is to be subject to prior transfers of which neither the trustee nor subsequent transferee has notice, and of which the assignor is the only party to the transaction who has knowledge, the purchaser of the interest must for his protection against prior transfers depend wholly on the honesty of the
Several decisions in this state are relied on as giving priority to successive assignments in order of time, but on examination I think it will be found that the status now in question was not directly or fairly involved. Kennedy, Exr. of Luse, v. Parke (1864), 17 N. J. Eq. (2 C. E. Gr.) 415, is usually cited as first establishing this rule. This was a petition in the orphans court, filed against the executor under the statute for the recovery of a legacy. The petition was filed by an assignee of the,'legacy, and the assignee and the executors were the sole parties to the actioñ brought under the statute of 1855. P. L. 342 § 17; Gen. Stat. 2393, ¶ 165. The defence set up by the executor was payment of the legacy to a subsequent assignee without notice,of the prior assignment. It was found by Ordinary Green (at p. 418) that the money was not in fact paid by the executor to the subsequent assignee until after notice. The learned ordinary in reference to the validity of the defence, if made out, said (at p. 417) :
“It was held by the chancellor in King v. Berry (Chancellor Vroom, 1834), 3 N. J. Eq. (2 Gr. Ch.) 54, that a claim to a legacy is essentially an equitable, not a legal claim, and that the assignment must pass the whole right of the assignor; that there does not remain in the assignor after the assignment of a legacy, a distinct subsisting right, capable of being assigned, but that the entire interest passes. Becognizing this principle, it is difficult to perceive how- any interest, legal or equitable, could have passed by the second assignment, or how the payment of the legacy to a party having neither a legal nor equitable title to it can constitute a .good defence to the action.”
“.But no notice to him was required; he took them subject to all equities in this respect, that the title acquired by complainant was such as his assignor had at the time, that is, subject to the pledge, and that by the payment of the debt for which it Was pledged the mortgagor stood in the place of the pledgee, as her assignee in equity, and the complainant had no right in law or equity to any benefit f com the payment.”
If the ease be considered as one involving the priorities of successive assignees of a mortgage as'an equitable interest or lien in lands, then the doctrine of notice has no application. 2 Pom. Eq. Jur. §§ 685, 713. There was no discussion whatever of the question now involved nor any reference to authorities, nor was it necessary for the decision, which is plainly to be supported upon the ground of notice and bad faith in the second-assignee, if the case be treated as the assignment of a chose in action. The second mortgagee had constructive notice of the prior equitable assignment. Spencer v. Clarke (Vice-Chancellor Hall, 1878), 9 Ch. Div. 143; In re Werniger’s Policy (Mr. Justice Porter, 1910), 2 Ch. 291.
The other cases relied on are: Board of Education v. Duparcquet (Vice-Chancellor Pitney, 1892), 50 N. J. Eq. (5 Dick.) 234; Miller v. Stockton (Court of Errors and Appeals, 1900), 64 N. J. Law (35 Vr.) 614, 622; Cogan v. Conover Manufacturing Co. (Vice-Chancellor Garrison, 1905), 69 N. J. Eq. (3 Robb.) 358, 372; on appeal, Ibid. 811; United States Fidelity and Guarantee Co. v. Newark (Vice-Chancellor Howell, 1909), 76 N. J. Eq. (6 Buch.) 230.
On the other hand, several decisions are relied on by counsel as affirming the rale of priority according to notice. These all relate to the successive assignments of choses in action, which, so far as requiring notice is concerned, are to be treated as standing upon the same footing as the assignments of equitable interests in money in the hands of trustees. Both are personal equitable rights of action, as distinguished from liens and other equitable interests in lands. 2 Pom. Eq. Jur. § 713. The leading case is Superintendent of Public Schools v. Health (1862), 15 N. J. Eq. (2 McCart.) 22. In this case, Chancellor Green settled the rights of claimants to an amount due on a building contract by the complainant, which was paid into court on an interpleader. The question principally discussed here was as to the preference claimed between certain classes of creditors—first, those claiming the fund under notices given under the Mechanics’ Lien law, and second, those claiming under orders for payment out of the fund given by the debtor, and as to the latter class, also third, the question was raised whether preference should be given to those creditors whose orders were given for debts incurred on the building, over those whose debts were contracted on other accounts. The decision was that there was no preference of either one of these three classes over the other, that all the claimants, in whatever class, were to be paid according to the priority of their respective orders or notices. The direction is (at p. 30), ‘'“'Each creditor is entitled to be paid in the order in which his notice or order was presented to the complainant.” As to the claimants under lien law notices, the statute expressly requires notice to the owner in order to complete the lien, but as to the priorities under orders, the general rules of equity control. The priority as between claimants under orders does not seem to have been taken to depend on any circumstances in the case except the respective dates of notice, and it may have been, as suggested by
Considering the question as here res nova and to be settled on principle, I think the sound equitable rule is that' notice by a prior assignee to the trustee is necessary in order to protect him1 against a subsequent assignee who is a purchaser for value in good faith and without notice. The equitable ground upon which the rule rests is the one adopted finally and after much discussion, viz., that the failure of the prior assignee to give notice is a negligence which leaves the assignor in a position where by his apparent ownership he is able to deal with the property in a manner to defraud or injure any subsequent purchaser notwithstanding all due inquiry made.
It has not been disputed in the case that all of the subsequent assignees were purchasers for value and without notice of the previous assignment to L. F. Robertson & Sons.
On behalf of the defendant -Bernheim, two further objections were raised to the claim of L. F. Robertson & Sons. First, that their assignment was not an assignment effecting a present transfer of an interest in the fund, but a mere order to pay a specific sum of money out of that interest, and which was not effective until presented to the executor or trustee of the fund. This objection is not well founded in fact, as the document contains the clause: “I hereby assign, quitclaim and release so much of my interest in said estate as may be necessary to pay said claim of $4,000 with any accrued interest.” This clause follows the order on the estate to pay. As appears by the proofs this assignment was executed and delivered to the assignee on May 14th, 1901. It was, however, then dated “Feb. 1, 1906,” being the date on which George’s $30,000 legacy and his share in the estate was payable if he survived. The assignee received at the same time as further security policies of insurances on George’s life. The document as an assignment was intended to be effective from the date of delivery, but the payment was not to be made until the date fixed by the order.
A further objection was made that the present defendant “L. F. Robertson & Sons;” a corporation subsequently formed, had not shown title to the assignment which was made to the firm of “L. F. Robertson & Sons.” No written assignment from the firm to the corporation has been produced, but due proof has been given that it was made, and cannot now be found, and that this claim against George B. Jenkinson was part of the assets of the firm, in fact taken over by the corporation. An assignment of the claim against Jenkinson is valid by a delivery of the evidences of debt without writing, and the security would in equity follow the claim.