Case Name: Matter of the Judicial Settlement of the Accounts of W. H. Rowe, as Trustee, etc., under the Will of A. D. Rowe, Deceased
Court: New York Surrogate's Court
Jurisdiction: New York
Decision Date: 1903-12
Citations: 4 Mills Surr. 131
Docket Number: 
Parties: Matter of the Judicial Settlement of the Accounts of W. H. Rowe, as Trustee, etc., under the Will of A. D. Rowe, Deceased.
Judges: 
Reporter: Mills' Surrogate's Reports
Volume: 4
Pages: 131–137

Head Matter:
Matter of the Judicial Settlement of the Accounts of W. H. Rowe, as Trustee, etc., under the Will of A. D. Rowe, Deceased.
(Surrogate's Court, Rensselaer County,
December, 1903.)
Tbust Accounting—Interest on Loans Made by a Trustee to a Corporation in Which He was a Stockholder—Bequest in Lieu of Commissions — Legal Services Apportioned Between Estates Benefited.
a trustee who for some years loans money of his trust to a solvent corporation of which he is a stockholder—an unauthorized transaction—should not he held liable for interest on the loans upon the basis of their amount as compared with the total capital stock of the corporation and its earnings as shown by the dividends made and surplus accumulated during the time of the loans, nor should he be held liable for more than the interest he actually received on them, where the rate of interest he charged the corporation was that at which it was borrowing and was a rate advantageous to the beneficiaries, where he has accounted for the whole sum of interest received, where he entered the loans on his books as loans, where he at all times kept the loans as loans, and where there is no proof of what profit if any he as stockholder made out of them.
A bequest to an executor and trustee of a sum of money “to be by him received in full of all commissions, personal expenses, disbursements and charges of every kind relating to the full and final settlement of my estate,” when accepted by him, precludes him from commissions, etc., either in the capacity of executor or that of trustee.
Where a substituted trustee, accounting for the acts of a prior deceased trustee, was also executor of that trustee the court divided between the estates a bill of his attorneys for services which were beneficial to both estates.
Proceedings upon the judicial settlement of the accounts of a trustee.
Shaw, Bailey & Murphy, for petitioners; T. S. Fagan, for life beneficiary; J. K. Long, special guardian for infants.

Opinion:
Heaton, S.
Accounting by W. H. Rowe, Jr., as executor of W. H. Rowe, deceased, who was trustee under the will of A. D. Rowe, deceased. Objections to the account have been tried. W. H. Rowe, the trustee named in the will of A. D. Rowe, died April 21, 1898, his accounts as such trustee had been settled in appropriate proceedings in May, 1892, .and the account now filed covers the period between those dates.
The decree of May, 1892, showed a balance of cash in hands of the trustee of $19,446.57, to be held as a trust fund under the fourth subdivision of the will during the life of Camilla R. Strickland (now Lewis) and directed a final distribution of a like sum held under the second subdivision in trust during the life of the widow who had just previously died.
It appears now that prior to that time and on March 19, 1889-, said W. H. Rowe had assigned to himself as trustee for Mrs. Strickland the O'Brien mortgage of $4,000, being a first lien on a farm in Washington county, the purchase price of which appears- from the deeds thereof to have been $6,270, in 1869. The said mortgage was foreclosed by the trustee in April, 1898, and the property brought on such sale $2,000, leaving a loss of upwards of $2,000. The account as filed shows that this loss with interest thereon has been made good and the whole amount of the O'Brien mortgage with- interest has been accounted' for, thus eliminating one of the objections to the acts of the trustee which Mrs. Lewis- made when informed by the successor to the trustee that the fund amounted to $17,446.39 only.
Three questions have been submitted: Should the trustee be charged with the income and, profit on certain funds of the trust estate loaned to a manufacturing corporation of whose stock the trustee was one of three owners such income and profit to be ascertained by adding the dividend paid upon the capital stock of such corporation and the surplus accumulated; should the trustee be allowed expenses and commissions in face of a legacy in the will of deceased purporting to- be compensation for such services and expenses; and should a charge of $500 made by the attorney for the trustee in connection with the O'Brien mortgage matter be allowed ?
First: The trustee W. H. Rowe, his son W. H. Rowe, Jr., and his wife Frances J. W. Rowe were the directors and held, all the stock of the Wayside Knitting Company, a domestic corporation with a capital stock of $60,000, and a surplus of over $137,000, in 1893, and of over $243,000 in 1898. W. H. Rowe & Son, after 1894, was a corporation, but no evidence has been given showing its stockholders or the amount of its capital stock and assets. Hay 28, 1892, the trustee loaned the Wayside Company, $1,446.57 of the trust moneys taking a note bearing six per cent, interest. February 25, 1893, he loaned the same company $1,000 at the same rate of interest. July 22, 1896, he loaned the same company $13,000, at five per cent, interest. November 20, 1897, he loaned the same company $300, at five per cent, interest. April 4, 1898, he loaned W. H. Rowe & Son, $1,700, at six per cent, interest. This interest money has been collected by the trustee from time to time and paid over to the beneficiary.
From 1892 to 1898, the Wayside Company borrowed each year large sums of money ranging from $193,000 down to $88,000 at rates of interest ranging from six per cent, to four per cent. The dividends paid on the capital stock of $60,000 were thirty per cent, in 1893 and ten per cent, in each subsequent year to and including 1898. Based upon the capital stock and surplus for these years a computation has been given showing that the dividends showed a profit upon the money invested of between nine per cent, and ten per cent, in 1893, and between two per cent, and three per cent, each year thereafter. The accounting party seeks by this evidence to show that the trustee made no personal profit by loaning the trust funds to his corporation, even if such money should not be treated as a debt, and, therefore, excluded in arriving at a surplus, but considering it as an investment and as part of the surplus.
The theory of the contestants is that the $17,000- trust moneys should be considered with the $,60,000' capital stock and the amount borrowed during the year, and that the amount appropriated to dividend and carried to surplus represents the earnings of the money in use, and, therefore, the $17,000 trust moneys should be credited with a proportionate share. Resort is had to this method of computation to show that the trust funds made a profit to the trustee of more than five per cent, annually, which additional profit -should inure to the benefit of the trust estate.
To adopt and carry out the view of the contestants it would be necessary to find several propositions, viz.: That the trustee had used the trust fund in his own business when he loaned it to a corporation in which he was a stockholder and officer; that he as such stockholder had made a personal profit from the use by the corporation of such trust funds in its business; the exact amount of profit which he as such stockholder had made by the corporation's use of such trust money.
The books of the deceased trustee put in evidence designate all these transactions as loans to the corporation and show payments of interest upon such loans at the rate at which they bore interest. There is no* evidence that the trustee was guilty of any fraud or subterfuge in holding out an investment as a loan. The corporation was apparently not hard pressed for money so- that the borrowing of this money was particularly advantageous to the corporation. In 1895, the year before the $13,000 was loaned, the corporation borrowed $50',000 at five per cent, and $15,000' at four per cent. In 1896, it borrowed] $70,000 at five per cent., and in 1897, it borrowed $85,000* at five per cent, and $85,000* at four and one-half per cent. It would seem then that when the corporation 'borrowed the trust fund at five per cent, it was more of an advantage to the trust estate than to the corporation.
Taking, into consideration all the facts of this case there is no reason in law or equity why these transactions should he held to be a use by the trustee of the trust funds in his own business, or why he should be held liable to the trust estate for any part of the profits, if any, made by the corporation during the years when it was a borrower from the trust estate.
The facts of this case are clearly different from the facts in such cases as Hannah v. Hannah, 68 N. Y. 610, relied on by the contestants. Here the trustee loaned the funds to a solvent corporation at an agreed rate of interest. In no case did he mingle the estate funds with the corporate funds as the trust money was always a debt due from the corporation, and was not liable to diminuition in case of shrinkage of assets or to increase in ease of addition to- the surplus.
It has not been claimed that the- trustee is chargeable with more money as interest than he has collected and accounted- for. There is no doubt but that the investment was not of the character authorized by law, but the trustee is responsible to the beneficiaries only for the loss which they may sustain by such unauthorized investments. Matter of Barnes, 140 N. Y. 471. Some of this fund was loaned at six per cent, -and when a large sum was paid in at one time it was loaned -at five per cent. It is common knowledge that trust funds in amounts above $5,000 do not realize in authorized investments more than five per cent, interest -and most of them even much less.
The trustee seems to have acted most honestly and fairly. While he loaned money to a corporation that he was interested in, he secured for the beneficiaries the highest rate that they could expect to obtain in authorized investments, while he charged the corporation the mean rate at which it, was borrowing.
Should the trustee be allowed commissions and expenses? The will of A. D. Rowe, deceased, contains this provision: " I give and bequeath to my executor and trustee hereinafter named five hundred dollars to be by him received in full of all com missions, personal expenses, disbursements and charges of every kind relating to the full and final settlement of my estate." The accounting party claims that this legacy was in lieu of commissions and expenses on final settlement of the accounts of the executor only and not of commissions and expenses for handling the trust funds. The contestants claim that it was intended to cover all such commissions and expenses of every kind to the final distribution of the trust funds.
The fact that such commissions and expenses were allowed on the last accounting of the trustee is not decisive of the question, as no objection was raised to their allowance, and it does not appear that this provision of the will was called to the attention of the court and passed upon.
The bequest in terms applies to the trustee as much as to the executor. He has accepted it, and, therefore, is clearly not entitled to commissions in any capacity. Neither is he entitled to personal expenses, disbursements or charges of any kind. Reasonable and proper attorney's fees for services which might be needed for the protection of the estate or the proper transaction of the legal business of the estate are not charged upon the bequest to the executor and trustee and should be allowed. The bequest was in lieu of commissions and personal expenses, disbursements and charges. The executor and trustee was not a lawyer and it was his right and duty when the necessity arose to employ a competent lawyer to advise him and to transact such legal business as he could not do, and the estate should pay therefor.
Third1: Should the bill of $500 paid to Shaw, Bailey & Murphy for services in the O'Brien mortgage matter be allowed ? The accounting party here is also the executor of the W. H. Rowe estate. When, as such executor, he undertook to make this accounting he ascertained that there was a loss of upwards of $2,000 on the O'Brien mortgage. He represented his father's estate which might be liable for its loss and the trust; estate which had suffered such loss. He was also substituted trustee of the trust estate. He, therefore, owed a duty to both estates. He employed highly competent -attorneys to examine the facts and the law and give him an unbiased opinion which he has adopted. These attorneys were not employed in the interest of the trust estate only, but for the benefit of both. That the services resulted in more benefit to the trust estate is no reason why all of the expense thereof should be charged to it. It might be said that the W. H. Rowe estate was greatly benefited by avoiding expensive and unsuccessful litigation. The amount of $-250 of such bill is allowed against the trust estate.
Decreed accordingly.