Opinion ID: 2269257
Heading Depth: 1
Heading Rank: 2

Heading: Receipt by Trustee of Assets from Executors.

Text: The plaintiffs contend that the defendant as trustee violated its fiduciary duty in failing to insist on delivery to it by itself and Katharine L. Ditmars, as executors, of 60 shares of stock of Homestake Mining Company and 16 shares of stock of Hercules Powder Company. This stock was owned by the testator at the time of his death. The first account of the executors, covering the year of their performance of duties prior to appointment of the administrator pendente lite, shows that they sold the Hercules stock on February 25, 1926 for $2,245, showing a net gain over appraised value of $0.36, and sold the Homestake stock on July 2, 1926, showing a net gain of $337.20. Plaintiffs also assert that the executors had no right to make a certain payment of income to testator's widow and failed to make a proper apportionment of dividends received between the widow (life income beneficiary of the trust) and the remaindermen in connection with certain securities. They admit that all these matters were detailed in the first account of the executors, which was allowed by the Camden County Orphans' Court on February 4, 1927. The defendant trustee asserts that the plaintiffs are barred from review of the foregoing matters by the allowance of the first account of the executors (February 4, 1927), the final account of the administrator pendente lite (December 7, 1928), and the second and final account of the executors (March 7, 1930), and by virtue of the fact that the plaintiffs' application to amend their complaint in this cause to incorporate these same allegedly objectionable transactions was denied by the former Court of Chancery in this cause. Ditmars v. Camden Trust Company, supra, (138 N.J. Eq. 541) affirmed eo nomine, supra, by the former Court of Errors and Appeals (140 N.J. Eq. 420). The plaintiffs seek to avoid the effect of the earlier decisions in this cause, asserting that those decisions were overruled by implication by the decisions rendered by this court in Dickerson v. Camden Trust Co., 1 N.J. 459, 467 (1949), and Bankers Trust Co. v. Bacot, 6 N.J. 426, 436 (1951). They premise this argument on the principle expressed in those cases as to acceptance of securities by a trustee in breach of its trust, and assert that mere lapse of time is no bar to inquiry into such matters. Pursuing this theory, they assert that during the present stage of these proceedings, i.e., the hearings before the master and the subsequent final hearing in the Chancery Division of the Superior Court, their effort was not to amend their complaint but to introduce additional exceptions to the trustee's account under their general reservation to do so incorporated in their filed exceptions. This general reservation read as follows: By reason of the informality of the account and of the insufficiency of the vouchers claimed to be in support thereof, these exceptants are not now sure that there may not be other matters to which upon further facts being shown they should except to as evidence may be developed. They therefore reserve the right to file such additional exceptions as they may be advised. The plaintiffs justify their resort to this reservation by reliance on the provisions of Item Fifth of the testator's will, where he stated, It is my will that all stocks, bonds and other securities belonging to me shall form part of the trust fund created by my will   . The inference of their argument is that this precluded the executors from selling any portion of the testator's investments, and that the trustee should have insisted that the executors deliver to it the specific securities or investments owned by the testator at the time of his death. It is obvious that this question is inherently different from the situation considered in the Dickerson case, supra. In the Dickerson case, supra, the trustee received unauthorized investments where they had a duty to receive only cash or legal securities (1 N.J. at pp. 466-467). On the merits of the question, however, assuming for the purposes of this discussion that the plaintiffs properly attempted to submit exceptions to the trustee's account in this respect, it appears that a determination may be laid upon a construction of the pertinent provisions of testator's will and upon basic duties of executors. Testator (Item Fourth) devised and bequeathed his residuary estate to the trustee, in trust, To invest the same, using no words such as to hold, retain, invest and keep invested the same, and later (Item Fifth) expressed his will that his investments be retained. It is apparent from a reading of these two provisions that the testator understood that the executors in the normal course of settlement of his estate would be required to liquidate some portions of his estate to pay just debts and funeral expenses, and expenses of administration, as well as the total of $2,000 of specific cash bequests contained in Items Second and Third of his will. The portion of Item Fifth adverted to is properly construed not as a mandatory specific bequest of stocks, bonds, etc. (indeed he did not name or describe any of such items), but as a mere power of retention which, however imperative, did not require the delivery to the trustee of all the stocks, bonds, etc., owned by the testator at the time of his death. On this basis the real issue presented by the plaintiffs in this case is whether the executors properly exercised their duties as such, and not whether the trustee received securities or investments other than those it was authorized to receive under the terms of the instrument creating the trust. The liability of the executors for any alleged breach of duty in conservation or settlement of the estate is dependent upon the effect to be accorded the Orphans' Court decrees approving and allowing their two accounts. That the matters now objected to by the plaintiffs were detailed in the executors' accounts as allowed is admitted by them, and in these circumstances the beneficiaries are concluded from challenging directly the propriety of the executors' conduct. Dickerson v. Camden Trust Company, supra (1 N.J., at p. 467). Further, if for the purpose of disposition of the plaintiffs' contention we may assume that the trustee was obligated to intervene in the proper administration and settlement of the estate by the executors, what was its duty in that respect under the circumstances of this case, where three accountings of the estate were approved by the Orphans' Court without objection of the parties in interest (the present plaintiffs who were the beneficiaries of the trust), and the time when the sales of stock adverted to were made indicates they were occasioned by need to meet debts and other estate obligations? What should a prudent trustee have done? The estate was involved in litigation which threatened the very existence of the trust and ultimately extended the administration of the estate by the executors for over four years after the death of the testator. Conservation of the estate and payment of debts and funeral expenses were the duty of the executors. What should a prudent trustee have done under these circumstances? Should it have attacked the executors' accounts? Was it not justified in concluding that under the circumstances the trust estate would be better served by refraining from the expenditure of trust funds in what was thought a futile venture? As we said on a somewhat comparable situation in Bankers Trust Co. v. Bacot, supra (6 N.J., at p. 442):    The difficulty of decision of a trustee in such a situation is apparent. To hold a trustee liable for failure to make the proper decision under such circumstances appears to place too heavy a burden upon it.    Further, the decision of the former Court of Chancery and former Court of Errors and Appeals in this case were not opposed to the decisions of this court in the Dickerson and Bankers Trust Co. cases, supra. The aforesaid determinations in this cause were based upon principles of estoppel and not upon mere delay. We are of the opinion that no change in circumstances has occurred to render the same principles inapplicable to the present stage of the proceedings. To hold otherwise under the circumstances of this case would be to permit the plaintiffs to do by indirection that which they may not do directly. Compare Home Builders Ass'n of Northern N.J. v. Paramus Boro., 7 N.J. 335, 342 (1951). The plaintiffs were properly precluded from introducing these subjects of exception into these proceedings.