Court Opinion

ID: 5550039
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:33:09.506492+00
Date Added: 2024-06-11T08:35:02.001268
License: Public Domain

The Chancellor.
This ease is brought to a hearing on exceptions, taken on each side, to the report of the referees. The defendant is charged as a trustee, and this trust appears in the declaration of trust, executed by the defendant on the 13th of August, 1805.
The objects of this trust are to be kept steadily in view in the examination of this case. The whole subject matter in controversy depends upon the construction of it, and the principles by which it is governed.
I shall first consider the principal exceptions taken on the part of the defendant.
[Most of the exceptions relating to charges depending altogether upon fact and evidence, it has been thought unnecessary to state the observations of his honour on those points.]
It is objected, that the defendant, having exhibited an account of payments to 19,000 dollars, the referees rejected about 17,000 dollars of the same. The question is not as to the fact of the payments, but whether they were made on account of the trust. Í think they were properly rejected. They were payments to W. Green, and may be just, as against him. The trust was created for the benefit of P. Healley, and was afterwards transferred to Mrs. Green and her children. Payments to W. Green were clearly dehors the trust, and not chargeable upon the trust fund. There is no sufficient evidence that Mrs. Green authorized *36these payments to her husband; and having but a life estate herself, she could not have authorized them, to any extent, beyond the requisite support of herself and children. As 1 A . far as the referees could determine them to have been advances on the trust account, they allowed them, to the amount of about 2,000 dollars. The court cannot allow any such misapplication of the trust fund, evento the husband of the cestuy que trust. (Thayer v. Gould, 1 Atk. 615. 2 Atk. 245.) If the husband had applied the payments to any specific trust purpose, the trustee might have been entitled to the benefit of such application; but we have no evidence of any such appropriation.
The facts stated in the report are conclusive against the claim of the defendant, in respect to the mortgage given by Green and his wife to Ogden & Hoffman. It appears that this mortgage was executed in July, 1794, on part of the trust estate, to secure the payment of two bonds; that the mortgage was not registered until after a conveyance to Sands ¿y Lothrop ; that, after judgment was entered on the bonds, the defendant bought in the same, in January, 1810, at a discount, and issued execution against Green. The defendant refused to answer before the referees whether he had the mortgage as a lien on the trust estate.
This purchase ought, justly, and upon all sound principles of equitable policy, to enure to the benefit of the trust, and not to the benefit of the trustee. A trustee is not permitted to use the information he gains as trustee, by purchasing in for himself. It would be an extremely wrong thing, as the Lord Chancellor said, in Norris v. Le Neve, (3 Atk. 37.) The principle is the same as to buying in the trust estate, or buying securities upon it. A trustee cannot act for his own benefit, in a contract on the subject of the trust. (Morret v. Paske, 2 Atk. 52. Forbes v. Ross, 2 Bro. 430.) The object of the rule is to keep trustees within the line of their duty. A court of equity watches the conduct of a trustee with jealousy ; and if he compounds debts or mort*37gages, or purchases them in at a discount, he shall not be suffered to turn the speculation to his own advantage. (3 P. Wms. 249. n. (a.) 1 Salk. 155.)
The objections taken on the part of the plaintiffs to the report, involve much more important considerations than those I have been examining; because they principally refer to the general rights and duties of a trustee.
1st. The plaintiffs object to the allowance of a number of charges, for costs, accrued to, or paid by the defendant in execution of the trust, amounting, in the whole, to 1,863 dollars and 5 cents. I think they may all be deemed just charges and allowances, except the first charge of 500 dollars, for “ a counsel fee as a general retainer.” This is clearly inadmissible. The trust was a voluntary undertaking for the benefit of Heathy, and voluntarily continued for the benefit of his sister and children. The trustee is entitled toaliberal indemnity for his expenses and responsibilities incurred in the due and faithful execution of the trust; but he cannot demand compensation beyond what may be founded on the positive agreement of the party. The declaration of trust contains no stipulation, or provision, for such compensation. It is cautiously worded throughout, and speaks only of allowances for all his “ advances and responsibilities.” The trustee cannot, therefore, charge any thing more than what is understood, in the language of this court, by just allowances. I am obliged, therefore, not only to reject this general retainer, but, also, to admit the force of the
2d. Exception to the commissidns of 10, and 7, and 2 1-2 per cent., allowed in the report. The 4 dollars a day, for his time and expenses, may be allowed on the ground of a fair indemnity; but I cannot go further, without shaking the best settled principles, in respect to the nature and character of the duties of a trustee. Nothing can be stronger, or more explicit, than the uniform language of the English court of chancery upon this point, or, if I were even free *38from the weight of authority, I should hesitate greatly before I undertook to question the policy or wisdom of the rule.
, We find the principle advanced as early as the time of Lord Nottingham, in the case of How v. Godfrey, 30 Car. II., (Rep. temp. Finch, 361.,) in which the defendants, as guardians, “ demanded 201. for their care and pains in managing the trust.” The Chancellor decreed, that they should have their costs and charges, and all just allowances, but not any thing for their care or pains. And in the next year, in the case of Hethersell v. Hales, (2 Ch. Rep. 83.,) we find the same distinguished Lord Chancellor making a liberal allowance to a trustee, under the head of “ charges and expenses in managing the trustthereby not only settling the general rule, but, also, defining the limitations by which it was to be governed. The same doctrine has been continued through all the books, down to this day, whatever might be the nature of the trust, or the relative character of the trustee. (Palmer v. Jones, 1 Vern. 144. Bonithon v. Hockmore, 1 Vern. 316. Scattergood v. Harrison, Mosely, 128. Read v. Snell, 2 Atk. 643. Godfrey v. Watson, 3 Atk. 517. In the matter of Annesley, a lunatic, Amb. 78.) In one of the latest cases, Fearns v. Young, (10 Ves. 184.,) Lord Eldon admits, that where a trustee has fairly expended money by reasonably taking opinions, and procuring directions necessary to the due execution of the trust, he was entitled to such charges, under the head of just allowances. In Robinson v. Pett, (3 P. Wms. 249.,) Lord Talbot declares the reasons of the rule refusing an allowance lo a trustee for his care and trouble, viz. that, under that pretext, the trust estate might be loaded and rendered of little value; and, also, because of the great difficulty there might be in settling and adjusting the quantum of such allowance, as one man’s time might be more valuable than that of another, and that the rule was no hardship upon the trustee, since the acceptance of the trust was of his own choice. In another *39case, Ayliffe v. Murray, (2 Atk. 58.,) Lord Hardwicke observed, that chancery looked upon.trusts as honorary, and a burden upon the honour and conscience of the trustee, and not undertaken upon mercenary motives, though a fair and open bargain with the cestuy que trust, for compensation, would be admissible.
3. The same principle supports the exception to the allowance of 8,482 dollars 69 cents, including interest, for expenditures for improvements of the trust estate, as by building houses and mills, clearing land, making roads, &c. These expenses were not within the purview of the trust, which went only to authorize the defendant to sell the land, to raise money to pay off the encumbrances, and to restore the residue of the estate. The referees report that the improvements were made in good faith, but that, in general, they were of no real or substantial value to the trust property. These charges appear to be still more exceptionable than those under the head of compensation; and to tolerate such wide deviations from the nature and terms of the trust would be creating a most dangerous precedent. It would be placing trust property in the greatest jeopardy, and, perhaps, incumbering it with burthens too grievous to be borne. I cannot, therefore, admit of any allowances under this head, but such as may justly be considered ás reasonable reparations or repairs, and these do not appear, from the report, to exceed much, if any, the sum of 700 dollars. Nor is this point left without a clear and explicit sanction in the decisions of the court of chancery. It is the established doctrine, that a trustee can only be allowed for necessary expenditures; (Fountaine v. Pellet, 1 Ves. jun. 337.;) and the cestuy que trust has always his. option to take, or refuse, the benefit or loss of the unauthorized act of his trustee. (Harrison v. Harrison, 2 Atk. 120. 2 Bro. 656—8.) The case of Bostock v. Blakeney, (2 Bro. 653.,) is quite analogous to the present. That was a trust to purchase land, and the land AYas purchased, and money expended in repairs and im*40provements; and though the improvements were substantial and lasting, the Chancellor would not admit of such a misapplication of the funds of the trust. It must be, and always has f . ’ J the anxious wish of a court of chancery, to save a trustee from harm while acting in good faith ; but a misapplication of the trust property, by going out of the trust, can never bepermittedto injure the cestuy que trust, without his assent. (2 P. Wms. 453. 3 Atk. 441.)
4. The next exception on the part of the plaintiffs, is equally well taken. The report states that the defendant paid, on account of the trust estate, for stock, hay, farming utensils, &c. to 3,729 dollars 37 cents, including interest, and that on the purchase and resale of stock for the farm, such as cattle, hogs, &c. he lost 1,300 dollars, and for which the report states the defendant was entitled to a credit. It appears further, that while the reference was pending, the defendant sold stock, farming utensils, &c. and refused to render an account, and that when examined before the referees, he said it was a question whether this agricultural stock was trust property, and that, if he was allowed the cost of it, he would credit the sales, and declined further to answer about the sales. The whole of this account, both debtor and creditor, ought to be struck out of the report, and not to be taken into the computation of the balance due. It was a business altogether out of the trust; as much so as if the defendant had engaged in commercial or manufacturing business on the estate.
5. Another objection by the plaintiffs is, that the defendant ought to have been charged with such rents as the report states that the trust estate would reasonably have produced ; inasmuch as the defendant refused to exhibit to the referees, though repeatedly called on for the purpose, a statement of leases, or other contracts, for renting the farms belonging to the trust estate. This appears to me to be perfectly just, under the circumstances of this refusal, and the defendant ought to be charged with such reasonable *41rents, from and after his assumption of the trust, in those cases in which the report states what would be a reasonable rent, and except in the special cases already mentioned.
6. The last objection relates to what is termed the Bay-side farm, on Long Island. It appears that the defendant agreed to purchase this farm for Mrs. Green, and to pay for the same out of the proceeds of the trust estate; that he purchased it in March, 1806, and gave his bond and mortgage ; that when the bonds fell due, the defendant refused to pay for the same, and caused the mortgage to be foreclosed, and also a suit in ejectment to be instituted, by means of which Mrs. Green was obliged to abandon the farm. The referees report, that the defendant had paid, on account of this farm, 6,751 dollars 44 cents, and had received, on the sale of it, 4,315 dollars 78 cents, and they charge the costs of the suits, and the loss on the sale of the farm, to the trust estate. The question is, on whom this heavy loss ought to fall; on the defendant, or on the cestuy que trust ? Here wás a trust voluntarily undertaken by the defendant, and he refused, eventually, to pay for the farm, according to his original undertaking, out of the trust estate, when he either had funds in hand to pay, or the means in his power to raise them. It appears to be an inequitable proceeding on the part of the defendant, and no just reason is given for the nonfulfilment of the trust. The farm had, in 1807, been conveyed to Heatley, subject to the mortgage. The conduct of the defendant, in suffering the farm to be taken for the debt, and in buying a judgment against William Green, and seizing, under it, the personal estate in possession of Mrs. Green, on that farm, (which facts are specially set forth in the report,) has strongly the appearance of a design to coerce the cestuy que trust to some undue accommodation. I am, accordingly, of opinion, that this exception ought to be allowed, so that the loss on the farm, and the costs of the suits, may not be chargeable to the trust estate.
*42. I have thus finished an examination of the numerous exceptions, taken on the one side and on the other, to the report of the referees, and if my conclusions may seem rigorous towards the defendant, it is because I found myself necessarily led to that result, by the facts in the case, and the known and settled principles of equity, in respect to the responsibility of a trustee. Those principles will appear all-important to the community when we consider the necessity of strict guards upon the powers of trustees, to whom are usually confided the interests of those who are incompetent to help themselves, and who are thrown, destitute and feeble, upon the protection of others. Individual hardship had better be endured in a particular case, by a strict adherence to rule, than to tolerate a relaxation, which might be productive of great public inconvenience.
I shall, therefore, direct the report of the referees to be referred to a master, to state an account upon the basis of that report, but subject to such variations and corrections as I have herein suggested.
The following order was thereupon entered :
“ That the third exception of the defendant be allowed, so far only as respects the sum of three hundred dollars, therein stated by the defendant, and in the report, to have been paid by him to James Battles, to rescind a contract therein mentioned, for the purchase, by him, of certain lands from the defendant, as trustee for the plaintiffs, or some of them, whereby the lands became again vested in the said Winter, as trustee, in the same manner as other parts of the said trust estates, and that the said Joseph Winter be allowed the said sum of three hundred dollars, with interest thereon; and that all the other exceptions of the defendant, to the report of the said referees, be overruled.
, “ And in relation to the exceptions taken by the plaintiffs to the report, it is further ordered, the first of the said exceptions be allowed, as far as respects the sum of *43five hundred dollars, and the interest thereof, allowed in the report, to the trustee, as a retaining fee, which sum is not to he allowed to him on the account herein directed to be taken ; and that the first exception, so far as it relates to all other costs and charges therein objected to, be disallowed-, and that the costs and charges (except the said five hundred dollars, and interest) be allowed to the trustee, on taidng the said amount; that all the other exceptions taken by the plaintiffs to the report he allowed, except as follows, viz.
<c 1st. That in relation to the rents and profits chargeable against the defendant, as trustee of the estates mentioned in the report, he shall, for the rents of the Qriskany farm therein mentioned, for the years 1809, 1810, and 1811, be charged only with the sums stated in his accounts, filed with the said report, to have been received by him for those years ; and that, in relation to the rents and profits of the same farm for other years, and of the remaining parts of the trust estates, the defendant shall account and be charged with what might reasonably have been obtained for the same, from the time he took charge of the said trust estates to the date of the report, which account is to be taken according to the facts therein stated, and interest allowed on them from the respective periods when the same would have been receivable, in the manner interest is calculated in the report on the debits and credits therein mentioned.
“ 2dly. That the defendant shall he allowed the sum of one thousand seven hundred and seventy dollars, and interest stated in the report; to be allowed the said trustee for his time and expenses in and about the execution of the trust, and no more.
“ And it is further ordered and decreed, that it be referred to Mr. Hansen, one of the masters of this court, to take and state an account of the amount due to the plaintiffs from the defendant, Joseph Winter; and that, in taking such account, the master proceed according to the report of the *44referees, and the facts therein contained, subject to the variations and alterations herein directed, in relation to the exceptions and parts of exceptions herein before mentioned, as allowed or varied; in relation to which, he is to be governed by the said exceptions, and the said alterations and variations thereof, as part of this order for taking the said account.
“ And it is further ordered, that the costs upon the said exceptions be allowed to the prevailing party, where they have been allowed, and to the opposite party, where they have been disallowed, to be taxed by the master ; and that the sum taxed in favour of the party having the smallest sum, be set off against the amount taxed in favour of the other party, and that the balance he paid.”