Beam v. Paterson Safe Deposit & Trust Co.

• Decision Date: 16 November 1914
• Docket Number: No. 111.,111.
• Citation: 83 N.J.Eq. 628,92 A. 351
• Parties: BEAM v. PATERSON SAFE DEPOSIT & TRUST CO.
• Court: New Jersey Supreme Court

92 A. 351

83 N.J.Eq. 628

BEAM

v. PATERSON SAFE DEPOSIT & TRUST CO.

No. 111.

Court of Errors and Appeals of New Jersey.

Nov. 16, 1914.

(Syllabus by the Court.)

Appeal from Court of Chancery.

Bill by Carrie S. Beam against the Paterson Safe Deposit & Trust Company. Decree advised for complainant in 82 N.J.Eq. 518, 91 Atl. 734, and defendant appeals. Reversed, and bill dismissed.

John W. Harding and Griggs and Harding, all of Paterson, for appellant.

Pierre F. Cook, of Jersey City, for respondent.

SWAYZE, J. We agree with the learned Vice Chancellor that the burden of proving that the trustee exercised good faith and reasonable discretion is upon the defendant, as we have already decided upon appeal from the order refusing to strike out the bill. 81 N.J.Eq. 195, 86 Atl. 369. We differ from his conclusion that the defendant has failed to establish the exercise of good faith and reasonable discretion, which is the duty imposed by the statute. 2 Comp. St. 1910, p. 2271, pl. 34. Its good faith is not questioned. Our examination of the facts shows that the securities were supposed to be of the highest class; that on August 1, 1906, the date fixed by the Vice Chancellor as the time when the trustee should have sold, they had fallen as follows: Central Park, North & East River Railway stock from 206 bid and 210 asked to 195 bid and 200 asked; TwentyEighth and Twenty-Ninth Streets Crosstown Railroad first mortgage bonds from 112 bid and 113 1/2 asked to 102 bid and 105 1/4 asked; Second Avenue Railroad Company Consolidated 5's, due 1948 from 115 bid and 117 asked to 111 bid and 113 asked. The prices at the date fixed by the Vice Chancellor, while lower than when the trust company acquired the securities, were still prices commanded by high grade investments. To hold that so slight a variation in the market required the trustee to sell would in effect require a trustee to watch the "ticker" as any mere speculator might. This is not the duty of a trustee. He is to invest in safe productive securities, and mere fluctuations in market price, which may be due to variation in the current rate of interest or in the current demand for ready money in panic or in war, ought not to force him to sell. Were it otherwise, it would practically be impossible to invest a trust fund with any approach to permanence, and the loss of interest on the constant reinvestment might be a serious loss to the cestui que trust. These considerations suffice to show that the date fixed by the Vice Chancellor cannot be justified. We cannot, however, leave the case at that, since subsequently the securities became practically worthless, and a rapid fall began in the summer of 1907. This is shown to have been a time of financial depression, when the best securities dropped in value. We think that even then the trustee was not required to sell, since great shrinkages take place at such times which are subsequently recovered. The trustee might be held liable for loss if he sold when the market was low, and there was a subsequent recovery. The testimony is uncontradicted that nothing occurred to disturb ony one's sense of security until about September, 1907, when receivers were appointed for the New York City Railroad Company, the lessee of the companies whose securities are now in question. This led to the trustee taking steps to protect the...