Blauvelt v. Citizens Trust Co., A--43

• Decision Date: 06 February 1950
• Docket Number: No. A--43,A--43
• Parties: BLAUVELT v. CITIZENS TRUST CO. et al.
• Court: New Jersey Supreme Court

Page 545

3 N.J. 545

71 A.2d 184

BLAUVELT v. CITIZENS TRUST CO. et al.

No. A--43.

Supreme Court of New Jersey.

Argued Nov. 14, 1949.

Decided Feb. 6. 1950.

Hymen D. Goldberg, Paterson, argued the cause for the appellant. Isadore Rabinowitz, Paterson, of counsel.

Edward F. Merrey, Jr., Paterson, argued the cause for the respondent, Citizens Trust Co. Merrey & Merrey, Paterson, attorneys.

The opinion of the court was delivered by

BURLING, J.

This is an appeal from a judgment of the Superior Court, Chancery Division, approving the final account of a trustee under a will. There is a cross-appeal by the trustee from the amount of commissions allowed by the Chancery Division. The appeal is addressed to the Appellate Division of the Superior Court, but has been certified on our own motion.

The plaintiff is one of the beneficiaries of the will of Franklin A. Blauvelt, deceased; the suit was instituted by him against the Citizens Trust Company, the executor and trustee under decedent's will, seeking a construction of the will and an accounting. Plaintiff's brother, the latter's daughter, and the two children of the plaintiff, all of whom had an interest under the will, refused to join as plaintiffs and were made defendants.

The essential question involved is whether the defendant Trust Company should be surcharged for losses sustained by the trust estate during its administration thereof over a period of approximately twenty years.

The basic problem has received the attention of our courts on numerous occasions with varying determinations being made, dependent upon the context of the will, the conditions prevailing at the time of the will's execution and during the administration of the trust and the conduct of the fiduciary in relation thereto. These factors, accordingly, are the focal points of inquiry.

Testator's will provided for legacies to his grandchildren in the amount of $2,000; it then directed that his widow have the use of his home and furnishings during her lifetime. The residue of the estate was given to the executor, in trust, to pay from the income thereof a monthly allowance of $150 to his widow, with any income in excess of that amount to become a part of the corpus, and at her death to pay the income in equal shares to the testator's two sons, Thomas D., the plaintiff, and Floyd A., during their lifetime, and upon the death of the survivor to divide the corpus into two equal parts and pay one of such parts to the children of each of said sons. The will gave the executor a general power to sell the real estate and provided that, until sold, the executor be empowered to pay taxes and assessments, interest upon encumbrances and other charges against the real estate out of the residuary estate. It then provided as follows: 'And I also authorize and empower my said executor to retain indefinitely and stocks and bonds of which I may die seized until such time or times as my said executor in its judgment and discretion shall dispose of and sell the same; and I do hereby order and direct that no liability shall attach to my said executor for any depreciation in the value of any such said investments while being so held by them.'

The will was dated November 15, 1926. The testator died less than four months later on March 1, 1927, leaving the following estate: 470 shares of stock in a laundry company, a mill property, the house in which he had lived and liquid assets of $1,500, consisting of a bank account of $1,300 and a certificate valued at $200. In the inventory the stock was appraised at $32,900; the mill property was valued by the executor at $25,000; and the home at $7,500 in the return to the New Jersey Inheritance Tax Department. The New Jersey Inheritance Tax Commissioner appraised the assets at somewhat higher figures; the stock was appraised at $39,545, the mill property at $29,000; and the homestead at $9,500. The mill property was encumbered by a $10,000 mortgage and the homestead by a $5,500 mortgage. On the basis of the executor's valuation, the net residuary estate, after allowance for encumbrances, legacies, funeral and administration expenses, taxes, etc., amounted to approximately $45,000.

The main asset of the estate was the laundry company stock. A history of this stock is appropriate. For some years the testator, with the assistance of his two sons, had operated a laundry business in the mill property as a sole proprietorship. On November 29, 1926, fourteen days after making his will and approximately three months prior to his decease, the testator incorporated the business and had 500 shares of stock issued. He arranged for 470 shares of said stock to be issued to himself, 10 shares to each of his two sons and the remaining 10 shares to another employee.

The factual development of events following testator's death is as follows: The laundry business continued in operation for approximately 20 years, with the two sons and the stockholding employee serving as officers, directors and employees thereof; the widow remained in possession of the home until her death in September 1935 and from the rentals received from the occupancy by the laundry company and the relatively small rentals from the additional tenant of the mill property, the sum of $150 each month was paid to her until March, 1932; the legacies were paid; the several items of funeral and administration expense including inheritance taxes were paid; taxes and interest on the mortgage against the home and mill property were currently paid; the home was deeded to the mortgage in 1938 in lieu of foreclosure; the rents were collected by the estate from the laundry company and a silk manufacturing company over part of the 20 year period for the use of the mill property; the mill property was sold in 1944 for $20,000 with the $10,000 mortgage encumbrance being satisfied out of the proceeds of sales; and the laundry business was sold in 1947 for a sum sufficient to satisfy all of its creditors but leaving nothing for distribution to the stockholders.

After the sale of the laundry business and dissolution of the corporation in 1947, the plaintiff instituted the present litigation.

The Chancery Division heard and disposed of all issues raised, approved the trustee's account, allowed commissions and counsel fees, and ordered the trustee, after payment of the commissions and counsel fees so allowed and all taxed costs from the full balance of $10,187.11 in the hands of the trustee, to pay to Floyd A. Blauvelt, executor of the last will of Rose Ella Blauvelt, the balance thereof, but not more than the sum of $6,255, 'the unpaid balance of her monthly allowance under the will of Franklin A. Blauvelt.'

The gravamen of the complaint is that the defendant trustee mismanaged the estate and is liable for all resultant loss. The plaintiff charges dereliction on several specific counts. His first point is that the trustee had no authority to continue the laundry business without first obtaining approval therefor from the former Orphans Court pursuant to R.S. 3:7--77, N.J.S.A., and cites Gilligan v. Daly, 79 N.J.Eq. 36, 80 A. 994 (Ch. 1911) and Kick v. McCauley, 118 N.J.Eq. 252, 178 A. 637 (E. & A. 1934) in support of the proposition that the failure of a fiduciary to obtain authorization from the court, pursuant to the statute, to continue a business of a decedent creates an absolute liability for all resultant loss. It would appear from In re Roth's Estate, 139 N.J.Eq. 588, 52 A.2d 811 (Prerog. Ct. 1947) that, despite R.S. 3:7--77, N.J.S.A., the former Chancery Court was the proper court from which such approval should have been obtained, if necessary. That case held that the authority to give instructions to a trustee had always been within the jurisdiction of the former Chancery Court and that the legislature could not impair the jurisdiction of Chancery by giving another tribunal concurrent jurisdiction of a subject matter which, at the time of adoption of the former constitution, belonged exclusively to Chancery. However, it is sufficient in disposing of the point to say that the cases cited by the plaintiff are inapplicable because they dealt with sole proprietorship and partnership interests of the decedents and not, as here, with the ownership of stock in a corporation. The premise that the laundry business was being operated by the defendant trustee is incorrect. The business of a corporation is operated by and under the direction and authority of its board of directors. R.S. 14:7--1, N.J.S.A. The ownership by the defendant in its representative capacity, of the controlling interest of the outstanding stock conferred no power upon the defendant to bind the corporation. Clement v. Young-McShea Amusement Co., 70 N.J.Eq. 677, 67 A. 82, 118 Am.St.Rep. 747 (E. & A. 1905); D'Arcangelo v. D'Arcangelo, 137 N.J.Eq. 63, 43 A.2d 169 (Ch. 1945). The corporate business in the present case was being operated by the board of directors of which the plaintiff was a member. Plaintiff contends that the business should have been sold within one year after testator's death but it does not appear that the directors or any of them ever indicated a desire that the business be so sold.

The second point advanced by the plaintiff is that the defendant was negligent in not selling the stock shortly after testator's death and using the proceeds thereof to liquidate the obligations of the testator and administer the trust pursuant to the will. The expressed intent of the testator was that certain legacies be paid to his grandchildren, that his widow be maintained in reasonable circumstances during her life, that his sons then receive the income from the residuary estate during their lives and that his grandchildren then receive the corpus thereof. Since there were insufficient liquid assets to entirely pay the legacies, debts and administration expenses, obviously the only personal property which might have been sold to raise funds for such...