Camden Trust Co. v. Cramer

• Decision Date: 04 January 1945
• Docket Number: No. 209.,209.
• Citation: 40 A.2d 601
• Parties: CAMDEN TRUST CO. et al. v. CRAMER et al.
• Court: New Jersey Supreme Court

40 A.2d 601

CAMDEN TRUST CO. et al.

v.CRAMER et al.

No. 209.

Court of Errors and Appeals of New Jersey.

Jan. 4, 1945.

Appeal from Chancery Court.

Bill by Camden Trust Company, administrator cum testamento annexo of Jennie Cramer, deceased, and others against Robert W. Cramer and Federal Deposit Insurance Corporation for instructions relating to construction of the will of Jennie Cramer. From a decree advised by the Vice Chancellor, 133 N.J.Eq. 427, 33 A.2d 611, complainants and defendant last-named appeal.

AffirmedNorcross & Farr, of Camden (Frank S. Norcross and Joseph Beck Tyler, both of Camden, of counsel), for complainants-appellants.

Grover C. Richman, of Camden, for defendant-appellant, Federal Deposit Ins. Corporation.

Robert W. Cramer, and Walter S. Keown, of Camden, for defendant-respondent.

HEHER, Justice.

The challenged decree construes the will of Jennie Cramer, deceased, and determines the rights of the parties in the res of a certain indenture of trust created by the decedent's children and residuary legatees, termed for convenience the ‘Haldeman Trust.’ The pertinent facts and circumstances are set out in the opinion of the learned Vice-Chancellor.

The Camden Trust Company, as trustee of the Haldeman Trust, maintains that it is entitled to reimbursement out of the proceeds of the sale of the real estate constituting the trust res, prior to the payment of the grandchildrens' pecuniary legacies, for moneys advanced by it for the purchse of a tax sale certificate covering the lands, on the alternative theories (a) of equitable subrogation to the rights of the municipality, or (b) of a constructive trust for the benefit of the pecuniary legatees arising from the conveyance of the testatrix' lands by the residuary legatees to the trustee without payment of the pecuniary legacies, and the preservation of the res for the benefit of the pecuniary legatees by the trustee's payment of the tax arrears.

The Vice-Chancellor ruled that the purchase of the tax sale certificate was necessary to preserve the trust res, and that the trustee is entitled to reimbursement ‘by the cestui or out of the trust estate,’ but that the pecuniary legacies constitute ‘a prior lien’ on the real estate.

The specific contention in this regard is that, in thus satisfying the tax arrears, the trustee ‘was acting in the performance of a duty which it had as trustee, to prevent the loss of the real estate through the foreclosure of the tax sale certificate’ held by the municipality; that the tax lien was prior to ‘any lien’ the pecuniary legatees had in the lands, and that these legatees ‘derived a benefit from the payment of the taxes,’ and therefore equity and justice would be served by the application of the principle of subrogation; and that, at all events, a constructive trust arose in favor of the pecuniary legatees, and, notwithstanding the implicit failure of duty, complainant may, as the constructive trustee, recover the moneys expended in liquidating the tax lien on the res. We take a different view.

Subrogation is a doctrine of purely equitable origin and nature, although it is a right that is now considered as within the cognizance of courts of law in certain circumstances. Since it is an equity, it is subject to the rules governing equities; and it is axiomatic that it will not be enforced where it would be inequitable so to do. It will not be allowed to work injustice to others having equal or superior equities. The right of subrogation must be founded upon an equity just and reasonable according to general principles-an equity that will accomplish complete justice between the parties to the controversy. The one asserting the right cannot thereby profit from his own wrong; he must, himself, be without fault. Bater v. Cleaver, 114 N.J.L. 346, 176 A. 889. Subrogation is a device adopted by equity to compel the ultimate discharge of an obligation by him who in good conscience ought to pay it. 3105 Grand Corporation v. City of New York, 288 N.Y. 178, 42 N.E.2d 475, 141 A.L.R. 1211. The process is analogous to the creation of a constructive trust, the creditor being compelled to hold his rights against the principal debtor, and his securities, in trust for the subrogee. Pomeroy's Equity Jurisprudence, 4th Ed., secs. 2343, 2349. A constructive trust is raised by equity to effectuate justice in the most efficient manner, where the parties have no intention of creating such a relation, and in most cases contrary to the trustee's intention and will. It ordinarily arises when the legal title to property is obtained by a person in violation, express or implied, of some duty owed to the one who is equitably entitled, and when the property so obtained is held in hostility to his beneficial rights of ownership. Fraud, either actual or constructive, is usually an essential element. Down v. Down, 80 N.J.Eq. 68, 82 A. 322; Pomeroy's Equity Jurisprudence (5th Ed.), secs. 151, 1044 et seq.

As was the case in Bater v. Cleaver, supra, the allowance of subrogation here would contravene the plainest principles of right and justice. The trustee joined in a reconversion of the real estate by the residuary legatees that would violate the essential rights of the pecuniary legatees unless provision were made for the satisfaction of their legacies. The will charged the lands with the payment of these legacies; and the personal property was negligible. This responsibility to the pecuniary legatees was acknowledged by all the parties in the provision for a loan by the appellant trust company, in its corporate capacity, to the residuary legatees as individuals, evidenced by their joint and several promissory note, and secured by an assignment of their respective interests in the lands as cestuis que trust under the Haldeman Trust, of the sum $7500, the amount necessary to liquidate the pecuniary legacies as well as the debts, taxes, and administration expenses. The bank forthwith advanced to itself, as administrator c.t.a., the sum of $3550, sufficient to pay all obligations of the enumerated classes except the pecuniary legacies; and the money was used for that purpose. But it failed, and finally refused, to supply the moneys needed to pay the legacies (aggregating $3600), assigning as the reason the decline of the real estate market; and on November 9, 1934, it credited this amount on the promissory note, and thereafter considered itself relieved of all further liability in the premises. The tax sale certificate was purchased on March 25, 1937. The declaration of trust made by appellant recites that under the will the lands were subject to the payment of the debts, taxes, administration expenses, and the legacies, and that ‘arrangements have been made’ by the residuary legatees ‘for the payment’ of these obligations ‘without the sale of said lands to raise the necessary funds therefor.’ By a contemporaneous writing, the residuary legatees, as the makers of the promissory note for $7500, directed the appellant bank, in its corporate capacity, ‘to pay the proceeds' of the note to itself, as administrator c.t.a., ‘at such time and in such amounts as' it, as administrator c.t.a., ‘may request.’

We have no occasion to determine whether the Vice-Chancellor was correct in his conclusion that the residuary legatees' nonaction constituted an abandonment and rescission, pro tanto, of the trust company's contractual undertaking to lend them the face amount of the promissory note for the purposes indicated. It is both sound law and good morals that a fiduciary may not, in case of conflict, subordinate the cestui's interest to his own. Undivided loyalty is of the very essence of the relationship. The trustee is under a peremptory duty of complete loyalty and fidelity to the cestui. Self-interest can never be the determinative. He cannot serve two masters in an area of service involving divergent and discrepant interests. It would seem that here the contract of loan was not terminable without the consent of the bank, acting as administrator c.t.a. in the interest of all the beneficiaries (the grandchildren were minors at the time of the reconversion), and then only upon a sufficient consideration. It was a primary duty of the administrator to gather in the assets of the estate. In re Brueck's Estate, 124 N.J.Eq. 62, 199 A. 61. But we need not pursue the inquiry. Suffice it to say that the bank undertook this obligation to enable the residuary legatees to effect a reconversion of the real estate, and to discharge their concomitant duty to satisfy the debts and legacies; and the bank's failure of duty in this regard plainly disentitles it to reimbursement, by subrogation, for the taxes paid, for by that process it would visit the consequences of its own default upon the innocent pecuniary legatees, and thus work inequity and injustice. It was under an absolute contractual duty to turn over the proceeds of the promissory note to itself, as administrator, for the immediate payment of the debts and legacies; and nonperformance of that undertaking was so oppressive and injurious to the pecuniary legatees as to render the doctrine of subrogation inapplicable. If it had provided the money for the satisfaction of the legacies in accordance with its corporate undertaking and the terms of the trust, timely payment of the legacies would have been made. And if the lands had been sold in due course for the execution of the testamentary directions, there would have been no occasion for the present controversy. As the Vice-Chancellor declared, the residuary legatees could not, by the process of reconversion, impair or nullify the rights of the pecuniary legatees. Vide Morse v. Hackensack Savings Bank, 47 N.J.Eq. 279, 20 A. 961, 12 L.R.A. 62. The residuary legatees were mindful of their duty in this regard; and the design of the arrangement with the appellant bank was to make available the moneys needed to render payment of the pecuniary legacies in...