In re Buckelew's Estate

• Decision Date: 27 June 1940
• Docket Number: No. 5947.,5947.
• Parties: In re BUCKELEW'S ESTATE.
• Court: New Jersey Supreme Court

13 A.2d 855

In re BUCKELEW'S ESTATE.

No. 5947.

Prerogative Court of New Jersey.

June 27, 1940.

Syllabus by the Court.

1. It is the duty of a trustee to use every reasonable effort to inform itself as to the value and the soundness of the trust investments and to keep a careful check of fluctuating values. If it be in doubt in a situation, then it behooves it to seek instructions from the court as to its course of action in the premises.

2. Where a trustee acts in good faith and exercises reasonable care and diligence in the observance of its duties, it is not liable for losses.

Appeal from Orphans' Court, Monmouth County.

Proceeding in the matter of the estate of Andrew S. Buckelew, deceased, wherein the Freehold Trust Company filed an account covering its administration of a trust fund, and wherein exceptions to the account were filed. From that part of an order of the Orphans' Court confirming a master's report allowing certain exceptions to the account, the Freehold Trust Company appeals.

Order affirmed.

Quinn & Doremus, of Red Bank, for accountant-appellant.

Carton & Abramoff, of Red Bank, for respondents.

EGAN, Vice Ordinary.

Andrew S. Buckelew died on October 17, 1917, leaving a last will and testament in which he named Freehold Trust Company and two individuals as executors. Shortly after filing an inventory on December 19, 1919, the individual executors were discharged, and the trust company continued to manage the estate.

The second paragraph of the will provided: "I give and bequeath to my daughter Olevia W. White, wife of Frank White, of Red Bank, the interest from the sum of Twenty-five Thousand Dollars, for and during the term of her natural life, said sum of Twenty-five Thousand Dollars to be invested upon Bond and Mortgage and to be held in trust by my executors hereinafter named, and the interest therefrom to be paid to my said daughter Olevia W. White, during the term of her natural life, and at her death, said sum of Twenty-five Thousand Dollars, to be equally divided among the five children of my said daughter; Olevia W. White, viz: Ray White, Carrie White, Andrew S. White, Meta White and Elsie White, or the survivor or survivors of them, share and share alike."

A codicil to the will purported to reduce this $25,000 trust fund to $20,000 and to give the $5,000 representing the amount of the reduction to one Allie M. Buckelew. However, a caveat was filed to the codicil. There was an adjustment of the dispute between the parties; the codicil never became operative and the original amount of $25,000 mentioned in the will was set up as a trust fund by the executors. On May 1, 1920, the trust company entered into a trust agreement with Olevia White, the life tenant, in which it refers to the fact that securities in the value of $25,000 had been set up by the executors in the trust fund, and thereby agreed to "continue to hold said securities as trustee under the last will and testament of Andrew S. Buckelew and the codicils there annexed."

Freehold Trust Company was subsequently succeeded as trustee by the Freehold Trust Company, and the latter company has continued to administer the $25,000 as a single trust fund. The Freehold Trust Company filed an account in the Orphans' Court of Monmouth County on March 18, 1938, covering its administration of the fund. The account was excepted to.

This proceeding is on an appeal from that part of an order of the Orphans' Court confirming a master's report allowing the fourth, fifth and sixth exceptions to said account. The fourth exception refers to an investment made by the trustee in a bond of the Borough of Barrington in the sum of $1,000. The fifth and sixth exceptions are to investments made by the trustee in County Guaranty Mortgage Company and Monmouth Title and Mortgage Guaranty Company certificates.

On December 9, 1926, the trustee invested $1,000 in a negotiable bond of the Borough of Barrington (Ex. E-26), and failed to have the bond registered in its name as trustee. In its accounting the trustee prays allowance on this item for depreciation to the extent of $300.

On April 1, 1927, the trustee invested the sum of $2,000 in a participation certificate of County Guaranty Mortgage Company (Ex. E-12, E-13, E-27). The participation certificate was issued pursuant to a trust agreement (Ex. E-16, E-17); by its terms it entitled the holder to "an undivided co-ordinate share of the same amount in the principal sum secured by the bonds and mortgages deposited" (Ex. E-27). The exceptants contend that the holder of participation certificates was not the owner of any particular bond and mortgage or any group of bonds and mortgages, but merely owned a note of the Guaranty Company. They also contend that the "nature of this security changed as additions or withdrawals were made from time to time by the mortgage company."

On January 10, 1929, the trustee invested $2,500 in gold bonds of Monmouth Title and Mortgage Guaranty Company (Ex. E-12, E-13). It is alleged that these bonds were never registered nor ear-marked by the trustee (Ex. E-28). These gold bonds were issued practically in the same way in which the participation certificates were issued. It is argued that the purchasers of such bonds had no apparent interest in the bonds and mortgages which were deposited as a basis for the issuance of the bonds (see Ex. E-28, and page 7 of Ex. E-18). It is charged that the bonds were a "fluctuating, unspecified group, depending upon additions, issuance and sale of further gold bonds to the public, and withdrawals or substitutions of the deposited securities." The bondholders evidently exercised no control over the securities which were deposited. That right resided in the company issuing the gold bonds.

The exceptants assert that before making the investments in the participation certificate and the gold bonds, that the trustee made no investigation of the financial condition of the company issuing them and obtained no record or list of the mortgages and bonds deposited as security for the payment of the participation certificate and the bonds.

The record shows that on January 10, 1929, Joseph McDermott was the president and a director of said Freehold Trust Company, and a stockholder and a director of the Monmouth Title and Mortgage Guaranty Company. The secretary of said Freehold Trust Company, Jennie R. Baird, was a stockholder of the title company at the time of the purchase aforesaid (p. 104, Ex. E-31, E-12 and E-13). The title company at the time of the purchase was a depositor in said Freehold Trust Company (p. 214 of record).

The substituted trustee, the Freehold Trust Company, prays allowance for depreciation of $1,800 on the face value of the $2,000 participation certificate of County Guaranty Mortgage Company; and for depreciation of $1,925 on the face value of the $2,500 gold bonds of the Monmouth Title and Mortgage Guaranty Company.

The exceptants and remaindermen heretofore filed a bill in this court seeking an accounting from the Freehold Trust Company from 1920 to date, and alleging liability for the entire administration. That suit was discontinued when an agreement and stipulation was subsequently entered into by the Freehold Trust Company agreeing to withdraw the accounting filed by it in this court and in the place thereof, filing in the Monmouth County Orphans' Court a "full and complete accounting of the entire administration by Freehold Trust Company, as executor and trustee under the will of Andrew S. Buckelew, and by itself, as substituted executor and substituted trustee under said will", and to "assume any and all liability, if any, which may be imputed to Freehold Trust Company, or may exist * * * by reason of its administration as executor and trustee of the trust fund created in said will." This stipulation was filed in the Orphans' Court of Monmouth County.

The exceptants to the account of the Freehold Trust Company charge that the trustee violated its duties as trustee in making the investments aforesaid, and in negligently administering and retaining the investments until they became practically worthless.

The appellant, the Freehold Trust Company, takes the position that since the testator on December 25, 1915, executed a codicil to his will and reduced the trust fund mentioned in the will from $25,000 to $20,000, and bequeathed the difference to his son, Allie M. Buckelew, which latter sum the said Allie M. Buckelew subsequently relinquished all right or claim to and turned back to the estate, the trustee, in consequence, was released from investing the said sum of $5,000 in the securities mentioned in the second paragraph of the decedent's will.

On May 1, 1920, an agreement was entered into between the trustee, Freehold Trust Company, and Olevia White, the life tenant, by the terms of which the trust company contracted to hold in trust not only the $20,000 provided for in the will but the additional sum of $5,000 which the codicil bequeathed to Allie M. Buckelew. The trust company claims that the trust which the testator reduced to $20,000 by the bequest in the codicil to Allie M. Buckelew, was afterward voluntarily increased by the combined action of Allie M. Buckelew, Olevia White and the trustee. The trustee claims that to the extent of the additional $5,000 the terms and conditions of the 1920 agreement are controlling and not the provisions of paragraph 2 of the will; and consequently the remaindermen have no standing to object to the investments involving the $5,000. It argues that the terms of this agreement do not restrict it to investments in bonds and mortgages as the original terms of the will do.

The provisions of the agreement of May 1, 1920, which are pertinent read as follows: "That the said Freehold Trust Company shall continue to hold said securities as Trustee under the last will and testament of Andrew S. Buckelew, and the codicils thereto annexed, and to invest and reinvest the...