In re Megargee's Estate

• Decision Date: 20 December 1934
• Citation: 175 A. 808
• Parties: In re MEGARGEE'S ESTATE.
• Court: New Jersey Supreme Court

175 A. 808

In re MEGARGEE'S ESTATE.

Prerogative Court of New Jersey.

Dec. 20, 1934.

Syllabus by the Court.

1. The law exacts of an executor in the performance of his duty only the utmost good faith, ordinary care and prudence, and reasonable diligence. When these are fairly exercised, he is not responsible, even though loss ensues.

2. Executors have the right to retain and pay counsel, but they retain and pay at their peril. Title to estates of decedents is in the executors, subject to the trust, the administration of which is subject to judicial ap proval. Outlay for counsel fees must be vouched and justified like any other item for allowance.

3. Executors' compensation for "their actual pains, trouble and risk in settling such estate" is a statutory right. Unfaithfulness to duty will deprive them of that right.

4. Accountability of executors for improper expenditure, unaccompanied by bad faith, finds remedy in disallowance or surcharge.

Appeal from Orphans' Court, Ocean County.

Proceedings in the matter of the estate of S. Edwin Megargee, deceased. On appeal from an order sustaining exceptions to the executors' accounts.

Decree in accordance with opinion.

Walter Cooper, of New York City, and James D. Carpenter, Jr., of Jersey City, for appellants.

Franklin H. Berry, of Toms River, for respondent.

BACKES, Vice Ordinary.

The appeal is from an order sustaining exceptions to the executors' accounts, refusing them allowance for depreciation of assets, commissions and counsel fee, and awarding counsel fee against them personally.

The testator died February 16, 1930. By his last will and testament, after minor pecuniary bequests and a devise, he gave the residue of his estate to his executors, his two sons, and the National City Bank of New York, in trust, to set aside $75,000 in good securities, to yield $3,600 annually, to be paid lifelong to three unmarried daughters, with survivorship, and, having provided the fund, to pay to another daughter and a son $5,000 each, and out of the balance pay $5,000 to each of his remaining seven children and the residue equally among his twelve children.

The inventoried estate, appraised at $89,789.94, consisted of, inter alia, shares of capital stock in twenty-six corporations, among them fifty shares of Central Public Service Corporation preferred stock, appraised at $4,100. At the time of the accounting in June, 1933, their value had depreciated to $50, and the executors prayed an allowance of $4,050, which was refused because of their delinquency. We fail to find support for this ruling. The proof is that the executors at all times were on their toes to keep the estate intact. At the outset, the corporate trustee advised a sale of all stocks, and the money be invested in guaranteed mortgages, because of the then recent crash and the uncertain condition of the market, and for the further reason that the holdings were in small lots, which, we surmise, it thought would be more troublesome to handle than guaranteed mortgages. The individual executors disagreed. They were concerned, not only over the safety of the capital investments of the estate, for their own pecuniary interests were at stake, but as well felt a deep personal responsibility to their dependent maiden sisters to provide for them an annual income of $3,600, and Central Public Service Corporation was paying 7 per cent. dividends. It was an unlisted stock.

The history of the panic shows a reaction in stocks after the 1929 crash until April of the following year, and thereafter the descent was steadily, gradually downward. The Central Public Service Corporation made a good showing of ability to survive; it continued to pay dividends to and including January, 1932, and in the meantime the individual executors sought all available information concerning its affairs, and were diligently watchful and confident. At the next dividend period payment was suspended, and there was no longer a market for the stock. The collapse was sudden and unforeseeable. The loss happened, not from want of care or because of disagreement between the corporate and the individual executors as to whether this stock should be sold, but through an honest difference of opinion as to the sale of all stocks. It may have been wise to sell all stocks, as the corporate executor advised, but, in the light of more recent experience, it might have led to greater disappointment had the advice to sell and invest in mortgages of guaranty companies been put into action. The refusal of the individual executors to wipe the estate clean of all stocks (investments made by the testator, 80 per cent. of which are retained in the trust fund, with values and income perhaps surer than the investments proposed by the corporate executor), is not assailed, nor is their policy in this respect criticized, but they stand condemned as unfaithful because among the score and more of stocks saved their judgment miscarried as to one. "The law exacts of an administrator or trustee in the performance of his duty only the utmost good faith, ordinary care and prudence, and reasonable diligence. When these are fairly exercised, he is not responsible, even though loss ensues." Smith v. Jones, 89 N. J. Eq. 502, 104 A. 380, 381. We are not in agreement with the orphans' court that the executors were culpable, nor with its stricture upon them that they gambled with the assets, nor with its observation that "this case comes squarely within the scope of In re Cross' Estate, 115 N. J. Eq. 611, 172 A. 212." The distinction is as wide as care differs from negligence. The dilemma in which the executors found themselves finds resemblance in Beam v. Paterson Safe Deposit & Trust Co., 82 N. J. Eq. 518, 91 A. 734; In re Corn Exchange National Bank & Trust Co., 109 N. J. Eq. 169, 156 A. 455; In re Pettigrew's Estate, 115 N. J. Eq. 401, 171 A. 152; Harris v. Guarantee Trust Co., 115 N. J. Eq. 602, 172 A. 209, and People's Nat. Bank &...