Liberty Title & Trust Co. v. Plews

• Decision Date: 17 January 1950
• Docket Number: No. A--581,A--581
• Parties: LIBERTY TITLE & TRUST CO. v. PLEWS et al.
• Court: New Jersey Superior Court — Appellate Division

Page 196

6 N.J.Super. 196

70 A.2d 784

LIBERTY TITLE & TRUST CO. v. PLEWS et al.

No. A--581.

Superior Court of New Jersey, Appellate Division.

Argued Nov. 14, 1949.

Decided Jan. 17, 1950.

Allen B. Endicott, Jr., Atlantic City, argued the cause for the appellant (Starr, Summerill & Davis, Camden, attorneys).

William Elmer Brown, Jr., Atlantic City, argued the cause for the respondent, Louise Plews (Charles C. Babcock, Atlantic City, for Lillian Welsel and others).

Augustine A. Repetto, Atlantic City, argued the cause for Joseph W. Wells and others (Bolte & Repetto, Atlantic City, attorneys).

Before Judges JACOBS, DONGES and BIGELOW.

The opinion of the court was delivered by

JACOBS, S.J.A.D.

This is an appeal by the plaintiff trustee from a judgment reopening a decree entered on December 24, 1932 in the Orphans' Court of Atlantic County and surcharging the trustee for the reasons set forth in the full opinion filed by the lower Court and reported in Liberty Title & Trust Company v. Plews, 142 N.J.Eq. 493, 60 A.2d 630 (Ch. 1948).

The decedent, Gustavus C. Seidel, died in 1922. In his will he created a trust in the sum of $250,000, the income to be paid to his widow for life and, upon her death, the sun of $150,000 to be paid to her appointees and the remainder to become part of his residuary estate. He designated, as trustee, the plaintiff trust company which conducted a general banking business in Philadelphia and maintained a trust department, represented to be specially equipped to handle trust estates. On September 26, 1923 the trust was established, consisting of cash, corporate stock and mortgages including shares of the Union Traction Company and the Electric and Peoples Traction Company and a $6,500 mortgages on premises located at 332--34 North Second Street and designated as No. 15 in the lower Court's opinion. Thereafter, the trust was administered and in 1932 the trustee filed its first intermediate account. The schedule of securities attached to this account listed the Traction Company stocks and mortgage No. 15, as well as a 'Certificate' in the sum of $8,300. In addition, it listed a group of new mortgages which are described in the lower Court's opinion as Nos. 1 to 14, inclusive, and Nos. 16 and 17. The account simply embodied street address and amount for each of these mortgages but contained no other descriptive information. Exceptions to the account were filed by the life tenant, who contended that she was entitled to certain profits which had been added to the corpus, and by Louise Plews, a remainderman, who contended that the inventory value of the mortgages and other securities listed in the schedule was not a true and correct estimate. At the hearing before Judge Corio in the Orphans' Court, counsel for Louise Plews sought to introduce evidence as to the value of the mortgaged property but the Court declined to permit this in the absence of any default under the mortgages. No issues of self-dealing, self-interest, private profit taking or related wrongdoing were raised either in the exceptions or at the hearing. On December 24, 1932 the Orphans' Court entered its decree which sustained, in part, the life tenant's claim that she was entitled to a sum which had been added to corpus and dismissed the exceptions filed by Louise Plews.

The life tenant died on May 15, 1944 and the trustee filed its final account in the Orphans' Court of Atlantic County on February 6, 1945. Exceptions to this account were filed by Louise Plews and other beneficiaries. These exceptions charged that the trustee had been guilty of self-dealing, self-interest and private profit taking, had made illegal investments and had improperly managed the trust. At the hearing before Judge Haneman in the Orphans' Court a preliminary issue was presented as to whether the exceptants would be permitted to introduce evidence of alleged wrongdoings prior to the 1932 decree. The exceptants contended that the decree should be reopened to permit such evidence whereas the trustee contended that the doctrines of Res judicata, estoppel and acquiescence should be invoked to preclude such evidence. After taking testimony the Court expressed the view that the circumstances did not justify the application of the doctrines advanced by the trustee and ruled that evidence of occurrences prior to 1932 would be permitted. After the hearing was completed and briefs were filed, Judge Haneman was appointed to the Court of Chancery and, with the consent of all the parties, the matter was transferred to that Court for determination. On June 10, 1949 judgment was entered in the Chancery Division opening the decree of December 24, 1932 and surcharging the trustee. The trustee appeals from the entire judgment and a cross-appeal from a minor portion thereof is taken by certain exceptants.

I.

Res Judicata, Estoppel and Acquiescence.

The first contention advanced by the trustee is that the 1932 decree of the Orphans' Court is Res judicata and bars the exceptants from asserting that the trustee had been guilty of self-dealing, self-interest, private profit taking and related wrongdoings prior thereto. It is not disputed that the 1932 proceeding did not in any wise deal with such alleged conduct and that there was nothing in the 1932 accounting which afforded notice to the exceptants thereof. Courts throughout the country have recognized that, although decrees on accounts by trustees may well be deemed to bind Cestuis as to all matters which ought be apparent to them from the face of the account, they should not be obliged to conduct investigations and ferret out concealed or missing information under penalty of estoppel. See In re Enger's Will, 225 Minn. 229, 30 N.W.2d 694, 1 A.L.R.2d 1048 (Sup.Ct. 1948); In re Cosgrove's Will, 236 Wis. 554, 295 N.W. 784, 132 A.L.R. 1514 (Sup.Ct. 1941); In re Ryan's Will, 291 N.Y. 376, 52 N.E.2d 909 (Ct. of App. 1943); and cases collected in 4 Bogert on Trust and Trustees, § 973, pages 344--349. Similarly, in Re Shaw, 122 N.J.Eq. 536, 543, 195 A. 525 (Prerog. 1937) Vice Chancellor Fielder expressed the generally accepted view that the fiduciary relationship between trustee and Cestui requires that before a Cestui is estopped from complaining about a breach of trust it should appear that he 'knew all the facts, understood his legal rights, and acted deliberately in not objecting to an investment he knew, or should have known, he had the right to object to.'

The trustee contends, however, that, notwithstanding the foregoing, the decisions in Pollack v. Bowman, 139 N.J.Eq. 47, 49 A.2d 40 (E. & A. 1946) and Dickerson v. Camden Trust Company, 1 N.J. 459, 64 A.2d 214 (Sup.Ct.1949) barred the reopening of the 1932 decree and the assertion of wrongdoings prior thereto. We do not so interpret them. While the decrees there passed upon were stated to be Res judicata, neither case involved nor dealt with a situation where the Cestui asserted prior self-dealing, self-interest, private profit taking and related wrongdoing not disclosed in the accounting approved by the decree. Cf. In re Enger's Will, supra (225 Minn. 229, 30 N.W.2d 701), where the Court pointed out that 'Self-dealing by a trustee is not a matter involved in an accounting proceeding by a trustee, where the account and the petition for the allowance thereof do not apprise the beneficiaries of the fact.' We recognize that there is a public policy in favor of the stability and finality of decrees and that Cestuis may justly be held responsible for matters apparent on the face of the account. We believe, however, that in the field of fiduciary relationships this policy should give way to the entrenched and wholesome public policy, of greater force, which prohibits such conduct by trustees, requires full and frank disclosure thereof, and sanctions reliance by Cestuis upon their trustees without independent investigation to obtain withheld or omitted information. We are satisfied that the lower Court under the circumstances presented to it, properly opened the 1932 decree and received evidence of the alleged wrongdoings prior thereto. We are likewise satisfied that there was no sufficient evidence of disclosure to the Cestuis which would support the trustee's contention that their conduct thereafter constituted acquiescence or the basis of estoppel independent of the 1932 decree. See In re Bender's Estate, 122 N.J.Eq. 192, 199, 192 A. 718 (Prerog. 1937) affirmed 123 N.J.Eq. 171, 196 A. 677 (E. & A. 1938). Although the recent amendment of R.S. 3:10--18, N.J.S.A., by P.L. 1947, c. 398 has been referred to, we have not considered its meaning and effect since it admittedly cannot be applied to the earlier proceedings in the instant matter.

II

The Mortgages.

After the trust was set up and prior to the accounting in 1932 the trustee acquired the mortgages listed in the lower Court's opinion as Nos. 1 to 17, inclusive (except No. 15). All of these mortgages, apart from 1 and 8, were acquired by the plaintiff and transferred to the trust under substantially the following circumstances:

Customers of the plaintiff bank made application for mortgage loans. In connection therewith the bank made certain charges, including premiums for title policies issued by the plaintiff. The plaintiff maintained no title plant and made no title searches but obtained reinsurance from the Commonwealth Title Company, remitted portions of the premiums and title search fees to the Commonwealth and retained the balance as its profit in its individual capacity. The Commonwealth policies were issued to the plaintiff and the plaintiff's policies were issued in its own favor as mortgagee. The mortgages remained in what the plaintiff describes as its 'pool of mortgages' and ultimately some were transferred to customers of the bank, some to trusts being administered by the bank, and some were retained in the bank's individual capacity. The mortgages which were transferred to the Seidel...