Taylor v. Errion

Decision Date16 October 1945
Docket Number148/255.
Citation44 A.2d 356
PartiesTAYLOR et al. v. ERRION et al.
CourtNew Jersey Court of Chancery
OPINION TEXT STARTS HERE

Suit by Gladys H. Taylor and others against Harry C. Errion and others for removal of defendants as testamentary trustees and other relief.

Judgment in accordance with opinion.

Syllabus by the Court.

1. The rule which positively forbids every person who acts in a representative capacity from manipulating his authority for his own personal gain to the disadvantage of his principal, is firmly imbedded in our legal and equitable concepts.

2. A person assuming such a relationship is not permitted to place himself amid opportunities that tempt him to take advantage of his principal or cestui que trust.

3. Courts of equity are invested with the power to remove trustees for derelictions or breaches of duty, in order to protect trusts against jeopardy.

4. The power to remove trustees, especially those who were selected by the creator of the trust, must be discreetly and justifiably exercised.

5. The acts or omissions ordinarily inducing removal are those that endanger the trust property or exhibit a lack of honesty, or of proper capacity, or of reasonable fidelity.

6. A trustee whose private interest conflicts with the management of the trust estate should not proceed to deal with the estate but should apply to the court for instructions.

Scammell, Knight & Reese, of Trenton (Scott Scammell, of Trenton, of counsel), for complainants.

Backes & Backes, of Trenton (Herbert W. Backes, of Trenton, of counsel), for defendants.

JAYNE, Vice Chancellor.

It is expedient in the preparation of this memorandum of my conclusions to summarize the introductory facts, omitting, I acknowledge, references to some incidental circumstances which have nonetheless received consideration. On March 19, 1940, one William T. Taylor died possessed of an estate of the inventory value of $452,908.62. The major portion of his resources consisted of three hundred eighty-five of the four hundred shares of the capital stock of the Taylor Provision Company. The stock of the decedent was appraised initially for administration purposes at $375,375.

By his last will executed on February 25, 1935, and probated on April 3, 1940, the testator nominated the defendants Trenton Trust Company and Harry C. Errion executors and also his trustees to whom he bequeathed his shares of the stock in trust for the beneficial enjoyment of the complainants.

Prior to his death, the testator had officiated as the president and treasurer of the company. Mr. Errion had been in the employ of the company continuously since 1924 and had been elevated to the office of vice-president in July 1933, and in the following year he also attained the office of assistant treasurer. Those offices he retained until shortly after the death of the testator. It is conceded that the shares of stock qualifying Mr. Errion and the representative of the Trust Company to participate in the corporate management were in reality owned by Mr. Taylor.

The directors of the company had been three in number, Mr. Taylor, Mr. Errion, and Mr. Petty; the last named was incidentally the trust officer of the Trenton Trust Company. On March 25, 1940, six days after the testator's death, a meeting of the board of directors was held, on which occasion the death of Mr. Taylor was chronicled, and pursuant to authority conferred by the by-laws, Mr. Waugh, an employee of the company, was selected to supply the vacancy in the membership of the board. Moreover, Mr. Errion was thereupon by the vote of the appointed trustees chosen president and treasurer to succeed Mr. Taylor.

It was at the meeting of the directors to which I have alluded that the salary to be paid to Mr. Errion as president and treasurer became a subject of consideration. His annual salary had been $5,200. Should he now receive an increase? Thus, Mr. Errion was promptly led into an alcove of temptation. The indubitable fact is that the directors, of whom the future testamentary trustees constituted the majority, resolved that Mr. Errion should be paid for his services the same salary theretofore established by the board for Mr. Taylor but intrinsically determined by Mr. Taylor for himself. The annual salary payable to Mr. Taylor, in truth the owner of the enterprise, had been $10,400. Mr. Errion has since continued to collect annually from the company the sum of $10,400 as salary.

Upon the probate of the testator's will the defendants assumed their fiduciary duties as executors and testamentary trustees, and true also, Mr. Errion and a representative of the Trust Company have continued to constitute the majority of the board of directors of the Provision Company.

The acts of the trustees which the complainants most emphatically impugn may likewise be briefly divulged. The specified acts are characterized by the complainants as engorgements. The defendants despite their obligations as trustees have in their capacities as directors of the company authorized the payment of bonuses to themselves from the receipts of the company.

It is frankly confessed that in addition to a salary of $10,400, Mr. Errion has obtained the following amounts pursuant to resolutions adopted by the trustee-directors on the dates here mentioned: July 15, 1940, $6,200; December 12, 1940, $5,000; June 16, 1941, $5,000; December 15, 1941, $5,000; June 15, 1942, $2,500. During those years a bonus, so denominated, of $250 was paid under like authority to the representative of the Trust Company who served as a director of the Provision Company.

In September 1942 the executors-trustees presented their account, which was assailed by exceptions. One exception is said to accumulate greater significance in view of the alleged misfeasance of the defendants in awarding bonuses to themselves. The company at the death of the testator owned bonds and securities which on December 31, 1939, were appraised at $295,038.31. The complainants desired that this investment account should be preserved and sustained. The complainants informed the Trust Company by letter:

‘As beneficiaries of said estate, we wish to go on record as objecting to any such sale of said stock. Also the proceeds from any securities constituting the investments held by the Taylor Provision Co. that have matured or will mature, be invested in new securities immediately subject to our approval and not used for the normal operations of the business. When any change takes place in the status of the investment portfolio of the Taylor Provision Co., we wish to be advised prior to the actual or contemplated change.’

The defendants, however, sold some of the securities, some matured, and the proceeds were diverted to ‘working capital,’ out of which disbursements including the bonuses were paid. On March 31, 1941, the investment account had been reduced to $219,624.44. The insistence is that but for the expenditures made to the executors-trustees, there was no reasonable need of diverting the proceeds of such securities from the investment account.

Another criticism. On April 15, 1940, a regular dividend was declared. It is asserted that in the distribution of that dividend the defendants again exhibited their lack of caution and diligence in the discharge of their duties. The dividend was the first declared after the testator's death. The preceding regular dividend had been declared on December 15, 1939. The amount of the dividend of April 15, 1940, payable to the decedent's estate was $9,625. The defendants failed to apportion it between the life tenants and the remaindermen. See, Lang v. Lang's Executor, 57 N.J.Eq. 325, 41 A. 705; Hagedorn v. Arens, 106 N.J.Eq. 377, 150 A. 4; Union County Trust Co. v. Gray, 110 N.J.Eq. 270, 159 A. 625; City Bank Farmers' Trust Co. v. McCarter, 111 N.J.Eq. 315, 116 A. 274, affirmed 114 N.J.Eq. 46, 168 A. 286; Graves v. Graves, 115 N.J.Eq. 547, 171 A. 681; Bankers' Trust Co. of New York v. Lobdell, 116 N.J.Eq. 363, 173 A. 918; 130 A.L.R. 492. The entire dividend was paid to the life beneficiaries. It is proposed that only $2,147.73 of the dividend was properly payable to them.

On November 6, 1942, the complainants petitioned the Orphans' Court of Mercer County for a decree abrogating the authority of the defendants to longer serve as executors and trustees. Upon request and without objection this court has assumed jurisdiction of the administration of the trust.

The removal of the defendants from their fiduciary offices as trustees may be regarded as the primary object of the present bill. It is desirable to first resolve that issue, leaving for further hearing and consideration the specific exceptions to the accounts as such and the propriety of surcharges.

This case sustains the persistent apprehension that in fiduciary situations external temptations are likely to generate internal avidity. A preclusive rule of law exemplifies the wisdom of our public policy in suppressing and subverting all such risks. There is perhaps no rule more firmly imbedded in our legal and equitable concepts than that which positively forbids every person who acts in a representative capacity from manipulating his authority for his own personal gain to the disadvantage of his principal. Indeed, a person assuming such a relationship is not permitted to place himself amid opportunities that tempt him to take advantage of his principal or cestui que trust. Of course, it is one thing to be tempted and another thing to succumb.

This salutary rule of law designed to brace moral nature was endorsed by our Court of Errors and Appeals in Staats v. Bergen, 1867, 17 N.J.Eq. 554, and has expression in the lengthy procession of decisions that have ensued. A few vivid quotations from some reported cases will be more serviceable here than a mobilization of all the available citations.

Recognized by Chief Justice Green in Mulford v. Bowen, 9 N.J.Eq. 797, the inexorable character of the rule is concisely declared in Staats...

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  • Ditmars v. Camden Trust Co., 139
    • United States
    • New Jersey Superior Court
    • October 4, 1950
    ...(E. & A.1944); Fidelity Union Trust Co. v. Guaranty Union Trust Co., 140 N.J.Eq. 548, 55 A.2d 813 (E. & A.1947), and Taylor v. Errion, 137 N.J.Eq. 221, 44 A.2d 356 (Ch.1947), affirmed, 140 N.J.Eq. 495, 55 A.2d 11 (E. & A.1947); cited by plaintiff, are here absent, and said cases are not I f......
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    ...he might be tempted to sacrifice the interest of the beneficiaries because of a conflicting personal interest. In Taylor v. Errion, 137 N.J.Eq. 221, 44 A.2d 356, 359, the court said: ‘In Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546, 62 A.L.R. 1, Mr. Justice Cardozo, then a member of ......
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    ...acts done which have diminished or endangered the trust, or even to protect the trust against possible future jeopardy. Taylor v. Errion, 137 N.J.Eq. 221 (Ch.1945), affirmed 140 N.J.Eq. 495 (E. & A.1947); Braman v. Central Hanover Bank & Trust Co., 138 N.J.Eq. 165 (Ch.1946); Restatement, Tr......
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