The decedent, John R. Ditmars, died on December 21, 1925. On January 4, 1926, his last will and testament was probated before the Surrogate of Camden County. The Camden Safe Deposit and Trust Company, later known as Camden Trust Company, and Katharine L. Ditmars, widow of the testator (step-mother of the exceptants), were named therein as and appointed executors.
John R. Ditmars, Jr., the son of the testator and one of the exceptants, filed an appeal to the Camden County Orphan's Court from the decree probating the will, on the ground that it was not in truth the last will and testament of his father. The Camden County Orphan's Court affirmed the decree of the Surrogate. John R. Ditmars, Jr., then appealed to the Prerogative Court, which court affirmed the lower court. An appeal was then taken by John R. Ditmars, Jr., to the Court of Errors and Appeals but the said litigation was terminated by an agreement which was dated October 19, 1928.
During the said litigation, the First Camden National Bank and Trust Company was appointed administrator pendente lite and acted as such. While the litigation involving the probate of the will was pending the executors filed their first account covering the period from the death of the testator to the time when the administrator pendente lite assumed its duties. The said account was approved by the Camden County Orphan's Court on February 4, 1927. This account had annexed thereto "Schedule E -- List of Investments," which showed the investments of the estate. The investments, as shown by the said schedule, had a valuation of $106,090.80. The valuation placed upon each of the investments was the inventory valuation. The Inventory and
Appraisement was filed on February 17, 1926. The total of the Inventory and Appraisement was $107,625.70. There was also annexed to the first account "Schedule F -- Changes in Investments," which showed that the executors had sold certain securities. No exceptions were filed to the said first account.
Thereafter, the administrator pendente lite filed its account covering the period from the time of its appointment to the date of the account, which was approved by the Camden County Orphan's Court on December 7, 1928. There was annexed to this account a detailed "Statement of Assets," showing the value of the assets, including the cash on hand, to be $99,864.44. The valuation of each investment as shown on the said "Statement of Assets" was the original inventory valuation.
The executors' second and final account was approved by the Camden County Orphan's Court on March 7, 1930. There was annexed to the account "Schedule F -- List of Investments," which showed a valuation of $86,915.50. The original inventory valuation was used as the valuation of each investment shown on said Schedule F. There was also annexed a list of the changes that had been made. No exceptions were filed to the said account.
All parties in interest, including the three exceptants, were parties to the said three accounts, and according to the respective decrees allowing each of the said accounts, were duly notified, as required by law, that the said accounts were to be settled.
The Camden Trust Company (hereafter referred to as the Trust Co. or Trustee, depending upon whether reference is to individual or fiduciary capacity) was the sole trustee named in the will and assumed its duties as such after the executors' second and final account was approved on March 7, 1930.
Under the terms of the will, the residue formed the trust corpus. The income was to be given to Katharine L. Ditmars, the widow, during her lifetime, and upon her death, distribution was to be made to the testator's three children, the exceptants.
The widow died on February 26, 1941. The original bill of complaint was filed in this court on April 24, 1941, and the amended bill of complaint was filed on May 26, 1941. This court took jurisdiction by a decree dated November 25, 1941, and directed the Trustee to file its account in this court and the complainants to file and serve their exceptions thereto. Reference was made to I. Herbert Levy, a Special Master of the Court of Chancery.
The first and final account of the Trust Co., as Trustee involved in this proceeding, was filed in March, 1942. It showed the balance in its hands at that time to be $74,671.44 at the "inventory or cost value." Schedule G annexed to the said account, however, showed the "Market Value" on February 17, 1942, to be $150,973.02.
A supplemental account of the Trustee, dated March 26, 1945, was filed, but this supplemental account was not referred to the Master to audit. It shows the estimated market value of the assets to be $198,361.07. No subsequent account has been filed to show the valuation as of the present time.
The agreement above referred to, being dated October 19, 1928, was made between Katharine L. Ditmars and Camden Safe Deposit & Trust Company, as executors; Katharine L. Ditmars, individually; Camden Safe Deposit & Trust Company, as Trustee; and John R. Ditmars, Jr. This agreement, among other things, provided (1) for a division, as set forth in the agreement, of the income on hand between Katharine L. Ditmars and John R. Ditmars, Jr.; (2) for Katharine L. Ditmars to receive from and after October 1, 1928, only $3,600 per year from the income, and for the remaining income (less the carrying charges of the property in which the widow lived) to be paid to John R. Ditmars, Jr.; (3) for a renunciation of whatever rights the widow had under paragraph Sixth of the will; and (4) for certain commissions to the executors and allowances to counsel, which were made subject to the approval of the Camden County Orphan's Court. (5) Paragraph 10 of the agreement also provided as follows:
"Camden Safe Deposit and Trust Company, as trustee under the will of John R. Ditmars, deceased, agrees with John R. Ditmars, Jr., that in addition to the written consent of Katharine L. Ditmars called for by the Fifth clause of the said will, it will not, without the order of a court of competent jurisdiction, vary or alter the investments which it may receive as such executor and trustee, without the concurrence in writing of John R. Ditmars, Jr."
On June 6, 1930, an assignment was made by John R. Ditmars, Jr., to Camden Safe Deposit and Trust Company, in which John R. Ditmars, Jr., assigned to the said Trust Co. all his right, title and interest in the estate of his father as collateral to secure the repayment of a loan made by the said Trust Co. to him.
On May 11, 1934, an agreement was entered into between Katharine L. Ditmars and John R. Ditmars, Jr., and Camden Safe Deposit and Trust Company, as Trustee, in which the agreement dated October 19, 1928, was changed and modified so that the widow's annual income was reduced from $3,600 to $1,800 beginning January 1, 1934, and which, in all other respects, reaffirmed the agreement dated October 19, 1928.
On September 24, 1935, an agreement was entered into between Camden Safe Deposit and Trust Company, individually, and John R. Ditmars, Jr., which provided, among other things, that (1) the Trust Co. would loan Ditmars additional money; (2) as long as the interest was paid on the same at the rate of 6% per annum the Trust Co. would not demand that Ditmars pay any of his indebtedness to the Trust Co. prior to five years; (3) Ditmars affirmed the previous assignment dated June 6, 1930; and (4) Ditmars agreed that he would not, for a period of five years, institute any proceedings to surcharge the Trust Co. for any loss which the estate might suffer by reason of the fact that Ditmars claimed that it had invested $10,000 of the estate's money improperly in Leeds and Lippincott Company bonds, and (5)
"Except as in the next preceding paragraph hereof provided, Ditmars approves of each and all of the investments heretofore made by the Bank or held by it as trustee under the will of John R. Ditmars, deceased, and approves of the administration of the said trust estate by the Bank as disclosed by the Bank to Ditmars to date."
The reference to the "next preceding paragraph" relates to the investment in Leeds & Lippincott Co. bonds.
None of the foregoing agreements was signed by Gladys L. Reed or Kathryn C. Wolford. No proof was adduced to show that John R. Ditmars, Jr., was the agent of or was authorized to sign the said agreement in any manner that would be binding upon the said Gladys L. Reed and Kathryn C. Wolford.
The exceptants, John R. Ditmars, Jr., Gladys L. Reed and Kathryn C. Wolford, filed 297 specific exceptions to the account and a general exception to the entire account.
The plaintiffs filed numerous exceptions to the report of the said Master.
Counsel for the exceptants attempted to file and offer in evidence what is referred to as the "Additional Exceptions," the 298th exception above referred to, and stated what he hoped to prove by such additional exceptions, if such additional exceptions could be added to the original 297 exceptions and if proof could be taken in support of the same.
The Master ruled that these "Additional Exceptions" were not within the scope of the reference. Plaintiffs then made an application directly to the court to amend the bill of complaint to include a fourth cause of action which would enable them to contest the various matters covered by the "Additional Exceptions." This application was denied by the court for the reasons stated in its opinion filed in this cause on November 25, 1941. Thereafter, they still urged the "Additional Exceptions" before the Master, who held that they did not have any right to a hearing thereon.
These "Additional Exceptions" contemplated the following -- (1) that the executors had no right to sell 60 shares of Homestake Mining Company and 16 shares of Hercules Powder Company; (2) that the executors had no right to make a certain payment of $2,760.20 from income to Katharine L. Ditmars; (3) that the executors had failed to make a proper apportionment between the life tenant and the remaindermen in connection with some of the securities; and (4) that it was the duty of the Trustee under the case of
Gates v. Plainfield Trust Co. , 121 N.J. Eq. 460, 191 A. 304 (Ch. 1937); affirmed, 122 N.J. Eq. 366, 194 A. 65 (E. & A. 1937), to see that the executors turned over to the Trustee proper assets.
Subsequent to the commencement of this action, John R. Ditmars, Jr., who had up to that point been represented by the same counsel who represented the other plaintiffs, obtained separate counsel. Plaintiffs, Gladys L. Reed and Kathryn C. Wolford, continued to be represented by their original counsel.
On April 23, 1941, the defendant, Camden Trust Company, commenced a suit in the then New Jersey Supreme Court, seeking a judgment against John R. Ditmars, Jr., upon certain promissory notes made by him and discounted by it. The prosecution of this action was enjoined during the pendency of the present suit. Upon his motion, leave was granted to file an answer and counterclaim in the present cause. He set up, in brief, the following defenses: (1) Statute of Limitations, and (2) payment, and (3) usury. The said plaintiff as well counterclaimed for the sum of $1,265.26 allegedly obtained from him upon a mortgage when nothing was due thereon.
The complaint in this cause was amended to the end that there was included a demand for the removal of the Trustee.
The Special Master above referred to filed his report, to which the plaintiffs have taken the exceptions, which may, for convenience, be grouped and stated as follows:
(1) To the Master's conclusion that he would not consider nor decide upon the right of the defendant Camden Trust Company, as executor, to sell certain securities which it sold while acting as executor, and to the Master's refusal to find that said defendant should be surcharged for the loss resulting from such acts.
(2) To the Master's conclusion that he would not consider nor decide upon the right of the defendant Camden Trust Company as executor to make a payment of $2,796.20 to the widow of the decedent.
(3) To the Master's conclusion that he would not consider nor decide upon the proper apportionment by the defendant Camden Trust Company as executor, between the life tenant and remaindermen, of certain interest and dividends received by the executor.
(4) To the Master's conclusion that he would not consider nor decide upon the duty of the defendant Camden Trust Company as trustee to make certain that it received from the executors the proper assets for the trust estate, and to the Master's refusal to find that said defendant should be surcharged for the loss resulting from accepting for the trust estate improper securities and assets from the executors.
(5) To the Master's finding and conclusion that the Trustee should not be surcharged for the loss occasioned by reason of its failure either to sell the shares of stock of International Match Corporation as soon as it received them as Trustee, or to request the instruction of the court as to the course to be followed.
(6) To the Master's finding and conclusion that the Trustee acted properly in retaining a Toho Electric Co. bond until December, 1931, the date of the consent of the life tenant, and that John R. Ditmars, Jr., was barred from any participation in any surcharge.
(7) To the Master's finding and conclusion that the Trustee acted properly in retaining the so-called German bonds until March, 1931, and that John R. Ditmars, Jr., was barred from any participation in any surcharge.
(8) To the Master's finding and conclusion that the Trustee acted properly in retaining the Chicago Rapid Transit Co. bonds until May, 1931, but that it then should have attempted to obtain Katharine L. Ditmars' approval of a sale.
(9) To the Master's finding and conclusion in disallowing the exception that it was unnecessary and negligent to sell the Keystone Telephone Co. bond at a loss.
(10) Because the Master allowed interest on surcharges at 4% when he should have allowed 6%.
(11) To the Master's finding and conclusion that the Trustee
should not be surcharged for commissions taken without prior allowance by the court.
(12) To the Master's finding and conclusion that the rate of the Trustee's commissions was reasonable.
(13) To the Master's finding and conclusion in refusing to allow the withdrawal of the waiver alleged to have been made by Mr. Scammell concerning the above referred to exceptions which I have designated as 11 and 12.
(14) To the Master's refusal to find that for various sums allegedly paid to John R. Ditmars, Jr., there were (1) no vouchers, or (2) not in fact paid to him, or (3) all payments of interest on his loan made to the Camden Trust Co. were usurious.
The defendants' exceptions to the Master's report may, for convenience, be grouped and stated as follows:
(1) To the Master's finding and conclusion that the Trustee should be surcharged for failing to sell the Equitable Office Building Corporation stock.
(2) To the Master's finding and conclusion that the Trustee should be surcharged for failing to sell the "German" bonds.
(3) To the Master's finding and conclusion that the Trustee should be surcharged for failing to recommend and to actually sell the Chicago Rapid Transit Co. bonds.
Generally stated, the additional issues here presented, as set forth in the pretrial order, are as follows:
(1) Usury of the defendant in its individual capacity both as an affirmative claim of John R. Ditmars, Jr., and as a defense to the Trust Co.'s action on his notes discounted by it.
(2) Statute of Limitations, as a defense to the Trust Co.'s action on the notes of John R. Ditmars, Jr., discounted by it.
(3) The payment of $1,265.26 to the Trust Co. in its individual capacity from the so-called Dilks transaction was illegal.
(4) The ascertainment of the amount of the balance due John R. Ditmars, Jr., or the Camden Trust Co., as a result of the foregoing.
(5) The removal of the Trustee upon the theory that the Trustee was disloyal to the remaindermen and influenced by its own interest.
Prior to the consideration of the separate and individual exceptions, there are several preliminary questions which should be decided and disposed of. These relate to and recur in a number of the separate exceptions and are advanced as reasons for the affirmance or reversal of the Master. They are as follows:
1. The responsibility of the Trustee for failing to sell securities where the life beneficiary refused to consent, including the nature of the contents of the request for the consent of the life tenant and the question of whether there was a duty imposed upon it to apply to the court in the event of such a refusal.
2. The degree of care required of the Trustee in managing the estate, prior to a request for a consent of the life tenant to sell, where the life tenant's consent to a sale was not requested.
3. The efficacy and effect of the several agreements with John R. Ditmars, Jr., insofar as he is concerned, and their effect upon the interests of Gladys L. Reed and Kathryn C. Wolford, and the relationship of John R. Ditmars, Jr., to the Trust Co.
The first inquiry hereunder concerns itself with the power of this Trustee to retain investments found in the portfolio at the inception of the trust.
The exceptants concede that the retention of investments which were a part of the estate of the deceased was expressly authorized by the terms of the will. They make no point of the failure of the Trustee to invest in "legals." With this position we are in accord.
The second inquiry hereunder concerns itself with the duty of the Trustee, when the life tenant refused to give her consent,
as required by the will, to a disposal of investments, to apply to the court for instructions.
The will, so far as here pertinent, provides as follows:
"Fourth: -- I give, devise and bequeath all the rest, residue and remainder of my estate, real, personal and mixed, and wheresoever situate, to Camden Safe Deposit and Trust Company, a corporation organized under the laws of New Jersey, in trust, nevertheless:
"(a) To invest the same and to pay the income arising therefrom to my wife, Katharine L. Ditmars, during the period of her natural life.
"(b) Upon the death of my said wife, Katharine L. Ditmars, it is my will and I direct that Camden Safe Deposit and Trust Company, trustee as aforesaid, pay all the rest, residue and remainder of my estate to my children, Gladys L. Reed, Katharine C. Woolford, and John R. Ditmars, Jr., to be divided between them equally, share and share alike; provided, however, that the sum of $11,137.50 which I have advanced to my said son, John R. Ditmars, Jr., shall be taken in part satisfaction of his share as aforesaid.
"Fifth: -- It is my will that all stocks, bonds and other securities belonging to me shall form a part of the trust fund created by my will, but my trustee, with the concurrence in writing of my wife, the said Katharine L. Ditmars, may vary or alter the aforesaid investments, whenever in its judgment it shall be deemed to be for the best interest of my estate so to do. I direct, however, that security of the investment and stability of dividend or interest return, shall be the controlling factors in the choice of any such new investments.
"Sixth: -- If at any time the income arising from the trust fund hereby created shall, in the judgment of my wife, be inadequate for her comfortable support and maintenance, I authorize my trustee, on the application of my wife, to transfer to her absolutely such portion of the corpus of the trust fund as shall in its judgment be wise and provident under the circumstances, bearing in mind always that my chief object and desire is to conserve the principal of the trust fund so as to secure to my wife a reasonably certain fixed and adequate income during her life."
The duty of a fiduciary, in the event of a failure of some third party, whose precedent consent is required for the sale of trust securities, to consent thereto, is dependent upon whether, in the exercise of such power, the third party was acting solely for her own benefit or as a fiduciary for the benefit of some other party.
Restatement of the Law, Trusts , § 185, p. 470, states as follows:
"If under the terms of the trust a person has power to control the action of the trustee in certain respects, the trustee is under a duty to act in accordance with the exercise of such power, unless the attempted exercise of the power violates the terms of the trust or is a violation of a fiduciary duty to which such person is subject in the exercise of the power."
"It is a question of interpretation whether a power reserved to the settlor to control the trustee in disposing of and making investments is a power for the benefit of the beneficiaries of the trust generally or for the benefit of the settlor alone or for the benefit of both the beneficiaries generally and of the settlor."
"d. Duties of the trustee where power is for the sole benefit of the holder. If the power is for the sole benefit of the person holding the power, the only duty of the trustee is to ascertain whether the attempted exercise of the power is or is not within the terms of the trust and to act accordingly.
"e. Duty of trustee where holder of power is subject to fiduciary obligations. If the power is for the benefit of someone other than the holder of the power, the holder of the power is subject to a fiduciary duty in the exercise of the power. In such a case the trustee is under a duty similar to his duty with respect to the action of a co-trustee (see sec. 184). If the trustee has reason to suspect that the holder of a power is attempting to exercise it in violation of a fiduciary duty to which the holder is subject in the exercise of the power, the trustee is under a duty not to comply and may be liable if he does comply. If the ...