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Donaldson v. Borough of Madison

Decided: August 6, 1965.

WILLIAM R. DONALDSON, GEORGE S. LEISURE AND PETER C. NETLAND, EXECUTORS OF THE WILL OF MARCELLUS HARTLEY DODGE, DECEASED, FRANK D. ABELL, ERNEST C. JOHNSON, JR., CLYDE A. ZUKSWERT, EDWIN J. SAYRES AND PETER C. NETLAND, TRUSTEES OF THE CHARITABLE TRUST KNOWN AND HELD AS THE HARTLEY DODGE FOUNDATION, AND FIDELITY UNION TRUST COMPANY AND PETER C. NETLAND, SUBSTITUTED GUARDIAN OF GERALDINE R. DODGE, PLAINTIFFS,
v.
BOROUGH OF MADISON, A MUNICIPAL CORPORATION, AND ARTHUR J. SILLS, ATTORNEY GENERAL OF NEW JERSEY, DEFENDANTS



Long, J.s.c. (temporarily assigned).

Long

[88 NJSuper Page 580] This is an application for instructions by the trustees of a charitable trust and

application for approval of the resignation of the donor-trustee who has become mentally incompetent.

Prior to 1932 Geraldine Rockefeller Dodge, a resident of the Borough of Madison, Morris County, New Jersey, proposed to arrange for the construction and maintenance of a municipal building for the borough to be known as the "Hartley Dodge Memorial" as a memorial to her deceased son, Marcellus Hartley Dodge, Jr. Lands were conveyed to the borough and, pursuant to an ordinance adopted by the municipal council on September 12, 1932, Mrs. Dodge caused to be constructed on the lands a large stone and marble building designed for use as a municipal building. By articles of dedication dated May 28, 1935 and recorded in the County Clerk's office, Mrs. Dodge granted the building to the borough, the building to be continuously in the future known as the "Hartley Dodge Memorial" as a memorial to her deceased son for use as a municipal building. Prior to such dedication she executed the trust agreement here in question, dated June 22, 1934, between herself as settlor and seven trustees, who included Mrs. Dodge and her husband, Marcellus Hartley Dodge. The agreement established a charitable trust. It recited that Mrs. Dodge was desirous of creating and establishing an endowment fund to be known and held as the "Hartley Dodge Foundation" for the purpose of maintenance, upkeep and repair of said Hartley Dodge Memorial. By the agreement she granted to the trustees "the trust fund which I am about to create, the transfer of the corpus of said fund to be made by me in payments from time to time to the said trustees until the corpus of said trust fund aggregates the sum of $300,000." The trustees were authorized to invest and reinvest the corpus and to expend the income of the trust in their discretion for the upkeep, maintenance, care and repair of the Hartley Dodge Memorial building, but not for such expenses and disbursements as would and should ordinarily be provided for by the borough, except that in their discretion the trustees might help and/or assist the borough with such expenses, or take over a part or all of the same, if necessary

in their opinion. The agreement contained various other provisions in connection with administration of the trust, including a provision that upon the death or resignation of any of the trustees or any successor trustee, a successor trustee should be appointed in writing by a majority of the surviving or remaining trustees, so that there would never be less than five nor more than seven trustees. Mrs. Dodge reserved the right during her lifetime to add to, modify, alter, change or revoke any provision of the agreement and to add new trustees. Thereafter she executed four modification agreements, one of which surrendered her reserved right to revoke the trust.

Shortly after execution of the trust agreement, Mrs. Dodge funded the trust by transferring to it securities in the face amount of $300,000. Since May 30, 1935 the Borough of Madison, its council and various administrative boards and departments, have occupied and used the memorial building for municipal and public purposes. The income from the trust fund has been applied to the maintenance and upkeep of the municipal building, in some instances by the payment of various sums of money by the trust to the borough and in other instances by having certain repairs, improvements and maintenance work arranged for directly by Mrs. Dodge or the trustees.

In the earlier years the trust and its activities were largely under the direction and control of Mrs. Dodge, and the actions taken by the trustees were, in large part, determined by her and consented to by the other trustees. Later Mrs. Dodge's advanced years and illness caused her to limit her activities in the trust and she did not exercise the same degree of control as previously.

With the passage of the years, various trustees died or resigned and succesors were duly appointed in accordance with the trust instrument. On June 18, 1963 Mrs. Dodge was adjudicated a mental incompetent by the Superior Court, Chancery Division, and her husband appointed as her guardian. On October 14, 1963 Mr. Dodge, as guardian, submitted

to the trustees the resignation of Mrs. Dodge as a trustee "because of her disability which makes her incapable of continuing to act as trustee," the resignation to take effect immediately. Thereafter the six other trustees, including Mr. Dodge as a trustee and as guardian, instituted this suit for approval of the resignation and for instructions.

On December 25, 1963 Mr. Dodge died. His executors were subsequently substituted in this suit in his place as trustee, and the substituted guardians of Mrs. Dodge were substituted in his place as guardian.

The Borough of Madison and the Attorney General, defendants in the cause, have answered and appeared.

In the first count plaintiffs ask that the resignation of Mrs. Dodge be approved by the court and that she be relieved and discharged from all future liability in connection with the trust. There is no objection by any other party. The request should obviously be granted. Mrs. Dodge is unable to perform the duties of her trust. She and her estate are entitled to be protected against liability for failure to perform duties which she cannot perform. The trust is entitled to administration by active and competent trustees.

It is common practice for trustees to apply to the court for discharge on grounds of age or physical infirmity, and to obtain such discharge subject to the duty to account and pay over. Green v. Blackwell, 31 N.J. Eq. 37 (Ch. 1879); O'Kill v. Campbell, 4 N.J. Eq. 13 (Ch. 1837); In re Loree's Trust Estate, 24 N.J. Super. 604 (Ch. Div. 1953); In re Mild's Estate, 25 N.J. 467, 485 (1957); N.J.S. 3A:11-1. Even more compelling is an application for discharge on grounds of mental infirmity.

There is sufficient reason for the discharge, and it appears the discharge will not be prejudicial to the trust or persons interested therein. Also, the trust agreement itself provides for the possibility of resignations, although it does not specify the method by which a resignation shall be effected or by whom it shall be accepted.

In view of Mrs. Dodge's inability to act for herself it is clearly appropriate for her guardians to submit her resignation and apply for her discharge. She and her guardians will be relieved of any further duties in connection with the trust except the duty to account and pay over the assets with which she is chargeable.

In the second count the trustees seek construction of the trust agreement and directions of the court as to a number of matters concerning the administration of the trust and their duties. There are nine specific questions raised and they will be dealt with separately.

I.

Is this charitable trust governed by the same rules which govern the administration of nontestamentary and testamentary trusts generally?

This question should not be answered. It raises no specific question with which the trustees are confronted and appears to be in substance a request for an advisory opinion. All parties seem to agree that the answer to the question is, in general, affirmative, and the authorities support that view. See Restatement, Trusts, 2 d, § 380 (1959); Bogert, Trusts and Trustees (2 d ed. 1964), § 391. However, it is the differences that would be important, and it would serve no purpose here to answer the general question.

II.

Are the powers conferred upon the trustees properly exercisable by less than all the trustees in the absence of any provision in the agreement, as modified, expressly authorizing such exercise of their powers?

The answer to this question is "Yes," with some qualifications and admonitions, and represents one of the differences between private trusts and charitable trusts.

The general rule as to private trustees is that they must act unanimously unless otherwise provided in the instrument creating the trust. Restatement, Trusts, 2 d, § 194, p. 429 (1959); Daybill v. Lucas, 121 N.J. Eq. 143 (Ch. 1936), reversed on other grounds 121 N.J. Eq. 580 (E. & A. 1936); Hersh v. Rosensohn, 127 N.J. Eq. 21 (E. & A. 1939).

However, in the case of a charitable trust there is an exception to the general rule. "If there are several trustees of a charitable trust, the powers conferred upon them can properly be exercised by a majority of the trustees, unless it is otherwise provided by the terms of the trust." Restatement, Trusts, 2 d, § 383 (1959).

The leading text writers uniformly accept the exception to the rule as set forth in the Restatement. See Bogert, Trusts and Trustees (2 d ed. 1964), § 391; 4 Scott, Trusts (2 d ed. 1956), § 383; Perry, Trusts (5 th ed. 1899), § 413; 6 Clapp, Wills and Administration (3 d ed. 1962), § 1095; 4 Pomeroy, Equity Jurisprudence (5 th ed. 1941), § 1060(a).

While no New Jersey cases have been found dealing with this question, the cases from other states are in accord. City of Boston v. Doyle, 184 Mass. 373, 68 N.E. 851 (Sup. Jud. Ct. 1903); Attorney General v. Olson, 346 Mass. 190, 191 N.E. 2 d 132 (Sup. Jud. Ct. 1963); Stewart's Estate, 48 Pa. Dist. & Co. R. 526 (1943); Van Horn v. Lewis, 79 F. Supp. 541, 555 (D.C. 1948).

The rule seems to rest largely on considerations of practical convenience and the necessity for reasonable expedition of the affairs of a charitable trust. Boards or bodies of trustees of these trusts tend to larger numbers than private trusts, with a commensurate increase in the difficulty of reaching unanimous decisions and of obtaining full attendance at all meetings.

The Attorney General has expressed some concern that the principle of majority rule not be understood to lessen the fiduciary duty of any individual trustee or group of trustees, or to sanction control of the trust by a majority without the participation or opportunity for participation of

the other trustees. No such dilution or sanction is here intended. Every trustee is under a duty to administer the trust as long as he is a trustee, and to participate actively in the performance of the trust. Scott on Trusts (2 d ed. 1956), § 169; Speakman v. Tatem, 48 N.J. Eq. 136, 148 (Ch. 1891), affirmed 50 N.J. Eq. 484 (E. & A. 1892). He must exercise ordinary care. Blauvelt v. Citizens Trust Co., 3 N.J. 545, 554 (1950); In re Koretzky's Estate, 8 N.J. 506, 524 (1951). He cannot delegate the administration of the trust, although he may delegate the performance of certain acts. Restatement, Trusts, 2 d, § 171, comment (d); Scott, op cit., § 171.1.

These rules apply to multiple trustees as well as a single trustee. Professor Scott says (op. cit., § 184):

"Where there are several trustees it is the duty of each of them, unless it is otherwise provided by the terms of the trust, to participate in the administration of the trust. A trustee is under a duty not to delegate to third persons the doing of acts which he can reasonably be required personally to perform. Similarly a trustee cannot properly delegate the doing of such acts to his co-trustees. It is improper for one of the trustees to leave to the others the control over the administration of the trust. A trustee who remains inactive is guilty of a breach of trust. It is improper for one trustee to leave to the others the custody and control of the trust property. It is the duty of each to use ...


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