For reversal and remandment -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor and Schettino. For affirmance -- None. The opinion of the court was delivered by Proctor. J.
[51 NJ Page 14] The plaintiff Ruth K. Cohen, as settlor and cestui que trust, brought this action to recover the assets of a trust fund held by defendant First Camden National Bank and Trust Company. The Bank was a co-trustee of the fund with Jack M. Cohen, the plaintiff's husband. The trustee Bank, acting under an assignment of the trust assets executed by Mrs. Cohen as collateral security for the payment of loans made by it to the co-trustee Jack M. Cohen, took possession of the funds for its own account upon the default in the repayment of the loans by Mr. Cohen. The Bank counterclaimed against Mrs. Cohen for the deficiency remaining due on the defaulted notes of Jack M. Cohen after the collateral was exhausted. After trial the Superior Court, Chancery Division, held that the assignment of collateral was effective and its acceptance by the Bank was not a breach of its fiduciary obligations. Accordingly, judgment was entered dismissing plaintiff's claim. The trial court dismissed the Bank's counterclaim, holding that Mrs. Cohen was under no personal obligation for the deficiency. The Appellate Division affirmed the judgment
in an unreported opinion. We granted plaintiff's petition for certification. 49 N.J. 371 (1967). The Bank does not complain of the dismissal of its counterclaim.
The plaintiff, a resident of Philadelphia, formerly was married to Harry Kelinson who died in 1957. After his death, she continued the operation of Mr. Kelinson's wholesale meat business in Philadelphia for a few months until the business was terminated because of operating losses. Jack M. Cohen, a Pennsylvania attorney, was retained by her to handle the administration of her husband's estate. In this capacity he received a power of attorney from the plaintiff, "individually and as executrix of the estate of Harry Kelinson." With Jack M. Cohen's advice, on May 28, 1958 the plaintiff executed an Indenture of Trust conveying the bulk of her assets to the defendant Bank and Jack M. Cohen as co-trustees. Plaintiff testified that for about a year prior to May 28 she had considered placing her assets in trust so that "my funds would be in safe hands if I ever decided to remarry again." The trust instrument provided that monthly payments of $150.00 were to be made to her and $100.00 was to be paid each month to her son. On the death of the plaintiff the trust assets were to be distributed to her son and daughter. Power to revoke or amend the trust was reserved by the plaintiff and she retained the right to instruct the trustees as to investments and administration. Until the transactions giving rise to this litigation, the trust apparently continued with no changes except an assignment of $15,000.00 made by the plaintiff on December 11, 1958 to secure a bond required in a claim against the Kelinson meat business. The assignment was executed by her with the advice of attorney Cohen and her son, and was limited to $15,000.00. The suit later was settled for $9,325.00 which was paid out of the trust assets.
On June 1, 1958, a few days after the execution of the trust instrument, the plaintiff married Jack M. Cohen. The present litigation stems from a transaction of January 27, 1960. On that date an instrument entitled an Assignment
of Collateral was executed bearing the signature of Ruth K. Cohen. The document reads as follows:
"For value received, I, Ruth K. Cohen * * * do hereby assign to First Camden National Bank and Trust Company of Camden, New Jersey, individually, all my right, title and interest in and to the corpus or principal assets of that certain trust established under deed made May 28, 1958, by me (then known as Ruth K. Kelinson) and of which said Bank and Jack M. Cohen are Trustees, of which I am now owner and over which I have the right of withdrawal, amendment and revocation, and against which there are no liens or claims of any kind, to be held by said First Camden National Bank and Trust Company as collateral security for the note of Jack M. Cohen for $9901.99/100 dated Jan. 27, 1960; and for all renewals of said note, or any part thereof, and the interest on said note and renewals, and for any and all other indebtedness due or to become due from said Jack M. Cohen, whether such indebtedness shall have been heretofore or shall be hereafter contracted, to said First Camden National Bank and Trust Company; and for the performance of any and all other terms and conditions of said note and indebtedness, with exactly the same rights and powers conferred by said note, or any renewals thereof, and by law over and concerning the collateral hereby assigned as said First Camden National Bank and Trust Company would have had if such collateral was the property of the maker of said note.
"I do further hereby provide that to such extent as may be necessary to accomplish the purposes hereof, this instrument is made an amendment to said deed of trust dated May 28, 1958, and shall be as such irrevocable by me unless and until release of said assignment is made by said Bank.
"Given under my hand and seal at Philadelphia, Pa. this 27th day of January, 1960."
According to James Whitall, the Vice-President of the Bank who handled the loans to Jack M. Cohen, the assignment was executed because Cohen, who then was indebted to the Bank, wished to borrow additional funds; the Bank was unwilling to lend him any further sums without his wife's signature or some form of collateral. The Bank's records show that Jack M. Cohen had been a frequent borrower from the Bank and at the time of the assignment was indebted to it in the sum of $7,500.00.
An additional assignment of collateral, similar in terms to the assignment of January 27, ...