Ackerman v. Emott

By the Court, Strong, P. J. The testator, by the third codicil to his will bequeathed to the plaintiff $3500, to be paid to her when she should arrive at age, or marry ; and directed that in the meantime the interest on such legacy should be paid, in the discretion of the executors, for her maintenance and education. The whole personal estate of the testator was bequeathed to the executors, in trust for the purposes specified in the will; and the plaintiff’s legacy was given subject to its provisions and instructions. Although the defendants were not in terms authorized to invest the legacy for the benefit of the plaintiff, until she should become entitled to the payment of the principal, yet the power to do so was necessarily incidental to the direction for the payment of interest for her benefit, in the meantime. The principal question in this cause is, whether the power to make such investment was unlimited, or restricted by any provision in the will, or by any rules applicable to persons acting in a representative capacity. The codicil by which the plaintiff’s legacy was given, extends the will to all property then held by the testator; and directs that all the legacies bequeathed in such codicil shall be in all respects subject to the provisions and instructions of the will. There are no instructions in that instrument for the investment of money by the executors; but the testator expressed a wish that the persons owing him should not be oppressed or harassed, it being his intent that the money due to him should — 645 — remain at. interest as long as the same should be deemed secure, and the interest met.” He, however, directed that the amounts of certain legacies which he bequeathed to the trustees of the Reformed Dutch Church at Hackensack, and the trustees of the school at the same place, should be placed and kept at interest on good real security. Those investments were to be made by the officefs of the societies, and were to be continued for indefinite times. The testator may therefore have deemed it necessary to give more stringent directions for their security than where a similar power was conferred upon his executors, who doubtless had his entire confidence, to be exercised within a comparatively short period. But still such positive instructions, in the only instances in which he expressly authorized any investments, are strongly indicative of his views relative to the requisite security; and, although possibly not imperative upon the executors, yet gave them a safe, and in my opinion, appropriate guide for their conduct. And these considerations are the more forcible where, as in this case, there are instructions given in two instances, and those the only instructions in the will, for the security which should be required on the investment of moneys under its provisions. And it is expressly declared in the codicil that the legacies therein given are in all respects to be subject to the .provisions and instructions of the will. It seems to be settled by many cases in the courts in England, and indeed was admitted by the counsel for the defendants on the argument, that where a general power is conferred upon persons acting in a representative capacity, to make investments, in that country, they are confined in its exercise to real and government securities. The cases quoted by the late vice chancellor are conclusive on that point. In some of the cases it is said that trustees are not personally responsible if they exercise the power confided to them in good faith,- and with reasonable care and diligence. But that applies to cases where they do not go beyond the limits prescribed for them by express rules. If for instance, in making a loan on real security, they in good faith take that which is apparently sufficient at the time, — 646 — and it eventually turns out to be inadequate, they will not be responsible for any loss that may be sustained. So also in the selection of government securities. But if they go beyond the prescribed limits, neither good faith, nor care, nor diligence (if they can accompany such departure) will protect them where there is an actual loss. In such cases they assume the risk and must be responsible accordingly. But it is contended that the rule has never been established in this state; and that it would be oppressive to enforce it against persons acting in good faith, until it had been fully settled, and become generally known. It is probably a sufficient answer to say that it has long been the uniform rule in the country from which we derive, and in many cases by constitutional provisions, the principal rules for our conduct. We have no other foundation for a vast proportion of the principles which govern our actions, both in our individual and representative capacities. All this must have been well known to the principal and more active trustee in this cause, (who has been an eminent member of the bar, and filled a prominent judicial station,) at the time when the trust was assumed. Possibly in extreme cases, and particularly where some rule is based upon principles inconsistent with the nature of our institutions, such rule should be declared inapplicable, and not in force. But this is neither the one nor the other. The rule is highly beneficial both for the trustee and cestui que trust. The trustee knows that he is safe so long as he acts honestly, and confines himself within the prescribed limits. The interests of the cestui que trusty who is ordinarily incapable of guarding his own rights, are securely protected. His property cannot be jeoparded and wasted by hazardous speculations. In a great majority of cases speculations in this country have been productive of disastrous consequences, even to those who have acted in their own behalf. Besides, if persons acting for others are authorized to speculate with the funds of those whom they represent, the temptation is strong, in case of success, to assume the advantage personally, or in case of loss, to throw it upon the cestui que trust. Experience has shown that there — 647 — are many who cannot resist the temptation. It is undoubtedly true that in a few instances investments for cestuis que trust in speculative stocks have proved very advantageous to them. They have obtained a high interest for their money, and a great advance of the principal fund. But the law regards the certainty of an income for persons thus situated, more than its magnitude. Sometimes it is all they have to depend upon for their subsistence, and they are incapable of acquiring any thing by their personal exertions. It may sometimes happen that it will be difficult to invest moneys in either of the requisite securities, at the usual rate of interest or income. In such cases trustees would be justified in loaning or investing funds at a less rate, or, in extreme cases, in retaining them for a short period. But ordinarily, if a judgment maybe formed from the past, there will be no difficulty in procuring a safe investment in some of the appropriate securities. The danger of giving an unlimited discretion to trustees and others acting in a similar capacity is strongly illustrated by the facts in this case. If it could be safely entrusted to any one it surely might be to one of the defendants (Judge Emott) whose high character for probity and intelligence is so well and favorably known. And yet the discretionary power which he has assumed in this case has resulted in the depreciation of the property intrusted to his management to probably less than half its value. The rule established in England has not been abrogated or altered by any legislative action in this state. Nor has it been impaired or affected by the decision of any of our courts, if indeed it could be changed by judicial authority. In Brown v. Campbell, (Hopkins' Rep. 233,) which was cited by the defendants’ counsel, Chancellor Sanford sustained the exchange of the notes of the Union Cotton Manufactory for the stock of the Otsego Cotton Manufactory. That however was not an original investment of money, but simply the exchange of one doubtful security for another, and might have been the best arrangement which could have been made. The chancellor expressly disavowed any intention to decide that a trustee might invest the — 648 — funds of his trust in such stocks as were taken by the executor in that case. In Smith v. Smith, (4 John. Ch. Rep. 281.) which was also cited by the defendants’ counsel, Chancellor Kent directed that the ward should receive the unsecured promissory notes taken by his guardian from persons who were solvent at the time, and who continued to be solvent to the talcing the account before the master. There was no actual loss in that case; and the chancellor declared that in adopting that course, he meant to be understood that if a guardian or trustee loans money without due security, he must be responsible in case of insolvency. And he further said that he had no doubt “ that it is a wise and excellent general rule, that a trustee loaning money must require adequate real security, or resort to the public funds.” He subsequently qualified this by saying that he was not prepared to decide whether any, and if any, what exception may exist to the general rule on this point. The doubt expressed by the chancellor in that case has probably given rise to this controversy. And that consideration shows the propriety and expediency of uniformly adhering to fixed and settled rules. Surely he could not have intended to admit an exception which would in effect abrogate the rule altogether. In Eckford v. De Kay, (8 Paige, 89,) Chancellor Walworth decided that where the guardian had invested the funds in which his ward had an interest, in the purchase of real estate, without the previous sanction of this court, she would of course have the right, when she came of age, to repudiate the deed, and to claim her share of the funds, and interest, from the estate of her guardian, or from his sureties. These cases, so far from attempting to repudiate the English rule, would seem to recognize the expediency of retaining it, in this state. That would sanction the investment of the moneys of the cestui que trust in loans on real security, or in the public stocks of this state or of the United States, and also, under the rules of this court, in loans to the New-York Life Insurance and Trust Company. As the investment in this case was not in either of these securities, but was in fact in a fund of a precarious character, and retained long after the period when its — 649 — safety was move than doubtful, it cannot be sustained; and the defendants are for that reason personally responsible to make good the loss. But there is another ground equally fatal to the validity of this transaction. The stock purchased by the defendants was in whole or in part the individual property of one of them, or the proceeds (in dividends) of such property. It has long been settled, and upon principles which cannot be controverted, that a trustee cannot deal in his own behalf with the funds intrusted to his charge for the benefit of another. He can neither purchase the trust funds for himself, nor exchange them for his own property. The defendants also contend that they should be exempt from the payment of the costs. Where executors are made responsible in their representative capacity for acts done by their testator, reasons of public policy exonerate them from personal liability fovadverse costs. But the exemption ought not to, apd does not, apply to cases where they render themselves personally liable for damages, by their own acts. There the costs follow the damages. The decree of the late vice chancellor, so far as it relates to the appeal of the defendants, must be affirmed. The plaintiff has appealed from the same decree, on the ground that the defendants were charged only with simple interest. It is contended that inasmuch as the will requires that the interest shall be paid annually on the first of May, and as it has never in fact been paid, it should be charged on each instalment, from the time when it was made payable. But the interest was not directed to be paid to the plaintiff annually. On the contrary, the third codicil directs that it shall be paid at the discretion of the executors, for her maintenance and education. But the fact that- interest is made payable on a particular time (which is usually the case) does not sanction the imposition of compound interest. It is allowed only in cases of gross delinquency—of an intentional violation of duty. (11 Vesey, 92. Hopk. Rep. 424.) I have carefully read over all the testimony in this cause to ascertain whether it presents such a case. I — 650 — am satisfied that it does not. The executors, although one of them labored under gross, and under the circumstances singular deceptions, appear to have acted from honest motives, and with a disposition to promote the interests of the plaintiff. They have made a mistake which renders them personally responsible ; but they suffer sufficiently for that, by being compelled to make the consequent loss good, and to pay the costs of the • suit instituted for that purpose. The decree of the late vice chancellor of the third circuit must be affirmed in all respects, and, pursuant to a mutual agreement made on the argument, with costs of the two appeals to be paid equally by both parties.