Opinion
89/743.
02-23-1940
TANNENBAUM v. SEACOAST TRUST CO. OF ASBURY PARK et al.
Furst & Furst, of Newark, for substituted trustee. Lester C. Leonard, of Asbury Park, for defendant Kinmonth. Henry H. Patterson, of Asbury Park, for defendants Jones, etc. Kays R. Morgan, of Asbury Park, for defendant Provident Trust Co. Tumen & Tumen, of Asbury Park, for divers certificate-holders.
Suit by Katie Tannenbaum against the Seacoast Trust Company of Asbury Park, New Jersey, and others for appointment, of a substitute trustee to administer a trust fund. Thomas A. Mathis was appointed substitute trustee, and prior trustees were called on to account for the trust assets. A decree was entered against the prior trustees for loss and damage to the trust because of the withdrawal of certain bonds and mortgages from the assets of the trust fund by the obligor, and the conversion thereof by the obligor to its own use. The prior trustees filed a petition for proceedings against the obligor by the substituted trustee or by the prior trustees, and deposited with the clerk moneys deemed sufficient to satisfy the decree. On application by the substituted trustee to discharge restraint against enforcement of the decree and for order to turn over moneys deposited with the clerk.
Application granted.
Affirmed by the Court of Errors and Appeals, 25 A.2d 533.
Furst & Furst, of Newark, for substituted trustee.
Lester C. Leonard, of Asbury Park, for defendant Kinmonth.
Henry H. Patterson, of Asbury Park, for defendants Jones, etc.
Kays R. Morgan, of Asbury Park, for defendant Provident Trust Co.
Tumen & Tumen, of Asbury Park, for divers certificate-holders.
BUCHANAN, Vice Chancellor.
Appeal having been taken by defendant Kinmonth, from the order made herein on February 6, 1940, this memorandum is filed setting forth the reasons for the making of such order.
Heretofore it was adjudicated, inter alia, by the final decree herein, dated May 25, 1938, that the defendants Kinmonth, Jones and Ackerman had, by their negligence amounting to breach of trust, while acting as trustees of a trust fund or poolof assets pledged as security for the benefit of the holders of "mortgage participation bonds" or obligations issued by Seacoast Trust Co., occasioned loss and damage to the beneficiaries of the trust; and the said defendants were decreed, jointly and severally, to pay to the substituted trustee of that trust, the sum of $57,900 plus interest at 6% from January 1, 1932, and costs, amounting in the whole, at the date of the decree, to over $80,000.
The said loss and damage to the trust was occasioned by the withdrawal of certain bonds and mortgages from the assets of the trust fund, by the obligor Seacoast Trust Co., and the conversion thereof to its own use. This withdrawal was the result of the negligence of the aforesaid trustees, who were however guilty of no intentional wrongdoing or bad faith, and who received no profit, enrichment or benefit. See Tannenbaum v. Seacoast Trust Co., 198 A. 855, 16 N.J.Misc. 234, also on appeal 125 N.J.Eq. 360, 5 A.2d 778.
The substituted trustee of course also had a right of action against the Seacoast Trust Co. to recover the trust assets so taken and received by it, or the value thereof if those assets were not still in its hands. The substituted trustee had the right to pursue either the negligent trustees or the recipient of the trust assets, or both. He chose to pursue the negligent trustees, who were fully responsible financially, and did not pursue the unlawful recipient, Seacoast Trust Co., which had become insolvent and gone into liquidation.
At the time of the entry of the final decree aforesaid, the defendant trustees, or at any rate the defendant Kinmonth, sought to have that decree framed so as to provide that the obligation of those defendants to pay to the substituted trustee the amount of damages aforesaid should not accrue until the substituted trustee had endeavored to recover the trust assets aforesaid, or the value thereof, from the Seacoast Trust Co., and should be reduced by the amount of any such recovery, on the theory that the liability of the Seacoast Trust Co. was the primary liability which the substituted trustee should be required to exhaust first, and the liability of the defendant trustees was only secondary and for such amount as should remain unpaid after the substituted trustee had exhausted his remedies against the Seacoast Trust Co.
This effort was denied, it being the view of this court (expressed to counsel both orally and in written memorandum filed), that so far as the rights of the substituted trustee and his cestuis were concerned, the liabilities of the defendant trustees and the Seacoast Trust Co. stood on an equal footing, and that receipt by the judgment creditors of actual payment ought not to be delayed for the purpose of adjusting secondary equities among the defendants and others also liable. The decree therefore directed immediate payment by the defendant trustees. The same argument was presumably made by these judgment debtors, on appeal; but if so, the appellate court quite evidently took the same view, because, although the point is not mentioned expressly in the appellate opinion, the decree was affirmed in toto.
It seemed to this court, however, that there was fair ground for argument that it would be equitable to permit the defendant trustees (they having been guilty of no bad faith or intentional misconduct and having themselves received no part of the wrongfully taken trust assets), to proceed against the Seacoast Trust Co. (either in their own names, or in the name of the substituted trustee for their own benefit), and endeavor to reimburse themselves for the loss they were compelled to pay, by recovery from the Seacoast Trust Co. of the assets wrongfully taken and still held by it (either in specie or in some converted but traceable form); and to that end it was provided in the final decree aforesaid that "this decree * * * is made without prejudice to any right of the said Substituted Trustee or the beneficiaries of the trust estate or the said defendant former trustees to take any proceedings against any other parties for the recovery of assets of the said trust estate or the recovery of damages for injuries to the said trust estate, and without prejudice to the right of the said defendant former trustees or any of them, if and when any such recovery of assets or damages as aforesaid shall have been had, to apply to this court for the establishment and award of such rights and relief in regard thereto as shall be equitable and just."
No action was taken, however, by these judgment debtors or any of them, for many, many months, either toward paying the decree or toward any proceeding against the Seacoast Trust Co. On the contrary, an application for rehearing wasfirst made and argued, and denied. Thereafter appeal was taken to the Court of Errors and Appeals, 125 N.J.Eq. 360, 5 A. 2d 778, both from the final decree and the order denying rehearing.
The appellate court's opinion affirming the final decree, and the order denying rehearing, was filed April 21, 1939; but still these defendants took no steps toward payment of the money or toward proceeding against the Seacoast Trust Co. Execution was issued against them, and levy was made by the sheriff. The judgment debtor Kinmonth then asserted that he had the right to avoid the recovery from himself alone, of the full amount of the decree and to limit such actual recovery to one-third thereof. Although the trustee had the strict right to enforce the decree against Kinmonth alone, against all or any of the judgment debtors; and although strictly no right to contribution existed in favor of any judgment debtor against the others, it seemed to this court somewhat unfair that one alone of the judgment debtors (all of whom were equally guilty of the negligence and none of whom was guilty of bad faith or intentional misconduct) should be compelled to pay the entire debt without hope of any reimbursement of any amount from his co-debtors; and having in mind also that interest at 6% was accruing on the decree (which was a larger return on this asset of the trust than could be obtained for the beneficiaries in any other way), it was arranged that the substituted trustee should proceed (at the cost and expense of the debtors) with litigation to reach the assets of the estate of Dr. Ackerman (who had died in the meantime), which involved proceedings in this state and in Pennsylvania, to set aside, as in fraud of creditors, Dr. Ackerman's testamentary transfer of assets to a Pennsylvania trustee.
Eventually the desired end was effectuated and the Ackerman Estate executors arranged for the payment by it of one-third of the amount due on the execution.
Thereafter, on January 12, 1940 (over a year and a half after the entry of the final decree), the first step by any of the judgment debtors toward any proceedings against the Seacoast Trust Co. was taken by Kinmonth (in the name of himself and his co-judgment debtors). He filed petition praying that the court direct the substituted trustee to take proceedings against the Seacoast Trust Co., or (in the alternative) permit petitioner to take such proceedings in the name of the substituted trustee or the beneficiaries of the trust estate; and praying also that in the meantime proceedings by the substituted trustee to enforce collection of the amount due on the final decree, by execution levy and sale against the judgment debtors, be stayed.
Order to show cause, with interim stay, was issued on the filing of this petition. On the return thereof on January 16th, no real objection was made to order permitting the judgment debtors to proceed, in the name of the substituted trustee, against the Seacoast Trust Co. and others, provided the substituted trustee be duly indemnified against costs which might be adjudged against him in such proceedings; but strong objection was made, both by counsel for the substituted trustee, and by counsel for beneficiaries of the trustee, against any further delay in the payment or collection of the amount due under the decree and execution, this on the ground that the decree directed immediate payment and that at the time of the entry of the final decree the judgment debtors had requested, and been denied, the right to postpone payment until after proceedings had been taken against the Seacoast Trust Company; that the debtors had had over a year and a half to make the present application and should be estopped by that delay from having any stay or further delay in making payment; that none of the prayers of the debtors should be granted, unless and until they themselves did equity by making payment of the amount due; that the trust estate was in liquidation and the beneficiaries wanted, needed, and were entitled to have the money paid and distributed to them.
Counsel for the judgment debtors urged that if they paid and satisfied the decree, either openly or by having a third party purchase and take an assignment of the decree, it would in all probability be held that any and all cause of action by or in the name of the substituted trustee would be extinguished and terminated, and hence the judgment debtors would be deprived of all possibility of recovering from the Seacoast Trust Co. the assets (or value thereof) wrongfully taken and still held by it.
This court expressed the view that the judgment creditor (and his cestuis) were entitled to the money due them without further delay unless such delay were consentedto; and that if this deprived the judgment debtors of the possibility of recovery against the Seacoast Trust Co. it was their own fault for not having filed any petition such as the present one, for a year and a half. After some discussion, it was suggested that the application of the judgment debtors be continued for further consideration and determination after ascertainment of the desires of the holders of the participation bonds; provided that the debtors first deposit with the Clerk, a sum fully sufficient to cover the amount due the judgment creditor.
Counsel for the judgment debtors offered to pay into court the moneys sufficient to cover the decree, with the provision that such moneys should remain there on deposit until the completion of the litigation against the third parties. (See transcript.) The court rejected this and said:
"It may be deposited as a tender in court of the amount due on your decree, to be used for the satisfaction of that decree, if this court shall upon the adjourned date, after hearing from the substituted trustee and beneficiaries, determine that your petition" (for stay) "be denied."* * *
"Unless you deposit these checks by tomorrow noon your petition will be denied; and they must be deposited, if they are to be deposited, on a tender that they will not be used in satisfaction of the decree provided the prayer of your petition be granted after my determination on hearing from the substituted trustee and the beneficiaries, but if I deny it, then the money is to be available for the satisfaction of the decree."
After recess then taken, counsel for the debtors (referring to a draft of a proposed letter of deposit, approved by the court), said, "that should be sufficient. If it is deposited there you can't get it out without an order of the court. * * * And it will be available for the sheriff under execution, if the court thinks that should be done. I see no reason why that would not be satisfactory."
The order of January 16 was thereupon entered, continuing the application until two o'clock the following day, on condition that the debtors deposit with the Clerk, within that time, the moneys sufficient to cover the amount due under the decree. There was not included in that written order the express statement that the moneys so deposited were to be available for the satisfaction of the judgment debt if the judgment-debtors' application for stay of satisfaction should not be granted; but that such was the express understanding is clear and beyond question, from the statements of court and counsel. Indeed no other object or purpose for requiring the deposit is conceivable.
On the next day, the checks having been deposited without any different condition or restriction, the court announced decision that the judgment debtors would be given leave to take proceedings in the name of the substituted trustee, against the Seacoast Trust Co. and others, within ten days, on indemnification of the substituted trustee (and such order was thereafter drafted and entered, dated January 18), and stated that the debtors' application for stay would be further continued to give them the opportunity to commence such proceeding, and that after the period so allowed therefor had expired, application by the substituted trustee for the turning over of the deposited funds to the satisfaction of the decree would be entertained, suggesting, however, that the judgment debtors might in the meantime arrange to have the unsatisfied decree purchased by, and assigned to, some third party nominee on their behalf.
Such proceeding against the Seacoast Trust Co. and others was commenced by Kinmonth, in the name of the substituted trustee, by the filing of a petition in this court in this cause on January 29.
On February 6, the substituted trustee made application, on due notice to the judgment debtors, for an order vacating the interim stay contained in the original order to show cause of January 12, and directing either (1) that the Clerk permit the sheriff to levy on the funds deposited in court, or (2) that the Clerk turn over those moneys to the sheriff, or (3) that the Clerk turn over those moneys to the judgment creditor.
At this hearing the substituted trustee again urged the right of himself and his cestuis to have the decree paid forthwith without further delay, and counsel for divers of those cestuis urged likewise. On behalf of Kinmonth the same argument was made as before, that payment of the decree would operate as a bar and complete defense to the suit against the Seacoast Trust Co., notwithstanding such suit had actually been commenced.
In the course of discussion the court reiterated that the substituted trustee and his cestuis had the primary right; that the enforcement of that right would not be held up indefinitely for the purpose of adjusting secondary equities between the judgment debtors and other parties; and asked counsel for the judgment debtors to state a definite limit as to the length of time for which he asked that the satisfaction of the decree should be delayed. He replied that four weeks would be ample. Counsel for the substituted trustee then indicated assent to such a continuance, provided that there be specific understanding and assurance that the decree would be definitely paid at the end of the four weeks.
To this provision or condition, counsel for the judgment debtors declined to consent or agree, declined to consent that the decree should be paid even at the end of the specific period of delay for which he was asking. Obviously this nullified his previous statement that he did not ask an indefinite delay but only a delay of four weeks, definitely; and in substance and effect turned his request into one for indefinite delay. The court therefore refused to grant any further delay; counsel for the substituted trustee and for the cestuis pressed their application for order that the moneys on deposit with the Clerk be immediately applied to the satisfaction of the decree; and counsel for the Ackerman estate (judgment debtor) joined in that application.
Thereupon the court entered the order of February 6, presently appealed from, directing the Clerk to turn over to the substituted trustee the said moneys so deposited with the Clerk as aforesaid; and directing the substituted trustee to apply the same in satisfaction pro tanto of the amount due under the final decree of May 25, 1938, and to cause credit to be entered accordingly on the outstanding execution; and vacating the interim stay contained in the order of January 12, 1940.
To summarize: By final decree of May 5, 1938 (subsequently affirmed), the judgment debtors were directed to pay to the substituted trustee the sum of $57,900, plus interest and costs. Not one cent of this was paid up to the present application made on January 12, 1940.
In that decree leave was reserved for the taking of proceedings by the substituted trustee or by the present judgment debtors, against other parties. (The taking of any such proceedings by the substituted trustee would of course have been only for the benefit of, and hence at the cost and expense of, the present judgment debtors.) No application to this court toward the taking of any such proceedings was made by the judgment debtors prior to the present application of January 12, 1940.
In and by the present application of January 12, 1940, the judgment debtors asked leave to take such proceedings, in the name of the substituted trustee; and further asked for a stay in the meantime of the proceedings instituted by the judgment creditor for the enforcement and satisfaction of his said decree against them. Order to show cause was issued, including interim stay.
On the return of the order to show cause, the judgment debtors were required to, and did, deposit with the Clerk moneys deemed sufficient to satisfy the decree, as a condition to any further entertainment of their petition, in order that these moneys should be available for this court to turn over for the satisfaction of the decree, if this court should determine on further consideration after a continuance of two weeks, that the application of the judgment debtors for further stay of enforcement of the decree should be denied. (The application for leave to commence proceedings, in the name of the substituted trustee, against the third parties, was granted.)
Three weeks thereafter the substituted trustee applied for termination of the stay against his enforcement of his decree, and for an order directing the turning over of the deposited moneys, in satisfaction of the decree. The judgment debtors objected to this and asked for a further stay, for a period (indefinite as to time) until the final determination of their proceedings against the third parties. Obviously this might require a year or more.
In substance and effect, the sole issue was as to whether or not the judgment debtors had a right to such a stay. To this perhaps should be added the questions as to (1) whether or not, even though the judgment debtors had no definite right to such a stay, this court would have the right to grant it, in the exercise of sound discretion; and (2) whether or not, assumingthis court to have that right, it should in the proper exercise thereof, grant such a stay.
That the judgment debtors have no definite right to such a stay, seems entirely clear. The only basis upon which the granting of such a stay, as a matter of right, can be predicated would be a finding that the judgment debtors have a legal or equitable right to have their liability to the judgment creditor postponed to, or in some other wise conditioned upon, the ascertainment and determination of the possible liabilities of the third parties aforesaid. The judgment debtors contend that they have such legal or equitable right.
That contention however is already res adjudicata, by the final decree. That decree makes the liability of the judgment debtors immediate and unconditional. Moreover the judgment debtors did not merely have the opportunity, and the duty, to put forward their present contention prior to the entry of that decree, they actually did make the contention at that time and it was decided against them (as clearly appears in the record before the appellate court at the time of the appeal from that final decree). They cannot raise it again at this time.
Whether or not it be within the right of this court to grant the requested stay as a matter of exercise of sound discretion, need not be considered, because, assuming this court to have such right, it should not, in the view of this court, be so exercised.
Whatever basis there was, or is, for the inclination of this court to afford to these judgment debtors an opportunity to obtain, from the parties who actually took and still have the trust assets (or the proceeds thereof), reimbursement, in whole or in part, of the moneys these judgment debtors have been compelled to pay back to the trust estate, cannot equitably be held to prevail over the undoubted right of the substituted trustee to payment of his decree, plus the equitable right of his cestuis to receive distribution of the moneys to which they are entitled, without further delay to which they are unwilling to consent.
Furthermore, whatever basis, if any, there might have existed a year and a half ago for this court to incline toward granting the stay as a matter of equitable privilege and discretion, notwithstanding lack of acquiescence by the cestuis of the substituted trustee, nothing of that kind presently exists, not merely in view of the length of time that has since elapsed, but because of the fact that no step whatever was taken by these judgment debtors during that year and a half, toward attempting to obtain the reimbursement from the third parties. For approximately a year the enforcement of the decree was stayed by the appeal therefrom; but at any time during that period the judgment debtors could have applied for and obtained and prosecuted the order which they have only now just applied for and obtained, permitting them to sue the third parties in the name of the substituted trustee, and that too, in all probability, without having had to deposit the amount of the decree (because the validity of that decree was then still in issue on the appeal).
For these reasons it was clearly the opinion of this court that no justification existed for any further delay in the enforcement of the decree, or for any refusal or failure to terminate the stay of such enforcement, or for any refusal or failure to aid the substituted trustee to obtain satisfaction of his decree by directing the application thereto of the moneys deposited for the purpose of being available for such satisfaction.
One thing more may be noted. A very considerable part of the moneys due under the final decree comprises costs, counsel fees and interest thereon, and there is not now, nor ever has been since the affirmance of the final decree, any reason for the non-payment of that part of the decree. But not only has it not been paid, nor offered to be paid, but payment thereof is still resisted, by Kinmonth at least, and this in the face of the consideration that has been extended to him by permitting him to pay only one-third of the whole decree, instead of the whole thereof.