Opinion
No. 42/34.
01-16-1917
BACKUS v. CRANE et al.
August Roche, Jr., and Church & Harrison, all of Newark, for complainant. Albert W. Harris, of Newark, for defendants.
On Reargument of Certain Questions, March 6, 1917.
Suit by Henry F. Backus against Cyrus B. Crane and Marcus S. Crane individually and as executors of the estate of Asher Crane, deceased. Decree for plaintiff.
August Roche, Jr., and Church & Harrison, all of Newark, for complainant. Albert W. Harris, of Newark, for defendants.
LANE, V. C. On August 18, 1864, Henry F. Backus delivered to Samuel Crane and Asher Crane $5,000, represented by government bonds
"upon trust [evidenced by a written document] that they, the said Samuel Crane and Asher Crane, will safely and securely invest the said sum of five thousand dollars on bond and mortgage or in public stocks or securities and the interest or income received therefrom, after the payment of all legal taxes, assessments, or other charges during their lawful commissions as such trustees, pay in equal half yearly payments for and during the term of her natural life to the said Charlotte Backus, widow of Calvin G. Backus, deceased, for her own use. * * * And upon the death of said Charlotte Backus then upon trust to pay said sum of five thousand dollars after deducting as aforesaid, together with all interest that may have accrued and shall romain unpaid at the death of said Charlotte Backus to the said Henry F. Backus, his executors, administrators, and assigns."
On July 28, 1875, a new instrument was executed substituting Caleb G. Crane in the place and stead of Samuel Crane as one of the trustees. The instrument of trust is substantially the same.
The trustee Asher Crane sold the bonds, and prior to 1875 came into possession of $5,600 as the proceeds. In July, 1875, Asher Crane loaned the money, which previously had been in his possession, to his cotrustee, Caleb G. Crane, and Moses P. Crane and Edward W. Crane. At that time these three, who were relatives of Asher Crane, were in business in the town of Caldwell, and the money was loaned in the hope of keeping them on their feet. That the loan was improper and not in accordance with good business judgment was recognized by Asher Crane at the time, and is clearly evidenced by his affidavit introduced in evidence in this cause and sworn to on the 11th day of December, 1886. On the 1st of January, 1876, to secure this loan, Asher Crane took a bond executed by Moses P. Crane, Caleb G. Crane, and Edward W. Crane, and as further security took a second mortgage on property owned by Moses P. Crane.
About the year 1878 Moses P. Crane, Caleb G. Crane, and Edward W. Crane failed. About this time there was a foreclosure of the first mortgage on the property included in the mortgage to Asher Crane, and the second mortgage was wiped out. About the year 1880 the estate of the bankrupts was settled; the creditors received about 17 per cent. on account of their claims. No attempt was made by Asher Crane to collect the dividend which would have become payable on the bond held by him; his reason for not acting being that he was afraid that if he collected any part of the money he would become liable for the whole.
A short time after the loan was made by Asher Crane to Moses P. Crane, Caleb G. Crane, and Edward W. Crane Henry F. Backus knew of it. He did nothing. At or about the time of the loss of the money in 1878 he knew of it. He then insisted that Asher Crane was responsible for the $5,600. This Asher Crane from the beginning denied. Up to the time of the death of Asher Crane in 1888 no legal proceedings were taken either by Henry F. Backus or Charlotte Backus, his stepmother, who was entitled to the income during her life.
On the 11th day of December, 1886, Asher Crane, realizing that he was liable at any time to die, and for the purpose of protecting his estate (Henry F. Backus still making demands upon him) executed an affidavit in which he says:
"In July, 1875, Caleb G. Crane asked me to loan him the money in my hands as trustee belonging to Henry F. Backus. I told him I could not do it, as the money did not belong to me. He then left me, and in a few days he came to me and told me Mr. H. F. Backus and his mother had consented to let him have the money if I would stand as trustee. I then drew the money out of the savings institution in Newark and paid it to C. G. Crane, amounting to $5,600, taking Caleb G. Crane's, Moses P. Crane's, and Edward W. Crane's note for the same. In a few days I met Mr. Henry F. Backus in Franklin. I said to him, 'I see you have consented to let C. G. Crane have the money.' He said 'Yes,' he thought he would."
Asher Crane died in 1888. The defendants, Cyrus B. Crane and Marcus S. Crane, were his executors. They settled the estate. They were also the residuary legatees and devisees, and came into possession individually as such of property much greater in extent than necessary to pay any amount which may have been due from Asher Crane to Henry F. Backus. From the date of the death of Asher Crane down to the date of the death of Charlotte Backus, which occurred in October, 1905, no claim was made upon the executors of Crane by either Henry F. Backus or his stepmother. No interest was paid to the stepmother after January 1, 1878. After the death of Charlotte Backus, and some time in the year 1906, Henry F. Backus by letter, and through his son and a man named Lindsley, a notary public, made demands upon the executors of Crane for the payment of the money. They denied responsibility, and in a letter dated November 29, 1907, addressed to Henry F. Backus, Cyrus B. Crane says:
"My father stated several times in my hearing that he would never have loaned the money to Caleb without your consent; and others also remember of his making this statement. Now, as you chose or accepted C. G. Crane as the other trustee for this fund after the death of Samuel Crane and consented that he, one of the trustees, should have the money on loan when my father was opposed to so doing, it seems to us (Marcus and myself) that the responsibility for the loss which followed cannot justly be placed upon us. Had the money been left in the security which my father preferred, there is no reasonable doubt but that you would have received it soon after your mother's death. It is now nearly thirty years since this money was lost. All the circumstances were well known to you and all others interested in thematter, and if you and the others have any complaint to make of my father's action, you should have complained years ago when he and others who knew the transaction were living. The fact that the money was lost troubled my father. While he was neither morally or legally responsible for the loss, in the latter years of his life he would have unjustly paid the money to have satisfied you. Under all the circumstances as stated we do not feel that we have any responsibility in this matter."
The latter clause of this letter undoubtedly refers to the fact that Asher Crane prior to his death offered to settle with Henry F. Backus by paying him $2,800, which offer Henry F. Backus declined.
From November 29, 1907, the date of this letter, to the 13th day of July, 1916, a period of approximately nine years, nothing was done by Henry F. Backus. He then filed this bill against the defendants as executors and individually praying for a decree that they account for the fund of $5,600, and interest, and that they, as executors and individually, be decreed to pay him this amount.
The defenses interposed are that Henry F. Backus acquiesced in the loan to Caleb Crane which resulted in a loss and laches.
All the parties before the court are elderly men. Complainant, Henry F. Backus, is 77; defendant Cyrus B. Crane is 73; defendant Marcus Crane is not much younger. All of the persons who had any knowledge of this transaction other than the three parties above referred to are dead. Caleb, Moses, and Edward W. Crane and Charlotte Backus have long since died.
While it is difficult for me upon the evidence before me to find such acquiescence on the part of Henry F. Backus as would have prevented him from asserting his rights had he in reasonable time attempted to assert them, yet I feel that I am constrained to deny the relief as asked for by the complainant upon the ground of laches.
It is admitted law that the statute of limitations and the rule in equity applied in analogy thereto does not apply to cases of express trust, of which the case now under consideration is one. But that rule is subject to certain qualifications.
Vice Chancellor Green, in Starkey v. Fox, 52 N. J. Eq. p. 758, 29 Atl. 211, affirmed 53 N. J. Eq. p. 239, 34 Atl. 1135, said:
"But oven if the proof is satisfactory that possession and the relationship of trustee and cestui que trust was at one time coincident, there may be certain conditions which will prevent the application of the rule that time does not run against an express trust, for when the relation is no longer admitted to exist, or gross laches in enforcing a known right or long acquiescence in the alleged breach of trust is shown, when lapse of time has obscured the nature and character of the trust or the acts of the parties, or other circumstances give rise to presumption unfavorable to its continuance, in all such cases a court of equity will, even in a case of express trust, refuse relief upon the ground of lapse of time and its inability to do complete justice."
The language of the Vice Chancellor was approved by the Chancellor in Stimis v. Stimis, 54 N. J. Eq. p. 17, 33 Atl. 468. The Chancellor, in Dean & Dean v. Dean et al., 9 N. J. Eq. p. 429, said, quoting O. & J. Kane v. Bloodgood et al., 17 J. C. R. 90:
"Even in cases of express trust, if the parties have long ceased to act upon or recognize them, courts of equity will not interfere to enforce them; and a fortiori, not in cases of mere constructive trusts, * * * courts of equity fully recognize the maxim, 'Vigilantibus non dormientibus, jura subveniunt,' as well in matters of trust as in other cases. What lapse of time will constitute a bar must depend, in a measure, upon the nature of the trust, the relative situation of the parties to the subject matter of the trust and other attending circumstances. Where a party has slept over his rights for more than 20 years, and has been grossly negligent, in not asserting them when fitting opportunities have presented, where he has recognized or acquiesced in acts inconsistent with the existence of any trust, and where his conduct has been such as to involve innocent parties, as against them the court will never execute the trust."
Vice Chancellor Pitney, in Lindsley v. Dodd, 53 N. J. Eq. 69, at page 84, 30 Atl. 896, at page 902, said:
"But if the trustee of an express trust has assumed a hostile attitude against the cestui que trust, has disavowed the trust and denied the right of the cestui que trust, or has committed a breach of trust, resulting in the loss of the estate, which has come to the knowledge of the cestui que trust, and has refused to make it good, then there is a present cause of action by the cestui quo trust against the trustee, and the case so presented seems to me not to be within the rule that the statute of limitations does not run against an express trust."
This case was in the Court of Appeals in Dodd v. Lindsley, 53 N. J. Eq. 652, 33 Atl. 963, and 57 N. J. Eq. p. 334, 41 Atl. 754, 915. The remarks of the Vice Chancellor were not considered. In Dyer v. Waters, 46 N. J. Eq. 484, at page 489, 19 Atl. 129, 132, Vice Chancellor Pitney said:
"The principle upon which courts of equity refuse to enforce stale claims, in cases where the statute of limitations does not apply either directly or by analogy, is, that, considering all the circumstances, it would be inequitable to do so by reason of the danger of doing injustice to the defendant, because, for instance, the defendant, by reason of the delay, has changed his position irretrievably, or lost some advantage he was entitled to keep, or that evidence has been lost or facts obscured by the lapse of time."
The Court of Errors and Appeals in Lutjen v. Lutjen, 64 N. J. Eq. p. 773, 53 Atl. 625, reversing the decree of Vice Chancellor Pitney, considered Vice Chancellor Green's statement in Tynan v. Warren, 53 N. J. Eq. 313, 31 Atl. 596, in which case the Vice Chancellor had said that the rule that laches in bringing suit will deprive one of his remedy is not applied, unless such neglect has so prejudiced the other party, by loss of testimony, or means of proof or changed relations, that it would be unjust to at the time permit him to enforce his rights, and was careful to point out that the language of the Vice Chancellor must not be taken as meaning that there must be proof of an actual loss of testimony. The court said:
"He viewed the case he was deciding as involving, he said, 'an active, subsisting trust.'"
And further:
"But it is not intended by what has been here written to construe the expression in the third headnote of 'loss of testimony' as referring necessarily to proof of actual loss, as distinguished from inferential loss. Regarding such expression as meaning any loss of testimony, whether actual or inferential, the rule declared in that case is not opposed to the present holding."
The Court of Errors and Appeals in Farr v. Hauenstein, 72 N. J. Eq. p. 876, 67 Atl. 377, reversing the decree of Vice Chancellor Garrison, again pointed out that mere laches may be a bar, and that irrespective whether there is proof of actual loss of testimony or changed conditions of the parties if such a loss may be inferred.
What is the situation in the case at bar? It is admitted that the act of Asher Crane in 1875 in loaning the money to Caleb Crane was, unless such loan had been acquiesced in by the complainant here, a breach of trust. The defense is that there was such acquiescence. The parties to the transaction other than Henry P. Backus are dead. Asher Crane in his affidavit made on the 11th day of December, 1886, insists that not only Henry F. Backus, but also Charlotte Backus, consented to the loan, and that Caleb G. Crane knew of this. He, Asher Crane, insists that he met Henry F. Backus shortly after the loan was made, and that Backus said he thought he would consent. In any event Backus knew of the loan shortly after it was made, and until the loss of the money in 1878 did not protest or in any wise seek to protect his rights. Upon the money being lost in 1878 he then seeks to hold Asher Crane responsible. Asher Crane immediately, as early as 1880, repudiates this claim, and takes a position adverse to his cestui que trust to the knowledge of his cestui que trust. The trustee ceases to pay the interest upon the money to Charlotte Backus. Neither Charlotte Backus nor Henry F. Backus seek to protect themselves, and in 1888 Asher Crane dies. The excuse that Henry F. Backus gives for not instituting legal proceedings until the death of his stepmother in 1905 is that he thought he had no right to do so. But why did both he and his stepmother during this long period of time some 27 years, acquiesce or submit to the nonpayment of interest. When Henry F. Backus after the death of his stepmother in 1906 or 1907 again made demand upon the executors of Asher Crane, he was met by the letter of November 27, 1907, a complete disavowal of any trust relationship. For the delay between November, 1907, until 1916 there is no excuse offered.
Henry F. Backus was wrong in his conclusions that he could do nothing to protect his rights during the lifetime of his stepmother. In Browne v. Cross, 14 Beavans, p. 109, 51 Full English Reprint, p. 228, the Master of the Rolls said:
"Since the court rose, I have attentively considered the argument of the plaintiff's counsel, and I have satisfied myself that I ought not to call on the defendants, for I feel convinced that in this case the plaintiffs are not entitled to a decree, and the ground on which I proceed is solely on the lapse of time. * * * I assume, for the purpose of my judgment, that it was the bounden duty of the executors to lay out the assets in consols, and that, but for the lapse of time, the plaintiffs would have a right to compel the executors to repair the alleged breaches of trust. The testator directed the interest to be paid to his wife for life, and after her death the capital was to be paid to Walter Browne, of Bristol, who, at the death of the testator, was an adult perfectly competent to understand his rights. * * * Walter Browne, of Bristol. died in April, 1826, that is, after a lapse of about 30 years from the death of the testator. What did Walter Browne do during the whole of this course of time? The persons who committed this breach of trust died, the one in 1814 and the other executor in 1815, and the breaches of trust had been completed in 1812, and from that time until his death Walter Browne was fully competent to set the matter right, and have the breach of trust repaired. I do not concur in the argument that, the tenant for life being then alive, the breach of trust could not have been repaired, or that the time ought not to be calculated until her death, * * * but there was a vested interest in Walter Browne, of Bristol, who at the death of the testator had as perfect a right to see that the fund was secured and invested as he had at the death of the widow."
"In cases of laches the rule of this court is properly strict, for it is a serious evil to compel a man to preserve his evidence for an unreasonable time; his defense may be a distinct case of acquiescence, and yet, after the lapse of time, the evidence of it might be irrecoverably lost."
Before advising a decree in this case I desire to hear counsel further upon the question as to whether or not the 17 per cent. which might have been collected by Asher Crane, dividend upon the bond held by him, does not stand in a somewhat different position. After the failure of the obligees of the bond, their estate was settled about the year 1880, and Asher Crane might have collected at that time approximately 17 per cent. of $5,600. He did not do so, giving as his reason that he did not want to make himself responsible for the whole fund. That was no reason whatever. By collecting this 17 per cent. he would not make himself either more or less responsible. He still had in his possession the bond and mortgage. It was not surrendered to Henry F. Backus. There is no evidence or claim that Henry F. Backus ever was advised that this 17 per cent. could be secured or that he was called upon to protect his rights. Notwithstanding Asher Crane's disavowal of responsibility for the loss of the money in 1878, yet it was his duty still as trustee to protect the trust estate to the best of his ability. If he desired to escape that responsibility, it was his duty to bring to the knowledge of Henry F. Backus the fact that he did not intend to, and to transfer to Henry F. Backus the bond and mortgage.
Under these circumstances was not Asher Crane responsible for this 17 per cent.? Anddoes the doctrine of laches apply? It seems to me that here we have a situation where there is no proof of changed conditions or loss of testimony, nor can loss of testimony be inferred. If all of the parties who are now dead were alive, what possible testimony could they give which would bear in any wise upon this branch of the case? There is no claim that Henry F. Backus acquiesced in Asher Crane's not collecting as much as he could get from the Crane estate. There is no claim that Henry F. Backus knew anything about what dividend could be obtained from that estate.
I desire, therefore, to hear from counsel within a week, if possible, by written briefs on the question as to whether or not the executors of the Crane estate should not be called upon to account for this 17 per cent. of $5,600, with interest from the date that Asher Crane might have received it, and upon the question of interest I want counsel to consider as to whether the offer of $2,800 made to Henry F. Backus during Asher Crane's lifetime and declined by him can have any effect upon the question of recovery.
On Reargument of Certain Questions.
I have considered whether, under the circumstances, the estate of Asher Crane is liable for the portion of the trust fund which could have been obtained about the year 1880 from the estate of Moses P. Crane if Asher Crane had performed his duties as a trustee and had not refused, as he did, to accept the dividend. I have come to the conclusion that the estate is responsible. The ground upon which I declined to hold the estate responsible for the entire trust fund was laches on the part of the complainant. I held that under the decisions which were cited, where injury was proven or might be inferred because of loss of testimony or whatnot, laches would bar even where there was an express trust. This reasoning does not apply to the dividend which might have been received. The action or nonaction on the part of the trustee was a distinct and separate breach of trust. The bond and mortgage were made to Asher Crane as trustee; he had possession of them; they are now produced from the custody of his executors. There is no claim that Henry F. Backus knew that any dividend could have been obtained from the assets of Moses P. Crane, or that Asher Crane ever sought to bring his attention to that fact. If Asher Crane desired to relieve himself of all the burdens of trust, he should have notified the complainant, and should have delivered to the complainant the bond and mortgage, so that the complainant might have protected himself. Whether if he had so acted it would have released him I do not decide. On the contrary, he failed to protect the trust fund, and permitted complainant to remain in a position without his knowledge where he could not protect himself. Without knowledge there can be no laches in the case of an express trust. 39 Cyc. 604, and cases cited in the original conclusions.
It has not been proven, and there is no suggestion, that the delay of the complainant, so far as this branch of the case is concerned, has prejudiced the defendants; no injury can be inferred. Counsel for defendant does not claim it may be inferred. The facts are admitted, and could not be changed, no matter how many witnesses were produced.
I therefore hold that the estate of Asher Crane must account for 17 per cent. of $5,600, or the sum of $052, as of 1881. The actual date when this money would have been paid and the actual percentage may be somewhat doubtful. If so, it is the fault of Asher Crane. I will, however, if there is any way by which definite proof can be obtained, refer the matter to a master if counsel so elect. In case of failure to make such an application I shall treat the percentage as 17 and the year in which it might have been received and invested as 1881.
The next question is as to whether the estate should be charged with interest, and, if so, at what rate, and for how long a time. The trust agreement provided that the trustee should safely and securely invest the sum on bond and mortgage or in stock or securities, and the interest or income arising therefrom be paid in equal half-yearly payments during the natural life of Charlotte Backus to her, and after her death then to pay the sum, "together with all interest that may have accrued and shall remain unpaid at the death of said Charlotte Backus to the complainant." The duty of the trustee was not only to retain possession of the money, but to invest. He neglected to receive the $952, and hence neglected to invest it Under the circumstances the case must be treated as if he had in fact received and had failed to invest it The general rule is expressed in 39 Cyc. p. 428, as follows:
"The rule of computation in each case must depend very much upon its own facts. The beneficiaries are entitled to such method of calculation as shall most closely approximate the amount which would probably have resulted from the fulfillment of the obvious duties of the trust."
The rule in England seems to be that, where an executor or trustee is guilty of mere neglect, that is, where, having moneys in his hands which he ought to invest, he neglects this duty, but derives no benefit from the use of it, he will be charged only with interest at 4 per cent. 39 Cyc. p. 425, note 19, and cases cited.
The solution of the problem depends upon the circumstances of each particular case. Although as a general rule it may fairly be stated that, where the trustee is guilty of gross neglect or fraud, or mingles the money with his own, he should be charged with interest at the legal rate, with annual rests, and, if he is guilty of mere neglect,with simple interest only, this rule is subject to exceptions, and the real question is what the equities of the particular case demand. I gather this from a consideration of the following cases in this state: Voorhees v. Stoothoff, 11 N. J. Law, 145; Johnson v. Eicke, 12 N. J. Law, 316; Lake, Administrator, v. Park, Executor, 19 N. J. Law, 108; Blauvelt v. Ackerman, 23 N. J. Eq. 495; McKnight's Executors v. Walsh, 24 N. J. Eq. 498; Ashhurst v. Fields, Administrator, 28 N. J. Eq. 315; Wilson v. Staats, 33 N. J. Eq. 524; Fluck v. Lake, 54 N. J. Eq. 638, 35 Atl. 643; Windmuller v. Spirits Distributing Co., 83 N. J. Eq. 6, 90 Atl. 249. And see, also, note to Re Ricker, 29 L. R. A. 636, and at page 637, where the author says:
"The improper investment of the trust fund is equivalent to a failure to invest it, and is governed by the same rules with reference to the allowance of interest. The fund will be treated as remaining in the hands of the trustee, and interest will be charged at the ordinary rate only."
In the case at bar the direction to invest was either in mortgage or securities. No rate of interest was fixed. The trustee was under the duty of realizing as much as he fairly could. In England it has been said that, where the direction to invest is in similar words, no interest will be allowed. 39 Cyc. 416, note 61, and cases. I do not think that this is the present rule. The result sought for should be to make the estate good; that is, to realize as much for the estate as can fairly be said would have been realized if the trustee had performed his duty. There was no actual fraud in the present case. The trustee undoubtedly thought that he had the right to do what he did do. The complainant has been guilty of great delay in asserting his rights. While as matter of law I think it cannot be held that he is guilty of laches, such as to bar his right to relief, yet under all the circumstances my conclusion is that justice will be done by allowing interest at the rate of 4 per cent.
It is claimed that the offer made by Asher Crane of $2,800 bars the complainant from recovering interest. I think not. From the beginning the complainant insisted that Asher Crane was responsible for the entire trust fund. This Asher Crane denied. The offer of $2,800 was made in consideration of a release by the complainant of his entire claim. It was not offered in settlement of the second breach of trust. Under the circumstances, therefore, the complainant's refusal to accept the sum cannot now bar him from claiming interest. I do not overlook the case of Jones v. Haines, 79 N. J. Eq. 110, 80 Atl. 943, in which Vice Chancellor Learning, upon the ground that interest would necessarily in that case be as damages, declined to allow it for 28 years because of laches of complainant, although holding that the laches was not sufficient to bar recovery of the principal sum. The circumstances were peculiar, and may be, I think, clearly distinguished from those existing in the present case. There the complainant had knowledge and deliberately delayed asserting her rights because she thought that she would receive a greater amount under the will of the trustee than she was entitled to from the estate of her father. Here there was no such knowledge, and no deliberate failure to demand. Under the trust agreement it would appear that the complainant is entitled at this time not only to the principal sum, but the interest which had accrued, or should have accrued, prior to the death of his mother. I think, therefore, that the complainant is entitled to the sum of $952, with interest at the rate of 4 per cent. to the date of the death of the mother.
A different rule should be applied after 1906. At that time complainant was in a position in which he could call upon the executors of Asher Crane to account for this trust. If he had, his right to the funds which I now hold he is entitled to would have been disclosed. Prior to that he might have filed a bill quia timet, but he could not have required the trustee or executors to pay over the money to him. I think that it would be inequitable to charge the estate of Asher Crane with interest subsequent to 1906. See Lake, Administrator, v. Park, 19 N. J. Law, 110. There will be a decree that the defendants account for the sum of $952, with interest from 1881 to 1906, $950, or total of $1,902, and with interest upon the whole sum at the rate of 6 per cent. from the date of the decree.
Counsel should consider whether it is necessary in this view of the case to amend the bill. Costs will go to the complainant. The decree may be settled on notice. Application may then be made for counsel fees.