Opinion
Argued May 28th, 1940.
Decided October 10th, 1940.
1. The assumption of jurisdiction by Chancery in cases where the Orphans Court has already entertained an accounting and has not completed it by a final decree thereon, rests in sound judicial discretion in view of such special circumstances as may be presented in the particular case. The question is whether the circumstances show special cause for the interference of the Court of Chancery.
2. The circumstances in this case showed special cause which brought the determination within discretion of the Court of Chancery. The defendant Trust Company's motion to strike the bill in which complainant prayed that defendant, as executor and trustee, be directed to account for the residuary trust created under the will of her deceased husband, and to set up the trust, and that the will be construed to determine whether complainant is now entitled to be paid one-sixth of the corpus of the trust, was properly dismissed. Filley v. VanDyke, 75 N.J. Eq. 571, followed.
This is an appeal from a decree in the Court of Chancery advised by Vice-Chancellor Bigelow, who filed the following opinion:
"Defendant Fidelity Union Trust Company moves to strike the amended bill of complaint on the ground that complainants' remedy should be found in the Orphans Court. I will summarize the allegations of the bill.
"Julius M. Guter died in 1928 leaving a will whereby he gave the residue of his estate to the Trust Company as trustee to pay the income to complainant, who is his widow now remarried, for life, remainder in equal shares to his sons John and Robert. `If I shall leave any other child or children me surviving, I direct that such child shall share with my said sons under the provisions herein and under the same terms, conditions and trusts.' The son Robert died prior to his father. The other son John, who is a minor under fourteen years of age, survives and is a defendant to the suit. Testator left no other children.
"The will also created a trust fund of $20,000 to be held by the Trust Company for the benefit of testator's mother, Martha E. Cluss, during her lifetime, and on her death to fall into the residuary trust. Mrs. Cluss is not a party to this suit.
"The executors named in the will are the complainant and the Trust Company. Letters testamentary were issued to both of them. In 1930 they filed their final account which was duly allowed by decree of the Orphans Court. After deducting surrogate's fee and executors' commissions, there remained in their hands a balance of $134,284, representing the residuary estate. On November 15th, 1938, on petition of complainant and Mrs. Cluss, the Essex County Orphans Court ordered the Trust Company as trustee under the two trusts, to account. The Trust Company filed with the surrogate its account as trustee of the $20,000 trust but failed to file its account as trustee under the residuary trust. Instead, on January 24th, 1939, it filed an account designated `Supplemental final account of Stella D. Brown (formerly Stella D. Guter) and Fidelity Union Trust Company, as executors of the last will and testament of Julius M. Guter, deceased, for the period from March 1st, 1930, to December 7th, 1938, as appears from the books and records of said Fidelity Union Trust Company, the said Stella D. Brown having refused to swear to or subscribe said account.' Before any further steps were taken in the Orphans Court, Mrs. Brown filed her bill in the cause before me and obtained an order restraining further proceedings in the Orphans Court. Later, the bill of complaint was amended in material respects and the Trust Company moved to strike.
"The infant defendant has answered and counter-claimed against both complainant and the Trust Company.
"Complainant shows that while she qualified and acted as co-executor, she at no time had possession of any of the assets of the estate, and did not even know of what the assets consisted. She was at no time consulted on the sale or purchase of securities or with reference to any transactions shown on the executors' final account. The assets were at all times held by the Trust Company and all the business of the estate was controlled and transacted by that company. Complainant relied upon the superior knowledge and skill of the Trust Company and took it for granted that the Trust Company was properly administering the estate. Upon the allowance of the final account of the executors in 1930, complainant considered her duties as executor were at an end and from that time understood that the Trust Company would continue the administration as sole trustee, in accordance with the will. She had no knowledge until the filing of the supplemental account in 1939 that the Trust Company had failed to turn over to itself as trustee, under the fourth paragraph of the will, the assets of the estate. Complainant has not been acting as executor since the settlement of the final account in 1930.
"The supplemental account of 1939 shows a balance of $86,022, that is, a shrinkage of $48,262 since the 1930 account. The bill charges that the supplemental account `shows the purchase of securities which are illegal and improper to invest trust funds in.' It charges that the Trust Company's purpose in filing a `supplemental executors' account' instead of an account as trustee, was to prevent surcharging the Trust Company on the theory that since complainant was co-executor, she was a party to the illegal transactions.
"The bill presents a question of construction of the will. Complainant contends that the death of testator's son Robert in the lifetime of his father, caused a lapse of the gift to him and that a trust resulted in favor of testator's next of kin, namely complainant, one-third, and the child John, two-thirds. Since she is entitled to the income of the entire trust during her lifetime, and to one-third of one-half of the principal, she further argues that she is entitled to have paid to her at this time that much of the principal.
"She prays that the Trust Company, as executor and trustee, be directed to account for the residuary trust and to `set up' the trust, and that the will be construed to determine whether there was a lapse and whether complainant is entitled to be paid now one-sixth of the corpus. There are other prayers which I need not notice.
"Chancellor Pennington in Salter v. Williamson, 2 N.J. Eq. 480, 489, speaking of the settlement of account of executors and administrators, said, `This court [Chancery] and the Orphans Court have on this subject a concurrent jurisdiction, and the object of vesting this power on settlement of accounts of executors and administrators in the Orphans Court, no doubt, was to afford in all ordinary cases a more easy, expeditious, and less expensive mode of closing up estates. Where there are no special reasons for going into equity, the Orphans Court is the proper tribunal, and should be selected by all parties for settling the accounts of executors and administrators.' The admonition not to bring the accounting of personal representatives into Chancery in the absence of special reasons for coming into this court, has been repeated in more than a score of cases scattered throughout our equity reports. But counsel cite only two cases in which Chancery has relegated to the Orphans Court controversies over the administration of testamentary trusts. Summerill v. Summerill, 99 N.J. Eq. 502, and Clayton v. Asbury Park and Ocean Grove Bank, 115 N.J. Eq. 480. In the first of these, the bill sought recovery of the amount of losses sustained by the alleged wrongful acts of the trustee. Vice-Chancellor Leaming wrote, `It is clear of course, that this court has jurisdiction to entertain the present bill, but why should it do so in view of the circumstances that the legislature has created a special tribunal for awarding the same relief now sought in this court. Since the Orphans Court has jurisdiction in the settlement of the trustee's accounts to entertain and adjudicate every charge made by the bill and award on equitable principles precisely the same relief which is here sought, and enjoys all the facilities for that purpose which are afforded in this court, there appears to be no special reason which justifies this court in entertaining the present bill.' In the Clayton Case, although fraud was charged, Vice-Chancellor Backes declined jurisdiction. The trustees were also executors and the vice-chancellor said, `We must follow the established practice of withholding equity's inherent jurisdiction over executors' accounts, unless it appears that the jurisdiction of the Orphans Court is inadequate, or some special reason is apparent, calling for equity's intervention.'
"The rarity of the instances in which Chancery has refused to entertain bills against testamentary trustees indicates, I believe, a greater readiness to act in such cases than in accountings of executors and administrators. The enforcement and administration of trusts is the primary subject of equity jurisdiction, while jurisdiction over personal representatives arose only because equity's relief was more adequate than that of either the law or ecclesiastical courts. With the growth of probate courts, the exercise of equity jurisdiction over decedents' estates has receded and in some states has disappeared, but jurisdiction over testamentary trusts continues in full vigor. Pom. Eq. Jur. § 156.
"Even in the case of personal representatives, there are no absolute criteria for determining whether or not Chancery should be the forum. The question is one for the sound discretion of that court. Filley v. Van Dyke, 75 N.J. Eq. 571. In such a determination, the convenience of litigants is an important factor. When the settlement of accounts is a mere matter of auditing, which can be done by the surrogate, the Orphans Court is the more economical and expeditious tribunal; but when complicated questions either of fact or of law are presented, the parties in interest are apt to prefer Chancery. Especially is this true when the estate is of substantial size. The machinery of Chancery for handling such cases is at least equal in efficiency and cheapness to that of the Orphans Court and at the present time a final decree can be obtained here more promptly than in the Orphans Court. Also, one appeal is eliminated in case the decision of the Court of Errors and Appeals is desired. If litigation in Chancery again reaches the volume of a decade ago, and parties must wait a year or longer for a hearing, the Orphans Court will again be usually sought by suitors in cases within the concurrent jurisdiction of the two tribunals.
"In the cause before me, one of the parties is an infant under the age of fourteen years. The Chancellor, traditionally, is specially charged with the protection of infants. Baird v. Baird, 19 N.J. Eq. 481; Tomkins v. Miller ( New Jersey Chancery), 27 Atl. Rep. 484. In his court, not only is a guardian ad litem appointed to represent the infant defendant but counsel is assigned to guard the infant's interest unless the guardian himself be one of the solicitors of the court. In the Orphans Court, where the proceeding is in rem, interested infants are often, perhaps usually, not represented at all, and no arguments on their behalf are urged upon the court. While the presence of an infant in the suit is not, of course, a decisive factor in the determination whether Chancery should exercise jurisdiction, it is a circumstance that has its weight.
"A number of interesting questions are presented by the record.
"Complainant and infant defendant agree that the trust estate has been wasted, but while complainant puts sole responsibility on the Trust Company, the infant looks to complainant as well. Whether an executor who leaves the management of the estate to a co-executor, can disclaim any liability for mismanagement, depends on the proofs in the particular case. One executor is not liable for the misconduct of the other unless he knew, or had notice of circumstances which should have aroused him to safeguard the estate. English v. Newell, 42 N.J. Eq. 76; 43 N.J. Eq. 295.
"A complication is suggested by the supplemental account which the Trust Company has filed in the Orphans Court in the names of itself and complainant as executors. Their so-called final account had been passed ten years earlier. In the intervening period, was the Trust Company acting as sole trustee under the will or was it still acting as executor? I suppose it will appear that it used the title of executor, rather than trustee, in its dealings, but I do not suppose that its choice of one word instead of the other is dispositive of the question.
"The motion to strike admits the charge that the Trust Company made investment which complainant considers illegal. While the principles governing investment of trust funds are well established, the application of these principles to a concrete case is always attended with difficulty.
"Complainant contends that the bequest in the will for the child Robert Guter lapsed; the Trust Company replies that the contention is frivolous. Without attempting at this stage of the litigation to construe the will, I may say that its interpretation seems open to serious argument. The will first gives a half interest in the residue to Robert. If the will contained no more, it would be clear that the legacy lapsed on Robert's death in testator's lifetime. Rippel v. King, 126 N.J. Eq. 297. But testator added, `If I shall leave any other child or children' — besides John and Robert — then such child shall share in the estate. The condition did not happen; testator left no other child. Did this provision convert the preceding gift into a gift to a class, so that, upon the death of Robert, the whole residue devolved upon John as the sole member of the class?
"Let us assume that complainant's contention prevails. We then have this situation: The income of the whole residue is payable to complainant for life `for her maintenance and support and for the maintenance and support of' Robert during his minority. Complainant has also a vested remainder in one-sixth of the residue. Where a trust is a mere device for preserving the estate during the life tenancy, for the benefit of the remaindermen, and the life interest and remainder become vested in the same person, the trust will be terminated and the beneficial owner will be given possession. But not so if the termination would defeat a material purpose of the testator. Cooper v. Cooper, 36 N.J. Eq. 121; Randolph v. Randolph, 40 N.J. Eq. 73; Endicott v. Endicott, 41 N.J. Eq. 93; Rosenbaum v. Garrett, 57 N.J. Eq. 186. Mr. Guter directed income to be paid his wife not only for her own benefit, but for the maintenance, support and education of his sons during minority.
"Upon the vesting of the remainder in Mrs. Brown for her sole benefit, did her life estate merge in the remainder, by operation of law? I think not. The infant's interest in the life estate prevents. Yet Chancery has jurisdiction, upon full consideration of the testator's intention, to decree a termination of the trust. Brooks v. Davis, 82 N.J. Eq. 118. I am aware of no like power in the Orphans Court.
"The authority of the Orphans Court to construe a will is incidental to its jurisdiction to decree distribution. In re Morrisse, 91 N.J. Eq. 477. When an estate is not ripe for distribution, no construction of the will can there be obtained. If I am correct in the view that complainant, even though the gift to Robert lapsed, has no present right to distribution of the corpus, save by aid of Chancery, then she cannot petition the Orphans Court to decree distribution, and cannot obtain in that court an adjudication of the question whether a lapse has occurred.
"The progress which the Orphans Court has made in a proceeding is always a factor in the decision whether Chancery should take over the matter. In the present instance, an account has been filed in the Orphans Court, but it is not drawn in accordance with established practice since it does not distinguish between corpus and income. The beneficiaries are entitled to know how much corpus remains in the estate and how much income. So it may be assumed, that were the parties sent back to the Orphans Court, the Trust Company would there be ordered to reframe its account. No progress in the cause has yet been made in that court.
"Complainant is not prejudiced by the circumstance that she initiated the proceeding in the Orphans Court. She has made no `election' that precludes her coming here.
"It seems to me that there are sufficient reasons to require Chancery, in the exercise of a proper discretion, to retain the case. The motion to dismiss the bill is denied."
Mr. Aquila N. Venino, for the complainant-respondent.
Mr. Charles Danzig and Messrs. Hood, Lafferty Campbell, for the defendant-appellant. Mr. Irving Hupart, for the defendant-respondent, Irving Hupart, guardian ad litem for John Duff Brown.
The facts, which appear in the opinion filed in Chancery, bring the case well within the rule stated by this court in Filley v. Van Dyke, 75 N.J. Eq. 571: "The assumption of jurisdiction by Chancery in cases where the Orphans Court has already entertained an accounting and has not completed it by a final decree thereon, rests in the sound judicial discretion of the former court, in view of such special circumstances as may be presented in the particular case; the question then being whether the circumstances show special cause for the interference of the court." The circumstances showed special cause which brought the determination within the court's discretion.
The motion to dismiss the appeal, decision heretofore reserved, is denied. The decree below will be affirmed.
For affirmance — THE CHIEF-JUSTICE, PARKER, CASE, BODINE, DONGES, HEHER, PERSKIE, PORTER, DEAR, WELLS, WOLFSKEIL, RAFFERTY, HAGUE, JJ. 13.
For reversal — None.