author: Stevenson, V. C.

text:
    William R. Gordon, petitioner, v. Frances H. Gordon.
    [Submitted and Decided December 3d, 1917.]
    1. A wife involuntarily confined in an insane asylum as a lunatic cannot be guilty of desertion under the Divorce act of this state.
    2. If she is so confined after her continuous desertion for two years, but before her husband’s suit for divorce is begun, her involuntary confinement is a defence to the suit, since the desertion must have continued during two years preceding' the suit.
    3. It is the duty of the court of chancery to apply the law as distinctly laid down by the court of errors and appeals without hesitation or criticism ; where two deliverances of that court cannot be reconciled or distinguished, this court shoudl follow the later statement when such statement has been recognized and accepted in subsequent decisions and declarations of the court of chancery.
    4. Myles v. Myles, 77 27. J. Eq. 265, and Hall v. Hall, 65 N. J. Eq. 709, examined and compared.
    On petition for divorce on the ground of desertion. Heard on bill, answer and proofs taken in open court.

      Mr. Edward P. Stout, for the petitioner.

      Mr. Edward Maxson, for the defendant.
   Stevenson, V. C.

In this case I find that the defendant was guilty of willful, continued and obstinate desertion of her husband for a period of two years and over. Petitioner, however, did not promptly commence his suit after the defendant had been guilty of the complete matrimonial offence of desertion which would have entitled him to an absolute divorce if he had filed his petition in time. Some months passed by when without any break in the continuity of the desertion of the defendant with the characteristics necessary to make such desertion a cause of divorce, she (the defendant) became insane to such an extent as to be irresponsible for her actions, and was by due course of law committed as an involuntary patient to an insane asylum, where she remained insane and confined without regard to her will continuously until this suit was brought. Conditions had not changed when the cause came to a final hearing.

It is conceded that the mental condition of the defendant and her confinement without regard to her will in a lunatic asylum arrested the period of willful, continued and obstinate ( desertion which she had formerly initiated. She was not willfully absenting herself from her husband. She no longer had an opportunity to repent and become reconciled with her husband, and if she had the will to return to him she was physically restrained from carrying out such a purpose. A spouse in the situation of the defendant after she becomes a lunatic and is involuntarily confined in an asylum, cannot be guilty of desertion within the definition of our Divorce act. Porter v. Porter, 82 N. Y. Eq. 400. See 1 Bish. M. D. & S. § 1761.

In the case of Myles v. Myles, 77 N. J. Eq. 265 fcourt of errors and appeals, 1910), there is a very distinct and positive did am in which the entire court apparently concur, to the effect that "the two years contemplated by the statute are of course those immediately preceding the filing of the petition.” An examination of the opinion of Vice-Chancellor Emery, filed in the cause but not reported, and of the brief per curiam opinion of the court of errors and appeals above cited, which . affirmed the decree advised by Vice-Chancellor Emery, shows distinctly, I think, that the only matter before either court for decision was whether or not it was established by the proofs that the separation of the spouses which had lasted for a period of twelve or thirteen years, was characterized by obstinacy on the part of the defendant. The appellate court agreed with the court of chancery that the petitioner had failed to show this necessary fact. The particular period of desertion with respect to the commencement of the suit for divorce was not before either court for consideration. The deliverance of the court of errors and appeals above quoted was made merely because it was deemed possible that the vice-chancellor “regarded the first two years of the separation as the period to be examined/’ and the appellate court proceeded to express its dissent from such proposition in order “to avoid any misunderstanding” of the “affirmance of the decree.”

There can be no doubt, I think, that the court of errors and appeals intended by their well-considered dicium to correct what possibly might be construed as a statement of divorce law made bv way of dictum in the opinion of Vice-Chancellor Emery, which opinion in all other respects the higher court adopted.

It follows from the application of this novel principle of divorce law promulgated in the Myles Case, for which no authority is cited, that a spouse can never in New Jersey acquire an absolute right to a divorce on the ground of desertion until his petition is filed. The guilty spouse (the deserter), after three or four years of willful, continued and obstinate desertion, may, the day before the petition is filed against him, by repentance and bona fide offers of reconciliation, &c., destroy what would have been a right of the deserted spouse to an absolute divorce if he could only have got his petition on file two days earlier.

I see no escape from the conclusion that if the dictum in the Myles Case is to be logically applied, the continuity of the willful and obstinate desertion during the necessary period of two years is broken-if the defendant becomes insane and irresponsible and is committed to an asylum before the suit for divorce is commenced, even though when insanity supervened there had been a completed period of two years of willful, continued and obstinate desertion.

In Hall v. Hall, 53 Atl. Rep. 455, 459; affirmed, 65 N. J. Eq. 709, 770, Vice-Chancellor Pitney, in dealing with an offer of reconciliation made by the deserting wife after two years of willful, continued and obstinate desertion, says (at p. 459):

“With regard to the writing of the love letter in May, 1900, that was two years after her desertion, and after the petitioner’s right to a divorce on the ground of desertion had matured and become vested.”

The decree advised by Yice-Chancellor Pitney was unanimously affirmed by the court of errors and appeals, and in the brief opinion of Mr. Chief-Justice Gummere we find the following statement:

“We concur not only in the conclusion reached by the YiceChancellor but in the opinion rendered by him, except that we find therein a somewhat inaccurate statement of a rule of divorce law which we think, should not be passed without notice.”

The opinion then proceeds to correct a statement of YiceChancellor Pitney which has no bearing upon the matter now in hand.

Thus the court of errors and'appeals expressly adopts thq opinion of Yice-Chancellor Pitney with a single exception, which need not be noticed, and thus approves the doctrine which until the decision of the Myles Case I think was regarded as settled beyond question, viz., that after two years of willful, continued and obstinate desertion the deserted spouse has a vested right to a divorce, can reject all offers of reconciliation, however sincere they may be, and notwithstanding that the deserting spouse after the two years of desertion became insane and was permanently confined in an asylum, file his petition and procure an absolute divorce.

I am unable to perceive any way by -which the dictum of the court of errors and appeals in the Myles Gase can be reconciled with the opinion adopted by the court of errors and appeals in the Hall Case. If the principle stated by Vice-Chancellor Pitney in the Hall Case and carefully endorsed by the court of errors and appeals is correct, then it would seem to follow that in the case at bar the defendant committed a complete matrimonial offence prior to her insanity, and that the petitioner has a vested right to a divorce although he has brought his suit some months after insanity and incarceration of the defendant in an asylum have made it impossible that she could be continuous!}' guilty of willful desertion for two years preceding the filing of the petition.

If the principle carefully announced, although by way of dictum, in the Myles Case is correct, I see no escape from the conclusion that the defendant never committed any matrimonial offence which under the laws of New Jersey at the present time entitles the petitioner to a divorce.

Assuming that both propositions laid down or adopted by the court of errors and appeals which we are considering are mere dicta, and that they are in conflict with each other, I am embarrassed in endeavoring to determine which is authoritative , and final because of the fact that the later deliverance does not in any way refer to the earlier. In view of what I think is the unanimous opinion of text writers of repute and courts in other jurisdictions, I incline to think that, if this case were to be decided without the aid of any further authority in New Jersey subsequent to the Myles Case, ibe court of chancery might properly apply the principle laid down in the Hall Case until the court of errors and appeals should be further heard from. It may be well to state some of the reasons for this view.

(1) It will be observed that our Divorce act makes no distinction between the two matrimonial offences which constitute causes of absolute divorce. The statute declares that “divorces from the bond of matrimony may be decreed for the following causes:

“I. Adultery by either of the parties.

“1F. Willful, continued and obstinate desertion for the term of two years.”

The statute does not prescribe that the period of two years of desertion must be the two years immediately preceding the filing of the petition: this proviso is added by the rule laid down ip the Myles Case. The provision in section G pertaining to jurisdiction that in desertion cases one of the parties must lie resident in New Jersey for two years next preceding the commencement of the action, plainly does not warrant the inference that the term of two years of desertion which constitutes the ground of divorce, may not have ended long before the commencement of the suit.

As will appear hereafter in considering the Koch Case, infra, sections 6 and 7 of the Divorce act refer in terms to causes of action for divorce upon both grounds, desertion and adultery, as arising not only before suit is brought in New Jersey, but before the petitioner became a resident of the State of New Jersey,

(2) The statute, it seems to me, makes no distinction as to the remedy between the offence of adultery and the offence of willful, continued and obstinate desertion for two years. The offences of course are quite different in their nature. Condonation may be more easily obtained in one case than in the other. The moral duty to condone may more frequently exist in one case than in the other. The statute, however, as I read it, seems to place these two complete matrimonial offences on a par in respect to the rights and remedies which are accorded to the injured spouse.

(3) The text writers I think all agree that after the statutory period of desertion is completed, the deserter cannot by any course of conduct indicating repentance and desire to terminate the desertion, impair in any way the legal effect of the matrimonial offence which he has committed. Mr. Bishop says (1 M. D. & S. § 1775):

“When the desertion has continued the statutory number of years, the deserted party may rely on his acquired right and refuse to renew cohabitation. The refusal will not bar the divorce to which he has already become entitled.”

The authorities in this country and Great Britain are cited in a note.

In 1 Nels. D. & S. §§ 7-3-75, the authorities are cited for the doctrine that an offer to return “must be made within the statutory period.” In section 75 the author says:

“The door of repentance and return must be kept open during that period [the statutory period], but after the statutory time has elapsed the injured party has a cause for divorce. If such party refuses to renew cohabitation it is not desertion. For to renew cohabitation is to condone the offence and the law does not enforce condonation. This refusal of an offer to return will not bar a divorce to which the party is already entitled.”

Tlic American and English cases sustaining these propositions are cited in a note.

The same principles are announced in 9 Am. & Eng. Encyc. 775 (see cases cited in note 3), and 14 Cyc. 620 (see cases cited in note 91).

(4) I have found no authority earlier than the Myles Case in this country or in England contained in any judicial opinion or text hook, which makes the slightest distinction in respect of remedies between the matrimonial offence of-adultery and the matrimonial offence of desertion, after the desertion has continued for the period prescribed by statute. I find no intimation that statutes similar to ours-not only prescribe the period of desertion but prescribe its continuance up to the time of commencing the suit for divorce on account thereof. The two offences of course differ: in the case of desertion two years of continuous misconduct on the part of the deserting spouse (which period is liable at any time to be arrested by a variety of courses), are necessary to constitute the complete offence, but after the offence of desertion has been once completed I have not discovered any suggestion prior to the Myles Case that the injured spouse has not the same vested right to a divorce which he would have had if the matrimonial offence had been adultery. If it may be said that the foregoing statements contain a peiitio principii because they assume that the matrimonial offence of desertion as defined by our statute may be completed before the suit is commenced, the propositions may be recast so as to make them affirm that there is no such matrimonial offence defined by our statute'as willful, continued and obstinate desertion for two years immediately preceding the commencement of a suit for divorce on account of such offence. Our statute in the same section and in one sentence names two offences which are grounds for divorce. One of these offences is fully defined by a single word, and the other by a single word with four qualifications. If the legislature had intended to add a fifth qualification which has been added by the dictum in the Myles Case, it would seem probable that it would have done so especially in view of the far-reaching effects of adding this qualification in large numbers of cases.

(5) The dictum, in the Myles Case does not seem to fit very accurately into our system of divorce law so far expounded by our courts. In 1911, over three years after our present Divorce act went into effect, Vice-Chancellor Emery in the case of Koch v. Koch, 79 N. J. Eq. 24., decided that where the period of desertion began in New York, but, before the expiration of two years, the injured spouse became a resident of New Jersey, and, the desertion continuing, subsequently after two years commenced a suit for divorce in this state, no cause of action for desertion arose until the entire two years from the origin of the desertion had elapsed, and that the only cause of action for desertion therefore arose in New Jersey. The soundness of this view has never been questioned. But the Vice-Chancellor proceeded in his reasoning upon the assumption that if there had been two years of desertion while the petitioner remained domiciled in New York, the continuance of the desertion in New Jersey for two years would not constitute a separate cause of action for divorce arising in New Jersey. No period of desertion is a cause of action for absolute divorce in New York. A cause of action for a limited divorce therefore arising in New York, prevents a cause of action for absolute divorce from subsequently arising in New Jersey. Several decisions (unreported) of two vice-chancellors directly contrary to this view had been rendered, of which decisions, however, Vice-Chancellor Emery was not aware. The vice-chancellor’s dictum, however, has been accepted as law by the court of chancery in subsequent cases, and has recently been approved by the court of errors and appeals. Flynn v. Flynn, 83 N. J. Eq. 690.

Thus it would seem that if a spouse deserted in another state remains a resident there two years, and then becomes a resident of New Jersey and remains such resident for two years, and then commences a suit for divorce, the two years to be examined are not “those immediately preceding the filing of the petition,” but those which immediately followed the separation in the foreign state, or immediately preceded the departure of the deserted spouse from the foreign state. If during the-whole period of separation' the injured spouse (the petitioner) has been a resident of New Jersey according to the dictum in the Myles Case, the two years to be examined are “those immediately preceding the filing of the petition,” and no cause of action arises on the ground of desertion until the petitioner gets his petition on file. If, however, during the first two years of the separation the petitioner was domiciled in a foreign state, he or she may after two years of residence in New Jersey obtain a divorce in this state of such a character as would be obtained in case the petitioner had remained in her former domicile and had brought suit there. In the case put the spouse emigrating from Pennsylvania would be entitled to an absolute divorce, while the spouse emigrating from New York would be entitled only to a limited divorce. If, after two years of separation at the matrimonial domicile in a foreign state, one of the spouses becomes a resident of New Jersey, and after two years of such residence files a petition for divorce, the first period for examination manifestly is the period of years of separation in the foreign state immediately preceding the establishment of the residence in New Jersey If this examination discloses two years of .willful, continued and obstinate desertion, then the court of chancery of New Jersey may grant only such divorce as the foreign state could grant under its laws. If, however, the separation at the start was not a willful or an obstinate desertion by the defendant, but became such after the emigration to New Jersey or within two years prior to such emigration, then no cause of action arose in the foreign state, and the period to be examined under the Myles Case is the two years immediately preceding the filing of the petition, and the divorce obtained will be such as is defined by the New Jersey law.

In case the deserted spouse remained resident in the foreign state for the period of two years from the date of the desertion, and then moved to New Jersey, the question arises whether bona -fide offers of reconciliation on the part of the guilty spouse or his insanity could possibly have any effect upon the right which the injured spouse acquired to obtain a divorce, absolute or limited, as the case might be, on account of the complete matrimonial offence which arose in the foreign state.

The dictum in the Myles Case cannot, I think, be reconciled with the doctrine • of the Koch Case which the court of errors and appeals apparently approved in the Flynn Case four years after the Myles Case was decided. While the doctrine of the Koch Case has not been discussed in any opinion by a judge of our court of last resort, and possibly that court has not considered its peculiar application to certain cases, and may hereafter strictly limit its authority as a precedent, nevertheless it now stands as law in this court, and it seems to follow that as between the conflicting dicta in the Hall and Myles Cases this court should accept and apply that dictum which is not inconsistent with the law of the Koch and Flynn Cases.

(6) It is, I think, the settled practice to permit a defendant in a divorce suit to file a cross-petition praying for an absolute divorce on the ground of desertion, although the period of two years had not expired when the original petition was filed, the cross-petition being considered in many respects an independent suit. (See laws of 1916, chapter 57, page 102). Suppose a wife after two years of separation from her husband is about to sue him for an absolute divorce on the ground of desertion, but before she gets her petition on file she is sued by her husband in good faith for a divorce on the ground of adultery. The commencement of the husband’s suit makes it improper that the parties should live together and suspends the period of desertion. Recognizing the dictum in the Myles Case, can the wife succeed in her cross-suit on the theory “that the two years contemplated by the statute are * * * those immediately preceding the filing of the petition” of the husband, and not those immediately preceding the filing of the cross-petition? A logical application of the principle laid down in the Myles dictum would seem to abolish all cross-suits for divorce on the grounds of desertion where the original suit was brought in good faith.

The fact that in some cases the original status can be more completely restored after the offence of desertion for two years has been committed, than where the offence of adultery has been committed, seems to my mind to bear only upon the moral obligation to condone. The legislature has defined with accuracy two distinct matrimonial offences, either of which is a ground for absolute divorce. Under the statute the two offences seem to be equally heinous, giving grounds to the injured party for precisely the same remedies. There are strong grounds for arguing, as in fact it has often been argued, that two years of desertion effect a more complete disruption of the marriage state in scores of cases than is effected by a single act of adultery. A husband who willfully deserts his wife and leaves her for two years to support herself and her children by her labor, has committed, it seems to me, about 'the highest possible crime affecting the marriage relation.

It has been suggested that the form of allegation charging desertion which has usually been employed in divorce cases, indicates what has been generally thought as the particular two years under investigation. Petitions for divorce on the ground of desertion usually allege the date when the separation occurred, and hi the great majority of cases the parties in fact have not come together since this final separation, the date of which may have been two years, three years or ten years before the commencement of the suit. The natural method of charging the defendant with desertion is to allege that he deserted the petitioner at the date named, and then proceed: “ever since which time and for more than two years last past said defendant has willfully, eontinuedly and obstinately deserted” the petitioner. Bidd. N. J. Div. Pr. 186 et seq. Under this form of allegation prior to the Myles opinion the case was established when desertion having the necessary characteristics was proved to have existed during any period of two years included in the allegation — the offence not having been condoned. In many, perhaps in most cases, the last two years prior to the filing of the petition are more readily than any earlier period proved to have been years of willful and obstinate desertion. The separation at the start in many cases cannot be shown to have the elements of willfulness and obstinacy. A separation, innocent in its origin, at a later time, which sometimes cannot be definitely fixed except within limits, often becomes a willful desertion. If, as the matter was understood prior to the Myles Case, the guilty spouse after the complete offence of desertion for two years had been committed, repented and desired to return, or became insane, and it thus appeared that sonic time prior to the commencement of the suit he had ceased to be a willful and obstinate deserter, most accurate pleaders, I think, would vary the phraseology so as to make it.conform with the truth. If a spouse domiciled in Pennsylvania after two years of willful, continued and obstinate desertion by the other spouse, becomes a resident of New Jersey, and after a further period of two years of such residence brings a suit for an absolute divorce on the ground of desertion, having in view the doctrine of the Koch Case, it would plainly be improper to follow the form of allegation above quoted. In such case, as we have seen, "the two years contemplated by the statute” are not "those immediately preceding the filing of the petition,” but those ending at least two years before the petition was filed. Koch v. Koch, supra; Flynn v. Flynn, supra. In such case the petition alleges that the petitioner was resident in the foreign state when the cause of action arose on account of which he brings his suit for a divorce, and alleges the removal of the petitioner to the State of New Jersey and residence there for two years next preceding the commencement of the action. The petition also sets forth the foreign law and prays for a divorce on account of the two years of desertion in the foreign state. See Bidd. N. J. Div. Pr. 193, form I3.

Thus it seems to me to be beyond question that' in an important class of desertion eases our statute expressly recognizes that a complete cause of action may arise on account of two years of willful, continued and obstinate desertion, which peribd of desertion terminated at least two years before the petition for divorce was filed. It seems somewhat incongruous that if a petitioner for divorce proves willful, continued and obstinate desertion for a period of four or five years, whether the earlier half or the later half of the period constitutes the subject-matter of investigation as the matrimonial offence warranting a divorce under New Jersey law, depends on whether the petitioner became a resident of New Jersey before or after the first two years of the period expired.

As to the suggestion that after two years of willful, continued and obstinate desertion reconciliation may intervene before suit is commenced, and destroy any rights to a divorce founded upon the prior desertion, it would seem to be sufficient to point out that this is merely condonation, and that condonation is always possible after a complete matrimonial offence entitling the injured spouse to a divorce has been committed. Petitions in adultery cases often allege the act at a time, months or even years prior to the commencement of the suit. Cases have occurred where a husband has been shown to have been cohabitating with his wife while he was prosecuting a suit for divorce against her. Whether the complete matrimonial offence b>e adultery or desertion for two years, some period of time always intervenes between the commission of the offence and the institution of a suit for divorce, and during that period condonation is always possible. The possibility practically in all cases, and the high degree of probability in some cases, that the matrimonial offence, whether it be adultery or desertion, has been condoned, has no relation, it seems to me, to the ascertainment of the nature and definition of either of these two offences which constitute causes for absolute divorce at the election of the injured party. It may be noted that the form of petition uniformly employed in adultery cases does not deny condonation. Condonation is a defence to be set up- in the defendant’s answer and proved by him.

If the question to be decided in this case were to be decided solely with reference to the authority of the conflicting dicta in the Sail and Myles Gases, this court, it seems to me, would be at liberty to adopt the earlier dictum, supported, as I think it is, by all prior authorities, rather than the later dictum, which, so far I know, is supported by no prior authority. The principle, however, laid down in the Myles Case has been recognized as a correct statement of the law by Vice-Chancellor Backes in the case of Getz v. Getz, 81 N. J. Eq. 465 and has been applied by Vice-Chancellor Learning in Lake v. Lake, 89 Atl. Rep. 534. In the last-mentioned case the principle enunciated in the Myles Case is accepted as the established law of the state. Two years of willful, continued and obstinate desertion having been established by a former decree between tire parties, the vice-chancellor, following the rule enunciated in the dictum in the Myles Case, examined the character of the separation for the two years immediately preceding the commencement of the suit, and finding that there had béen no change in the character of such separation, advised a decree nisi. Of course, it is the duty of the court of chancery to apply the law as distinctly laid down by the court of errors and appeals without hesitation or criticism. Only our court of last resort may correct its authoritative statement of the law. The difficulty in this case arises from the fact that we have two conflicting statements coming from our court of last resort, and the later statement in no way referring to or recognizing the former statement. Although in such a situation this court might, as I have intimated, elect to he guided by the earlier statement of the law, such a course at present does not seem to be proper in view of the decisions and declarations of the court of chancery since the Myles Case was decided.

I conclude, therefore, that it is my duty to follow and apply to this case the latest statement of the law coming from our court of last resort, such statement having been recognized and accepted as a part of our Divorce law in the decisions of the court of chancery above cited. As between the petitioner in this case and the defendant who defends by a guardian appointed by the chancellor, if the petitioner is to obtain an absolute divorce, 1 think it should be after a decision to that effect by the court of errors and appeals.

A decree dismissing the petition will be advised.

The foregoing opinion will be filed because I am notified that the petitioner is about to take an appeal. The substance of the opinion was stated orally to counsel, and the opinion was written before the case of Orens v. Orens, 102 Atl. Rep. 436 (88 N. J. Eq. 29), was reported. If the opinion in the Orem Case, liad been before me at the hearing, this opinion would have consisted of a few lines citing the authorities. After some hesitation T have concluded to file my opinion in its present form, inasmuch as I think counsel have a right to have it accord with my oral deliverance.


source: Caselaw Access Project

author: Leaming, V. C.

license: Public Domain

text:
    George Conover v. Guarantee Trust Company et al.
    [Submitted July 24th, 1917.
    Determined December 26th, 1917.]
    1. Where a trustee was authorized to certify bonds of a corporation when mortgages were assigned by it to the trustee, acceptance of mortgages executed 'by the corporation itself for the trust fund was beyond the powers of the trustee, and no bonds should have been certified against them.
    2. Where a trustee acts within the scope of well defined powers, good faith and reasonable diligence .and care may justify an error of judgment.
    3. The ordinary measure of accountability for losses sustained from breach of a trust agreement is recompense for the loss sustained by reason of the breach.
    4. Where a trustee accepted mortgages contrary to the plain provisions of a trust agreement, and certified bonds against them, the trustee will be personally liable to the bondholders for losses sustained by them on such bonds.
    5. Where the plain provisions of such agreement defining the trustee’s powers are violated by the trustee, an immunity clause therein, covering any mistake of judgment, is unavailing.
    6. The trustee cannot be held liable for not foreclosing mortgages where it would have been of more than doubtful 'benefit to the bondholders so to do.
    7. The evidence in this ease does not show that the trustee collected debts due to it individually to the detriment of the interests of the bondholders.
    S. In the absence of bad faith, a trustee for holders of corporate bonds should not be removed unless some benefit to the trust would accrue thereby.
    Oil final hearing on bill to remove a trustee and procure an accounting.
    Mr. William M. Clevenger, for the complainant.

      Mr. Clarence L. Cole, for the defendants.
   Leaming, V. C.

By the bill complainant seeks the removal of defendant Guarantee Trust Company as trustee under a certain instrument of trust, the appointment of a new trustee and an accounting by the trustee so removed; the bill also seeks to fasten upon the trustee, as personal obligations, liability for certain losses which are claimed to have arisen from alleged breaches of trust duties upon the part of the trustee.

The trust was created to enable the Yentnor Syndicate — a real estate corporation which is now insolvent — to issue and «ell a scries of its bonds. The trust agreement, under date of September 1st, 1911, was executed by three corporations — the Yentnor Syndicate, who was to issue the bonds, the West Jersey Mortgage Company — a corporation which is insolvent now also— who was to guarantee the payment of interest and principal of the bonds, and the Guarantee Trust Company, who was to act as trustee and certify to the bonds as they were issued from time to time pursuant to the terms of the trust agreement.

The provisions of the trust agreement authorized the Yentnor Syndicate from time to time to assign to the trustee bonds and mortgages which were to be appraised as to value by the West Jersey Mortgage Company; as such bonds and mortgages, so assigned and appraised, were deposited with the trustee bonds in like amounts, known as “guaranteed collateral bonds,” could be issued by the Yentnor Syndicate upon such collateral bonds being guaranteed as to the payment of principal and interest by the West Jersey'' Mortgage Company and certified to by the trustee as having been issued pursuant to the terms of the trust agreement. The purchaser of a collateral bond would thus hold the direct bond obligation of the Yentnor Syndicate, the.guarantee of payment of the West Jersey Mortgage Company of the prin-. cipal and interest of the collateral bond, and also share pro rota with other holders of collateral bonds the security afforded by the bonds and mortgages of equal amount which had been and might thereafter be in like manner assigned to the trustee by the Yentnor .Syndicate as a trust fund to secure payment of the principal and interest of the collateral bonds. The collateral bonds were all dated September 1st, 1911, and drew interest at six per cent., payable each six months and matured as to principal three years from their date.

The authorized issue under the trust agreement was $200,000 in amount; $79,000 were issued. Two of the issued bonds, aggregating in amount $2,000, were subsequently surrendered to the trustee; accordingly, there is now outstanding $77,000 of the collateral bonds. Complainant owns two of these bonds, aggregating in amount $2,000. The Guarantee Trust Company, the receivers-of the Yentnor Syndicate and West Jersey Mortgage Company, and all the holders of collateral bonds other than complainant are made defendants. The Guarantee Trust Company and the receiver of the West Jersey Mortgage Company have answered.

A charge is made by complainant to the effect that the trustee transcended its powers by accepting mortgages for the trust fund which were not authorized by the trust agreement. Of the $77,000 in amount of mortgages which now constitute the trust fund, all but $10,000 are mortgages which were made by the Yentnor Syndicate to the trustee on land owned by the Yentnor Syndicate; each mortgage is accompanied by a bond of the Yentnor Syndicate which it secures. The trust agreement does not authorize tire trustee to accept for the trust fund mortgages made by the Yentnor Syndicate to the trustee. Throughout the’ trust agreement, in instances almost too numerous to justify specification, tire bonds and mortgages which are to be made the trust fund are declared to be bonds and mortgages which are to be assigned to the trustee. On the first page of the trust agreement it is recited that the Yentnor Syndicate “has determined to issue its guaranteed collateral bonds, as hereinafter set forth, and to secure the same by assignment to and deposit with the trustee of bonds and first mortgages.” In the form of the collateral bond embodied in the trust agreement, which form conforms to the form of the collateral bonds as subsequently issued, it is stated:

“To secure the payment of this bond and all other bonds which comstitute this series, together with interest thereon, there have been assigned to and deposited with the said Guarantee Trust Company as trustee, bonds and first mortgages of a par value of not less than the par value of the bonds of this series outstanding and certified by the said trustee, to be held in. trust by the said trustee, and' its successors, for the benefit of the holders of said' bonds according to a certain Trust Agreement. * * * This 'bond shall not become valid until the certificate hereon shall be signed by the trustee.”

The form of trustee’s certificate embodied in the agreement, which form conforms to the form thereafter used as collateral bonds were from time to time certified by the trustee, is as follows:

“It is hereby certified that the within bond' is one of the Guaranteed Collateral Bonds of Yentnor Syndicate, all of like tenor and effect, and in denominations of one thousand or five hundred dollars each, amounting in the aggregate to two hundred thousand dollars ($200,000) described In the agreement therein mentioned. Guarantee Trust Company, Trustee.”

The second paragraph of the trust agreement is as follows:

“2. That Yentnor Syndicate, a corporation of the State of New Jersey, party of the first part, has granted, bargained, sold, assigned and set over and by these presents doth grant, bargain, sell, assign and set over unto the Guarantee Trust Company, also a corporation of the State of New Jersey, party hereto of the second part, all the bonds and first mortgages set forth and described in the schedule hereto iannexed and which forms a part of this instrument, and bears even date herewith, and is identified by the certificate of the Trustee and of the Company, it being the intention of the Company to assign and set over said bonds and mortgages to the Trustee fully and effectually not only by these presents but also by a separate instrument of assignment of each of the said bonds and mortgages.”

It will be noted that the schedule there referred to is a schedule which is to be built up from time to time as mortgages are assigned to the trustee. Paragraph 3 of the trust agreement provides:

“That inasmuch as at the time of the execution and delivery of these presents, the Company may not desire to issue all the said Guaranteed Collateral Bonds, and to transfer and assign to the Trustee bonds and mortgages or other securities to the full contemplated amount of Two Hundred Thousand Dollars ($200,000), it is agreed that from time to time hereafter the Company may issue its said 'bonds and assign to the Trustee bonds and first mortgages until the amount of Two Hundred Thousand Dollars ($200,000) in value, of such bonds and mortgages is made up, and that as the said bonds and mortgages are assigned and delivered to the Trustee, they shall be entered in the Schedule hereto attached, and shall form a part of the Trust Fund hereby created, and shall in all respects be subject to the provisions of this agreement with like force and effect as if they and the particulars thereof had been entered in said Schedule at the time of the execution- and delivery hereof, and as if such bonds or mortgages had. then been assigned and delivered to the Trustee. The Trustee shall be under no obligation to record this instrument or the assignment of any of the bonds and mortgages constituting the Trust Fund at any time unless and until any default shalli be made on the part of the Company in the payment of interest on the Company’s bond, or any of them, or unless and until in its judgment the protection of the bondholders shall require such action on. its part.”

Paragraph 4 provides:

“At the time of the presentation of any of said bonds to the Trustee for certification, there shall be delivered to the Trustee -a request in writing signed by' the President of the Company, certified under the seal of the Company, requesting the Trustee to certify' and deliver to the Company' or its nominee a specified, amount of such bonds, together with such number of said bonds as the Company desires to be certified for issue, and bonds and first mortgages equai in value to at least the par value of the bonds so to be issued, together with properly executed instruments of assignment thereof to the Trustee. Upon the receipt thereof, the Trustee shall permit the Company to enter said bonds and mortgages in the annexed schedule as hereinbefore provided or shall itself make such entry' and- shall forthwith certify the bonds so presented to it for certification and deliver the same to the Company for issue.”

Paragraph 5 provides:

“That in case the Company shall, for any reason deem it necessary to take any proceedings for the collection by foreclosure or otherwise, of any bond and mortgage belonging to the Trust Fund, the Company shall forthwith substitute bonds and first mortgages, of equal value, and shall assign and transfer the san^e to the Trustee to be held as part of the Trust Fund, and shall thereupon be entitled to the delivery to it of the bond and mortgage which is so to be collected.”

It will be noted that this provision contemplates a possible foreclosure by the Yentnor Syndicate of mortgages withdrawn from the trust. In paragraph 5 it is also provided:

“Whenever and as often as there shall be in the hands of the Trustee cash belonging to the Trust Fund-, the Company shall have the right to have such cash, paid to it upon transferring and assigning to the Trustee bonds and first mortgages equal in value to the amount of such cash.
“So long as the Company shall not be in default under any provision of this agreement, it shall be entitled to receive from the Trustee, if and when collected, all income from the bonds and mortgages comprising the Trust estate.”

Paragraph 6 provides:

“That upon the collection by the Trustee of any bond and mortgage forming part of the Trust Fund, the Trustee may, unless the Company shall within thirty days from the time when the amount of such collection shall have been received by the Trustee, assign to and deposit with the Trustee bonds .and mortgages, equal in. value to the amount of such collection, proceed to invest the amount so collected in bonds and first mortgages, such bonds and mortgages shall thereupon become a part of the Trust Fund. If upon collection, by the Trustee of any bond and mortgage, the amount realized shall be less than the amount of principal and interest due upon said bond .and mortgage at the time of such collection, the Company agrees to deliver to the Trustee additional bonds and first mortgages duly assigned to the Trustee, in an amount equal in value to the amount of such deficiency.”

In paragraph 7 it is provided: “In ease of withdrawal of any such bond and mortgage the trustee shall reassign the same to the company.” The eighth paragraph provides: “That all bonds and mortgages assigned and transferred by the company to the trustee as hereinbefore provided shall be accompanied by a policy” of title insurance. Also:

“All bonds and mortgages assigned and transferred by the Company to the trustee to constitute the Trust Fund herein provided, shall be accompanied by a written appraisal' of value to be made and certified to by the guarantor.” * * * “It shall be no part of the duties of the trustee to make investigation concerning nor shall it be responsible for the validity, nature or .actual value of the bonds and mortgages so assigned to it. nor shall it be answerable except for the due certification as .aforesaid of the company’s bonds issued hereunder and for the custody and disposition of the trust fund.”

Paragraph 12 again stipulates a duty to assign to the trustee additional bonds and mortgages in certain events.

Nowhere in the entire trust agreement is there to be found any provision which in the slightest degree by inference or otherwise, suggests that the trust fund may at any time consist of any asset except cash and assigned bonds and mortgages, and, as already pointed out, the collateral bonds as issued, and certified to by the trustee, expressly declare that they are secured by bonds and first mortgages assigned to aird deposited with the trustee. It seems impossible to escape tbe conclusion that in ac-.(•opting for the trust fund mortgages made directly from the Yentnor Syndicate to the trustee which were created for the sole purpose of enabling the trustee to certify to collateral bonds, the trustee accepted for the trust fund securities which were not in any way contemplated or authorized by the trust agreement, and certified against such securities collateral bonds of an equal amount contrary to the express provisions of the trust agreement. To that extent the trustee transcended the powers conferred upon it by the trust agreement. The difference in possible value and desirability between a bond and mortgage which has arisen in the ordinary course of trade, such as a mortgage made to the Yentnor Syndicate in part payment for land sold by it or a bond and mortgage made to it for a loan of money in the ordinary course of trade, and a bond and mortgage made by that company to the trustee for the sole purposes of affording collateral security under the trust agreement, are reasonably obvious, and it seems entirely clear that the latter class of collateral was in no way contemplated by the trust agreement. I have searched in vain throughout the instrument of trust to find some provision from which an implied power of the trustee to accept such mortgages for the trust might be reasonably inferred. By accepting such mortgages the whole scheme was, in marked effect, converted into an ordinary bond issue secured by a trust deed of the landowner. Indeed, with mortgages executed by the Yentnor Syndicate made the basis of security, it is. difficult to discern substantial advantages to flow from a trusteeship; it would seem that such mortgages should be equally desirable for an investor without a trust. But, however that may be, it is impossible to read the trust agreement, or even the collateral bonds alone, and escape the conviction that the terms, of the trust excluded from the trust fund bonds and mortgages made by the Yentnor Syndicate to the trustee as a basis for the collateral bond issue. In that view the trustee must he held to have transcended its power in accepting that class of seem!tics for the trust fund and certifying collateral bonds against them.

The rule of liability of a trastee who has transcended his powers is defined in 28 Am. & Eng. Encycl. L. 1063, as follows:

“Trustees are bound to observe the limits placed upon their powers, either by law or by the trust instrument, and if they transcend such powers and cause damage to the estate they will be held responsible therefor, although they may have acted in perfect good faith.”

Professor Pomeroy defines every violation by a trustee of a duty which equity lays upon him, whether willful and fraudulent, or arising through negligence, or arising through mere oversight or forgetfulness, as a breach of trust, and declares tire trustee’s personal liability to make compensation for the loss occasioned by such breach of trust to be “a simple contract equitable debt,” and also that the amount of liability is always sufficient for the complete indemnification and compensation of the beneficiary. 3 Pom. Eq. Jur. §§ 1062, 1079, 1080. The distinction between a case in which a trustee has transcended the powers conferred by the trust and one relating to matters of judgment or conduct on the part of a trustee in transactions within the trustee’s powers necessarily enters into all considerations touching a trustee’s liability. Eor the former there appears to be no justification; for the latter there may be. When the instrument of trust specifically and clearly defines the powers of the trustee there can exist no possible field for the exercise of -discretion on the part of the trustee touching the powers he is permitted to exercise. Such powers being specifically defined are necessarily fixed and inflexible. But in transactions of the trustee in the administration of the trust which are within the scope of the defined powers good faith and reasonable diligence and care may justify errors of judgment. There is, of course, a possible field for the exercise of judgment — not discretion — on the part of a trustee in accurately determining the powers conferred upon him by the trust instrument; but if a justification can be found for an error of judgment in that respect it clearly must be found in the want of clear or explicit definition of powers in the trust instrument. In the present case the trust instrument authorized the trustee to certify out collateral bonds of the Yentnor Syndicate when mortgages should be assigned to it. No direction could be more clear or explicit or less capable of misunderstanding. Whether mortgages of the Yentnor Syndicate made directly to the trustee to enable the trustee to certify out the collateral bonds were more or less desirable than the class of securities which the trust instrument directed to be made the basis of the bond issue is immaterial, so far as the inquiry touching power is concerned; and the circumstance that the trustee may have believed that the direction for assigned mortgages to be made the basis of the trust wás not a material direction or that the mortgages which it accepted for the trust were in quality essentially the same as the assigned mortgages required by tire trust instrument seems equally immaterial, for the trustee well knew the plain mandate of the trust instrument, and its disregard of that mandate can only be here regarded as a deliberate assumption of unauthorized power. In Gilbert v. Kolb, 85 Md. 627, touching loss sustained by acts of a conventional trustee, it is said: “Loss resulting from an act of a conventional trustee, though the act were done in the utmost good faith, if it were not an act permitted by the instrument creating or defining' the trust, or where done without judicial sanction, woirld fall on the trustee, who, having no discretion at all, or a very limited one, is justly held to a rigid accountability, without tire slightest regard to the motives that may have influenced his action, or the prudence he displayed in performing it. Zimmerman v. Fraley, 70 Md. 561.” In the Zimmerman Case cited, the trustee was authorized to invest “in landed securities;” it was held that the purchase of land transcended the power and rendered the trustee liable. This distinction between acts unauthorized by the trust and errors of judgment or discretion in the performance of authorized acts appears to be recognized by our court of errors and appeals in Quick’s Executors v. Fisher, 9 N. J. Eq. 802. The transaction there complained of was the conversion of personal property into real estate. In the reported opinion it is said: “The trustee, if the principle be correctly stated, has in this ease exceeded his authority. The loss has been sustained not by an error of judgment committed by the trustee in the management of the trust fund, but by an illegal and unauthorized disposition of the trust funds in his hands. He is, consequently, liable for the loss.” In such circumstances, it is there held, the trustee “acts at his peril.” See, also, Melick v. Voorhees, 24. N. J. Eq. 305; S. C., 25 N. J. Eq. 523.

The ordinary measure of accountability is recompense to the cestuis que trusient for the loss sustained by reason of the breach of trust. Polhemus v. Holland Trust Co., 61 N. J. Eq. 654 Pom. Eq. Jur., supra.

It is obvious that it is here impossible of even approximate ascertainment what losses have fallen to or will eventually be sustained by the collateral bondholders by reason of the breach of trust here in question, for the course of the trust, in the absence of the exercise of unauthorized power by the trustee, can never be known. In such cmeumstances, tire trustee must be deemed to have assumed personal responsibility for such losses as should fall to the holders of the collateral bonds by reason of the securities (which were improperly accepted by the trustee and .made the basis of issued collateral bonds by reason of the trustee’s certificate]ultimately producing less in value than the amounts for which they were unlawfully accepted and certified. Although the trust agreement by its terms imposed no responsibility on the trustee for the value of the mortgages to be assigned to the trust fund, when the trustee assumed to accept for the trust fund mortgages not authorized for that purpose by the trust agreement and certified against such securities collateral bonds as issued pursuant to the trust agreement a just regard for the rights of collateral bondholders, who were privileged to rely upon the trustee’s certificate, necessarily imposes upon the trustee the measure of liability already stated, in the absence of any possible means of ascertainment whether a loss would have arisen had the trustee performed its plain duties as defined by the trust agreement. That measure of liabilitj alone satisfied the principle that the trustee “acts at his peril” in transcending his powers. A suggestion that had tire Yentnor Syndicate made conveyances of lots to dummy vendees and taken purchase-money mortgages and assigned them to the trustee, the letter of the trust agreement would have been satisfied is without force; had the trustee been made acquainted with such procedure the situation would have been unchanged. In this view the trustee must answer to the bondholders for such loss as they ultimately sustain by reason of the mortgages which were made to the trustee realizing less than the amount they were pledged to secure, unless the immunity clauses of the trust agreement shall be found to exempt the trustee from such liability.

These immunity clauses are as follows:

“It shall be do part of the duties of the trustee to make investigation concerning nor shall it be responsible for the validity, nature or actual value of the bonds and' mortgages so assigned to it, nor shall it be answerable except for the due certification as aforesaid of the Company’s bonds issued hereunder and for the custody and disposition of the Trust Funds.” * * * “The Trustee shall have full discretion as to the time and manner in which it shall proceed for the collection of the amounts secured by the Trust Fund, or the sale of any bonds and mortgages therein, and' said Trustee shall not be liable to either the Company or the bondholders for anything except lack of good, faith or ordinary eare therein.” “That the Trust Fund shall at all times consist of bonds and first mortgages or of bonds and mortgages and cash of a value equal to the par value of the Company’s bonds then outstanding, and the Company hereby agrees that upon demand by the Guarantor it will at any time pay into the Trust Fund cash, or assign ‡0 the Trustee bonds and first mortgages which shall equal in value any deficiency which may exist, and upon its failure so to do, within a reasonable time to be determined by the Guarantor, the Trustee shall upon the written order of the Guai'antor, sell or otherwise dispose of any or all bonds and mortgages in the Trust Fund in such manner as it, the Trustee, shall deem best; and in such event the said Trustee shall not be liable to the Company, the Guarantor or the bondholders for any depreciation of said bonds and mortgages between the time of receiving such orders to sell and the time of sale, or for any other act by it done in the premises in good faith, and with ordinary care.”
“That it is further mutually agreed by and between the parties hereto, and it is hereby declared to be a condition upon which the Trustee, and its successor or successors in the trust, hereby created, have assented to these presents and accepted this Trust, that the said Trustee, or its successor or successors, shall not be held responsible for persons employed by it, or them, not being part of its or their staff of officers or employes in its or their office in the city of Atlantic City, provided such persons have been selected with reasonable care, nor shall the Trustee be liable for any mistake of judgment or mistaken exercise of discretion.”

The numerous adjudicatibns touching the effect of immunity clauses contained in trust agreements or in testamentary provisions, designed to exempt trustees, from liability, have in most instances arisen where the act complained of has been an act within the powers of.the trustee, as distinguished from an act without- such powers. Tuttle v. Gilmore, 32 N. J. Eq. 611; S. C., 36 N. J. Eq. 617, was a case of the former nature. That trustee had the power to accept securities of the nature of the securities there in question (second mortgages), but the evidence disclosed that the securities were without substantial value and that no proper effort had been made by the trustee to ascertain that their values were reasonably sufficient to make them “good securities” on which he was to pass his judgment. It was there held that the liability imposed on and accepted by a trustee may be limited by the terms of the instrument creating the trust, but that in construing such clauses the meaning to be attributed, to them should be consistent with the purpose and object of the trust, and that a strict rule of construction should be applied as against the claim of restriction. Accordingly, it was held that a clause exempting the trustee from all liability except for willful and intentional breaches of trust could'not be understood as protecting the trustee from the loss sustained in the manner already stated. Had the terms of the trust in that case required the trustee to invest only in government bonds, or otherwise denied to the trustee the right to accept mortgage security, it cannot well be doubted that he would have been held liable for the loss, notwithstanding the immunity clause, even though reasonable care had been exercised by him in the ascertainment of the value of mortgages so accepted. It seems to me impossible to doubt that when a trustee transcends his powers by accepting securities for his trust of a nature or class which by the terms of the trust he is not authorized to accept, all inquiries touching his judgment, mistaken exercise of discretion, good faith and the value of the securities so accepted are necessarily excluded from consideration, for the act being in itself contrary to the terms of the trust, cannot find jústification as within a field of discretion. It accordingly seems impossible to construe an immunity clause as intended to exempt a trustee from liability for transcending his powers as clearly defined by the trust agreement; his engagement is to exercise the powers, and only the powers conferred upon him, and the appropriate office and purpose of an immunity clause forming a part of a trust agreement which ■ specifically and clearly defines the trustee’s powers appears to be to limit his responsibility in matters of judgment and discretion committed to him in the execution of those defined powers. No discretion has been conferred upon the trustee in this ease as to the securities it was to receive against which it was to certify bonds. By the terms and spirit of the trust instrument the trustee was required to accept mortgages assigned to it as trustee after such mortgages should have been appraised by the guarantor there named; for the value of such mortgages, so assigned and appraised, the trustee was exempted from responsibility. To construe the immunity clauses as intended to protect the trustee from errors of judgment in accepting for the trust securities of a different class from those explicitly defined by the terms of the trust instrument or in .a manner other than the manner specifically set forth by its terms, is to attribute to the immunity clauses not only a purpose to justify the exercise of a discretion by the trustee in a field in which no discretion is designed to he conferred, but also an operative force to nullify the express terms of the trust instrument which define the powers of the trustee antecedent to his certificate, and in that manner to deny to the prospective bondholders the right conferred upon them by the trust agreement to rely upon the certificate of the trastee to the substantial effect that the securities defined in the trust agreement have been assigned to the trustee and appraised in the manner stated in the bonds so issued. In the absence of language of an immunity clause which reasonably discloses a purpose that it shall have such a far-reaching and extraordinary effect, it seems impossible to give it such force. It is this radical and inherent distinction, necessarily existing in all cases, between errors of judgment of a trustee in the management of a trust fund — that is, in acts performed by the trustee which are within the scope of his powers, and acts performed by him which are without or beyond the scope of the powers conferred, that I understand to be recognized in Quick’s Executors v. Fisher, supra (at p. 806) of the reported ease. Nor does it seem possible to distinguish between an extremely radical departure from the terms of the trust instrument and- a departure less radical, so lohg as the terms of the trust instrument are clear. In Pride v. Fooks, 2 Beav. 430 (at p. 432), it appears that the trustee was directed by the terms of a will to invest the trust money in consols. The will exempted the trustee from all losses except those arising from his willful neglect and misconduct. He invested money in a mortgage on real estate. That act was held to be without the powers of the trustee and was treated as a breach of trust, and the trustee was charged, in behalf of the parties entitled to income, with the amount the consols would have earned. In 1 Perry Trusts, § 460, the well-recognized legal requirement that trustees shall strictly follow the directions of the trust instrument is considered at some length; at the conclusion of the section the author says: “If the trustee go beyond the prescribed limits, neither good faith nor care nor diligence, if they can accompany a departure from the direction of the instrument of trust, will protect them if a loss occurs.” As our courts are always open to trustees for protecting advice touching their powers it seems difficult to contemplate any possible source of justification for the exercise of unauthorized powers.

I am impelled to the conclusion that in accepting fox the trust mortgages made by the Yentnor Syndicate to the defendant trustee herein, the trustee disregarded the clear letter and spirit o£ the trust agreement and in consequence of such breach of trust through the exercise of powers not conferred upon the trustee, the trustee has rendered itself liable to the cestuis que irustent for such losses as ma3 be found to have arisen b3 reason of such mortgages realizing less than the amounts which they were made to secure; and also that the immunity clauses contained in the instrument of trust are inadequate to exempt the trustee from such liability.

This standard of responsibility renders it impossible to determine at this time the amount for which the trustee must account to the holders of collateral bonds; that can only be accurately ascertained at the final liquidation of the trust. Accordingly the bill must be held open until that time for that purpose.

Should the measure of responsibility here defined be accepted by the trustee, or confirmed on appeal, other charges of liability of the trustee as made in the bill become of little or no importance except in so fax as they go to the merits of the prayer of the bill for the trustee’s removal. \

It is also urged b3 complainant in support of the relief sought that defendant trustee has been negligent in the performance of its trust duties by permitting the principal and interest to become in arrears for one year or more on many of tlie mortgages comprising the trust fund and also in permitting the taxes on much of the land covered by the mortgages to remain unpaid for two or three years, without foreclosing the mortgages or otherwise endeavoring to protect the bondholders.

By the fifth ¡oaragraph of tire trust agreement the trustee is authorized to collect the mortgages constituting the trust fund by foreclosure or otherwise when interest on such mortgages should bo overdue for thirty days or taxes on the mortgaged lands should be unpaid for sixty days after payable, in case the trustee should deem it necessary for the security of the bondholders; and by the tenth paragraph of the trust agreement upon default in payment of principal or interest on the collateral bonds the trustee is directed to foreclose or oiherwise realize upon the mortgages constituting the trust fund upon requisition for that purpose made by twentj^-five per cent, in value of .the outstanding collateral bonds, or upon like requisition by the guarantor of the bonds. No requisition has been made. But complainant urges that under the provisions of the fifth paragraph of the trust agreement the trustee should have foreclosed or otherwise undertaken the collection of the mortgages; that ordinary care and prudence, such as men of common prudence ordinarily exercise in their own affairs, should have prompted such foreclosure; and also urges that this inaction of the trustee has been measurably caused by reason of tbe fact that some of the directors and officers of the Yentnor Syndicate and West Jersey Mortgage Company were also directors and officers of defendant trustee.

I am convinced that the evidence does not justify an affirmative finding as to either of these contentions, although some doubt exists in my mind whether the inactivity of the trustee in the matters here complained of may not have been measurably occasioned by reason of tbe presence of conflicting interests of certain managing officers common to the three corporations. The evidence satisfies me-that at the time these mortgages first could have been foreclosed and at all times since up to the time the bill was filed, it would have been of more tlian doubtful benefit to the holders of the collateral bonds to have had the mortgage? foreclosed. The evidence is convincing to the effect that'the destruction of the beach front at Ventnor in the winter of 1913, followed by further like injury in 1914, together with other conditions then well recognized, so far unsettled the market values of the several properties covered by the mortgages held in trust by defendant trustee that their foreclosure could not have reasonably been hoped to have accomplished more than a substitution of the land for the mortgages. It also seems clear that no purchasers for the mortgages at a fair price could have been found, and that the Ventnor Syndicate was wholly unable to respond. I am convinced that the officers of the trustee company exercised an honest and reasonably sound judgment in their inaction and cannot be held for such losses as may have occurred, if any, through such inaction, even though the protection afforded by the immunity clauses of the trust agreement should not be invoked by the trustee.

Complainant further urges that defendant trustee collected in its own behalf from the West Jersey Mortgage Company its most valuable securities in such disregard of the interests of the collateral bondholders as to render defendant trustee liable to share with the bondholders, pro rata, the value of the assets so collected.

The evidence touching this claim discloses that on March 5th, 1915, the West Jersey Mortgage. Company owed the defendant Guarantee Trust Company, the trustee herein, $54,000. This indebtedness was for money loaned from time to time in the ordinary course of defendant’s banking business and for which loans collaterals had been received by the trust company as follows: $42,000 of Young & McSliea bonds, $4,000 of collateral bonds of the Ventnor Syndicate — 'bonds of the issue here in question — $44,000 of mortgages of the Ventnor Syndicate on land in the vicinity of and similar to the land covered by the mortgages in the trust fund here in question. The collaterals so held aggregated in face value $90,000. By reason of the unsettled value, already referred to, of the land covered by the $44,000 of mortgages, defendant trust company had for some time been urging the mortgage company to substitute other col-laterals in lieu thereof. Shortly prior to March 5th, 1915, an agreement was consummated as follows: The mortgage company agreed to sell to the trust company the $42,000 of Young & MeShea bonds then held as collateral by the trust company, and $16,000 additional like bonds, not then pledged, at 95 per cent, of their face value and to apply the proceeds of sale in discharge of the debt. Complainant’s charge is that the trustee thus collected the debt, due to it and neglected to collect the debt due to the collateral bondholders, its cestuis que trustent, to the injury of the latter. It is also pointed out by complainant that the semi-annual interest payment on the collateral bonds, guaranteed by the mortgage company, had fallen due March 1st, 1915, and had not been paid. The evidence discloses that prior to that time the mortgage company had been regularly paying to the trustee the interest on the collateral bonds. The principal of the collateral bonds was also then due, under the terms of the trust agreement, but the mortgage company was not required to respond to that default until September 1st, 1915. Taxes on much of the mortgaged premises were also in arrears, but'the trustee does not appear to have been aware of that fact, and its managing officers do not appear to have known of the interest default of March 1st. I am unable to conclude that in these circumstances the trustee owed any duty'- to the holders of the collateral bonds which was operative to deny to it the right to collect the money due it in the manner already stated. The debt which was collected was, as already stated, a debt which had arisen in the ordinary course of the banking business of the trustee, and was a debt secured by collaterals which the trust company was by its contract of loan privileged to apply in satisfaction of the debt. By the settlement which was made $42,000 of the collaterals so held were so applied by contract of purchase and $16,000 of unpledged like securities were purchased. The purchase price was the full value of the securities, and at the time, of the purchase $48,000 of the pledged securities were released to the debtor. The collateral securities so surrendered to the debtor included mortgages to the amount of $44,000 on the property of the same land as the mortgages in the trust fund. The securities so released were at that time undesirable securities for a banking institution to hold as collateral; but I do not think the evidence adequately establishes that" the collaterals released were not then reasonably worth as much or more than the $16,000 of bonds which were purchased to effect their surrender to the debtor. I find in the trust agreement no power upon the part of the trustee to enforce at that time against the guarantor of the bonds any default then existing, and am unable to conclude that any trust duty existed upon the part of the trustee which equitably denied to it the right to collect its secured debt in the manner stated.

Complainant also charges that the trustee permitted the Vent-nor Syndicate to withdraw from the trust fund a mortgage of $3,000 by surrendering to the trustee for cancellation and retirement collateral bonds which had been theretofore issued for a like amount. The trust agreement authorizes this when there should not be a default; the charge is that at the time there was a default and that the withdrawal was operative to create a preference in favor of the bonds so surrendered as against other like bonds. The mortgage so withdrawn was one of the mortgages which had been made by the Ventnor Syndicate to the trustee. What the amount of loss was, if any, which was suffered by other holders of collateral bonds by reason of the withdrawal, can only be finally determined at the conclusion of the liquidation of the trust; and as the bill is to be held open it seems unnecessary at this time to determine whether there was such a. breach of trust in permitting the withdrawal as to impose liability upon the trustee.

Notwithstanding the views already expressed touching the trustee having accepted securities for the trust which were not authorized by the trust agreement, I am unable to reach the conclusion that the trustee should be removed. The trustee is a responsible banking institution and I have found no satisfactory evidence of bad faith on its part in connection with the trust. With the measure of its liability, herein defined, accepted by it, or confirmed on appeal, there can be no doubt touching its efforts to realize on the mortgages in its hands the utmost that can be so realized. The removal of a trustee is a matter directed to the sound discretion of a court; in the absence of bad faith upon the part of a trustee he should not be removed unless some benefits to the trust can be accomplished by such removal. See Lathrop v. Smalley Executors, 23 N. J. Eq. 192; McPherson v. Cox, 96 U. S. 404; 39 Cyc. 261.

I will advise a degree in conformity with the views herein expressed.


text:
    Mary S. Fithian Night School and Academy v. The College Board of the Presbyterian Church in the United States of America.
    [Submitted November 24th, 1917.
    Determined January 8th, 1918.]
    1. Under the language of the will under consideration in this case the complainant may be considered as such a school as was properly within its provisions at the time the will took effect, and subsequent changes in the field of work of the defendant corporation could not effect the nature of the trust.
    2. Where the defendant corporation was a mere agent of the general assembly, the directions of the general assembly as to payment of funds to the complainant gave complainant a right to demand and receive said funds.
    3. Under the circumstances of this case, the attorney-general is not a necessary party thereto.
    On final hearing on bill to enforce a trust.

      Mr. J. Ogden Burt (with whom was associated Mr. Walter H. Bacon), for the complainant.

      Mr. William Such, ,Jr., for the defendant.
   Leaming, V. C.

By this suit complainant seeks a decree directing defendant to account and to pay to complainant the net income arising from a certain fund which has come to the hands of defendant pursuant to the following provisions of a joint will made by Artemesia K. Yan Meter and Martha J. Yan Meter, the survivor of whom died March 20th, 1900:

“The rest of our property both real and personal to go to the Boards of the Presbyterian Church, to be used in Home Missions, Church erection and Aid for Colleges, in the bounds of the West Jersey Presbytery, the interest only to be used.”-

In a suit brought in this court in 1902 to construe this provision of that will it was established to the satisfaction of the court that testatrices intended their residuary estate to go to three of the Boards of the Presbyterian Church known respectively as The Board of Home Missions, The Board of the Church Erection Fund and The Presbyterian Board of Aid for Colleges and Academies, to the end that the interest of the funds should be devoted to the uses indicated within the bounds of the West Jei'sey Presbytery. It was also there determined that each of the three boards should receive possession of one-third of the residuary estate. See Harris v. Keasbey, 53 Atl. Rep. 555.

Pursuant to the decree entered in that suit one-third of the fund — $4=,051.66 in amount — was paid to each of said boards. The Presbyterian Board of Aid for Colleges and Academies was incorporated under that name in 1883; in 1905, by amendment to its certificate of incorporation, its corporate name was changed to the College Board of the Presbyterian Church in the United States of America. By that name it is made defendant herein.

Complainant is a corporation of this state incorporated under our acts authorizing the formation of corporations which are not for pecuniary profit, and conducts a night school in the city of Bridgeton under Presbyterian management .and control and within the bounds of the West Jersey Presbytery.

Complainant is the only educational institution under Presbyterian management and control within the bounds of the West Jersey Presbytery, and claims to be entitled to receive from defendant at this time the income of the fund referred to.

Defendant now urges, among other things, that the language of the will limits the use of the income to aid for colleges in the bounds of the West Jersey Presbytery. Complainant is not a college.

The decree in Harris v. Keasbey, supra,, was based upon the conclusion that testatrices intended the trust funds to go to the three boards of the Presbyterian church already referred to; whether the words “aid for colleges” were intended to be merely indicative of one of the boards which was to administer the trust or was intended also to be restrictive of the use that board should make of the income does not appear to have been there specifically considered. The uses defined in the will when considered in- connection with the testimony then taken appear to have enabled the court to determine the specific boards’ which testatrices intended to receive and administer their residuary estate; further than that I do not understand the decision to have gone.

It must therefore at this time be ascertained whether the devise and bequest was to defendant corporation in trust to administer the funds in aid of colleges exclusively, within the bounds of the West Jersey Presbytery, or whether the trust comprehended the aid of such educational institutions as were within the field of administrative work of that board.

I am convinced that the latter view must- prevail. At the time here in question the corporate name of defendant board, as set forth in its certificate of incorporation, was “The Presbyterian Board of Aid for Colleges and Academies;” a stipulation of facts filed herein discloses that it was commonly called and referred to as “The Board of Aid for Colleges.” The evidence also establishes the fact that at that time the work of defendant board included aid for educational institutions other than colleges, and that no college then existed or now exists within the bounds of the West Jersey Presbytery. With these facts in mind it seems impossible to regard the devise and bequest other than as a devise and bequest to the Presbyterian church to be administered as a trust through its three established agencies then commonly known as the Boards of Home Missions, Church Erection and Aid for Colleges. This view will become more apparent when the relation of these several boards to the church at large shall have been more fully considered in connection with other inquiries arising -herein. I am accordingly unable to conclude that testatrices intended by the use of the words “aid for colleges” to restrict the use of the income for colleges, as distinguished from such other educational institutions as defendant board was at that time by its organization designed to aid. This view appears to have been entertained by defendant board when the fund was received by it, for thereafter the entire income whs devoted to the aid of the West Jersey Academy, an educational institution within the bounds of the West Jersey Presbytery which was in no sense a college, until that institution went out of existence about the year 1910; since that time the income from the fund has not been used.

The scope of the work of defendant board is defined in its original certificate of incorporation. It is there provided:

“The objects for which it is formed are the securing and receiving money authorized and approved by the General Assembly of the Presbyterian. Church of the United States of America. The money and property thus received to be devoted to current expenses or to permanent endowments of struggling institutions of learning, or to the establishment of new institutions, and to defray the necessary expenses of said Board.
“Every institution of learning, as a condition of receiving aid-, shall be either organically connected 'with the Presbyterian Church in the United States of America or shall, by charter provision, have tworthirds of its Board of Control members of the Presbyterian Church.”

These charter provisions of defendant were in force at the time the will here in question was made and took effect. It thus will be observed that at that time the authorized field of work of defendant board was not confined to aid of academies and colleges, but included other struggling Presbyterian, institutions of learning. Nor do I understand that it is contended that at that time the field of work which defendant board was actively pursuing excluded institutions of learning below the grade of academies.

But in the year 1904 the General Assembly of the Presbyterian -Church adopted a “constitution” for defendant boaird, and-shortly thereafter the certificate of incorporation of defendant board was amended to conform thereto.

That constitution provided :

“The name of this Board, shall be The College Board of the Presbyterian Church in the United States of America, and the general work shall be such as is indicated by its title. It may aid academies in its discretion in the matter of current support, but shall not seek endowments for such institutions.”

The amendments to the certificate of incorporation of defendant hoard changed the name of the corporation to that above shown, and also amended the section touching its objects as contained in its original certificate to read as follows:

“The objects for which it is formed are the aid and support of the cause of education, in colleges, under the auspices of the Presbyterian Church in the United States of America, the assistance in any and all ways of colleges controlled or approved by said Church, the consolidation of old and the establishment of new colleges and the obtaining, holding and -using of money and other property for such objects in. any legal manner authorized or approved! by the General Assembly of said Church. It may aid academies in its discretion in the matter of current support, but shall not seek. endowment for such institutions, unless specially authorized so to do by said. General Assembly.”

It will be observed that by these amendments the work of defendant board has apparently been withdrawn from all educational institutions except colleges and academies.

Accordingly, it is urged by defendant that complainant is an educational institution below the grade of an academy, and in consequence excluded from the benefits of the trust.

Complainant is not a college and it is not clear that complainant can be properly classed as an academy. In complainant's school the branches taught appear to be restricted to reading, writing, grammar, history, geography, bookkeeping, arithmetic and algebra. An academy is defined in 35 Cyc. 813, as follows: "An academy is commonly understood to mean a school or seminary of learning, holding a rank between a university or college and a common school, in which the arts and sciences in general are taught.” The definition given in the Standard Dictionary is: “(1) A school intermediate between’a common school and a college. (2) Any institution where the' higher branches of learning are taught, or where pupils are trained in some special science or art, as the United States Military-Academy; the United States Naval Academy.” In Century Dictionary: “In the United States, a school or seminary holding a rank between a university or college and an elementary school.” In Blade’s Law Dictionary: “In later use, a species of educational institution, of a grade between the common school and the college.” In Craved Student’s History of Education, chapter 14, consideration is given to the origin and development of academies as educational institutions in Germany, England and America. From that work it would appear that more flexibility could appropriately -be given to the word than is indicated by the above-quoted definitions; in conclusion, however, the author states that in the United States, as 'time passed, academies tended more and more to become preparatory schools for the colleges, instead of finishing schools for the middle classes of society. The text of the work last cited also discloses that the term “academy” embodies not only the idea of a secondary school, but one under private or semi-private auspices. Should it be determined that this devise and bequest cannot be lawfully administered for the benefit of educational institutions below the grade of academies, I incline to the view that such limitation would exclude complainant from its benefits.-

But the intention of testatrices, and the consequent nature of the trust imposed upon the fund, must be measured by the conditions which existed at the time the will took effect. In that view the trust must be understood as having included as proper objects of testatrices’ bounty such educational institutions as were then within the field of work of defendant board. No subsequent change in that defined field of work can in any way relate to or affect the inherent nature of the trust imposed upon the fund. Such changes are relevant, and only relevant to matters in which complainant’s rights are found to be dependent upon discretion or action of defendant board.

What has been said sufficiently defines my views to the effect that complainant is a proper object of bounty under the trust; but leaves for consideration whether complainant has positive rights under the trust which can be enforced by this bill in opposition to the will of defendant board.

Such right as complainant may have to demand the income from the fund here in question arises from action heretofore taken by the General Assembly of the Presbyterian Church. The testimony discloses that in May, 1915, a petition or “overture” was presented to tire general assembly, based on a resolution of the West Jersey Presbyteiy, setting forth, among other things, that complainant’s predecessor — complainant was thereafter incorporated — was the only existing educational institution under Presbyterian auspices within the bounds of the Presbytery of West Jersey, and requesting the general assembly to authorize and direct defendant board to pay over to complainant’s predecessor the accrued interest on the fund and thereafter apply the accruing interest in the same manner for the purpose of aiding in carrying on the work of the school until such time as the Presbytery of West Jersey should request a different appropriation. That overture was referred by the general assembly to its appropriate committee, which committee made a favorable report thereon as follows:

“That Overture No. 112 from the West Jersey Presbytery, which asks that the Assembly authorize and' direct the College Board to appropriate the income of the Van Meter Fund to aid the M. S. Fithian Night School of Bridgeton, N. J., be answered in the affirmative, and, if the legal way be clear, that the board use the income, of this Fund for the benefit of the M. S. Fithian Night School at least until other or better use of said Fund within, the bounds of said Presbytery shall be found.”

That report was adopted by the general assembly.

The evidence adequately discloses the relation between the general assembty and its several boards. In the Church Manual (page 8) it is declared: “The General Assembly is the highest judicatory of the Presbyterian Church.” At page 96: “The Boards and the Permanent Committees were established by the General Assembly and are subject to its authority.” The evidence leaves no doubt that the several boards of the church, though civil corporations, are in the church organization and government mere agencies of the general assembly and subject to its authority.

The situation thus presented discloses a devise and bequest which in its broad and true sense is to the Presbyterian church under a trust designed to secure the use of the income to the home mission, church erection and educational work conducted by that church through the respective agencies of its general assembly known as its boards. While by the terms of the will the trust funds are “to go to” the several boards the provisions of tire will cannot be contemplated as a devise and bequest to the boards except in their several capacities as administrative agencies of the general assembly of the church. In that capacity the boards necessarily take and hold the trust funds for administration under and in accordance with the established rules and tenets of the church; only such an administration of the trust funds can be in accordance with the inherent spirit of the devise and bequest. In this view the trust defined by the will must be deemed to necessarily include and embody a direction that any appropriate orders of the supreme authority of the church touching the administration of the trust fund within the fields defined by the trust shall control its disposition.

It follows that if it be recognized that complainant is an educational institution within the purview of the original trust— as has already been affirmatively shown — and that the general assembly acted within its established powers in directing its board to pay the income to complainant, then complainant by force of the action of the general assembly comes into enjoyment of a positive and definite right which will support its present bill. In such circumstances the attorney-general would not be a necessary party; complainant has become, for the time being, a specific beneficiary under the will.

It is, I think, clear that the general assembly acted within its powers in directing defendant board to apply the income of that part of the trust fund now in the hands of defendant board in aid of complainant. The existence of that power upon the part of the general assembly in no way interferes with or denies to its board the right of exercise of a discretion within the appropriate scope of its work; it is only the exercise of that power that reaches the discretion of the board. Viewing the board as the agency and creature of the general assembly created and appointed by the general assembly for administrative purposes and subject to its authority it seems obvious that when the general assembly assumes to specifically direct the specific work of the board no power or discretion can be said to exist upon the part of the board to resist or overthrow that direction.

The direction thus given by the supreme authority of the church was for its board to apply the income here in question to the aid of complainant, “if the legal way be clear.” The evidence discloses that these qualifying words, above quoted, are usually inserted in similar directions, to the end that the law may not be violated by the directions given.

My conclusion is that the application of the income in the manner directed by the general assembly is in harmony with the trust imposed by testatrices, and that the direction by the general assembly that the income be so applied confers upon complainant the right to receive it and the accompanying right to an accounting and to enforce its payment in a suit of this nature.

I will advise a decree to that effect.