(Essex County Orphans' Court, Aug. 16, 1920).
_Exceptions to Accounting--Depreciation of Securities--Continuing
Investments--New and Unlawful Investments._
In the matter of the Estate of August F. Eckert. On exceptions to
account.
Messrs. Riker & Riker (Mr. Theodore McC. Marsh and Harvey S. Moore),
Proctors for Exceptant.
Mr. Edward R. McGlynn, Proctor for the Executor.
STICKEL, JR., J.: August F. Eckert, of Orange, New Jersey, died on or
about October, 1914, leaving a last will and testament, whereby he
bequeathed his property to his wife, Caroline Eckert, and to his
children Annie M. Eckert and Clara M. Eckert, to be divided equally
between them as soon as the youngest child should arrive at the age of
twenty-one years. He appointed William Scheerer, executor. Both of the
children were of the age of twenty-one years at the time of testator's
death. Scheerer duly qualified as executor, and from 1914 to the present
time he has been in charge of the administration of the estate. After
being cited to account he filed the account here in issue, and Annie M.
Eckert, who has married and is now known as Annie Maxwell, filed
numerous exceptions to the account. All of these exceptions were
disposed of at the hearing except certain exceptions which fell into two
classes, first, those relating to the depreciation on certain issues of
bonds, generally described throughout the hearing as Public Service
securities, and, second, the exceptions based upon the executor's
failure to invest the cash on hand.
I will overrule the exceptions falling within the first class, namely,
those seeking to surcharge the executor for depreciation of securities
invested in by the testator and received by the executor as part of his
estate.
The securities, the subject matter of the exceptions now under
consideration, are investments made by the testator. Consequently,
unless it can be shown that in continuing these investments the executor
failed to exercise reasonable discretion and that there was an absence
of good faith in so continuing them, he cannot be charged with
depreciation of such stock. The burden of proving such lack of good
faith and failure to exercise reasonable discretion is upon the
exceptant.
This burden she has failed to sustain. I am convinced that whatever the
executor did in the management of this estate was done solely with the
best interests of the estate in mind.
When the decedent died his widow and two daughters remained together as
a family and the executor proceeded to administer the estate possessed
of the complete and entire confidence of the beneficiaries of the man
who had had sufficient confidence in him to appoint him his sole
executor.
It was his strict duty, perhaps, to close up the business of decedent,
collect the assets, pay the debts and at the end of the year distribute,
and had he done so he would early have been relieved of his
responsibility. But he wanted to help the family, and so he departed
from his strict duty and permitted the business to be continued for a
time so that the family might benefit from the receipts thereof.
Again, he permitted the informal use and division of some of the debts
collected and personal property left. But it is entirely clear to me
that this was done by common consent of those concerned, including the
exceptant. The three, constituting the family, were treated as an
entity, and these and other departures from the strict line of the
executor's duty were committed because they were for the common good.
In line with this policy of helpfulness on Scheerer's part, and of
confidence and reliance upon the part of the devisees, the executor was
given charge of the lands and permitted to continue the management of
the estate long after it should have been wound up. He became, by tacit
consent and common understanding, the trustee of the family. They wanted
the benefit of his judgment and experience until the real estate could
be sold and the proceeds properly invested. This he gave to them.
This continued during 1915, 1916 and 1917. No question seems to have
arisen as to the propriety of continuing the investments, nor, indeed,
were the executor's acts in any respect challenged during this period.
Then the exceptant left the family and became Mrs. Maxwell, and in 1918
demanded an accounting.
Up to this point no evidence at all of bad faith or unreasonable
exercise of discretion appears.
The result of the demand of the exceptant was the agreement by the
executor and the exceptant, in the office of John P. Manning, her
attorney, upon a settlement which provided for a payment of part of her
share in cash and part in investments of decedent continued by the
executor. The settlement fell through, not apparently because the
securities or settlement were unsatisfactory, but because exceptant
disapproved of the word "heirs" in the release requested of her by the
executor.
At the time, in 1918, the exceptant was willing to take, as her share of
the estate, some of the same investments which she now declares the
executor was negligent in continuing. Thereafter, and up to the filing
of the account, the attorneys of the exceptant and the attorneys of the
executor were in frequent negotiation, endeavoring to settle the
differences of the parties and agree upon a distribution or division.
Certainly, during this period, the executor would not be charged with
bad faith or failure to exercise reasonable discretion in keeping the
subject matter of the negotiations _in statu quo_, ready for immediate
distribution or division in the event of an agreement.
Where, then, is the evidence of lack of good faith and failure to
exercise reasonable discretion? I can find none. Indeed, when it is
realized that two of the beneficiaries are entirely content with the
executor's retention of the securities in question; that that which the
securities in question represent is as valuable to-day as when the
decedent died; that the depreciation is a paper or market one, due to
abnormal conditions general throughout the world; that with the return
of normal conditions these securities are likely to find their old
level, and that the exceptant herself has continued to hold her
individual securities, of the same general type as those here in
question, it is easy to believe that had the distribution of the estate
taken place heretofore, to-day would have seen all parties holding on to
their securities, collecting their accustomed income, hoping for the
return of the conditions which would mean a rise in the market value of
their said securities. The mere fact that the executor did not close up
the estate within a year or two after the decedent's death, but
continued to manage and administer it, including the real estate, with
the consent of beneficiaries, did not increase or change his liability.
He was bound to take the same care of the estate as before, no more, no
less. Perrine v. Vreeland, 6 Stew. 102.
We will now take up the claim that the executor should have invested the
cash on hand instead of keeping it in the bank, and that, having failed
to do so, he must be charged with the difference between the interest he
did get and that which he might have received had he invested it.
This exception is also overruled. It is true that, generally speaking,
it is the duty of an executor to invest funds in his hands; but the
propriety of charging an executor or trustee with interest because he
has failed to invest the funds depends upon other facts than the mere
possession of the funds, and I know of no case holding that where,
pending negotiations for settlement and distribution, an executor left
the funds of the estate in saving banks, he must be charged with the
interest he might have received had he invested the funds of the estate
and perhaps thereby interfered with the immediate liquidation and
settlement of the estate. On the contrary the tendency of the decisions
is to uphold such conduct.
His course prior to the demand in 1918 was acquiesced in by the
exceptant; his actions since then were governed, and necessarily, by the
continually pending negotiations. In any event the uninvested funds at
best scarcely equalled at any time, as far as I can discover, two or
three thousand dollars, sums perhaps not always easy to quickly and
satisfactorily invest.
This leaves for consideration only the act of the executor in investing
five thousand dollars of his _cestui que_ money in Public Service funds.
These were securities in which a trustee had no right to invest. They
are not among those investments which our statute permits trustees to
invest in, and, in establishing the investments, the exceptant has made
out a _prima facie_ case requiring explanation by the executor.
Undoubtedly the executor acted in good faith, but that will not protect
him as in the case of continuing investments made by a decedent. His
explanation, other than that he acted in good faith, appears to be that
the investment was made with the acquiescence of the exceptant; that she
is estopped from questioning the investment.
I doubt that the exceptant had actual knowledge of the investment when
it was made, and the general acquiescence which negatived bad faith in
the executor in continuing the decedent's investment would not suffice
to protect the executor in making an investment of this kind. Nor do I
find that she possessed the knowledge of this transaction that would
permit of the application of the doctrine of estoppel.
As a consequence, unless there are facts which have escaped or have not
been brought to my attention which relieve the executor from the normal
effect of an investment of this kind, he must be charged with the
depreciation of these bonds, unless the beneficiaries agree to accept
the bonds as such.
[NOTE BY EDITOR.--The above case, which has attracted much local
attention, was in part sustained and in part overruled in the
Prerogative Court on Jan. 31, and may go to the Errors and Appeals].