Opinion
02-19-1936
TRENTON BANKING CO. v. HOWARD.
Katzenbach, Gildea & Rudner, of Trenton, for complainant. James J. McGoogan, of Trenton, for defendant.
Suit by Trenton Banking Company, trustee, against Leonie M. Howard, wherein defendant filed a counterclaim.
Decree in accordance with opinion.
Decree affirmed by Court of Errors and Appeals, 187 A. 575.
Katzenbach, Gildea & Rudner, of Trenton, for complainant.
James J. McGoogan, of Trenton, for defendant.
BUCHANAN, Vice Chancellor.
May 3, 1926, defendant Leonie Howard paid to complainant $15,000 pursuant to a trust agreement reciting that such payment was made for the purpose of "the formation of a trust"; and by the terms of that agreement defendant agreed to invest, and keep invested, the said fund in such securities as are legal and proper in this state for such investment. The trustee further agreed to pay the net income to the grantor, quarterly, during her life, and at her death to turn over the corpus to the legal representative or testamentary donee of the grantor.
The agreement further provided: "The grantor reserves the right to add to or decrease said fund from time to time as she may desire." It was executed by both parties.
Complainant immediately invested the $15,000 in a real estate bond and mortgage; this was paid off a year later, and the fund invested in another similar bond and mortgage; this in turn being paid off a year later, the fund was invested in a $12,000 real estate bond and mortgage, and participation interests of $1,400, $1,100, and $500 in other real estate bonds and mortgages. All the investments were legal and proper, and Mrs. Howard was at all times informed of the investments and the facts and circumstances thereof.
In April, 1934, Mrs. Howard notified complainant she desired to revoke the trust and requested complainant to pay her $15,000 in cash. Complainant replied that the fund was invested as above set forth; that there was no cash available at that time; and that cash could only be obtained by sale of the investments, and the market was unfavorable for such sale.
In December, 1934, complainant sold for $1,100 the $1,100 participation above mentioned, and Mrs. Howard requested from complainant payment of that amount and reduction of the trust fund accordingly; and this was done.
The balance of the fund is invested as heretofore stated, except that complainant has had to take over the mortgaged premises in lieu of the $12,000 bond and mortgage. Mrs. Howard has now demanded that the trust fund be further reduced by $10,000 and that that sum be paid to her in cash. Upon complainant's failure to pay for the reasons mentioned, she sued complainant at law for the $10,000. Complainant has thereupon filed this bill for interpretation of the trust agreement and instructions as to its duties thereunder, and obtained restraint of the suit at law.
The facts are not in dispute; with one exception they are all admitted by the pleadings or at the hearing. Defendant counterclaims for the payment of the $10,000. She contends that under the true interpretation of the agreement she has that right; and that in any event she was toldby complainant, at the time of entering into the agreement, that she had the right under the agreement to demand and receive cash in reduction of the trust fund, from time to time as she might desire, and that replying on that statement she entered into the agreement and otherwise would not have done so.
Complainant denies the alleged statement by it as to the alleged right given her by the agreement.
The issues argued are substantially as follows:
1. Has defendant, under the agreement, the right to demand all or part of the fund in cash, irrespective of the investment of the fund?
2. Does she have that right by reason of the alleged representation in that behalf by complainant ?
3. Has she a right to revoke the trust, at all?
4. If she has the right of revocation, what shall the trustee do in view of the fact that defendant refuses to accept a transfer and conveyance to her by complainant of the assets comprising the trust fund?
Defendant, by her answer and in the brief submitted at the trial, challenges the jurisdiction of this court in the premises, alleging that the law court has concurrent jurisdiction and that complainant's remedy at law is adequate. No stress was laid on this, however, at the argument, and it seems clear that under the situation and conditions involved in this suit, the jurisdiction of this court is unquestioned, and the remedy of complainant would not be adequate at law. Many of the questions involved are purely equitable in their nature; and in particular the situation is one admittedly involving a trust and the trustee asks and has the right to receive instructions from this court as to its duties and responsibilities under the trust, which of course it could not receive from the law court. Assuming for instance that this court should decide that the defendant was entitled to have complainant pay over to her the sum of $10,000 in cash, it would still be left to be determined between the parties as to what should be done with the securities presently composing the trust fund and which represent $13,900 of the original investment; as to what interests the parties would have in these securities; as to whether or not the complainant would be under any further liability of any kind (and if so, what) to the defendant, etc.
The first question is as to the interpretation of the agreement, and particularly of the clause therein whereby the grantor "reserves the right to add to or decrease said fund from time to time as she may desire." It would seem that there can be no doubt that this comprises the right to revoke the trust, either in whole or in part; and that therefore the defendant has the right to call upon the trustee to terminate the trust and to turn over the trust assets to her. Especially is this true under the circumstances of the present case, inasmuch as there is no person other than the complainant and the defendant having any interest in the trust (the grantor has not even made a will; if she had, it would not be effective or operative until her death; and "the legal representative" of grantor is nothing more than the grantor herself).
The real question of interpretation, between the parties, however, is as to whether the right which the grantor has under this clause to terminate the trust at any time, in part or in whole, gives her the right to require the trustee, immediately upon notification of such revocation, to pay to the grantor in cash the amount of such desired revocation, irrespective of the then existing facts and circumstances as to the securities in which the trust fund is then invested. The defendant contends that the true meaning of this clause is that she has the right to require the trustee at any time to pay to her in cash the $15,000 which she turned over in trust, or such lesser portion as she may request, and that the trustee is obligated to pay such sum or sums to her, irrespective of the then condition of the trust fund as to investment.
In the view of this court, such is not the meaning of the clause in question, either expressed or implied. It is obvious from the agreement that it was contemplated and intended by the parties—indeed, the agreement expressly so states—that the $15,000 cash was to be invested, and kept invested, by the trustee in securities; it was not to be kept on hand, nor any part thereof, in cash. The right "to decrease said fund from time to time" would therefore ordinarily be understood to refer to the trust fund as it should be from time to time constituted; i. e., as a trust fund consisting (for the most part at least) of securities and not cash. It would, ofcourse, mean that the grantor would have the right to withdraw from the corpus, at any time, any portion of the corpus then composed of cash (subject to possible rights of the trustee for commissions); and it would also naturally mean that the grantor might require the trustee to call in or convert any investment comprised in the fund and pay to the grantor from the moneys received by such calling in or conversion such portion thereof as the grantor should request. But it would not naturally ordinarily mean that the grantor could, irrespective of the then condition of the trust fund, require the trustee to pay back to her the $15,000 originally turned over to it, or such portions thereof as the grantor might desire. The right to decrease the trust fund must be deemed to refer to the trust fund in, and as affected by, the condition in which it should exist at the time the right to decrease was sought to be exercised. The right for which defendant contends would of course ordinarily inhere in the case of moneys placed on deposit with the bank subject to check or withdrawal on demand, but would certainly not be understood or implied from a provision for the right to decrease a trust fund which is intended and expected by the parties to consist not of cash, but of securities.
Defendant contends that the clause in question is equivalent to an agreement by the trustee to keep the fund at all times invested in securities of such liquid nature that they would be at all times susceptible of being turned immediately into cash; or equivalent to an agreement by the trustee to repay to the grantor at any time; upon her demand, the whole (or so much thereof as she might desire) of the cash which she had deposited, taking over itself, in exchange therefor, so much of the grantor's interest in the trust fund as should be represented by such cash payment. The difficulty with this contention is that there is no such agreement on the part of the trustee expressed in the instrument; neither is such an agreement naturally to be implied from the language in the instrument—as has already been pointed out.
The defendant further contends that the surrounding circumstances attending the transaction may be considered in arriving at a determination as to the true interpretation or meaning of the instrument. Assuming this to be so. such a rule nevertheless does not extend to the point of receiving, as evidential on such point, testimony as to conversations between the parties tending to prove a contract differing from that expressed in the written contract. Such evidence would be receivable in a suit for reformation of the instrument; but that is not this suit.
Taking into consideration the circumstances attending the execution of the instrument in no wise alters, but rather strengthens, the conclusions hereinbefore expressed. At the time of the execution of the instrument, the defendant had her $15,000 deposited in the savings department of the complainant bank. It was there drawing 3 per cent. interest and subject to repayment on demand (possibly, if not probably, also subject to a restriction against withdrawing the whole or more than a certain percentage thereof until after the expiration of a certain period of notice). It would be the natural presumption that defendant's desire to put her money into trust investment, in substitution for deposit in a savings account, was because of a desire to obtain an increased revenue or income therefrom. It would also be the natural presumption—because such is a matter of common knowledge—that in order to obtain such increased income, and by putting her money in a trust investment for that purpose, she would ordinarily have to forego the right to withdraw moneys on demand. Defendant must be held chargeable with the knowledge which the ordinary individual would have under like circumstances; and there is therefore no basis for assuming, from the circumstances attending the execution of the instrument, an implication that the parties intended that she should have the right to withdraw on demand, as money, the moneys which she was turning over for investment in trust securities.
The testimony of the defendant and of her husband, as to the conversations had between them and the complainant's trust officer, prior to and at the time of the execution of the agreement, were received in evidence subject to later determination by the court as to the competence or admissibility of such testimony in respect to the determination of the issues involved herein.
That testimony is to this effect: That they spoke to the trust officer, Mr. Bullock,about investing defendant's money in the trust department; that Mr. Bullock had an agreement drawn which contained no such clause as the one now in question; that defendant's husband told Mr. Bullock that such draft agreement was not satisfactory to defendant, that she wanted to be able to put in or draw out; that Mr. Bullock accordingly had another agreement drawn with a clause added that defendant "could put in or draw out at any time"; that Mr. Bullock said to defendant and her husband, in respect of this second draft, "Now you can add to or draw out at any time, just as in the savings account," and "we signed the agreement"; that if Mr. Bullock had not told them that, they would not have signed it.
Of course it is well settled that oral evidence is not admissible to vary the terms of a written instrument. Hence, even if this testimony should be deemed entirely true and accurate, and if Mr. Bullock's statement be taken to mean that it was agreed that Mrs. Howard would have the right to draw out, as money, at any time she wished, the money she was putting into the trust, it cannot be received or considered in determining the rights of the parties, because such testimony as to what was agreed is at variance with the written instrument embodying and evidencing that which was agreed. The reason for the rule is well known, and its soundness is exemplified by the circumstances and testimony in this case.
The agreement was read by defendant. She testifies, "The added clause was satisfactory to me." Both parties to the agreement executed the written agreement, and that writing constitutes, and was intended to constitute, the evidence as to what the parties had agreed to. As such a written record, it was not, and is not, subject to the possibility of being garbled or misquoted or lost through either selfish interest or the frailty of human memory, or the death of those having first hand knowledge. In the present instance Mr. Bullock, who otherwise might contradict by his testimony the accuracy of defendant's testimony, is dead; Mr. Green, the vice president who signed the agreement for complainant is also dead and cannot testify as to whether or not he had any different intent or understanding as to the bargain than that set forth in the written instrument. Defendant and her husband are not disinterested witnesses; they have a strong interest; and even though (as will be assumed) they intended and believed their testimony to be entirely accurate and in accordance with the facts, it is clearly apparent that their memories and their testimony cannot be relied on as accurate. Their testimony is not the same (which is, of course, not surprising) as to the words said to have been spoken by Mr. Bullock; and they both testified that "we" signed the agreement, whereas the agreement shows that it was signed only by Mrs. Howard and not by her husband.
It must be held therefore that the agreement between complainant and defendant was not other than that which is set forth in the written instrument.
There is no basis for considering the possibility that defendant might be entitled to sue for reformation of the instrument on the ground of mutual mistake; it is obvious from what has been said that the evidence would not support any such decree. Neither is there any basis for such a suit on the theory of mistake by defendant and fraud or misrepresentation by complainant. There is, of course, no evidence or intimation of any intentional fraud; there is no evidence that Mr. Bullock had any authority to make the representation to Mrs. Howard (assuming that he did make it) that the meaning of the agreement, as drafted was that she could put in or draw out money just as she could in a savings account; and, moreover, the alleged representation was not one of fact but of law or opinion, and hence Mrs. Howard was not entitled to rely on it and is not entitled to make it the basis for relief on the ground of misrepresentation.
It is scarcely necessary to point out that the bank was not a lawyer; there was no relationship of attorney and client between complainant and defendant, and hence no basis for any claim of liability on the part of the bank to defendant for negligence or unskilled advice. The same is true as to Mr. Bullock—he was not a lawyer and was not held out by the bank as being a lawyer. There is no evidence that he represented himself as a lawyer, nor even that Mrs. Howard believed that he was. Neither was there any fiduciary relationship between the bank and Mrs. Howard prior to the execution of the agreement. A fiduciary relationship arose immediately upon the execution of that agreement by the two parties, but up until that time there was none—the situation wassimply that of two parties negotiating with each other for entry into a mutual business arrangement. Mrs. Howard had no more right to rely on the accuracy of any statement or opinion by the bank as to the meaning of the language in the written draft of agreement which they were considering than she. would have had as to a statement or opinion as to value from some one from whom she was considering making a purchase.
As already noted, it is clear from Mrs. Howard's own testimony that she read and understood the agreement, and that it, with the clause which had been added, was satisfactory to her. Her position therefore cannot be other than this: That either (1) the meaning and effect of the agreement is such that under it she has the right to draw out her money in just the same way that she would have in a savings bank account; or (2) the bank is estopped from denying that the agreement has that meaning and effect, because Mr. Bullock, the trust officer of the bank, told her before she signed it that it did have that meaning and effect and she believed his statement and therefore signed the agreement which she would not have signed except for such statement and belief.
The first alternative of this contention must be determined against her for the reasons pointed out in the earlier part of these conclusions; the second must likewise be determined against her for the reasons subsequently stated.
The essential elements of an equitable estoppel are set forth in Central R. Co. v. MacCartney, 68 N.J.Law, 165, at page 175, 52 A. 575; as so set forth they have repeatedly been approved by the Court of Errors and Appeals, most recently in Briscoe v. O'Connor, 119 N.J.Eq. 378, 182 A. 855, 857, decided January 31, 1936. One of the requisites therein specified is that the party against whom the estoppel is urged must have made "a representation or concealment of material facts." As already stated herein, the alleged representation in the instant case was not of fact, but of law or opinion—a representation that the meaning and effect of the language of the contract was so and so.
Another requisite is that the party to whom the representation was made must have been ignorant of the facts and "had no convenient opportunity to ascertain them." In the instant case Mrs. Howard knew—it was perfectly obvious to her— that the contract did not contain the words "just as in a savings account"; and there was nothing whatever to prevent, hinder, or discourage her from getting the opinion of some one qualified to advise her as to what was the meaning and effect of the contract as drawn.
It might be argued with some degree of plausibility that even if the alleged circumstances are not such as to create an actual equitable estoppel, they are sufficient to create a quasi estoppel; that the alleged representation or statement by Mr. Bullock was not strictly and solely the statement of an opinion as to a legal matter, but was in effect a statement of a fact, to wit, the fact that the bank's understanding and opinion as to the meaning and effect of the language of the contract was so and so; and that it was a statement by the bank as to the position it took in respect to that contract and the language therein and the rights thereby created; and that the bank ought not now to be permitted to assert a position or claim inconsistent therewith.
To such an argument, however, there are several sufficient answers. For one thing, Mr. Bullock had no authority to state for the bank its understanding of the express written contract, nor its position with respect to the rights and liabilities thereby created. For another, to adopt such an argument would be in actual substance and effect, to permit that which is well settled cannot be done, to wit, the varying of a written agreement by verbal testimony.
Finally, on the whole evidence, it is concluded that even if it should be assumed that the testimony as to the alleged statement or representation by Mr. Bullock is admissible, and that if such testimony be received and be believed, the bank should be held bound by an estoppel or quasi estoppel, the evidence is not sufficient to satisfy the court that the alleged statement or representation was in fact made.
The fact that there is no testimony contradicting the testimony of Mrs. Howard and her husband is, of course, neither conclusive nor of any effect in supporting or strengthening their testimony. The only persons who could testify in contradiction are dead. The interest of Mrs. Howard and her husband, and the reasons why their testimony cannot be given full credence and reliance, have already been commented upon. It may well be that something wassaid in the conversations between them and Mr. Bullock about their being able to put in and draw out of the savings account and their desire that they be able to put in and draw out of the trust fund; but it is obvious that it is entirely possible, if not indeed probable, that (even assuming the most honest belief and intent on their part) Mr. Bullock did not say either expressly or in effect that the bank would agree that defendant could draw out money from the trust fund in just the same way that she would from the savings account, nor that that is what the language of the agreement meant.
Assuming that defendant would be entitled to the determination she seeks provided her proofs are satisfactory and convincing, it is clear that such proof must be just as satisfactory and convincing as would be requisite to support a decree for reformation—and for the same reasons. In the present instance the proofs are not of that character, and it cannot be held that she is entitled to the estoppel she seeks.
For the same reasons she is not entitled to maintain her suit at law against complainant, and that will be permanently enjoined.
There remains the question as to what shall be done with the trust estate. Defendant had the right to revoke the trust; has revoked it, and so notified the trustee. The trustee has in effect fully accounted in this suit, at least in so far as principal is concerned. Defendant admits that the trustee is chargeable with no other liability in respect of the trust estate than the liability hereinbefore discussed. The presumption is that it has also fully accounted for income; defendant expressly says no accounting is necessary and she asks that none be decreed. No commissions or reimbursements are asked by the trustee. The decree may provide that the trustee has fully accounted for principal and income, and that by such accounting it appears that it has in its hands due to complainant the several items of property hereinbefore mentioned, constituting the entire corpus of the trust estate, and no income. The decree may also provide that the trustee shall execute and deliver to the defendant proper deeds of assignment or conveyance sufficient to vest in defendant the title to the several trust assets mentioned, and that upon so doing, it shall be discharged of the trust.
The agreement of the trustee, in the instrument, is to "turn over all the corpus of the trust fund" at the death of the grantor. There is no reason why it should be required to do anything else, at this termination of the trust by the grantor. Admittedly the circumstances are not favorable for present sale and conversion of the assets, and there appears no reason for requiring the trustee to make such sale and conversion, and subject the grantor to loss thereby—at any rate in the absence of any expression of desire by the grantor that such sale should be held. The grantor's refusal to accept the assets as such was presumably based on her belief that she was entitled to receive more than those assets or their present cash value.
The form of decree may be settled on notice.