Laffan v. Naglee.

respect, the interlocutory decree of the Court below was cor

rect.

It now becomes necessary to notice the exceptions made by defendant to the report of the referee.

The first exception regards the original proportion of the whole purchase-money of $17,000, which Laffan was bound to pay. The referee adopted this mode. He deducted from the cost of the fee of the entire demised premises, the proportionate value of the strip of twenty-eight feet nine inches, dedicated for Merchant street. The whole lot, described in the lease of Mrs. Hinkley, fronted sixty-eight feet nine inches on Montgomery street, running back one hundred and thirty-seven feet six inches. The strip, twenty-eight feet nine inches, by one hundred and thirty-seven feet six inches, was taken from one side of the lot for a street, in November, 1850. Naglee at that time received from various parties altogether the sum of $10,600 for opening Merchant street.

It is insisted by the learned counsel for the plaintiff, that the street was dedicated in 1850, in anticipation of Naglee's purchasing the fee; and that, when he obtained the fee, "he yielded the dedication of the street as a thing of course-as a matter of mere duty and obligation, for which he was prepaid."

But this ground does not seem to be well taken. It seems clear that Naglee was only paid the value of the interest he then held in the strip, and no more. He paid for the whole leasehold property $42,000, and estimating his leasehold interest in the strip dedicated for the street at its proportionate value, the amount exceeds $17,000, when he only received $10,600. The difference was no doubt made up of his own portion of the contribution. Those who paid him, no doubt knew that Smith and wife must sell, and Naglee must buy, and that when the street was once open, whoever did purchase the fee of the demised premises, would be compelled, by their own interest, to keep open the street, otherwise the rear of the property could not be approached. But there is no evidence to show that Naglee agreed to purchase this strip, or that, in case he did purchase it, he would continue the dedication. There was no obligation imposed upon Naglee to dedicate the fee, and when he did so dedicate it, it was for the common benefit of the property, in proportion to the respective interests of himself and Laffan. If Laffan asks to share the benefit of this dedication, he should bear his proportion of the price. The $17,000 should have been estimated as the cost of the lot, forty by one hundred and thirty-seven feet six inches, and the relative proportion of the purchase-money ascertained upon that basis. It is clear that Laffan had the benefit of the street up to the termination of the lease; and if he asks an interest in the fee, he must bear his share of the cost of that which renders his

Ellig v. Naglee.

own portion valuable. We think the referee erred in this respect, and this exception should have been allowed.

The second exception to the report of the referee is, that Naglee was not allowed compound interest. This exception, we think, is not well taken.

The third exception is, that the referee credited the plaintiff with fifty dollars per month ground-rent, from October 15, 1851, to April 9, 1855, the time of the expiration of the lease, with the interest upon each month's rent. It is stated by the learned counsel for defendant, that the referee estimated the amount of this ground-rent which Naglee was compelled to refund, at four thousand two hundred dollars principal, and three thousand seven hundred and eighty dollars interest; making, in all, the total sum of seven thousand nine hundred and eighty dollars. The counsel has not referred us to the page of the record; but if his statement is correct as to the amount, the referee has charged Naglee more than double the proper sum.

The rent, at the rate of fifty dollars per month for the time specified, would not quite amount to two thousand one hundred dollars, exclusive of interest. As to the principle requiring the groundrent to be refunded, we think there was no error in the report of the referee.

The other exceptions to the report, we think not well taken. For the reasons stated, the judgment must be reversed, and the cause remanded for further proceedings.

ELLIG et al. v. NAGLEE AND SHARP, TRUSTEES.

When trustees act with good faith, in the management of the trust property, and without selfish motives, they are entitled to be treated by a Court of Equity with liberality and indulgence, and especially when they act under the advice of counsel. Very supine negligence, or willful default, will render them liable; but to make them liable for mere errors of judgment, would tend to discourage good and prudent men from undertaking the trust.

Delay, on their part, in bringing suit to recover the rents of the trust estate, if subsequently approved by the cestui que trusts, will excuse them.

Money advanced by the trustees to the cestui que trusts, with the understanding that the same should be repaid out of the rents of the trust property, is a lien only upon the net incoming rents, and not a lien upon the trust property.

The same is true respecting the charges for legal services of one of the trustees in the management of the trust property. The rents must be applied to the payment of such allowances until they are liquidated.

APPEAL from the District Court of the Fourth Judicial District, County of San Francisco.

This was a suit in equity, to obtain an account from the de

Ellig v. Naglee.

fendants, as trustees of Mary Ellig and John Ellig, (now deceased,) and also the surrender of the trust estate, and charging the defendants with negligence and mismanagement of the estate, and claiming a judgment for $13,500, rents alleged to have been collected by the trustees, and not paid over, and also praying a restraining order of Court against defendants during litigation, etc. The facts are as follows:

John Ellig, deceased, about the eighth of March, 1853, intermarried, at San Francisco, with the appellant. About the same time, but after the marriage, John executed to Mary, directly, and without the intervention of a trustee, by deed bearing date on the eighth of March, 1853, a conveyance for a fifty-vara lot, numbered sixty-three, on the south-west corner of Dupont and Broadway, in San Francisco. This lot was his separate property, having been acquired before the marriage. The consideration recited is one dollar, "as well as the consideration of love and affection."

The improvements on the lot, at the time the conveyance was made, were without value, consisting of small wooden shanties.

On the thirteenth of March, 1854, John and Mary joined in a conveyance of this lot to the defendants, "to be held by them, in trust, for the benefit of the said parties of the first part," and under the following provisions: The defendants, as trustees, "to rent and lease the premises in such manner and upon such terms as they think most advantageous. They shall collect the rents, and after making all proper repairs, expenses, taxes, and assessments, shall hold the residue subject to the order of the said parties of the first part, severally, to be equally divided by said trustees between them; and the separate receipt of the said parties of the first part shall be a full and complete discharge to the said trustees." The respondents also signed this instrument. No improvements had been made upon the lot during the period intervening between the execution of these two indentures.

On the twelfth day of May, 1854, the trustees entered into an indenture of lease of the entire lot, conveyed in their names as trustees for John and Mary Ellig, as lessors, with H. E. Brown and Rufus Keyser, as lessees, for a term of ten years. This indenture reserved a monthly rent, payable in advance, ($750) on the first day of each and every month during the term, with a covenant that in case default should be made in the payment of the rent, or any part thereof, for thirty days after the same should become due, "then the whole of said rent, for the unexpired portion of said term of ten years, shall become due and payable" from the lessees to the lessors. The lessees also covenanted to pay all taxes and assessments on the property; and that, within four months from the demise, they would commence the erection of three-story brick buildings on the premises, to

Ellig. Naglee.

be completed within one year, and "that the said premises shall be completely built over with brick buildings" before the first day of January, 1857. Provision is then made for a renewal of the lease, if desired, or an estimate of the value of the improvements at the end of the term. In case there was no renewal, the lessors to pay two-thirds of the estimated value.

This indenture of lease was subsequently ratified by John and Mary Ellig, by an instrument apparently intended as a duplicate, in which all the parties united.

The lessees immediately proceeded to erect the three-story brick buildings. At the date of the first assignment of this lease to Sherman, in November, 1854, they had expended $20,000 in the improvements made up to that date. They eventually expended $35,000 in all.

In November, 1854, the buildings being unfinished, the lessees assigned the lease, as collateral security, among other securities, to Wm. T. Sherman, of the banking-house of Lucas, Turner & Co., for a loan of $5,000, to be applied toward the completion of the buildings. A second loan of $5,000 was obtained from Sherman, to be applied to the buildings, and the assignment treated as security for that also. The date of the second loan is not given, but it was before the fifteenth of March, 1855. On that day Sherman pressed the lessees for payment of the first loan, when Brown, one of them, confessed his inability to pay, and recommended Sherman to secure himself. Sherman then took Brown to find Sherman's counsel, "and got him to fix a proper document," and he then drew a second assignment; and on the fourth of April, following the arranged plan of securing himself, Sherman went with Brown, the managing lessee, through the buildings then occupied, and made the tenants attorn to him. Sherman considered himself liable for the ground-rent from that day, and not before. The defendants fixed his liability for the rent reserved in the demise, from November, 1854, instead of from the fourth of April, 1855.

Then follows a long negotiation, by the defendants, with Sherman as the assignce of the lease, to pay the rent, resulting in an action against him, by them, on the covenant. Sherman claimed $5,000 out of the property, and, as a set-off, acknowledged his liability for the ground-rent, from the fourth of April, 1855, when the tenants attorned.

The defendants demanded payment of him from the date of the first loan and assignment of the lease in November, 1854. Brown and Keyser became insolvent in February, 1855. Many propositions passed between them. A reduction of the rent to $500 per month was rejected by Sherman. This was in June,

1855.

But before the suit was instituted, and on the thirtieth of August, 1855, pending these negotiations, Sherman, under the ad

Ellig v. Naglee.

vice of his attorney, assigned the lease to one Jefferies, a man of doubtful responsibility. Notice was not given to the defendants of this assignment until after it was made. Waddington, a tenant on the premises, collected the rents for Sherman, and deposited the money with Lucas, Turner & Co. Waddington also collected the rents for Jefferies and deposited the money with the same banking-house. Naglee and Sharp, on the eleventh of June, 1856, and after having advised with counsel from time to time respecting the trust property, commenced suit for the whole amount of rent, $85,000, which was determined in December, 1856, against the trustees.

John Ellig was privy to these negotiations and their results. He knew that the suit was commenced for the $85,000, and assented to it. This he did after advising with other parties besides the defendants. He expressed himself "perfectly satisfied with Mr. Sharp and Mr. Naglee, and their management of the trust property.' He died on the twenty-second of March, 1856, and left a last will and testament, which has been probated, making his wife, plaintiff, the legatee.

On the twenty-fifth day of October, 1856, the plaintiffs instituted this suit.

The defendants answered, denying the charges in the complaint, and offering to resign the trust. The answer made an exhibit of a detailed statement of the management of the trust fund; and, also, of advances made from time to time by the defendant, Naglee, to John Ellig in his lifetime, and also to Mary, his wife, amounting in the aggregate to $11,090 26; also, setting up an indebtedness on the part of the cestui que trusts to the defendant Sharp, for legal services, in the management of the trust property, amounting to $1000, and claiming a lien upon the trust property.

When the case was called up for trial in the Court below, it was, by consent of counsel, referred to a referee, who subsequently reported in favor of the claims of defendants to the whole amount set up in their answer. This report was confirmed without objection. Subsequently, the case came on for trial, and the defendants contended that the matter was closed by the report of the referee. But the Court held that the plaintiff might proceed to establish the allegations of the bill, and witnesses were accordingly introduced.

The Court below, in its decree, after negativing the charges in plaintiff's bill, decreed that the sum of $11,090 26, advances made by defendant Naglee, and the sum of $1000, due defendant Sharp for legal services, was a lien on the trust property, and that the same should be sold to pay the amount.

From which decree the plaintiffs appealed to this Court.

Charles H. S. Williams for Appellants.