260 A.D. 287 | N.Y. App. Div. | 1940
John R. Carnell died on the 29th day of September, 1920, leaving a last will and testament and two codicils thereto, all of which were probated in the Surrogate’s Court of Albany County on the 11th day of October, 1920, and letters testamentary thereunder were issued to the executors named therein.
Testator was a man of considerable business experience and had been a discount bank president and director and also a trustee of a savings bank.
By the 6th, 7th and 8th clauses of his will testator created three separate trusts for the benefit of a daughter and two sons. The respondent is one of two trustees of each of the trusts, the other trustee in each case being the life tenant of the particular trust. The trustees set up and established three trusts in accordance with the directions contained in the will from assets owned by testator at the time of his death and received by them from the executors. The securities comprising the corpus of the respective trusts consist exclusively of the stock of public utilities, banking and private corporations.'
The respondent bank petitioned the court for a construction of the provisions of clause 12th of the will in order to obtain a judicial determination as to whether the securities held as part of the corpus of the trusts are proper investments.
The 12th clause of the will reads as follows: “ The trustees of the special trusts herein and hereby created are hereby given and vested with the following rights, powers and duties: They may and shall, in the exercise of their sound judgment and discretion, change the nature of the investments originally selected by them to constitute the principal of said trust funds, and may, for that purpose and from time to time, sell and dispose of the same, replacing them with other securities purchased in the exercise of their good judgment and discretion. All such securities, however, composing the principal of any such trust, to be always well selected, and well secured securities, as distinguished from speculative securities or investments.
“ They shall care for, manage and protect the said trusts to the best of their ability, and in the exercise of their sound and conservative judgment and discretion, but for any error of judgment or for any extraordinary or unforeseen depreciation of securities, they shall not be liable, provided they may have used ordinary care and diligence.
“ The said trustees are hereby expressly authorized and advised to retain as part or portion of the said trusts, or any of them, such city bonds of cities of the State of New York, or corporate stock of the cities of the said State, as may be possessed by me at the time of my death.”
A question of law only is presented for our determination. The court below held that the trustees are required to confine the investments made by them of the principals of the trusts in securities prescribed by section 111 of the Decedent Estate Law and section 21 of the Personal Property Law, and directed them to sell such non-conforming securities, as now form a part of the principal of any of the three trusts, the proceeds of such sales to be invested in conforming securities. With the exception of the respondent bank, the other trustees and the other contingent remaindermen have appealed from the decree. •
The solution of our problem depends upon the meaning of the phrase “ well secured securities ” used by testator in his will.
The general rule is that in the absence of express authority in the instrument creating the trust or statutory provisions to the contrary a trustee cannot invest such funds in the stocks, bonds or other securities of private business corporations or in bank stocks. (65 C. J. 804.) Corporate stocks have but little more than speculative value. Their market value must depend upon the opinion that is entertained as to future earnings and the character of the management of the companies. Obviously such elements of value are too unstable and speculative to form a safe subject for the investment of trust funds. It is settled in this State that a trustee holding funds for investment is bound to put them in government or real securities. (King v. Talbot, 40 N. Y. 76; Matter of Wotton, 59 App. Div. 584; affd., 167 N. Y. 629.) A discretionary power given to the trustee by the trust instrument does not enlarge the powers of the trustee with reference to the investment in corporate securities and such discretion, in the absence of words in the will giving greater authority, should not be held to authorize investment of the fund in new, speculative or hazardous ventures. (Matter of Hall, 164 N. Y. 196.) When the author of a trust gives explicit directions as to the classes of securities in which the fund shall be invested it is the duty of the trustee to follow such instructions
It is the well-settled rule of the English Court of Chancery that the trustee can protect himself against risk only by investing the trust fund in real or governmental securities. While there has been a tendency in this country to depart from the English rule owing to the wide difference in the opportunities for investments in governmental securities in the two countries, yet the courts have adhered tenaciously to the principle that safety is the primary object to be secured in an investment of this kind, and many of them have taken occasion to commend the English rule for its safety, and with great unanimity have recognized the fundamental principle of that rule, at least to the extent that all speculative risks are strictly forbidden. (26 R. C. L. 1308.)
The rule adopted in the majority of jurisdictions is that in the absence of authority granted by the instrument creating the trust or conferred by court order or statute, a trustee has no power to invest the trust funds in the stock of private corporations, such as banks, railroads, manufacturing companies, etc., and an investment so made will be at his risk even though in making the investment he acted in good faith and exercised what he supposed to be a sound judgment. (26 R. C. L. 1309.)
A direction to invest in “ good securities ” has been construed to mean investment in such securities, and such securities only, as are regarded by the court as proper for trust funds. (Brown v. Brown, 72 N. J. Eq. 667; 65 A. 739.) Strictly speaking, “ well secured securities ” are such as are “ put beyond the hazard of losing.” (Third National Bank v. Norris, 331 Ill. 230; 162 N. E. 829.)
In the absence of express authority to the contrary in the will a testamentary trustee must invest the funds in securities authorized by the statute. (Matter of Doelger, 254 App. Div. 178; affd., 279 N. Y. 646.) In Delafield v. Barret (270 N. Y. 43) the Court of Appeals said that the provisions of section 111 of the Decedent Estate Law “ specify those types of investments which to the Legislature seem to afford a maximum of safety.” In Matter of Muller (155 Misc. 748) a distinguished probate judge, Mr. Surrogate Foley, held that in the absence of specific authorization in the will a testamentary trustee may not be authorized by the court to invest in shares of common stock.
Appellants urge that the will confers upon the trustees discretionary power to invest in other than legal securities. This contention must be rejected. The discretion conferred upon trustees is not couched in general words. Where a trustee is directed to use
We agree with the court below in its disposition of the question presented, and the decree appealed from should be affirmed, with costs to all parties appearing payable out of the estate.
Hill, P. J., Crapser, Bliss and Foster, JJ., concur; Hill, P. J., dissents to the granting of the stay.
Decree affirmed, with costs to all parties filing briefs payable out of the estate.
Appellants are hereby granted permission to appeal to the Court of Appeals if so advised and this court hereby certifies that a question of law has arisen which ought to be passed upon by the Court of Appeals.
If an appeal be seasonably taken, all proceedings under the decree are hereby stayed for sixty days.