278 A.D. 153 | N.Y. App. Div. | 1951
Central Hanover Bank and Trust Company, as trustee under the will of Mary J. Westerfield, appeals from portions of a Surrogate’s decree which, in effect, require it to sell within a reasonable time testatrix’ shares in North American Company, a public utility holding corporation, and shares in its subsidiaries which have been or will be distributed to stockholders of the parent company pursuant to an order by the Securities and Exchange Commission, which has been confirmed by the United States Supreme Court (North American Co. v. Securities & Exchange Comm., 327 U. S. 686). The investments of this trust, mostly public utility stocks owned by testatrix when she died in 1907, have multiplied many times in value, and the trustee desires to continue them indefinitely for so long as may be expedient, unless it be required to sell at the first favorable opportunity. The only direction by testatrix with respect to investment of the trust funds is contained in a codicil, and reads: “ I do not wish any of my securities sold. ’ ’ The Surrogate has ruled correctly that this direction to retain her securities is a command to the trustee, but is subject to an implied power of sale of any investment which changes in character to such a degree that it can no longer be regarded as being the same security within the contemplation of the will. A good deal of discussion has been engaged in by courts and text-writers in analyzing what makes a material change. This discussion is summarized in the opinion by the Surrogate citing the statement by Buckley, J., from Smith v. Lewis ([1902] 2 Ch. 667, 672) which was quoted in Mertz v. Guaranty Trust Co. (247 N. Y. 137,141) that “ ‘ Every case of this sort must be looked at on its merits in order to see whether the investment is the same. ’ ”
North American Company itself is dismembered by the order of the Securities and Exchange Commission, and its stock alone cannot be regarded as the same security held by testatrix in view of the restricted scope of its permitted operations.
For the reason that testatrix did not contemplate that the shares in the subsidiary corporations, along with those of the dismembered parent corporation, would be frozen in the hands
The mandatory direction contained in the codicil compels the trustee to retain testatrix’ shares in North American Company until the execution of the order of the Securities and Exchange Commission, from which the conclusion follows that the shares in the dismembered parent corporation and in its subsidiaries are received by the trustee pursuant to the terms of the will. It is provided by statute that no testamentary trustee, or other fiduciary as defined in the acts, “ shall be liable for any loss incurred with respect to any investment not eligible by law for the investment of trust funds, if such ineligible investment was received by such fiduciary pursuant to the terms of the will, deed, decree of court, or other instrument creating the fiduciary relationship or if such ineligible investment was eligible when received or when the investment was made by the fiduciary; provided such fiduciary exercises due care and prudence in the disposition or retention of any such ineligible investment ” (Personal Property Law, § 21, subd. 6, and Decedent Estate Law, § 111, subd. 6, both originally added by L. 1938, ch. 356; Decedent Estate Law, § 111, was repealed and the substance of subd. 6 thereof covered by Personal Property Law, § 21, subd. 6 by L. 1950, ch. 464). The Surrogate has held that this statute does not apply to the issue before the court, for the reason that there is no application to surcharge the trustee for loss caused by a breach of duty. In support of this ruling, it is stated in respondent’s brief: “In the first place, it should be noted that this subdivision [§ 21 subd. 6], unlike subd. 1, is not concerned with the authority of a trustee to invest funds. It deals solely with the question of the liability of a trustee.” Although the language of the statute may be inartistic in this respect, we think that the Legislature did not intend to introduce a needless subtlety, which would be unrelated to the practical administration of trust estates. Ordinarily, if a trustee without authority acts to the detriment of the beneficiaries, it is liable for the consequences. This is analogous to the maxim that where there is a right there is also a remedy. An enactment that a trustee shall not be held liable for engaging in a course of conduct means, practically speaking, that the trustee is authorized to engage in such course of conduct. Otherwise the
That statute, first enacted in 1938, is not ambiguous, it authorizes the trustee to retain ineligible investments indefinitely, if received pursuant to the terms of the will, “ provided such fiduciary exercises due care and prudence in the disposition or retention of any such ineligible investment.” Only by interpolating language which is not in the statute can this provision be construed to require the trustee to sell investments within a reasonable time after being so received, limiting its discretion to deciding what constitutes the first favorable opportunity for a sale. This statute would have been unnecessary, if that had been the purpose, since, as is pointed out in the opinion of the Surrogate, such a power has been held to reside in fiduciaries independently of the statute and before its enactment (cf. Costello v. Costello, 209 N. Y. 252, 261). Matter of Hoyt (294 N. Y. 373, 382) although decided since the enactment of chapter 356 of the Laws of 1938, is not to the contrary, inasmuch as the will there exonerated the trustee from loss arising “ through failure or omission to sell any of my property, real or personal, within what might be deemed a reasonable time.” It was held that the trustee was required to sell within a reasonable time by direction of the will rather than as required by this statute. Upon the other hand, in Matter of Clark (257 N. Y. 132, 135) the will authorized the trustees to continue the testator’s investments “ without any personal liability for so doing ”, and with no express direction to sell nonlegals within a reasonable time. The Court of Appeals held that no such direction was to be implied, and that there was no time limit to the disposal of the testator’s nonlegal investments provided that the trustees exercised due care. Although that case was decided prior to the enactment by chapter 356 of the Laws of 1938 of subdivision 6 of section 111 of the Decedent Estate Law and section 21 of the Personal Property Law, the testamentary authorization involved therein was similar to the subsequent statutory authorization, which should be construed in the same way.
The traditional limitations upon investment of trust funds in New York State, except as otherwise authorized by the will or instrument creating the trust, stem largely from King v. Talbot (40 N. Y. 76, 85-86). The general principle of law stated in that case has often been followed, that “ the trustee is bound to employ such diligence and such prudence in the
The decree appealed from should be modified so as to eliminate the determination that subdivision 6 of section 111 of the Decedent Estate Law has no application to the question presented by the petition, and so as to authorize the trustee in its discretion to retain as investments of the trust estate the stocks of the North American Company and its subsidiaries
Peck, P. J., Cohn, Shientag and Heffernan, JJ., concur.
Decree unanimously modified in accordance with the opinion herein and, as so modified, affirmed, with costs to all parties participating in this appeal payable out of the fund. Settle order on notice.