OPINION OF THE COURT
John P. Saxton (hereinafter decedent) died in November 1958, leaving Anna E. Saxton (hereinafter Saxton), his widow, and respondents, his two daughters, as his distributees under his will. Under a residuary trust established therein, Saxton was given income for her life, with authority to the trustee to invade the principal as necessary to provide for her maintenance and support. The remainder of the trust was bequeathed in equal shares to respondents. The will also provided, inter alia, for the appointment of Endicott Trust Company (hereinafter petitioner)
In August 1960, respondents received, without explanation, an “Investment Direction Agreement” (hereinafter IDA) which acknowledged that the corpus of the trust consisted entirely of IBM stock, that it was both their desire and that of Saxton to have “the Trustee continue to hold the said [IBM] stock in the Trust rather than to follow the normal banking procedure of diversification,” and that both Saxton and the remainder persons “agree to hold the bank harmless in the event that the principal assets of the Trust should decrease in value by reason of particularly, but not limited, a decrease in value of said stock.” Finally, it provided that the instrument could be revoked with 30 days’ written notice by the beneficiaries.
Testimony revealed that the beneficiaries never requested the IDA, had no input in its preparation nor had any communication with petitioner as to the benefits of diversification or the risks associated with such concentration. Respondents contend that Saxton desired them to sign the IDA and that Glann merely represented the interests of Saxton as executor of the estate. While respondents executed the document, petitioner, as the trustee, did not. At the time the estate was settled in January 1962, it contained 1,575 shares of IBM common stock valued at $569,853.50.
For approximately 19 years, petitioner maintained no regular communication with respondents; it never provided them with annual statements nor advice concerning the trust. In 1980, upon respondent Mary Rita Crittenden’s specific and continued requests, copies of the annual statements were regularly provided. Notwithstanding the hiring of a new trust officer, William Nesbitt, in 1979 and his subsequent hiring of
In 1984, Nesbitt first met Saxton, now in her 80’s, and respondents. All parties testified that it was an introductory meeting and that shortly thereafter Crittenden raised the issue of diversification. Respondents began arranging periodic meetings to discuss the trust when Crittenden was in town.
As of April 1987, petitioner’s written investment policies recognized that the “prudent person rule” required it to seek a preservation of capital, diversification and a reasonable rate of return- on trust investments. Its policies specifically recognized that there existed “several large accounts where we are asked to hold IBM stock, exonerated from holding these stocks as original investments, and yet we have the power to sell them should circumstances dictate.” It advised to carefully scrutinize these accounts, specifically noting the Saxton trust.
Crittenden testified that by July 1987 she “reached a point of extreme concern about IBM,” felt that “it really wasn’t that
The next day, Nesbitt wrote respondents stating that he understood that they still wanted to hold IBM as the main investment in the trust and requested that they sign a copy of his letter if they agreed with its contents. He further stated that “if the indicators, including [the “buy”] list, would change, then we would want to recommend sales; and probably at some future date * * * should start a diversification program.” He thereafter included a tabulation detailing the tax consequences for the sale of different blocks of IBM stock, and recounted that “we discussed the fact that 30 days’ written notice to revoke the 1960 agreement will in no way restrict our actions if the sale should become timely.” Neither respondent signed the letter. Peckman reiterated his clients’ concerns when he wrote to Nesbitt the following day. Nesbitt thereafter acknowledged his duty of diversification, yet expressed that the decision to hold IBM “is not based on [his] recommendation, but rather on a mutual understanding between the parties involved.” Copies of this letter were sent to respondents. Crittenden thereafter responded to Nesbitt, informing him that there was “one crucial omission”:
"You may remember that we recommended that your experts in trust management be directed to develop a diversification plan for the assets of the Trust. This plan should take into account the value of the stock, the economic condition of the market, tax considerations, and other issues that these experts may regard as important. I and my family count on you to exercise prudent judgment and guide us in understanding these complex factors. As a layman, I believe it is unwise to wait for a ‘sell’ recommendation from your central office
“Because the July 23 letter did not mention my recommendation to put the machinery in motion immediately to develop a reasonable plan, I could not sign it. We would certainly be adverse to haphazard sale of IBM, without a well thought out plan. However, at this point, we believe that we do need one so that we do not act on the basis of financial or other crises, but have a carefully conceived choice of alternatives. My sister and I have discussed these issues in detail and are in agreement. I know that Mother is deeply concerned about the safety of the Trust, as well.” Nesbitt neither responded to Crittenden’s letter nor prepared a plan for diversification.
Notwithstanding petitioner’s own written investment policy, Nesbitt maintained that unless there was a unanimous written revocation of the IDA, he was justified in relying upon the document. Peckman testified that he had numerous other conversations with Nesbitt in July 1987 through August 1987 with respect to the Saxton trust and reiterated that his clients “wanted to have or discuss diversification.” With Nesbitt maintaining that they could not do so unless the IDA was revoked, Peckman countered that by law, “the bank had a nondelegable duty to invest the trust fund and to consider the proper method of investing [including] the * * * diversification of the trust fund”’
Upon a general market decline in October 1987, the trust lost $4,000,000. In November 1987, Crittenden wrote to Nesbitt and again requested a meeting. She further expressed her concern about the lost value and the fact that he had failed to respond to their requests on July 22, 1987, reiterated in her letter of August 7, 1987. Nesbitt thereafter confirmed a date for their meeting and indicated, by letter, that Wilkins would present “several alternatives for the investment and diversification of your mother’s trust.” Despite the fact that petitioner’s normal policy was to hold no more than 10% of any one stock in a trust, when they met in November 1987, Nesbitt still recommended holding the IBM stock and did not present any plans for diversification. Instead, he prepared two tax tabulations, identical to previous ones. Wilkins conceded that the tabulations were unresponsive to the beneficiaries’ request yet were all that were authorized by Nesbitt. After Nesbitt strongly advocated for the trust to remain status quo, Crittenden noted that in view of the current market they would remain with his conservative plan.
IBM declined gradually from a high of $139.50 in February 1991 to $99.50 in June 1991. Testimony revealed that despite petitioner’s analysts admitting their discomfort with IBM and belief that there could be a major decline in value, no communication was made with respondents. Hamlin testified that although she met with beneficiaries of other trusts and recommended that they sell their IBM stock, she never prepared a diversification plan for respondents, never provided them with investment advice and was unconcerned about losses to their account.
Petitioner performed a formal portfolio review of the trust in November 1992 and concluded that a diversification plan should be implemented. In March 1993, at a meeting attended by respondents, their children, Hamlin and a representative of petitioner, respondents were given information with respect to a balanced portfolio yet no diversification plan was prepared or presented. Days thereafter, Saxton died and the trust ended. Petitioner distributed the stock and the trust corpus to respondents in July 1993. When petitioner filed its final accounting in November 1993, the value of the IBM stock was $2,986,617.50.
Respondents filed objections alleging, inter alia, a breach of petitioner’s fiduciary duty by failing to diversify the trust’s corpus and exercise reasonable prudence in its management. Respondents further sought to surcharge petitioner, deprive it of its commissions and assess costs and fees. Petitioner sought summary judgment by referencing the IDA. Respondents cross-moved to compel discovery and for the immediate payment of a cash dividend received subsequent to Saxton’s death.
Surrogate’s Court denied petitioner’s summary judgment motion but partially granted respondents’ cross motion for discovery and ordered that the dividend be paid.
During the time period at issue, applicable law required that a trustee employ diligence and prudence in the care and management of a trust equivalent to that of a prudent person of discretion and intelligence in managing his or her own affairs (see, EPTL former 11-2.2 [a] [1]; King v Talbot,
As a corporate fiduciary, petitioner was required to consider, inter alia, the testator’s primary objectives and undertake a formal analysis of the estate to establish an investment plan consistent therewith which complied with its own internal trustee review protocols. In such vein, “more than routine reviews” (Matter of Janes, supra, at 54) were required. “Although this Court in a nonjury trial is not limited to determining whether the findings of the trial court are supported by the weight of the credible evidence, deference will still be given to the trial court’s assessment of credibility issues” (J & J
Here, petitioner’s employees and experts conceded that its own written policies of April 1987, supplemented in 1991, required that a prudent person would have diversified the corpus of this trust. Petitioner’s experts agreed that Nesbitt’s position that the trust not be diversified as long as IBM was on the “buy list” was unjustified. Upon these facts, Surrogate’s Court’s finding of imprudence is well supported.
With respect to petitioner’s contention that the IDA, as a contract, insulated it from such liability, we disagree. Where a beneficiary has requested or consented to what essentially amounts to mismanagement by a fiduciary, equitable rather than contractual principles must govern (see, e.g., Matter of Ryan,
Record evidence does not support this assertion. Prior to the instrument being prepared and its subsequent distribution to respondents, not a scintilla of evidence indicates that petitioner fully apprized Saxton or respondents of the effects that their execution of the IDA would have on their legal rights or how their direction to hold the entirety of the trust’s corpus in IBM stock would fall far short of what would have been required of a prudent corporate trustee.
Further analyzing the IDA on equitable estoppel grounds— that which rests on the conduct or word of one party upon which another justifiably relies and, in so relying, changes a position and incurs a detriment (see, Triple Cities Constr. Co. v Maryland Cas. Co.,
While we agree that a fiduciary’s conduct must not be viewed in hindsight but rather over the entire course of the investment (see, Matter of Donner,
As to damages, a recalculation must occur. When executors retain a stock which they had a duty to sell, the amount of damages paid to a beneficiary should be reduced by the Federal estate tax that the beneficiary would have had to pay if the stock had been sold (see, Matter of Garvin,
Without reviewing matters which are dehors the record (see, Owen v BLC Fly Fishers,
Furthermore, although possessing considerable discretion regarding the imposition of interest, its rate and the method of compounding, if any (see, Matter of Janes, supra; Matter of Rowe,
As to the determination by Surrogate’s Court to deny commissions despite no finding of self-dealing or fraud, we find it to be error since there exists no statutory basis upon which the court could deny commissions “upon the exercise of its discretion” (SCPA 2309, 2312); the beneficiary is simply entitled to be put in the position he or she would have occupied had no breach occurred (see, e.g., Matter of Rothko,
Turning to counsel fees, they may not be collected by a prevailing litigant where there is no agreement, statute or rule providing for such fees and where the losing party has not acted maliciously or in bad faith (see, Bibeau v Ward,
Mercure, J. P., Crew III, Spain and Graffeo, JJ., concur.
Ordered that the decree is modified, on the law, without costs, by reversing so much thereof as established the amount of the surcharge and interest to be paid by petitioner; matter remitted to the Surrogate’s Court of Broome County for a redetermination of the amount of the surcharge and interest in accordance with this Court’s decision; and, as so modified, affirmed.
Notes
. Manufacturers and Traders Trust Company acquired Endicott in 1992. For the purposes herein, Endicott will be referred to as petitioner throughout.
. During one of the earlier meetings, respondents discussed the excessive balance in Saxton’s non-interest-bearing checking account. As the income generated by the trust greatly exceeded Saxton’s needs, they questioned petitioner’s practice of simply depositing the excess from $250,000 a year in income from the trust into her checking account to the point where the amount therein exceeded FDIC limits.
. Crittenden assumed the role of spokesperson for respondents.
. This matter came before us oh two separate occasions on issues unrelated to the instant appeal (see,
. The New York Banker’s Association (hereinafter NYBA) filed an amicus curiae brief.
. The Prudent Investor Act is not applicable to investments made before January 1, 1995 and therefore does not apply to this matter (see, EPTL 11-2.3 [a]).
. Acknowledging that the legal theory propounded on appeal by petitioner — that it was a party to the document signed by its predecessor in interest — is different than the theory it advanced at trial — that it was a third-party beneficiary — we still find it properly preserved (see, Capital Med. Sys. v Fuji Med. Sys.,
. In so finding, we agree with petitioner that the issue of capital gains taxes was not paramount in Matter of Janes (supra) since the majority of the estate in that case was to be left to charity.