293 Mass. 480 | Mass. | 1936
This is a petition for the allowance of accounts of the petitioner as trustee of a fund for the benefit of the First Unitarian Society, otherwise known as Unitarian Society of Chicopee, and others under and subject to
The case was heard upon an agreed statement of facts. The trial judge found the facts thus stated to be true and reported the case upon them as the facts and the evidence and reserved the questions of law involved for the consideration of this court and the entry of appropriate decrees.
The facts relating to the original investment now assailed were these in substance: In 1925 the trust department of the petitioner, from uninvested funds held by it in various trusts, lent $65,000 to William M. Young, a man of substantial means and owner of a considerable amount of real estate, on his note payable on demand after three years with interest at five and a half per cent per annum, payable quarterly, and secured by a first mortgage in usual form on real estate in the business section of Springfield. The assessed valuation of the property for purposes of local taxation was $91,600. The annual rental was $9,600, derived from tenants conducting a motor company, a drug store, a shoe store, and a garage. The officers of the petitioner appraised the land at $100,000 and the buildings at $20,000. The executive committee of the petitioner, consisting of its president and five directors,' all men of extensive experience in real estate matters, approved the loan
The main question to be decided is whether upon the facts thus disclosed on this record the investment of this amount out of the Spaulding trust in a participating interest in a mortgage on real estate in this Commonwealth is warranted as matter of law. The principle of law in this Commonwealth governing the conduct of a trustee in making investments has been established for more than a century. A trustee is required to conduct himself faithfully and to exercise a sound discretion, and to be enlightened by observance as to how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of the capital. Good faith and sound discretion, informed by experience and wise observation, constitute the standard. That standard is comprehensive and remains fixed. It is not bound to particular classifications of securities, but continues as a safe guide under changed financial institutions and business customs, usages and investment combinations. Harvard College v. Amory, 9 Pick. 446, 461. Kimball v. Whitney, 233 Mass. 321, 331-333, and cases collected and reviewed. Creed v. McAleer, 275 Mass. 353, 357. First National Bank of Boston v. Truesdale Hospital, 288 Mass. 35. Old Colony Trust Co. v. Comstock, 290 Mass. 377, 381.
The facts set forth in the record and already summarized show that the kind of investment here assailed comes within the rule governing trust investments as just stated. Participating interests in mortgages have been approved as in
The precise question is whether as matter of law such investments are permissible. That question has not arisen hitherto in this Commonwealth. Investment of trust funds in securities of this nature has been upheld in other jurisdictions. The general principle is found in Am. Law Inst. Restatement: Trusts, in § 227, comment j, in these words: "The mere fact that trust funds are combined with funds not held in trust or with funds of other trusts in making investments does not necessarily make the investments improper, provided that the investments are in other respects proper. Thus, an investment of trust funds in a participating interest in one or more first mortgages on land, or in a group of securities which are all proper trust investments, may be a proper trust investment. Such investments are not proper if they are not such as a prudent man would make of his own property having primarily in view the preservation of the estate and the amount and regularity of the income to be derived . . . .” It was said in Matter of Union Trust Co. 219 N. Y. 514, 519: "The advantages that are frequently to be secured by combining trust funds to make a large and more satisfactory investment than can be made of the funds of one trust without combination are of sufficient importance and value to the several trust funds to overcome any disadvantage that may arise from the fact that the several owners of the investment may thereafter differ in the matter of handling the same. Trust funds have been from time to time combined for investment' with satisfactory results and the practice is generally recognized as proper for a trustee.” See also Barry v. Lambert, 98 N. Y. 300. These decisions were rendered before the enactment of any statute in New York authorizing such investments. See now N. Y. Laws, 1933, c. 321, § 1; N. Y. Laws, 1934, c. 838,
Individual trustees ought to be scrupulously careful not to make investments of trust funds in their own names but always to indicate that they are made in a trust capacity. They are held to strict liability for violation of this duty. Sparhawk v. Sparhawk, 114 Mass. 356. See Brown v. Dunham, 11 Gray, 42, and Day v. Old Colony Trust Co. 228 Mass. 225, 229. But the books of account of the petitioner, the stringent provisions of statute as to the separation of trust investments, and the constant public supervision of its affairs show that no harm has come to the beneficiaries. It was said in Matter of Union Trust Co. of New York, 219 N. Y. 514, 518: “Declarations of trust when full, complete and open to inspection in a public office or where they are full and complete and in the possession of the parties interested in the investments so that the rights of the several persons or trusts therein can be fully established thereby are sufficient to answer all objections made upon an accounting to the form of the investments theretofore made of the trust funds.”
The petitioner was authorized by law to act as trustee of the fund in question. It was subject to the provisions of G. L. c. 172, §§ 49, 52, 53, 54 (now amended by St. 1934, c. 349, § 24,) and § 59. It had a trust department. It was bound by § 49 to keep the business of its trust department separate and distinct from its general business. The money, property or securities received, invested or lent in that department are special deposits protected by extraordinary safeguards and not mingled with other property or liable for general debts or obligations of the trust company. It must be presumed that there has been compliance with all these specific provisions for segregation and safety of trust funds. It was the duty of the petitioner in common with
It is the duty also of trustees holding two or more distinct trust funds to keep them separate and ordinarily not to invest them together. Lannin v. Buckley, 256 Mass. 78. That principle has not been violated in the case at bar in its essential features. ' The mortgage was a single investment, but it was divided forthwith by the issuance of the certificates of interest to the several trusts, which became at once a matter of record in its trust department and subject to periodical inspection and examination by the bank commissioner. Objection based on the possibility of transfer of certificates from one trust to another by the trustee, if in good faith, and otherwise not open to just criticism, is without merit. French v. Hall, 198 Mass. 147, 152.
In the case at bar there is no contention that the petitioner did not exercise good faith and act for a proper purpose. The loss that has resulted to the beneficiaries is not due to conduct of the petitioner or the kind of investment made, but to adverse general financial conditions. In such circumstances there is no liability for breach of trust. Springfield National Bank v. Couse, 288 Mass. 262. First National Bank of Boston v. Truesdale Hospital, 288 Mass. 35. Am. Law Inst. Restatement: Trusts, § 179, comment d. The interests of the trust in the investment here assailed are as secure as if the mortgage had been expressed in terms to be to the petitioner as trustee. No general creditor of the petitioner could in any event secure any advantage
The certificates of participating interest in the mortgage were not easily salable. That is an objection to them as trust investments. But mortgages on real estate are not easily salable. The case on this aspect is close, but we are of opinion that the investment cannot be held for this reason to be not a proper trust investment. There is some analogy to the investment in shares in an unincorporated association organized to acquire shares of stock in various street railway and electric light corporations held supportable in Kimball v. Whitney, 233 Mass. 321.
The investment in question was not in violation of the terms of the Spaulding will. The clause establishing this trust was in these words: “To the Unitarian Society of Chicopee I give and bequeath the sum of Six Thousand Dollars ($6,000). One Thousand Dollars of this I give at the request of and in memory of my deceased aunt, Sarah M. Woodward. The amount of this bequest shall be kept separately invested and the income only may be applied towards the expenses of said Society.” Three separate bequests were made in the will for the benefit of the Unitarian Society in Chicopee, each in memory of a different individual. The testatrix by her will created other trusts and omitted the word “separately” when directing how the funds to support those trusts should be kept invested. As matter of interpretation we think the words “separately invested” as applied to the gifts for the Unitarian Society in Chicopee mean that these three funds should be kept separate each from the others to the end that they might be preserved as distinct memorials to the several individuals named. Moreover, this opinion in its main branch shows that the investment of one of these funds in a participating interest in a mortgage was not a commingling contrary to the terms of the will.
The contention is made by the beneficiaries that the Young mortgage was not a proper investment in point of security when originally made in 1925. The circumstances attendant upon making that investment have already been
Decree may be entered allowing each account.
Ordered accordingly.