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Timestamp: 2019-04-25 22:19:17+00:00

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THE NEW ENGLAND TRUST COMPANY, trustee, vs. MARY W. PAINE & others.
St. 1938, c. 154, would violate the principle of the separation of powers of government in art. 30 of the Declaration of Rights if it were interpreted and applied as converting a decree of a Probate Court entered in 1911, allowing a trustee's account subject to subsequent reopening for the correction of all errors under R. L. c. 150, Section 17, into a decree final except only for being impeached for "fraud or manifest error."
The provision of St. 1938, c. 154, Section 1, revising G. L. (Ter. Ed.) c. 206, Section 24, "After final decree has been entered on any such [probate] account it shall not be impeached except for fraud or manifest error," does not apply to decrees entered before its effective date.
Trustee's accounts covering the earliest years of the trust and allowed by decrees of a Probate Court in 1911 subject to reopening under R. L. c. 150, Section 17; G. L. and G. L. (Ter. Ed.) c. 206, Section 19, were subject as of right to reconsideration, without previous revocation of the decrees, at a hearing of further accounts of the trustee held subsequent to the effective date of St. 1938, c. 154, and at such hearing a decree should be entered finally settling the entire account of the trust from its beginning to the end of the period covered by all the accounts.
A clause in a will, directing that the trustee of a trust established thereby should "not be responsible for involuntary losses, or to make good any portion of the estate save what shall be lost by . . . [his] own wilful default," showed a purpose of the testator to excuse the trustee both with respect to the consequences of any breach of trust that he did not intend to commit, knowing it to be a breach of trust, and from responsibility for any loss which he did not intend to bring about.
bought in 1904 and 1905 but later declined in value, he failed to exercise the degree of judgment required of him in the circumstances, was exonerated from liability therefor to the beneficiary of the trust by a clause in the will providing that he should "not be responsible for involuntary losses, or to make good any portion of the estate save what shall be lost by . . . [his] own wilful default."
The manner in which a trust company delegated authority respecting the investments of trust funds held by it as trustee, and whether there was a violation of the company's rules governing the making of such investments, were immaterial at a hearing upon its accounts involving questions relating to the propriety of the investments.
Mere negligence of a trustee under a will either in failing to attempt to enforce the liability of guarantors of a defaulted mortgage held by him or in granting extensions of the mortgage which discharged the guarantors did not render the trustee liable to the beneficiary of the trust in view of a clause in the will providing that he should "not be responsible for involuntary losses, or to make good any portion of the estate save what shall be lost by . . . [his] own wilful default."
PETITION in the Probate Court for the county of Middlesex for the allowance of accounts.
The case was referred to an auditor and was afterwards heard by Poland, J.
F. W. Campbell, (J. Wiggin with him,) for the respondents.
H. D. McLellan, (G. B. Rowlings & A. R. Stokes with him,) for the petitioner.
QUA, J. The respondents, beneficiaries of the trust created by Article Sixth of the will of James A. Woolson, late of Cambridge, appeal from a decree of the Probate Court allowing the seventh to the thirty-fifth accounts, inclusive, of the New England Trust Company as trustee.
rights which the respondents or any of them may have incident or consequent to their petition [then on file] to vacate the decrees allowing the first six accounts of the accountant."
The appellants contend that there was error in the judge's refusal to reopen the earlier accounts at the hearing on the later accounts and in entering the decree upon the later accounts without prejudice as hereinbefore stated. They also contend that there was error in the refusal of the judge to surcharge the trustee for alleged breaches of trust during the period covered by the later accounts with which the judge did undertake to deal.
heard. The same provisions were continued in the successor section, G. L. (and G. L. [Ter. Ed.]) c. 206, Section 24, but it does not appear that any of the earlier accounts was settled by the method so provided. Those accounts must therefore be deemed to have been allowed subject to the provisions of R. L. c. 150, Section 17, with respect to being reopened upon the settlement of subsequent accounts. Greene v. Springfield Safe Deposit & Trust Co. 295 Mass. 148, 151. It follows that the decrees allowing the first six accounts were not final decisions upon the items contained in those accounts. Those items could be tried out at the hearing upon any later account.
rights previously granted but creating no vested interest, as in Wilson v. Head, 184 Mass. 515, 518-519, and Pittsley v. David, 298 Mass. 552, 554-557. Parties may have refrained from taking part in the earlier accountings in the knowledge that the decrees would not bind them, and that they had the right to correct errors when later accounts should be presented. Such parties cannot now be confronted with what would in substance be a legislative decree permanently depriving them of their right to be heard upon questions involving their vested property rights which have never in any real sense been litigated at all.
In Sparhawk v. Sparhawk, 116 Mass. 315, 320, it was held that the provision of St. 1874, c. 397, Section 1, that "all divorces nisi heretofore decreed" under St. 1870, c. 404, "shall be deemed and taken to be, and have the force and effect of, absolute divorces from the bonds of matrimony" would attribute "to judicial decrees, rendered before its passage, a force and operation which they did not have when they were made," and would exceed the power of the Legislature under the Constitution. Conversely it was held with convincing logic in Denny v. Mattoon, 2 Allen 361, 376-380, that a statute having the effect of taking away the quality of finality from a judicial decree that was final when entered would violate art. 30 of the Declaration of Rights. To similar effect are Casieri's Case, 286 Mass. 50, 55-56, and Ziccardi's Case, 287 Mass. 588. Pertinent also are Forster v. Forster, 129 Mass. 559, 561-562. Dinan v. Swig, 223 Mass. 516, 520, Opinion of the Justices, 234 Mass. 612, 621, Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 116, Worcester County National Bank, petitioner, 263 Mass. 444, 456-460, Pennsylvania v. Wheeling & Belmont Bridge Co. 18 How. 421, 431, United States v. Klein, 13 Wall. 128, 146-148, and Hodges v. Snyder, 261 U.S. 600, 603.
been entered on any such account it shall not be impeached except for fraud or manifest error," must be construed to apply prospectively to decrees entered after the statute took effect and not to apply retrospectively to decrees entered before it took effect. See Hanscom v. Malden & Melrose Gas Light Co. 220 Mass. 1; Pittsley v. David, 298 Mass. 552, 554; Ring v. Woburn, 311 Mass. 679, 682. The statute of 1938 therefore left the first six accounts still subject to reconsideration at a proper time and by a proper method.
We think that the hearing on the later accounts provided that time and method after as well as before the repeal of G. L. (Ter. Ed.) c. 206, Section 19. While Section 19 was in force, this court had held for reasons not wholly dependent upon the terms of that section that earlier accounts were open at the hearings upon later accounts without first vacating the decrees allowing the earlier accounts. Barrett v. Briry, 256 Mass. 45. In that case decisions were cited which antedated the origin of Section 19 (Rev. Sts. c. 67, Section 10) and wherein such inherent power as the court had apart from statute to reopen former accounts upon settling later accounts was exercised without first vacating the decrees upon the earlier accounts. Stearns v. Stearns, 1 Pick. 157. Field v. Hitchcock, 14 Pick. 405. To the same effect are Stetson v. Bass, 9 Pick. 27, and Boynton v. Dyer, 18 Pick. 1, 5. See these cases discussed in Waters v. Stickney, 12 Allen 1, 11. It is not likely that when the Legislature repealed Section 19 it intended to require a different and more circuitous method of reviewing previous decrees that remained subject to review than the method that had been used for a similar purpose before that section and its predecessor statutes were enacted.
Moreover, it is the general object of probate accountings to settle in definite figures the credits and charges in favor of and against the accountant and to set up a balance remaining in his hands as a basis for future accounting. See Burns v. Hovey, 242 Mass. 363, 366-367. It was the object of the Legislature in enacting St. 1938, c. 154, to make each accounting thereafter a final decision, "except for fraud or manifest error." Waitt v. Harvey, 312 Mass. 384, 396-397.
Jose v. Lyman, 316 Mass. 271, 280. [Note p548-1] These objects are not fully accomplished by a decree which passes only upon current items during the accounting period and leaves open for future determination "without prejudice" the sums carried over from previous accounts and therefore also the sums to be carried over to later accounts.
We conclude for the reasons hereinbefore stated that the decree allowing the seventh to thirty-fifth accounts, inclusive, without consideration of the previous accounts and without prejudice in respect to the respondents' petition to vacate the decrees allowing those accounts must be reversed and there must be a further hearing upon the seventh to thirty-fifth accounts, inclusive, at which the earlier accounts are to be reconsidered, and after which a decree is to be entered finally settling the entire account of the trust to the end of the period covered by the thirty-fifth account.
This opinion might end at this point, but questions as to alleged breaches of trust during the period covered by the seventh to thirty-fifth accounts, inclusive, have been fully argued upon a voluminous record and upon briefs evidently prepared at great expense. These questions will still be important at the further hearing of the seventh to thirty-fifth accounts and some of them may be equally important in dealing with the reopened first to sixth accounts. We feel therefore that we should deal with some of these questions in this opinion.
intend to bring about. So under this exculpatory clause the trustee would be relieved from liability for negligence or failure to exercise sound judgment amounting to a breach of trust and even for an intentional breach of trust unless there was also an intent to cause loss. No less complete exoneration seems consistent with the words employed when the general purpose of the exculpatory clause is kept in mind.
deprives it of the protection of any exculpatory clause that would be valid in favor of an individual trustee. See G. L. (Ter. Ed.) c. 172, Sections 52, 53, 55; St. 1869, c. 182, Section 5; St. 1877, c. 239, Section 1. But if we assume, without deciding, that the testator could not lawfully exonerate his trustee from liability for all losses not consciously intended or designed, as we think he purported to do by the clause inserted in his will, and if we assume that the exemption, in spite of its broader language, must in legal effect be confined within the limits laid down in the section of the Restatement from which we have quoted above, the only remaining questions in the case will be whether the accountant has been guilty of breaches of trust either in bad faith or intentionally or with reckless indifference to the interest of the beneficiaries. We say these are the only remaining questions in the case because there was no evidence, and there is no contention, that the exculpatory clause was inserted in the will through any overreaching or abuse of confidence on the part of the trustee, or even at its request or desire, or that the trustee derived any profit through any alleged breach of trust.
The case was referred to an auditor, who filed a comprehensive and careful report. The judge heard the case upon the auditor's report and additional evidence. The judge adopted the findings of the auditor, except as to one or two matters, and made additional findings of his own. The evidence before the judge is reported. The judge saw the witnesses. The case is one in which their appearance and manner of testifying might be important in determining the weight to be given to their testimony. The evidence supports the subsidiary findings of the judge in all substantial respects. Where these findings differ from the findings of the auditor, there was evidence before the judge on which they could rest. We cannot say that they are plainly wrong. We must accept as the basis of this opinion the findings of the judge, including those of the auditor except in the one or two instances in which the latter conflict with the findings of the judge.
during the period covered by the seventh to thirty-fifth accounts, inclusive, the only accounts fully heard in the court below. These accounts run from May 16, 1910, to July 8, 1939, hereinafter called the accounting period. We deal with the respondents' contentions only in so far as we deem them to be supported by plausible argument and in so far as dealing with them is likely to be useful in the further progress of the case, and we deal with them primarily with reference to whether, if breaches of trust were committed, the accountant is excused from liability for such breaches by the exculpatory clause.
1. The respondents' chief complaint arises out of the retention by the trustee throughout the accounting period of large investments in the stocks of New England railroads. These include preferred stocks in the Boston and Maine Railroad and stocks in several leased lines, stocks in the New York, New Haven and Hartford Railroad and leased lines, and stock in the Boston and Albany Railroad.
to purchase. Nevertheless, the trustee continued to hold them, except for thirty-one shares of New York, New Haven and Hartford sold in 1934 and seventy-nine shares of Old Colony sold in 1935 at a "fair price." At the close of the accounting period the combined value of the stocks retained had shrunk to $26,181.13, leaving the apparent loss on the railroad stocks as of that time nearly $179,000.
The auditor found that it was the duty of the trustee to sell the common stock in the New York, New Haven and Hartford Railroad on April 1, 1917, instead of waiting until 1934. He found that the trustee had acted reasonably in continuing to hold the Boston and Maine preferred stocks; that in view of circumstances stated in detail by him the continued holding of stock in leased lines of these two systems was not unreasonable; and that a reasonable time in which to dispose of these stocks had not expired at the close of the accounting period. There is no finding of any improper conduct in connection with the Boston and Albany stock, which has continued to pay dividends regularly. There is a finding that from the standpoint of proper diversification of investments there was an excessive investment in the Boston and Maine system to the amount of $23,941.25 more than was reasonable and prudent, but all of this investment except $1,224 paid in connection with a reorganization and a small item of $127.25 was made before the accounting period began, and in so far as the overinvestment concerns the seventh to thirty-fifth accounts, inclusive, taken by themselves as the judge took them at the hearing, it raises (except as to the items just mentioned) only the question as to the proper time for disposal of the excess, which is substantially the same question that is raised in connection with all the railroad stocks. There is no hard and fast rule as to the extent of diversification required. North Adams National Bank v. Curtiss, 278 Mass. 471, 482. The principles set forth in Harvard College v. Amory, 9 Pick. 446, 461, govern trustees in the matter of diversification as in other problems of investment. Dickinson, appellant, 152 Mass. 184. Davis, appellant, 183 Mass. 499.
In addition to the facts stated in the two preceding paragraphs, taken from the auditor's findings and adopted by the judge, the judge had before him at the hearing much additional evidence that until 1912 all these railroad stocks were held in high esteem for trust investment; that at least until 1916 there was but a limited range of available trust investments for Massachusetts trustees; that at that period diversification was not practised as extensively as at present; that this trust was sufficiently diversified according to the standards of that time; and that after the stocks had been acquired it was prudent to hold them through the accounting period in the reasonable expectation that they would make a substantial recovery. Evidence tending to the contrary need not be stated. The judge found that "a competent trustee reasonably could have reached the conclusion that the retention of the railroad securities was proper under all the circumstances"; that the "motives" of the accountant were "always to act for the best interest of the estate"; and that, "taking the evidence most strongly in favor of the respondents, the retention of the railroad stocks was at most a mistake of judgment."
of judgment required in the circumstances. They did not amount to bad faith or to intentional breaches of trust or to reckless indifference to the interest of the beneficiaries. The judge rightly ruled that the exculpatory clause exonerated the accountant.
was the subject of discussion in Boston v. Curley, 276 Mass. 549, 562, cited by the respondents. In the present case the trustee is not seeking to shield itself on the ground that it is not responsible for acts of its agents. See Am. Law Inst. Restatement: Trusts, Section 225. It must and does accept responsibility for all their acts and must be judged by the way in which they administered the trust. In these circumstances we do not perceive that the accounting is affected by any question of delegation of authority or by a failure (if there was any) to observe the letter of rules made by the accountant for its own internal administration.
3. The respondents complain of an investment of $8,000 in participation certificates in a mortgage taken by the accountant in 1914 on real estate on Portland Street in Boston. This mortgage was originally for $80,000, but was reduced by payments to $65,000. It was defaulted in 1933. The accountant foreclosed and bought in the property in 1935. There has been no income since 1933, and the trust has been charged $424.75 for maintenance expense.
certificates; and that "no loss to the trust estate is shown, it being not yet determined whether or not the real estate . . . is of sufficient value to cover the debt." The judge took a different view. He found that "the neglect of the accountant was not in failing to try to enforce the covenants of the guarantors but it was in granting the extensions . . . which discharged the guarantors" and in giving no consideration whatever to the effect of the extensions upon the guaranties. Whichever view may be the correct one in the particular circumstances of this case (see Brown v. Kaplan, 302 Mass. 510), it is apparent that at most the accountant was merely negligent in a way which may have caused no loss whatever. There was no bad faith or reckless indifference to the interest of the beneficiaries. Therefore the exculpatory clause relieves the accountant from liability.
4. The remaining issue relates to an investment in a participation certificate for $5,000 in a mortgage for $200,000 taken by the accountant in 1927 on real estate on Hanover Street in Boston. The facts need not be stated in detail. The auditor, after consideration of the pertinent factors, concluded that this loan was not an improper one for the accountant to make at the time. The respondents' further contention that the allocation of participation certificates to various trusts was improperly delegated to a trust officer has already been considered under the heading numbered 2 above. What we there said applies here. There was no breach of trust in connection with this investment.
Costs and expenses may be, but commonly are not, allowed upon a contested probate account, and we have found no reason for making an exception in this instance. Wiley v. Fuller, 310 Mass. 597, 602-604. Berkshire Trust Co. v. Booth, ante, 331, 336.
The decree allowing the trustee's seventh to thirty-fifth accounts, inclusive, is reversed, and the case is remanded to the Probate Court for further proceedings not inconsistent with this opinion. G. L. (Ter. Ed.) c. 215, Section 28.
[Note p548-1] See 21 Mass. Law Q. No. 3, 14-24; 24 Ibid. No. 4, 7.
[Note p552-1] This percentage was very slightly increased later by the purchase of one additional share in the Fitchburg Railroad for $127.25 and by the additional net investment of $5,399.89 in Boston and Maine prior preferred stock in order to take advantage of an offer made in the course of a reorganization. A large majority of the stockholders accepted this offer, and upon the findings of the auditor all but $1,224 of this additional investment appears to have been a proper salvage operation.

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