Opinion ID: 1246501
Heading Depth: 1
Heading Rank: 8

Heading: Breach of duties by investment in matured passbook account on termination of coupon bonds.

Text: By 1953 defendant had ceased issuing coupon bonds or any other form of bonds. At that time, and upon the maturity of the coupon bonds then held in trust, defendant reinvested the trust funds in matured passbook accounts. Plaintiffs contend that the provisions of the will did not authorize such an investment of trust funds and that there was no valid consent by plaintiffs to such an investment, with the result that in making such an investment of the trust funds defendant breached its duty as a trustee. (See 1 Restatement of Trusts, supra, § 170, Comments l and m ; § 206, Comment j, and §§ 170, 206, 209 and 230; 2 Scott on Trusts, supra, 1356-362, § 170.18; and Annot., 47 A.L.R.2d 187, 193 (1956), as previously discussed.) By the terms of the testamentary trust the investment of the trust fund was limited to the original $50,000 coupon bond, or any re-issue thereof, or any other bond or negotiable instrument into which the principal sum of $50,000 shall have been converted. According to the evidence, a matured passbook account was virtually an open passbook type of account. As such, it was neither a bond nor a negotiable instrument. Thus, we must hold that the trust instrument in this case did not authorize the investment by defendant of the funds of this trust in its own matured passbook accounts. Assuming, but not deciding, that such an investment of the funds of this trust could have been authorized by the consent of Mrs. Anna Stephan, we also hold that there was no valid consent by her to such an investment. It is true that Anna Stephan acquiesced in this change. It does not appear, however, that before doing so she again consulted an attorney or that the transaction was handled through an attorney, as was true at the maturity of all of the previous coupon bonds. There is also nothing in the record to show what, if any, explanation was made to her by defendant of the reasons for or effect of such a change other than that she was told by a representative of defendant that we were not going to be renewing the coupon bonds which we were no longer offering; that her money would be put in what we referred to as a `matured account basis' and that the money had to stay with Equitable during her lifetime. Defendant's letter to her dated September 1, 1953, stated only that:    All of these bonds will mature October 9, 1953, at which time you may cash the last coupon on each, and at which time all of the bonds will go on the Preferred Basis. To continue to receive your earnings semi-annually on this investment, please sign the enclosed authorization after the word `Owner', and return it to this Association.    (Emphasis added) In view of the fiduciary nature of defendant's duties to Mrs. Stephan, we hold that it had the burden of proof to establish that it clearly explained to Mrs. Stephan, an elderly woman whose schooling had ended at age 10, not only that it had ceased to issue coupon bonds; but that what it was proposing to do was not to reinvest the trust fund in either bonds or negotiable instruments, as provided by the will, but to reinvest the trust fund in one of its own passbook accounts, which was neither a bond nor a negotiable instrument and was a form of investment on which defendant would expect to earn a profit, cf. 1 Restatement, supra, § 216, Comment k, l, m, and n. [6] Upon examination of the record we find that defendant failed to satisfy that burden of proof. Accordingly, and for all of these reasons, we hold that when in 1953 defendant reinvested the trust fund in its own matured passbook accounts it breached its duty as a trustee. It may be that defendant was also under a duty to explain to Mrs. Stephan that it had no legal authority to conduct a trust business, which it did not do. We need not, however, decide that question. [7]