Opinion ID: 2269257
Heading Depth: 1
Heading Rank: 3

Heading: Retention of Investments.

Text: (1) International Match Corporation. The testator owned 120 shares of International Match Corporation cumulative participating preference stock which was inventoried by the executors at a value of $56 per share, or $6,720. These shares were transferred to the trustee after the allowance of the executors' second and final account on March 7, 1930, and formed part of the trust corpus. It was not sold, the corporation went into bankruptcy in April 1932, and the stock became worthless. In the trustee's account this stock was written off as a total loss. The plaintiffs took exception thereto. In his report the special master, after reviewing the evidence, recommended that the trustee should not be surcharged for retention of this stock. The plaintiffs took exception to the master's report, but the report in this respect was confirmed by the judgment of the Superior Court, Chancery Division. Plaintiffs on these appeals assert that the trustee should have been surcharged for failure to make timely sale of this stock. In Item Fifth of his will, quoted ante, the testator authorized retention of stock owned by him as part of the trust corpus, providing that when it deemed a change in such investments to be for the best interests of the estate it could alter or vary the same with the concurrence in writing of the income beneficiary, Katharine L. Ditmars, indicating that security of the investment and stability of dividend or interest return were deemed by him to be of principal importance. International Match Company was a Delaware corporation controlled by the Swedish Match Company, a foreign corporation having its principal place of business in Sweden. International was principally a holding company of stocks of numerous companies which had their operation and place of business outside the United States. It paid a regular dividend of $2.60 per share and an extra dividend of $0.60 per share from 1926 to 1929. In 1930 and in 1931 it paid a regular dividend of $2.60 per share and an extra dividend of $1.40 per share. The dividends were paid out of earnings and the corporation covered its dividend requirements about 4 1/2 times. The corporate net income for 1929 was $20,623,530; for 1930, $20,023,626. Its current assets for the year ending December 31, 1929 were $23,615,531, liabilities $14,859,996. For the year ending December 31, 1930, current assets were $22,911,765, but liabilities were only $8,826,481. In 1932 International paid its regular dividend of $0.65 per share and an extra dividend of $0.35 per share for the first quarter (the last dividend paid). In 1931 it had floated a $50,000,000 debenture bond issue in the United States. On March 12, 1932 its president committed suicide. On April 19, 1932 it filed a voluntary petition in bankruptcy. The trustee in bankruptcy in its report (filed October 11, 1935) stated that the books and published financial statements of International at all times prior to the bankruptcy indicated it was in flourishing condition and had large earnings, and that it had paid large sums annually to the United States as income taxes. Plaintiffs claimed that the defendant trustee had or should have had information prior to 1930 which would have indicated its earnings were fictitious, but offered no proof thereof. Further, plaintiff Ditmars, Jr. admitted he knew of no financial service that in 1930 or 1931 gave any indication that there was anything wrong with the financial security of International. The 1930-1931 market fluctuation testified to was shown to be general, and not confined to International. And there is no evidence from which any inference may be drawn that the defendant acted in bad faith in failing to dispose of this stock even for salvage purposes. The rule in regard to retention of investments by trustees is that they act in good faith, with ordinary care, caution and discretion and within the scope of their powers, and they will not be held liable for mere mistakes, if such there were, resulting from mere errors of judgment and not proceeding from any fraud, gross carelessness or indifference to duty on their part. See In re Koretzky, 8 N.J. 506, 524 (1952); Blauvelt v. Citizens Trust Co., 3 N.J. 545, 554 (1950). This is settled law and has been incorporated in our statutes. See R.S. 3:16-12 and R.S. 3:16-1( u ) (as amended). The most apposite expression thereof seems to be In re Griggs, 125 N.J. Eq. 73, 76 ( Prerog. 1939), affirmed per curiam, sub nom. In re Paterson National Bank, 127 N.J. Eq. 362 ( E. & A. 1940). In the Griggs case, we note the trustee corporation was held not liable for the retention in the trust of shares of stock in itself, and it was held not to have breached the duty of undivided loyalty to the trust although that stock fell on the market from $325 per share in 1931 to $73 per share in 1933. We find nothing in the record to indicate lack of good faith and diligence on the part of the defendant trustee in connection with the retention of the stock of International Match Corporation. Cf. In re Cross, 117 N.J. Eq. 429 ( E. & A. 1934). (2) The German bonds. Plaintiffs Gladys L. Reed and Kathryn C. Wolford contend that the defendant trustee breached its duty and should be surcharged (as was recommended by the master) for failure to sell certain bonds, collectively referred to in these proceedings and in the filed opinion of the Superior Court, Chancery Division (10 N.J. Super., at p. 334), as the German bonds. These were one $1,000 bond of the Free State of Bavaria, one $1,000 bond of the State of Bremen, and two $1,000 bonds of the City of Cologne, and they were sold by the defendant as trustee on April 18, 1939 for a total of $665. These plaintiffs' exceptions to the trustee's account claimed that the bonds should have been sold sooner at less loss. The master concluded that they should have been sold in March 1931 for $3,587.50, and recommended surcharges of $974.16 in favor of Mrs. Reed and of $974.16 in favor of Mrs. Wolford, with interest from February 26, 1941, the date of death of Katharine L. Ditmars, the income beneficiary of the trust. The Chancery Division disapproved the recommendations of the master in this respect and denied surcharge. In March 1931 the trustee, believing these bonds should be sold, referred the matter to Katharine L. Ditmars. There is no response in evidence. John R. Ditmars, to whom the matter was also referred, opposed the sale. In May and June 1931, December 1931 and in 1932 and 1933, there is evidence that the trustee's recommendation of sale was opposed by Ditmars, Jr., and a trust officer of the defendant testified that during the period from 1931 the only reason the bonds were not sold was because of the objection raised either by Katharine L. Ditmars, John R. Ditmars, Jr., or both, they stating what their objections were, or at times Mrs. Ditmars took no action. The witness testified that during the period after 1931 in which these bonds were held he had discussions with Mrs. Ditmars as to the advisability of selling these bonds. He was precluded from testifying further as to the statements made by Mrs. Ditmars by an objection of counsel for Mrs. Reed and Mrs. Wolford laid on the ground    that no matter what Mrs. Ditmars may have said, it would have no bearing upon the question whether the trustee should have applied to the Court for direction as to whether they should sell.    There was evidence introduced that the trustee was advised by counsel that the court would not take jurisdiction of such a question where Katharine L. Ditmars disapproved of the contemplated sale of investments. In 1934, it was testified, when the matter had been again broached to Ditmars, Jr. and Mrs. Ditmars, there was a favorable market. And there is evidence that until mid-1933 full interest was paid on the bonds and reduced interest was received through 1937. In 1936 and 1937 no action was taken by the trustee, but in 1938 sale was opposed. In 1939 the trustee again sought approval of Mrs. Ditmars for the sale and this time obtained, apparently on its second letter, her written consent to sale dated March 29, 1939. Ditmars, Jr. also consented in writing, his letter of April 17, 1939 expressing his consent as follows:    As Mrs. Ditmars has approved in writing as called for under the terms of my father's will I am forced to go along with her in this matter. Therefore I concur in her decision. The theme of these plaintiffs' argument is that regardless of the nature of Mrs. Ditmars' control over investments, the trustee breached its duty in failing to obtain her consent to sales of these German bonds in 1931. The whole of the evidence fails to support the plaintiffs' contentions in this regard, and indicates that reasonable efforts were pursued by the trustee to obtain such consent. These plaintiffs also assert that the trustee breached its duty in binding itself in the October 19, 1928 agreement, hereinbefore adverted to, to also obtain the consent of Ditmars, Jr. This is an academic question, for it is apparent that Ditmars, Jr. considered himself bound by Mrs. Ditmars' decision, and there is no evidence that at any time her consent was obtained and not acted upon by virtue of his opposition. We are of the opinion that the retention of these German bonds was required by the provisions of Item Fifth of the will and that the defendant trustee fully performed its duty in the premises under the pertinent decisions and statutory provisions. See In re Koretzky, supra ; Blauvelt v. Citizens Trust Co., supra ; In re Griggs, supra ; In re Cross, supra ; and R.S. 3:16-12 and R.S. 3:16-1( u ) (as amended), supra.