Brown v. French

• Decision Date: 03 October 1878
• Citation: 125 Mass. 410
• Parties: Melissa Brown v. Marshall W. French
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

125 Mass. 410

Melissa Brown v. Marshall W. French

Supreme Court of Massachusetts

October 3, 1878

[Syllabus Material] [Syllabus Material] [Syllabus Material]

Hampden. Appeal from a decree of the Probate Court, allowing the account of Marshall W. French as trustee under the will of James Dimmick. Hearing before Ames, J., who reported the case for the consideration of the full court as follows:

The appellant objected to two investments allowed by the Probate Court, one of $ 14,100 invested in Portland and Ogdensburg Railroad bonds, and one of $ 5500 invested in the promissory note of H. Fairbanks, chairman, secured by such bonds pledged as collateral security to twice the amount of the note.

The will of James Dimmick, dated July 12, 1858, contained the following clause: "I order that my executors use their own judgment as to investing the moneys arising from my estate; at the same time I would recommend to them the propriety of keeping at least one half of the same invested on mortgage of unincumbered real estate, as I think well of that kind of security." At the time of the appointment of French as trustee, the trust estate amounted to $ 40,605.90 personal estate, and $ 2580 real estate; and at that time the personal estate was invested in sundry stocks and personal securities, $ 25,500 being invested in United States bonds, $ 1000 in state bonds, $ 13,000 in various city bonds, and no part of it being invested in mortgages of real estate.

In January, 1870, the trustee exchanged $ 1500 of United States bonds for six per cent. Pacific Railroad bonds. In June, 1871, he sold $ 13,000 of the United States bonds for cash at $ 112 3/8, and during the same month he sold $ 1000 more of the same at $ 112 5/8 for cash. In April, 1872, he invested $ 2000 in the Portland and Ogdensburg Railroad bonds. In the summer and fall of 1872, some of the government bonds of the same issue as those held by the trustee were called in for redemption, and the trustee, apprehending that the rest would be called for soon, in November, 1872, sold $ 10,000 of the United States bonds for cash at $ 114 5/8 and invested the proceeds in Portland and Ogdensburg Railroad bonds.

These bonds were the joint promises to pay of three railroad corporations organized in the State of Vermont, namely, the Essex County, the St. Johnsbury and Montpelier, and the Lamoille Valley, which were built and operated under one management, and extended in a continuous line from Lunenburg upon the Connecticut River to Swanton upon Lake Champlain, and together constituted what was called the Vermont division of the Portland and Ogdensburg Railroad, a line made up of different corporations extending from Portland in the State of Maine to Ogdensburg in the State of New York. The bonds were sometimes, and more properly, called the joint first mortgage bonds of the Lamoille Valley, Montpelier and St. Johnsbury, and Essex County Railroad companies. They were secured by a first mortgage upon the franchises, road-beds, tracks, rolling stock and tools of all three railroad corporations, were dated May 1, 1871, and were payable in gold coin in twenty years from date, and at the option of the corporations after five years from date, with semiannual interest coupons attached at six per cent., payable also in gold coin. These three railroads were together about 120 miles long, and their capital stock actually paid in in cash was from $ 10,000 to $ 12,000 per mile on the average. They passed through a good section of the state for local business, which had before been without railroad facilities; and they connected at Swanton with the Vermont and Canada Railroad, and thence by way of Rouse's Point and Ogdensburg with a through line to the West; at Lunenburg they connected with the Maine and New Hampshire division of the Portland and Ogdensburg Railroad, then in process of construction, and upon completion of this latter line, (which has since been completed,) they would form a part of the shortest line between the seaboard and the great lakes; a line with very favorable grades for the transportation of freight, and promising to be a favorite route for pleasure travel. About sixty miles of the line in Vermont, being a portion of the whole of each of the three roads, was completed and in operation at the beginning of 1873, and a very considerable portion of the grading on the rest of the line, nearly or quite one half, was done at that time. The three roads were built under one management, and were all contracted for in 1873 under very favorable contracts. The entire issue of bonds secured by the mortgage was $ 2,300,000. They were all issued to the trustees in the summer of 1871, and from $ 1,300,000 to $ 1,400,000 of them had been sold when the financial panic of 1873 stopped their sale at what were considered proper prices, and the balance have not been sold.

French had had experience in making investments for himself, also as treasurer of a savings bank in the town of Palmer, and as president of a national bank in Palmer. In the latter part of 1871, he purchased Portland and Ogdensburg Railroad bonds for Samuel A. Hitchcock, of Brimfield, to the amount of $ 83,000, and soon afterward $ 17,000 more, with which he endowed scholarships at Amherst College. Before purchasing the first lot of such bonds as trustee in April, 1872, he consulted with Hitchcock, and also with the treasurer of Monson Academy, who held some of the bonds, and also with members of the firm of Fairbanks & Co., financial agents for selling the bonds, and with Fairbanks, Brown & Co. and Brewster, Sweet & Co. of Boston, who were agents for selling the bonds of the New Hampshire and Maine division of the Portland and Ogdensburg Railroad line, all of whom recommended the investment, and all of whom were persons of reputed good judgment in financial matters, and in whose integrity he confided. Before buying the second lot of bonds in November, 1872, he again examined the condition of the road, procured an autograph letter from the engineer of the three roads, giving particulars about them in detail, and again consulted with the above persons and with numerous others; and the result of all his inquiries and investigations was to satisfy his mind that the investment was a safe and prudent one at the time.

The roads were in the management of men who possessed in a high degree the confidence of the community for integrity and business ability; and in 1872 the bonds were selling from eighty to ninety per cent. of their par value, according to the size of the lots sold, were regarded as a first-class investment, and were purchased, by persons of reputed good judgment, for permanent investment. French paid for the bonds eighty-five per cent. of their par value; but at the time of the hearing, and for a long time before, they had very largely depreciated, and were offered for sale at from one fifth to one quarter of their cost,...