Creed v. McAller (In re Connelly's Estate

• Decision Date: 27 April 1931
• Citation: 275 Mass. 353,175 N.E. 761
• Parties: CREED v. McALLER et al. In re CONNELLY'S ESTATE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

275 Mass. 353

175 N.E. 761

CREED

v. McALLER et al.In re CONNELLY'S ESTATE.

Supreme Judicial Court of Massachusetts, Suffolk.

April 27, 1931.

Appeal from Probate Court, Suffolk County; A. W. Dolan, Judge.

In the matter of the estate of C. James Connelly, deceased. From a decree allowing the second substituted account of James F. Creed, sole surviving trustee under the will of C. James Connelly, deceased, Katherine G. McAleer and others appeal.

Modified and affirmed.

W. C. Creed, of South Boston, for petitioner.

O. Storer and J. J. Lucas, both of Boston, for respondent Connelly.

J. L. Sheehan, J. P. Bell, and J. J. Mansfield, all of Boston, for estate of Agnes G. Connelly.

PIERCE, J.

This case involves two separate appeals from a decree of the probate court allowing the second substituted account of James F. Creed, sole surviving trustee under the will of C. James Connelly, late of Boston, deceased. A decree allowing the trustee's first account was amended in Lannin v. Buckley, 256 Mass. 78, 152 N. E. 71, and on appeal, after rescript, was affirmed in 268 Mass. 106, 167 N. E. 258. A dispute between the life tenant and remaindermen was before the court in Creed v. Connelly (Mass.) 172 N. E. 106.

C. James Connelly died on July 10, 1914. By his will, after payment of minor bequests, he left the rest of his estate in trust, the income to be paid to his wife, Agnes G. Connelly, during her lifetime, and the remainder over on her death. The widow died on August 22, 1929. On September 14, 1929, some of the remaindermen filed a petition in the probate court for partial distribution in kind of stocks of the trust estate. Not all of the remaindermen agreed to the distribution of the securities in kind; the petition was dismissed and the stocks were ordered to be sold within a reasonable time.

[2] The sale price of most of the stocks exceeded their appraised value, when they were turned over to the trustees by the executors under the will. At times, however, during the term of the trust many of the stocks could have been sold at higher prices. The appellants seek to charge the trustees for the difference between the price of the stocks at their peak and the price at which they were sold. A trustee, to invest, is required to conduct himself faithfully and to exercise a sound discretion, observing 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, and considering the probable income as well as the probable safety of the capital involved. Harvard College v. Amory, 9 Pick. 446, 461;Bowker v. Pierce, 130 Mass. 262;Dickinson, appellant, 152 Mass. 184, 25 N. E. 99,9 L. R. A. 279;Taft v. Smith, 186 Mass. 31, 70 N. E. 1031;Kimball v. Whitney, 233 Mass. 321, 331, 123 N. E. 665:Boston Safe Deposit & Trust Co. v. Wall, 254 Mass. 464, 467, 150 N. E. 220;Lannin v. Buckley, 256 Mass. 78, 83, 152 N. E. 71;Exchange Trust Co. v. Doudera (Mass.) 170 N. E. 73. The probate court found that the trustee throughout acted in good faith, although imprudently as to the investment in certain enumerated stocks. The trustee is chargeable, therefore, with failure to sell such stocks at the peak price only if such failure was an abuse of ‘the sound discretion and good judgment of a prudent man dealing with his own permanent investments.’ Boston Safe Deposit & Trust Co. v. Wall, supra. The delay in selling the stocks after the death of the life tenant was not unreasonable. As a reasonable man, the trustee could await the outcome of the petition for partial distribution in kind. He could not be held to forecast the sudden drop in stock prices in October and November, 1929. He is not chargeable with the difference between the market price of the stock at the life tenant's death and the price of such stock at the time of the actual sale. Compare McCoole v. Mackintosh, 267 Mass. 86, 94, 95, 165 N. E. 881;State Street Trust Co. v. Walker, 259 Mass. 578, 157 N. E. 334.

The allowance of compensation to the trustee ‘to be paid to him out of the principal of the trust estate’ was proper. In making the allowance the probate court considered only ‘his services subsequent to the death of the life beneficiary in all matters relative to the closing up of the trust estate, including services in relation to the petition for distribution in kind; the petition for instructions as to disposition of proceeds of sale of the ‘Fenway’ land; the petition for determination of the validity of the assignment of Mary E. Connelly, one of the remaindermen; the adjudication of the account now before the Court, and his services in the litigation as to the trustee's first account, where the contest was by the remaindermen, related to principal, and in which the accountant prevailed save as to certain mathematical errors.' See Lannin v. Buckley, 256 Mass. 78, 152 N. E. 71, and Lannin v. Buckley, 268 Mass. 106, 167 N. E. 258. In the allowance to the attorney the judge considered only his services rendered in connection with the litigation as to the trustee's first account, Lannin v. Buckley, 256 Mass. 78, 152 N. E. 71, and his services in connection with the closing of the trust estate after the death of the life beneficiary. For other services rendered by the trustee and the attorney the income account was charged, without objection, from the estate of the life tenant. Compensation for services rendered after the death of the life tenant is payable out of capital. Denny v. Allen, 1 Pick. 147, 150;Parker v. Ames, 121 Mass. 220, 222;Parkhurst v. Ginn. 228 Mass. 159, 170, 117 N. E. 202, Ann. Cas. 1918E, 982. ‘The regular annual or periodically recurring expenses arising in the administration of a productive trust commonly are paid out of the income, while extraordinary and unusual expenses are chargeable against the capital. The costs of litigation generally fall in the latter class.’ Cogswell v. Weston, 228 Mass. 219, at page 222, 117 N. E. 37, 38. There is nothing in the facts proved which required the judge of probate to apply a different rule. The services rendered by the trustee and his attorney in the litigation over the first account were not regular or periodically recurring expenses; they were a part of the litigation and do not appear to be excessive or unreasonable. Gray v. Hemenway, 212 Mass. 239, 243, 98 N. E. 789; Petition of Loring, 227 Mass. 392, 395, 116 N. E. 730. The compensation to be allowed the trustee and the attorney was such reasonable compensation as the probate court may order. Howard v. Hunt, 267 Mass. 185, 187, 166 N. E. 568;G. L. c. 206, § 16. The allowance of the trustee's compensation from the principal for services in bringing a petition for determination of the validity of the assignment by Mary E. Connelly, one of the remaindermen, obviously should be charged not against the estate generally but against the distributive share of Mary E. Connelly.

On their appointment the trustees received from the executor of the will of James C. Connelly forty-eight shares of the stock of the Pullman Company. For each share of stock the trustees received two and one-half shares of Pullman Incorporated. The probate court ruled ‘that the proceeds of all the shares of Pullman Incorporated constituted principal.’ The question here presented is whether twenty-four shares of the stock of Pullman Incorporated, paid as a dividend to the trustee as a stockholder of the Pullman Company of record on July 30, 1927, each stockholder receiving one-half share of the stock for each share of the Pullman Company stock held by him, belong to principal or income.

The exchange of stock of the Pullman Company for stock of the Pullman, Incorporated, grew out of the reorganization of the Pullman Company. The record discloses that the plan of reorganization was submitted and recommended to the stockholders of the Pullman Company by its board of directors; that the plan provided for the deposit of stock with a reorganization committee. Article eleven of the stock deposit agreement provided that ‘The Committee shall act in respect of the deposited stock solely as the agents and attorneys in fact of the Depositing Stockholders, and the deposit of the certificates of said stock shall not be deemed to transfer, assign or vest to or in the Committee any title or beneficial interest to or in the said certificates of stock’ represented by any certificate of deposit. Article fourteen read: ‘Upon the consummation of the Plan, each registered owner of a Certificate of Deposit issued hereunder shall, upon the surrender of such Certificate of Deposit, properly endorsed, be entitled to receive from the Committee his pro rate shares of the capital stock of such new company (organized for the purpose of carrying out the Plan) which may have been received by the Committee either in exchange for the shares of stock of The Pullman Company deposited hereunder, or by way of a stock dividend, if any, payable in the shares of stock of any new company.’ On July 19, 1927, the reorganization committee wrote the holders of certificates of deposit of capital stock of the Pullman Company: ‘* * * The Pullman Company has declared a special dividend payable in stock of Pullman Incorporated on August 15, 1927, to stockholders of The Pullman Company of record at the close of business on July 30, 1927, at the rate of one-half share of such stock of Pullman Incorporated for each one share of stock of The Pullman Company. * * * Over ninety per cent. of the stock of The Pullman Company has been deposited under the Plan of Reorganization. The undersigned [the Committee] acting on behalf of the depositing stockholders and pursuant to the terms of the Stock Deposit Agreement, is to receive shares of stock of Pullman Incorporated in exchange for deposited shares of The Pullman Company on a basis of two shares of stock of Pullman Incorporated for each one share of stock of The Pullman Company. Accordingly,...