Digney v. Blanchard

• Decision Date: 13 March 1917
• Citation: 226 Mass. 335,115 N.E. 424
• Parties: DIGNEY et al. v. BLANCHARD et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

226 Mass. 335

115 N.E. 424

DIGNEY et al.

v.BLANCHARD et al.

Supreme Judicial Court of Massachusetts, Suffolk.

March 13, 1917.

Exceptions from Surpeme Judicial Court, Suffolk County.

Bill by John Noble, receiver, in the name of Charles A. Digney and others, against Fred F. Blanchard and others. On demurrer and exceptions to the master's report. Decree ordered for plaintiff.

Loring, Coolidge & Noble, of Boston, for receiver.

Moulton, Loring & Bigelow and Wm. Reed Bigelow, all of Boston, for F. F. Blanchard.

DE COURCY, J.

The bill as amended is brought by the receiver in the name of the trustees of the Associated Trust, an unincorporated association existing under a declaration of trust, to recover for losses resulting from three alleged breaches of trust by Blanchard, the original trustee, hereinafter called the defendant. The defendant's demurrer and exceptions to the master's report raise the issues of the validity of these transactions.

1. The first alleged breach of trust is the agreement made by Blanchard, as trustee, to erect and complete certain buildings on lands of one Schulze, in which land and buildings the Associated Trust had no financial or other interest. This undertaking involved an expense of $2,894.21 beyond the sums paid for the work; which amount Blanchard paid out of the funds of the Associated Trust.

We find nothing in the declaration of trust to authorize this use of the trust funds. That instrument provided that the proceeds of the sale of shares, etc., should be invested in real estate and mortgages of real estate; it authorized the erection and repairof buildings ‘upon land belonging to’ the Trust and the development of such land. The main purpose of the Trust was the investment in and management of real estate, and provisions were made for the subordinate powers incidental to that purpose. But in our opinion the trustee was not authorized, either expressly or by reasonable implication, to use the funds in a building, contracting business, to erect houses on the land of others for an expected profit. The Schulze contract was not fairly incidental or auxiliary to the business of the Associated Trust, but was ultra vires of the trustee; and the payment complained of was a wrongful diversion of the funds of the Trust. Corkery v. Dorsey, 223 Mass. 97, 111 N. E. 795. See Greenfield Savs. Bank v. Abercrombie, 211 Mass. 252, 258, 97 N. E. 897, 39 L. R. A. (N. S.) 173, Ann. Cas. 1913B, 420; Hill v. Murphy, 212 Mass. 1, 98 N. E. 781, 40 L. R. A. (N. S.) 1102, Ann. Cas. 1913C, 374; Teele v. Rockport Granite Co., 224 Mass. 20, 112 N. E. 497,44 L. R. A. (N. S.) 876, note. And Blanchard is not exonerated from liability by section 14 of the declaration of trust, which provides that the trustee shall be liable only ‘for the result of his own gross negligence or bad faith.’ Whatever may be the extent of the liability of a trustee justifying under this clause, we do not construe it as affording him protection from a willful and intentional breach of trust, committed by acting plainly beyond his powers. Appeal of Davis, 183 Mass. 499, 502, 67 N. E. 604;Tuttle v. Gilmore, 36 N. J. Eq. 617, 622;Mattocks v. Moulton, 84 Me. 545, 551, 24 Atl. 1004;Kimball v. Reding, 31 N. H. 352, 64 Am. Dec. 333;Adair v. Brimmer, 74 N. Y. 539; Stewart v. Sanderson, L. T. 10 Eq. Cas. 26; Rae v. Meek, 14 App. Cas. 558, 572, 573. See Dreyfus v. Old Colony Trust Co., 218 Mass. 546, 555, 106 N. E. 154.

2. The second alleged breach of trust was the undertaking by the trustee to do certain work of alterations and repairs on property owned by the Pilgrim Hotel Company, which resulted in a loss to the Trust of $1,677. This also was an ultra vires contract; and what has been said with reference to the Schulze agreement is applicable to it. There is the added objection that Blanchard was the beneficial owner of the Pilgrim Hotel at the time of the contract, so that his interests and those of the Trust were opposed. Hayes v. Hall, 188 Mass. 510, 511, 74 N. E. 935.

It follows that the defendant Blanchard is personally liable for the losses resulting to the Associated Trust from the Schulze and Pilgrim Hotel Company contracts.

[226 Mass. 338]3. On or about January 1, 1914, Blanchard as trustee of the Associated Trust distributed among its certificate holders the sum of $46,457.38 as a semiannual dividend of 3 per cent. and an additional dividend of 2 per cent. At that time there was not a sufficient amount in the treasury from which these dividends could be paid, and he borrowed a large part of the money on notes of the Trust, bearing interest at the rate of 1 per cent. per month, and secured by mortgages on property owned by it. The master finds that in this...