Estate of Baldwin

• Citation: 442 A.2d 529
• Parties: ESTATE OF Stephen L. BALDWIN.
• Decision Date: 01 March 1982
• Court: Supreme Judicial Court of Maine (US)

Page 529

442 A.2d 529

ESTATE OF Stephen L. BALDWIN.

Supreme Judicial Court of Maine.

Argued Jan. 6, 1982.

Decided March 1, 1982.

Goranites & Libby, Peter J. Goranites, guardian ad litem (orally), Portland, for appellant.

Collins, Crandall & Hanscom, P. A., Stephen W. Hanscom (orally), Rockland, for Connecticut Nat. Bank.

Before McKUSICK, C. J., and GODFREY, ROBERTS, CARTER, VIOLETTE and WATHEN, JJ.

McKUSICK, Chief Justice.

This probate proceeding centers on the Port Clyde General Store, the principal asset of the estate of the late Stephen L. Baldwin. The guardian of the decedent's minor children, displeased with the executor's handling of that asset, brought a petition in the Knox County Probate Court asking, among other things, that the executor, The Connecticut National Bank, be surcharged as appropriate. The probate judge found that the Bank as executor had met its fiduciary obligations under Maine law, and the children's representative brings this appeal. The probate judge's finding was clearly erroneous; we therefore reverse and remand the case to the Probate Court for determination of the appropriate surcharge to be levied against the executor.

I.

On May 30, 1979, Stephen L. Baldwin, a Maine domiciliary, died in a Downeast Airlines plane crash, leaving a widow, Tracy C. Baldwin, and three minor children by a former marriage. The children, aged 13 and younger, lived in Westport, Connecticut, with their mother, now Mrs. McKane. In his will the decedent divided his estate into two equal shares, one share to go to the widow and the other, to his three children. ¹

After his 1976 divorce from his former wife, Stephen Baldwin, then a Connecticut resident, had remarried; and in late 1978 he and his second wife Tracy moved to Port Clyde, Maine, where he had bought all the assets and operating business of the Port Clyde General Store. At the hearing in this proceeding, the general store was described as a "mom and pop" operation. The Baldwins lived in an apartment over the store. The property included a wharf and also a small lunchroom operated during the summer. Its gross revenues, warranted by its prior owners to be about $260,000 per year, were heavily dependent upon the seasonal tourist business on outlying islands, including Monhegan, and on the mainland in the vicinity of Port Clyde village. At the time of Baldwin's death on May 30, 1979, less than eight months after his purchase of the Port Clyde properties, he held title to all of the real estate, and the store business was operated by Stephen L. Baldwin, Inc., of which he owned 90% of the stock and his wife Tracy, 10%. ² After Baldwin's death his widow continued to live in the upstairs apartment and operated the general store by herself.

In his will, made in 1977 when he lived in Connecticut, Baldwin nominated as executor The Connecticut National Bank, located in Bridgeport, Connecticut. After Stephen Baldwin's death, the Bank at first filed a declination of the appointment, but later withdrew it at the urging-as the Bank's trust officer, Mr. Bedworth, later testified-of Baldwin's family in Connecticut who "had been customers of ours for many years." The Bank was appointed executor by the Knox County Probate Court on October 26, 1979. In the course of the following year, the children's mother and other representatives ³ became concerned that the widow was not running the store well and repeatedly urged the Bank to supervise the store and to obtain from the widow sufficient information to evaluate the store's performance. The Bank resisted those importunities, maintaining "a neutral posture" for fear its action "could be interpreted as intimidation" by the widow. No one at the Bank ever inspected the store or audited its operation. No one at the Bank ever had any meaningful discussion with the widow about her business experience or her management of the store. The Bank never received, or ever requested, periodic financial reports from the widow. Sometime after March, 1980, the Bank did receive a copy of the federal income tax return filed by the corporation for its initial period ended April 30, 1979, that is, prior to Baldwin's death, ⁴ and also by late summer 1980 the Bank got an appraisal of the real estate for the purpose of filing the probate inventory. See n. 2 above. By early summer 1980 the Bank knew-its trust officer later testified-that the store was "not doing well."

On October 1, 1980, the children's guardian initiated the present proceeding by filing in the Probate Court a petition asking that the necessary persons be compelled to give account of the operations of the Port Clyde General Store; that the Bank be surcharged if it were found not to have met its fiduciary obligations; and that the Bank, if necessary, be ordered to take over the store. Two weeks after the children's petition was filed, the Bank sent the widow a letter asking her for the first time to account for her operation of the store. On October 17 the Bank petitioned the Probate Court for a license to sell real estate, representing that the estate's liquid assets were insufficient to meet its obligations. ⁵ After a preliminary hearing on the pending petitions, the Probate Court appointed a guardian ad litem for the children and ordered that the widow turn over to the other parties all financial records relating to the Port Clyde General Store and Stephen L. Baldwin, Inc. A quantity of such material was later produced and was examined by a business consultant retained by the guardian ad litem.

On January 22, 1981, the Probate Court held a joint hearing on the pending petitions. Mr. Robert Bedworth, a trust officer of the Bank with more than thirty years of experience in the business, testified as the Bank's representative in charge of the Baldwin estate. The parties later filed briefs, and the Bank filed financial statements for the store for periods through February 28, 1981, showing its operation continuously at a loss.

On April 6, 1981, the Probate Court entered its decree, making extensive findings of fact and concluding that the Bank had committed no breach of fiduciary duty. The Probate Court also granted the Bank's petition for a license to sell real estate, a matter that on appeal is not contested by the children's representatives. We are informed by counsel that the Probate Court on June 29, 1981, authorized the Bank to loan the estate sufficient funds to redeem the store property from a second mortgage then in foreclosure and to pay delinquent taxes. We are also informed by counsel that on October 31, 1981, the Bank sold all the real estate and improvements of the Port Clyde General Store for $100,500, and on the same day Stephen L. Baldwin, Inc. sold all of its assets to the same purchaser for about $29,000.

II.

Under the case law and the statute applicable to the administration of this estate prior to January 1, 1981, the effective date of the Probate Code, the fiduciary obligations of an executor ⁶ are defined in very general terms. Under the prior statute, 18 M.R.S.A. § 4054 (1965), the executor must "exercise the judgment and care under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs." ⁷ The executor is required to use good faith and prudence consistent with his duty. Hanscom v. Marston, 82 Me. 288, 297, 19 A. 460, 462 (1890). But good faith and prudence are not alone enough; the executor must take care to enlighten his judgment. Mattocks v. Moulton, 84 Me. 545, 551, 24 A. 1004, 1006 (1892). The executor must preserve from depletion the total fund in which all of the beneficiaries will share. In re Estate of Morine, Me., 363 A.2d 700, 704 (1976). The executor must be impartial among beneficiaries. Id. An executor representing that he has more skill than an ordinary person is under a duty to use that skill. ⁸ See Restatement (Second) of Trusts § 174 (1959). The executor is under a general duty not to delegate to others the responsibilities of administering and distributing the estate. See id., § 171. Even before the Probate Code, 18-A M.R.S.A. § 3-703(a) (1981), explicitly declared that

(a) personal representative is under a duty to settle and distribute the estate of the decedent ... as expeditiously and efficiently as is consistent with the best interests of the estate(,) ⁹

the law imposed on executors a comparable duty of diligence. See Mattocks v. Moulton, supra 84 Me. at 551-52, 24 A. at 1006 (duty of diligence); Matter of Larson, 87 Misc.2d 397, 402, 385 N.Y.S.2d 720, 724 (Surr.Ct.1976) (duty to liquidate estate assets "as soon as practicable"). Expeditious settlement of decedents' estates was implicit in the statutory provisions requiring the executor to file an inventory within three months of his appointment, 18 M.R.S.A. §§ 1501(1), 1801 (1965), and a just and true account of his administration within a year, id., § 1501(3).

III.

Upon its appointment as executor of the Baldwin estate on October 26, 1979, the Bank was immediately faced with a situation crying out for its speedy attention. The principal asset of the estate was the Port Clyde General Store, an operating business conducted by a corporation over which the Bank through its 90% stock ownership could by general corporate law wield complete control. ¹⁰ More specifically, the bylaws of that corporation, Stephen L. Baldwin, Inc., expressly provided:

The business and affairs of the corporation shall be managed by its shareholders. ¹¹

Presumably, that bylaw reflected an identical provision in the articles of incorporation, which thus brought into effect the following provision of the Business Corporation Act:

If the articles of incorporation of a close corporation expressly so provide, the business of such close corporation shall be managed by the shareholders of the close corporation rather than by a board of directors; ....

13-A M.R.S.A. § 701(2) (1981). Thus, the Bank by accepting...