First Eastern Bank, N.A. v. Jones

• Decision Date: 09 November 1992
• Citation: 602 N.E.2d 211,413 Mass. 654
• Parties: FIRST EASTERN BANK, N.A. v. Robert Trent JONES & others. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 211

602 N.E.2d 211

413 Mass. 654

FIRST EASTERN BANK, N.A. v. Robert Trent JONES & others. ¹

Supreme Judicial Court of Massachusetts Suffolk.

Argued Sept. 9, 1992.

Decided Nov. 9, 1992.

Theos D. McKinney, III, Boston, for Robert Trent Jones.

Marc P. Frey, Salem, for First Eastern Bank, N.A.

Michelle J. Lipton, Boston, for Charles W. Roy & another, was present but did not argue.

Before LIACOS, C.J., and WILKINS, ABRAMS, NOLAN and GREANEY, JJ.

GREANEY, Justice.

A judge of the United States District Court for the District of Massachusetts has certified to us, pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981), the following question: "Do the provisions of [G.L. c.] 203, § 14A (1990 ed.), apply to a trustee acting under a trust not of the donative type associated with probate practice?" ² The trust at issue is a Massachusetts business trust created to develop a real estate project. We answer this question: "No." We also comment briefly on a second issue to which our attention has been directed by the certifying judge, but which is not the subject of an additional certified question.

The certified question arises from a third-party complaint brought by the third-party plaintiff, First Eastern Bank (bank), against the third-party defendant, Robert Trent Jones (Jones). The following are relevant facts contained in the record and memorandum accompanying the certification. On February 18, 1986, Jones and three other individuals executed the "Ipswich Club Development Co. Agreement and Declaration of Trust" (trust). The trust was established to plan and develop a county club complex and associated facilities in Ipswich, including a golf course designed by Jones, and to sell real estate surrounding the club. The trust was declared to be a "Massachusetts business trust," see generally G.L. c. 182 (1990 ed.), and the instrument creating the trust was recorded in the Essex South registry of deeds. On November 6, 1988, the bank and the trust entered into a commercial loan agreement which provided in part that the bank would loan the trust $5,000,000 by means of a line of credit. As security for this loan, the trustees promised to assign to the bank promissory notes secured by mortgages on single family homes to be built on land surrounding the planned country club and golf course.

On April 6, 1989, Charles Roy, stating that he was acting for himself and his wife, entered into two "Home Site Purchase Agreements" with one trustee. Each agreement contained an addendum providing that the Roys had the unconditional right to sell the property back to the trust at cost. Shortly thereafter, the Roys executed two promissory notes to the trust, secured by a mortgage on each lot. The trust immediately assigned the notes and underlying mortgages to the bank. Sometime about July 6, 1990, Roy asserted that the above mentioned addenda had been altered unilaterally after he had forwarded the agreements to the trust. As allegedly altered, the addenda provided that the Roys had the right to sell the property to the trust at cost at the trust's sole discretion.

Roy demanded that the trust rescind the purchase agreements. When the trustees refused, Roy informed the bank that, due to the alleged fraud, payments on the promissory notes would cease. On August 9, 1991, the bank sought to foreclose on the Roys' mortgages securing the notes. Roy commenced a diversity action against the bank in the United States District Court for the District of Massachusetts seeking to enjoin the foreclosure. The bank thereafter filed a third-party complaint alleging that, should Roy prevail against it, Jones and the other trustees of the trust should be liable to the bank in tort, contract, ³ and under certain provisions of the Uniform Commercial Code. Jones moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. There is nothing to show that Jones personally participated in, or had knowledge of, the alleged alteration of the addenda to the Roys' purchase agreements.

1. With respect to the certified question, our attention is directed to the second paragraph of G.L. c. 203, § 14A, see note 2 supra, which provides as follows: "A trustee shall be personally liable for obligations arising from ownership or control of property of the trust estate or for torts committed in the course of the administration of the trust estate only if he was personally at fault." Jones maintains that this provision applies to a Massachusetts business trust and operates to protect him from liability on the bank's tort claims because there is no indication that he was personally responsible for any tortiously caused injury to Roy. ⁴

In view of two Massachusetts decisions, the certifying judge concluded that it was unresolved whether G.L. c. 203, § 14A applied to the trustees of a Massachusetts business trust. ⁵ The judge referred to Apahouser Lock & Sec. Corp. v. Carvelli, 26 Mass.App.Ct. 385, 528 N.E.2d 133 (1988), in which, based on the legislative background of § 14A, the Appeals Court concluded that the provision was intended only to protect "a trustee acting under a trust of the donative type associated with probate practice, rather than a trustee of an organization conducting a business which the trustee as an individual controls." Id. at 388, 528 N.E.2d 133. The certifying judge noted that, shortly after Apahouser was decided, a decision of this court, without discussion and without reference to Apahouser, relied upon G.L. c. 203, § 14A, in holding liable the trustee of a real estate trust who was personally responsible for an unreasonable interference with surface waters (the tort of nuisance) which had caused the flooding of the plaintiff's property. von Henneberg v. Generazio, 403 Mass. 519, 525, 531 N.E.2d 563 (1988). ⁶ Based on the two cases, the certifying judge stated that "it appears ... that there is no clearly controlling precedent [on the issue] in the decisions of the Supreme Judicial Court."

In this framework, Jones urges us to make explicit the point that he perceives was addressed by implication in von Henneberg, and conclude that, in appropriate circumstances, G.L. c. 203, § 14A, shields from personal liability the trustees of a Massachusetts business trust as well as the trustees of a donative trust associated with probate practice. As matter of statutory interpretation, Jones maintains that the Legislature's unqualified use of the word "trustee" in § 14A must mean trustees of all types of trusts. He further suggests that it would be unwise and confusing to fragment the law of trustee liability depending on the type of trust involved, and that trustees of business trusts, as well as trustees acting under a donative trust of the probate type, should be shielded from personal liability for torts in the absence of personal fault.

We first point out that the issue was not settled by the von Henneberg decision because the parties in that appeal neither raised nor briefed the issue now under consideration. See McEvoy Travel Bureau, Inc. v. Norton Co., 408 Mass. 704, 719 n. 12, 563 N.E.2d 188 (1990); Labor Relations Comm'n v. Boston Teachers Union, Local 66, 374 Mass. 79, 94-95, 371 N.E.2d 761 (1977). The question of the statute's application, therefore, has not been passed upon by this court. We interpret the statute "according to the intent of the Legislature ascertained from all its words construed by the ordinary and approved usage of the language, considered in connection with the cause of its enactment, the mischief or imperfection to be remedied and the main object to be accomplished, to the end that the purpose of its framers may be effectuated." Commonwealth v. Galvin, 388 Mass. 326, 328, 446 N.E.2d 391 (1983), quoting Board of Educ. v. Assessor of Worcester, 368 Mass. 511, 513, 333 N.E.2d 450 (1975). See also Industrial Fin. Corp. v. State Tax Comm'n, 367 Mass. 360, 364, 326 N.E.2d 1 (1975).

General Laws c. 203, § 14A, was enacted as part of an omnibus probate bill. See St.1976, § 515. The latter legislation had its genesis in studies of the Uniform Probate Code, conducted by the probate committees of the Massachusetts and Boston Bar Associations, which were undertaken with a view to considering the advisability of adopting the code in whole or in part in Massachusetts. See Young, Probate Change, 20 Boston B.J. 6, 7 (Dec. 1976). Concluding that acceptance of the entire uniform code was not warranted, the study committees, and ultimately the Legislature in St.1976, § 515, adopted those provisions of the code which appeared to constitute improvements upon existing Massachusetts law, adapting existing statutory provisions where appropriate.

During this process, attention was given to the question of personal liability of various fiduciaries and trustees. At Massachusetts common law, a trustee was personally liable for torts committed in the administration of a trust, even though the trustee might not have been personally at fault. See Larson v. Sylvester, 282 Mass. 352, 357-358, 185 N.E. 44 (1933); Gardiner v. Rogers, 267 Mass. 274, 278, 166 N.E. 763 (1929). Similar liability attached to those acting as executors or administrators, conservators or guardians. See Young, 20 Boston B.J., supra at 12, 17, 18. A party with a claim against an estate would proceed against the fiduciary rather than against the assets of the estate. With the exception of a minor amendment, St.1976, c. 515, adopted verbatim the Uniform Probate Code provisions limiting the liability of executors, administrators, conservators, guardians and trustees to situations where the respective fiduciaries were personally at fault. Id. Commentators explaining the rationale for limiting fiduciary liability indicate that all of these fiduciaries were meant to be treated similarly. ⁷ Because St.1976, § 515, uses the term "trustee" in § 28 thereof in close association...