Green v. Crapo

• Citation: 62 N.E. 956,181 Mass. 55
• Parties: GREEN v. CRAPO.
• Decision Date: 01 March 1902
• Court: United States State Supreme Judicial Court of Massachusetts

181 Mass. 55

62 N.E. 956

GREEN v. CRAPO.

Supreme Judicial Court of Massachusetts, Bristol.

March 1, 1902

COUNSEL

Whipple, Sears & Ogden, for appellant.

H. M Knowlton and Oliver Prescott, Jr., for respondent.

OPINION

HOLMES C.J.

This is an appeal from a decree of the Probate Court allowing the accounts of the trustees of the will of Sylvia Ann Howland. The case comes here in a slightly irregular form, as a decree was entered by the single justice of this court and an appeal taken while exceptions were pending, as it would seem, since afterwards a bill of exceptions was allowed. No notice was taken of this inadvertence at the argument, and it is not important. There is no misunderstanding as to the question intended to be raised. The appellant was given the net income, as defined in the will, of the residue of the estate during her life. She seeks to have an investment of $40,850, made in 1885 and 1886, in fifty bonds of the Leavenworth, Topeka & Southwestern Railroad Company, and an item of $2,087.75, on account of twenty-three shares of the Washington Mills received from the testatrix, disallowed, and to receive interest on the sums with which the trustees are charged. She further contends, as to certain parcels of unproductive real estate received from the testatrix and admitted properly to have been retained, that, as against the remaindermen, she should be allowed interest on the fair selling value, and as to such land as has been sold there should be an apportionment between capital and income. She makes a similar contention as to one hundred and sixth-two shares in the Maine Central Railroad, inventoried in 1870 at thirty dollars a share and sold in 1880 for forty-seven dollars and a half a share, having paid no dividends meantime. There are also certain questions of evidence in connection with the management of the real estate.

The shares in the Washington Mills were turned over to the trustees by the executor on March 1, 1870, at ninety-five dollars a share. Dividends were received and paid over from that time until January, 1881. In 1881 the stock stood at par. It dropped considerably the next year, and continued to go down until 1885, when the mills failed. It is impossible for us to say on these bare facts that the trustees, who are found to have been men of good business capacity and experience, and whose honesty is not disputed, were wanting in sound discretion simply because their judgment turned out wrong. The success of their management of the trust as a whole makes it probable that their decision not to 'sell the stock bought by the [testatrix], upon a falling market,' was wise on the knowledge then possessed. Bowker v. Pierce, 130 Mass. 262, 264. The finding of the single judge must stand.

Then as to the purchase of the fifty railroad bonds. United States bonds were sold in order to make the investment, and the contrast in security was pressed at the argument. But that is only a dramatic circumstance. It was permissible, at least to sell the United States bonds which stood at a premium and paid but a small return upon their value. At all events it was to the advantage of the life tenant, who, it is testified, wanted the fund to yield more income. The power to sell was not bound up with the reinvestment, as in some English cases. Norris v. Wright, 14 Beav. 291, 304. The question is whether, having money to invest, the trustees were justified in buying these bonds. The road was a little road connecting the Atchison with the Union Pacific. In 1885 and 1886, as appeared by Poor's Manual, it did not even pay its expenses. But a controlling interest in the stock was owned by those two great railroads and the bonds were guaranteed by them, one-half each. These facts went far to warrant a beliet that the small road was regarded as necessary by the great ones, and that they stood behind its obligations. It is said that they had no power to guarantee the bonds, but that does not appear, and we cannot assume the fact in the particular case on the strength of a general doctrine. On the contrary, in the reorganization of the Atchison after its collapse, the guaranty was treated as a valid obligation of the company, and the securities received now exceed in value one half of the investment, and pay a larger income than the bonds which were sold to make it.

Again it is said that the guaranties were of no value and should have been seen to be so because neither the Atchison nor the Union Pacific were paying dividends and their stock stood considerably below par. The value of the Atchison's guaranty appeared in the sequel, and why that of the Union Pacific turned out worthless is left to conjecture. In 1885, at the time of the first purchase, Atchison stock sold at from 67 to 70, and Union Pacific at from 47 to 51. In 1886, at the time of the second purchase, Atchison stock sold at from 91 to 98, and Union Pacific at from 58 to 67. The lowest of these prices indicated that the public estimated the value of both properties as many millions above all liabilities. Both roads were in good financial repute. The bonds, which were four per cent. bonds, rose in price with the Atchison and Union Pacific stock, from seventy-seven and one-half per cent. to eighty-four and a half. Considering the nature of the bonds, the prices indicated a fairly good opinion of them on the part of the public. In the course of 1885, Chicago, Burlington & Quincy four per cent. bonds of different classes could be bought at from about eighty-four to about ninety-three. Moreover, at that time intelligent investors bought many bonds of little roads which were part of the system of a great road, and were backed by it, precisely because on account of their small size they were less known and could be got at a less price than the bonds of the main lines. No doubt some cautious investors would have declined the security of any road that did not pay its own way, but it is within the memory of men still living that guaranties like the one in question were regarded by the general public as a sufficient security. The appellant, who hardly would ask to be considered quite helpless in matters of business judgment, knew of the investment, and received the interest from the bonds without objection or criticism, so far as appears.

A purchase of bonds like those in question would be harder to justify at the present day, after the legal discussions and the financial experiences of the last fifteen years, but realizing as nearly as we can how things looked in 1885 we are of opinion that the justice of this court before whom the hearing was had was right in refusing to find the trustees wanting in the sound discretion that the law requires of them. We think it unnecessary to bolster our conclusion by a reference to the large authority given to the trustees by the will, or to the success of the administration of the trust as a whole. See Brown v. French, 125 Mass. 410, 28 Am. Rep. 254.

The other great question is the claim made against the capital for income in excess of that actually received as such from the real estate. In the first place it is to be noticed that the land was but a moderate fraction of a large estate. The inventory value of the former was $77,330, that of the whole trust fund was $1,350,084.70, nearly all the rest of the trust fund being invested in interest bearing or dividend paying...