In re Clark's Will

Decision Date15 July 1931
Citation257 N.Y. 132,177 N.E. 397
PartiesIn re CLARK'S WILL. In re FULTON TRUST CO. OF NEW YORK.
CourtNew York Court of Appeals Court of Appeals

OPINION TEXT STARTS HERE

Proceedings by the Fulton Trust Company of New York, for judicial settlement of its account as trustee for the benefit of Elizabeth C. McCormack and remaindermen under the last will and testament of Frederick H. Clark, deceased, opposed by the beneficiaries. From an order of the Appellate Division, 249 N. Y. S. 923, 232 App. Div. 781, affirming a decree of Surrogate, 242 N. Y. S. 210, 136 Misc. Rep. 881, settling the accounts of the trustee and surcharging trustee's account, the trustee appeals.

Order of Appellate Division reversed, and decree of Surrogate's Court modified.

Appeal from Supreme Court, Appellate Division, Second department.

William N. Cohen, William Harison, and Arthur Sutherland, all of New York City, for appellant.

Bern Budd and Kenneth C. Quencer, both of New York City, for Elizabeth C. McCormack et al., respondents.

William J. Wallin, of Yonkers, for special guardian, respondent.

KELLOGG, J.

The will of Frederick H. Clark, who died in the year 1920, provided for the transfer of four twenty-sevenths of his residuary estate to the Fulton Trust Company of New York, to be held in trust for the benefit of his daughter Elizabeth C. McCormack during life, one half of the principal thereof to be paid over to her when she arrived at the age of thirty-five years, and the other half to be paid over to her children upon her death. Pursuant to a decree, settling the executors' accounts made in Surrogate's Court on March 14, 1923, the executors delivered to the Fulton Trust Company cash and securities, representing four twenty-sevenths of the residuary estate, to be administered by it in execution of the trust. Among the securities turned over were 1,248 shares of the common stock of the Cuban American Sugar Company of the par value of $10 a share, and 296 shares of the common stock of Guantanamo Sugar Company of no par value. These stocks had originally been held by Frederick H. Clark, the testator. They had been retained by the executors of his will and were distributed to the trustee under a testamentary provision reading as follows: ‘I hereby authorize and empower my Executors and Trustees to continue all the investment of money in the securities made by me and which shall come into their possession and control at my decease, without any personal liability for so doing, and in making division of my estate among the legatees and devisees as provided in this my Will, I authorize my Executors and Trustees to divide the securities as far as practicable, giving to each legatee the same proportion of each security, and not to require any one legatee to take his or her share in whole from any kind or class of securities.’ In the executors' accounting, the Cuban American stock had been valued at $22 per share; the Guantanamo stock at $12.25. In this accounting of the trustee, instituted by Elizabeth McCormack on her arrival at the age of thirty-five years, the Cubanstock has been valued at $7; the Guantanamo at 50 cents. The surrogate has determined that the trustee should have sold the Cuban stock in the month of September, 1927, when its value was $20 per share; and the Guantanamo in September, 1928, when its value was $5 per share. These valuations were based exclusivelyon current prices on the New York Stock Exchange. Having so found, the surrogate surcharged the accounts of the trustee with a loss of $16,224 on the Cuban American stock, and a loss of $1,332 on the Guantanamo Sugar Company stock.

It has been stated that ‘there appertains to the relation of trustee and cestuique trust, a duty to be faithful, to be diligent, to be prudent in an administration entrusted to the former, in confidence in his fidelity, diligence and prudence’; that ‘the just and true rule is, that the trustee is bound to employ such diligence and such prudence in the care and management, as in general, prudent men of discretion and intelligence in such matters, employ in their own like affairs.’ King v. Talbot, 40 N. Y. 76, 84, 85. The statement has been frequently approved. Matter of Weston's Estate, 91 N. Y. 502, 511;Costello v. Costello, 209 N. Y. 252, 261,103 N. E. 148. In determining whether the acts of a trustee have been prudent, within the meaning of the rule, we must ‘look at the facts as they exist at the time of their occurrence, not aided or enligtened by those which subsequently take place’ (per Peckham, J., in Purdy v. Lynch, 145 N. Y. 462, 475,40 N. E. 232, 236); for it is an obvious truth that ‘a wisdom developed after an event, and having it and its consequences as a source, is a standard no man should be judged by’ (per Collin, J., in Costello v. Costello, supra, 209 N. Y. at page 262, 103 N. E. 148, 152); and it is impossible to say that trustees are wanting in sound discretion ‘simply because their judgment turned out wrong’ (per Holmes, J., in Green v. Crapo, 181 Mass. 55, 58, 62 N. E. 956, 957). We must distinguish also between the acts of trustees in making investment of trust funds, and their acts in making, or failing to make, prompt disposition of securities received from the hands of the creator of the trust. Matter of Weston's Estate, supra; Jones v. Jones, 50 Hun, 603, 2 N. Y. S. 844;Matter of Mercantile Trust Co., 156 App. Div. 224, 141 N. Y. S. 460; Matter of Chapman, [1896] 2 Ch. 763. Self-evidently, the purchase of a speculative stock by a trustee is one thing; the retention of such a stock awaiting the arrival of a favorable opportunity to sell is quite another; the former would constitute negligence; the latter, regarded prospectively, might be prudent, although in retrospect it might seem to have been a grievous error. Furthermore, the distinction between negligence and mere error of judgment must be borne in mind. Trustees acting honestly, with ordinary prudence and within the limits of their trust, are not liable for mere errors of judgment’ (per Lindley, J., in Matter of Chapman, supra, [1896] 2 Ch. at page 776); a trustee should not be held liable ‘for unfortunate results which he could not be expected to foresee and was powerless to prevent.’ Ormiston v. Olcott, 84 N. Y. 339, at page 347.

The testator empowered his executors and trustees ‘to continue all the investment of money in the securities made by me and which shall come into their possession and control at my decease, without any personal liability for so doing.’ The very fact that the trustees, as well as the executors, were so authorized, indicates...

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