In re Ryan's Will

• Decision Date: 02 December 1943
• Citation: 291 N.Y. 376,52 N.E.2d 909
• Parties: In re RYAN'S WILL. Appeal of TITLE GUARANTEE & TRUST CO. et al.
• Court: New York Court of Appeals Court of Appeals

291 N.Y. 376

52 N.E.2d 909

In re RYAN'S WILL. Appeal of TITLE GUARANTEE & TRUST CO. et al.

Court of Appeals of New York.

Dec. 2, 1943.

Appeal from Supreme Court, Appellate Division, First Department.

Proceedings in the matter of the accounting of Title Guarantee & Trust Company and others, as trustees under the will ofCornelius J. Ryan, deceased, opposed by Ellen Ryan Lynch and others, and Ralph S. Daniels, as guardian and ancillary committee of Timothy B. Ryan, an incompetent person. From an order of the Appellate Division of the Supreme Court in the First Judicial Department, 34 N.Y.S.2d 49, 264 App.Div. 704, which affirmed, so far as appealed from, a decree of the New York County Surrogate's Court, Delehanty, S., settling the accounts of the trustees, Title Guarantee & Trust Company, individually and as trustee, appeals by permission. The Appellate Division also affirmed intermediate orders of the Surrogate's Court which were brought up for review. Ellen R. Lynch and others cross-appealed from the order of the Appellate Division in so far as it affirmed the decree of the Surrogate with respect to matters from which they appealed to the Appellate Division.

The order of the Appellate Division and the decree of the Surrogate's Court modified.

LEHMAN, C. J., dissenting in part. Nathan L. Miller, of New York City, Fred L. Gross, of Brooklyn, and Joseph V. McKee, of New York City, for appellant and respondent Title Guarantee & Trust Co.

william W. Owns and Nicholas P. Callaghan, both of New York City, for respondents and appellants Ellen R. Lynch and others.

Herman Kahn and Arthur Rosenbaum, both of New York City, for respondents and appellants Alice R. Barry and others.

Chester B. McLaughlin and Frank H. Foley, both of New York City, for respondent Ralph S. Daniels, as guardian and ancillary committee.

CONWAY, Judge.

These are cross-appeals by the Title Guarantee and Trust Company individually and as surviving trustee under the last will and testament of Cornelius J. Ryan, deceased, and by five objectant beneficiaries. The facts have been found upon supporting evidence by the learned Surrogate and have been affirmed by the learned Appellate Division. Under our limited jurisdiction that disposes of the facts and leaves to us only the application of rules of law as required by the facts thus established. We shall refer to three points. As to the other points raised we agree with the rulings below or do not reach them because matters of discretion are involved or questions of fact are determined upon supporting evidence. There are other determinations which we have not disturbed because the amount involved in the particular instance is trivial.

The points we shall discuss are argued forcefully upon both sides, due, in part, no doubt, to the amount of money involved and the length of the period covered. The corporate trustee argues that we have here ‘formerly well-satisfied beneficiaries endeavoring to take advantage of a technical rule against self-purchase’ of securities and that their objections are after-thoughts due to the real estate collapse in the years succeeding 1929. Whether or not the beneficiaries are thus motivated is irrelevant. There are broad general rules both of the common law and of statute which trustees are obligated to follow. The common law rules, as will appear from many of the citations in this opinion, are of very long standing. Within those rules there is ample room for the exercise by trustees of wise judgment and discretion. The general rules, however, are rigid ones. Even though over a long period breaches of those rules have not resulted in loss of safety of investment or of income, the rules continue and operate ‘as a protection to a large class of persons whose estates, by reason of infancy, infirmity, or other causes, are intrusted to the management of others' (Ten Eyck v. Craig, 62 N.Y. 406, 420) and beneficiaries of trusts may point to those rules and insist that the trustee be surcharged when loss of principal or income eventually ensues by reason of the breaches.

On the other hand the trustees of the corporate appellant were men of standing in their communities. In the matter of the surcharges which we shall discuss, there are not questions of bad faith as matters of fact but breaches of duty as matters of law. In a very limited number of instances was bad faith, malice or misuse of trust property found by the Surrogate and there, subordinates were at fault. There has been no appeal from those findings and they are not before us, except incidentally.

With this introduction, we discuss a record running to seven volumes, with many more exhibits than are printed in its four thousand odd pages affecting more than three hundred objections.

Cornelius J. Ryan died a resident of the county of New York on April 20, 1911, leaving a last will and testament which was admitted to probate by the Surrogate of New York County.

The pertinent provisions of the will are those by which the testator gave the residue of his estate to his children, all six of whom are now living and are the objectants in this proceeding. The testator provided that the share of each child living at his death and then under thirty-five years of age should be retained and held by the trustees named in the will until such child reached the age of thirty-five years, the income to be applied meanwhile to the education, support and maintenance of such child. The principal of the trust was then to be turned over to him.

Alice J. Ryan, the widow, was appointed executrix by the will and letters testamentary were issued to her on May 25, 1911.

Under the provisions of the will, the widow was also appointed trustee of the trusts, together with such trust company as she might select. She selected the Title Guarantee and Trust Company (hereinafter referred to as T G & T or as the corporate or appellant trustee) to act as her cotrustee and the selection was approved by the Surrogate in 1911.

The will further provided that Michael G. Ryan and William F. Brown should act as cotrustees with T G & T upon the death of the widow. She died in October, 1912, and in March of 1913 William F. Brown qualified as trustee as did Michael G. Ryan in June of 1914. Michael G. Ryan died at Los Angeles in 1928 and ancillary letters testamentary on his estate were issued to William F. Brown. The latter died in 1942 subsequent to the argument of the appeal in the Appellate Division. No successor trustee has been appointed. The T G & T is therefore the sole surviving trustee.

The investments because of which the appellant trustee has been surcharged were in what we shall call whole mortgages or in apportioned part interests inbonds and mortgages. We shall consider first the matter of whole mortgages in connection with the question whether a trust company in this State might lawfully sell, between the years 1917 and 1936, its own mortgages to its trusts. As the appellant trustee phrases it: ‘The appellant was not prohibited by the rule against self-dealing from investing the funds of a single trust in a whole mortgage acquired by it in the regular course of its business of loaning money on bond and mortgage.’ The decision of that question, which must be to the contrary of the trustee's contention, is inextricably connected with the question of equal weight and importance, whether the interrelation between the Bond and Mortgage Guarantee Company and the appellant trustee was so close that in the words of the learned Surrogate ‘there did not exist between them that independence of operation which alone would have validated a purchase of investments for these trusts from Bond and Mortgage Guaranty Company.’

We shall consider first the facts.

The corporate trustee was incorporated in 1882. It was authorized to receive deposits of money, to loan money on real and personal property, to act as trustee ‘and to guarantee bonds and mortgages and titles to real estate.’ Its first business activities consisted of searching titles and insuring titles to real property. About 1888 it began making mortgage loans. About 1892 it established a trust department and did a limited banking business. It never guaranteed the payment of mortgages but conducted an extensive business in making mortgage loans and examining and guaranteeing titles to real estate. Ten years after its organization, in 1892, the Bond and Mortgage Guarantee Company (hereinafter referred to as B & M) was incorporated under Laws of 1885, chapter 538, ‘to examine and guarantee bonds and mortgages and titles to real estate.’ It thus had power similar in important respects to T G & T, but B & M did not guarantee titles. Its business consisted in making mortgage loans and selling mortgages with a guaranty of payment of principal and interest.

When B & M was organized it was planned by T G & T, as shown by its minutes, to offer two-thirds of the stock to the then stockholders of T G & T. Whether or not that plan was carried out does not appear. During the first few years of its existence B & M did not pay rent or clerk hire to the corporate trustee for premises occupied by it or clerks used except to the extent that it paid a lump sum for services furnished or rendered. Later it paid rent to the corporate trustee for space occupied in Manhattan and Brooklyn in property owned by the latter but it was not charged for telephone service furnished, until 1931.

From 1910 to 1933 arrangements were made by T G & T, and B & M for sharing expenses of some departments in Manhattan. In Brooklyn B & M had its own staff except that at least the expenses of the sales department were divided equally between the two corporations. Among the departments as to which expenses were shared in Manhattan were: stenographic, auditing (in part), sales and appraisal.

From the 1920's to 1933 the corporate trustee had branch offices in midtown Manhattan, in the Bronx, on Staten Island and in Jamaica, Long Island...