Jose v. Lyman
| Decision Date | 01 June 1944 |
| Citation | 316 Mass. 271,55 N.E.2d 433 |
| Parties | JOSE et al. v. LYMAN et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
OPINION TEXT STARTS HERE
Petition by Florence L. Jose and others against Frank W. Lyman and others seeking revocation of a decree entered in the probate court allowing the first account of the respondents as executors of the will of Jesse P. Lyman, deceased. Decree of dismissal, and petitioners appeal. On report.
Reversed and remanded.Appeal and Report from Probate Court, Middlesex County;Poland, judge.
W. Noyes, of Boston, for petitioner.
R. E. Goodwin and H. A. Reynolds, both of Boston, for F. W. Lyman et al., executors.
This is an appeal from a decree dismissing the petitioners' petition seeking revocation of the decree entered in the Probate Court on June 23, 1938, allowing the first account of the respondent executors of the will of Jesse P. Lyman. The petition for revocation of the decree was filed on September, 24, 1942.
The petition for revocation of the decree allowing the respondents' first account is based on allegations of fraud and manifest error. See G.L.(Ter.Ed.) c. 206, § 24, in the form inserted by St.1938, c. 154. This statute was in force at the time of the filing of the petition for revocation. The evidence is not reported but the judge made a report of the material facts found by him. They may be summed up as follows: The petitioners are Florence L. Jose, the only child of the testator, and her five children, two of whom are minors represented by their mother as guardian. Mrs. Jose is a legatee under the will of the testator to the extent of $5,000, and she and her children are the beneficiaries named in a trust of the residue, and the children are also beneficiaries named in a trust created under the will of the testator's widow of which the respondent Messrs. Taylor and Jacob are the executors and trustees. The widow of the testator died in January, 1934. She was a substantial creditor of his estate and her claim was proved and allowed by the commissioners in insolvency appointed in his estate. The account in question was allowed on June 23, 1938, after due notice and the appointment of a guardian ad litem or next friend for minors and persons unascertained who assented to the allowance of the account after full investigation. The principal contention of the petitioners is that the decree allowing the first account should be revoked because of fraud or manifest error in that the respondent executors, Frank W. Lyman, Amos L. Taylor, Esquire, and Henry P. Jacob, had a duty to disclose important and material facts to the beneficiaries of the estate concerning a certain transaction involving the conduct of the executor Lyman which was known to the other executors, but that he and they failed to do so. The transaction involved was as follows: Prior to his death on September d14, 1931, the testator had exhausted his borrowing power at banks and needed $70,000. To obtain that sum he induced his nephew, the respondent Frank W. Lyman, who was closely associated with him in business, to borrow on his own (Frank's) note $70,000 from a bank. The testator received this money from Frank and gave him a demand note for that sum secured by collateral consisting of nineteen hundred shares of Eastern Equities Corporation stock, and twenty-two hundred thirty-one shares of the common stock and three hundred twelve shares of the preferred stock of the Fitchburg Yarn Company. None of these shares was listed on any stock or security exchange. The Eastern Equities Corporation had done business until October, 1930, under the corporate name of the American Glue Company. Its stock will be hereinafter referred to as the ‘glue stock.’ The testator had been its president and at his death held about twenty-six per cent of its outstanding stock. Under the terms of the note the pledgee Lyman was given the right to sell the collateral at broker's board or at public auction or private sale without notice and to become the purchaser at any such sale ‘if at public auction or at Broker's Board.’
During the year 1930 the glue company had disposed of all its plants and operating properties and at the time of the testator's death was in process of liquidation by vote of its stockholders. Several liquidating dividends had previously been paid to the stockholders. The assets of the testator's estate, apart from some real estate which proved to be of nominal value, consisted of stocks, a few bonds, and accounts receivable. All of the securities that had any sale value had been pledged by the testator to secure loans and other obligations. At the testator's death the respondent Lyman held the glue and yarn stocks pledged to him as collateral by the testator, and there was due to him on the note, payment of which they were given to secure, $50,000. At the same time a firm of brokers, hereinafter referred to as Lapham, held on margin fifty-four hundred ninety-one shares of the glue stock and a smaller amount of the yarn stock. Banks also held some three thousand or four thousand shares of the glue stock. A total of about eleven thousand shares of the glue stock was held by the banks, brokers or creditors and ‘would have been greatly injured in money value if large blocks of the stock had then been thrown on the market,’ that is, following the death of the testator in September, 1931. The market for securities generally in 1931 and 1932 was chaotic, and had the glue stock in question been offered for sale, very small prices could have been obtained therefor, if in fact the stock could have been sold at all. If Lapham or the respondent Lyman (hereinafter referred to as Lyman) had advertised large blocks of glue stock for sale, other holders of it would have become frightened and probably would have thrown their shares of gule stock on a nonexistent market to the detriment of the shares in which the estate had an interest. In January, 1932, Lapham threatened to sell the glue and yarn stocks held on margin. Lyman, then and now one of the executors, made a ‘freezing’ agreement with Lapham, on January 26, 1932, by which they agreed not to throw their respective blocks of glue stock on the market for a period of eighteen months. This agreement was for the benefit of the testator's estate, and as ‘incidental’ to the agreement Lyman transferred to himself on January 27, 1932, the stock that he held as collateral security for the testator's note without the formalities of a demand or sale. At the time of taking over the collateral, during most of the period covered by the executors' first account, and at the time of the hearing of the petition under consideration, Lyman was president and a director of the glue company. After transferring the glue stock held by him as collateral, he was the holder of five thousand of its forty-four thousand shares outstanding. At the same times he was president, treasurer, a director and active manager of the yarn company, and the owner of six hundred sixty-seven shares of its common stock, in addition to the twenty-two hundred thirty-one shares of stock that he transferred to himself, out of twelve thousand shares of that stock outstanding. After the transfer to himself he was also the owner of eighteen per cent of the preferred stock of the yarn company. He made that company his principal business activity ‘following the liquidation of the glue company.’ He did not consult his coexecutors about transferring the pledged stock to himself until after he had done so. Upon learning of this action, the respondent executor Mr. Taylor chided him and ‘made an elaborate investigation of the values of the stocks before deciding what to do.’ On January 27, 1932 (the day Lyman had transferred the stocks to himself), there was due to him on the note of the testator about $45,000 ($45,394) including interest. He placed a value of $32,613 upon the stocks in question, and accepted them in full satisfaction of the mote, thus waiving and extinguishing $12,781 of the debt due to him thereon from the estate. The details of the whole transaction were explained to the guardian ad litem who assented to the account. The items of the account dealing with the transaction complained of were as follows:
+-----------------------------------------------------------------------------+
¦‘Schedule B .¦ ¦ ¦
¦. .. ¦ ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦Item 193: ¦ ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦1932 ¦ ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦Jan 27 ¦Cash paid Frank W. Lyman, acct. his note by sale of ¦$22800.00,¦
¦ ¦collateral, held by him ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦Item 194 ¦ ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦1932 ¦ ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦Jan 27 ¦Cash paid Frank W. Lyman, acct. his note by sale of ¦$6,693.00 ¦
¦ ¦collateral, held by him ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦Item 194A ¦ ¦ ¦
+-------------+----------------------------------------------------+----------¦
¦1932 ¦ ¦ ¦...To continue reading
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