Marine Midland Bank--New York (Discretionary Common Trust Fund), In re

• Decision Date: 20 March 1974
• Docket Number: BANK--NEW
• Citation: 77 Misc.2d 543,354 N.Y.S.2d 332
• Parties: In the Matter of MARINE MIDLANDYORK (DISCRETIONARY COMMON TRUST FUND). Surrogate's Court, New York County
• Court: New York Surrogate Court

Page 332

354 N.Y.S.2d 332

77 Misc.2d 543

In the Matter of MARINE MIDLAND BANK--NEW YORK (DISCRETIONARY COMMON TRUST FUND).

Surrogate's Court, New York County.

March 20, 1974.

Kenneth J. Mullane, New York City, guardian ad litem for persons interested in principal.

Sullivan & Cromwell, New York City, for Marine Midland Bank--New York as trustee.

Howard B. Sohn, New York City, guardian ad litem for persons interested in income.

MILLARD L. MIDONICK, Surrogate.

The application of the guardian ad litem for persons interested in principal of a discretionary common trust fund for a pre-trial examination of the accounting trustee is granted, but its scope will be limited in accordance with this opinion. The only objection to the motion is to the scope of the examination, which is outlined in the guardian's affidavit. The issue is whether the scope of examination and potential liability of the trustee should extent to a decline in the value of securities which occurred in the period previously accounted for, from July 30, 1965 to July 31, 1969. The trustee opposes defending again with respect to its acts, conduct or possible omissions during that prior accounting period, on the ground that its account for that period was settled by decree of this court dated May 8, 1970. The guardian emphasizes that all the securities in which losses were suffered were sold during the period presently accounted for, which runs from July 31, 1969 to October 31, 1972. Although it is alleged that the realized losses during the period presently accounted for, about which examination is sought, amount to a substantial percentage of the inventory value of the securities at the beginning of the period presently accounted for, it is also alleged by the guardian that the greater portion of the decline in value of the same securities occurred during the period previously accounted for.

The law is well settled that a decree judicially settling the account of a trustee binds all persons over whom the court obtained jurisdiction, and that all such persons are thereafter forever barred from seeking to charge the trustee for any act or omission occurring during the period of the account and fairly revealed in the accounting (Matter of Roche, 259 N.Y. 458, 461, 182 N.E. 82, 83; Matter of Baker, 249 App.Div. 265, 267, 292 N.Y.S. 122, 126--127; Matter of Baldwin, 157 Misc. 692, 693, 284 N.Y.S. 754, 755, affd. 250 App.Div. 767, 295 N.Y.S. 480; In re Froelich's Estate, Sur., 82 N.Y.S.2d 884, 886, affd. 275 App.Div. 707, 88 N.Y.S.2d 270; Ungrich v. Ungrich, 141 App.Div. 485, 492, 126 N.Y.S. 419, 424). This rule is explicitly set forth in the Banking Law in relation to accountings of common trust funds (§ 100--c, subd. 14). In Mullane v. Central Hanover Bank and Trust Co., 339 U.S. 306, at 311, 70 S.Ct. 652, at 655, 94 L.Ed. 865, the Court, in ruling upon aspects of this statute on appeal from 299 N.Y. 697, 87 N.E.2d 73, observed that the effect of such a decree is 'to settle 'all questions respecting the management of the common fund.' We understand that every right . . . against the trust company, . . . for improper management of the common trust fund during the period covered by the accounting is sealed and wholly terminated by the decree.'

In the decisions of this court cited by the guardian (Bank of New York Discretionary Common Trust Fund E, N.Y.L.J., January 12, 1973, p. 17, col. 2, and March 1, 1973, p. 18, col. 2), the objectant guardian had sought to surcharge the trustee for a loss actually realized After the closing date of the account, and for that purpose, he had requested the court to direct a supplemental accounting covering some months after the maximum four-year statutory accounting period. (At bar, the loss was realized by sales During the accounting period, but the declines were largely experienced Before the accounting period.) In the earlier opinions the court denied the request for the reasons stated, adding that 'any issue as to this particular investment can await the next accounting by the trustee' (N.Y.L.J., Jan. 12, 1973) modified in part on other grounds, but affirmed on the issue involved here by directing that the trustee was entitled to summary judgment on the merits without trial, without expressly addressing the problem of losses after the accounting period (Matter of Bank of New York v. Spitzer, 43 A.D.2d 105, 349 N.Y.S.2d 747, appeal pending in the Court of Appeals). In Matter of...