National Academy of Sciences v. Cambridge Trust Co.

• Citation: 346 N.E.2d 879,370 Mass. 303
• Parties: NATIONAL ACADEMY OF SCIENCES v. CAMBRIDGE TRUST COMPANY, trustee.
• Decision Date: 13 May 1976
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 879

346 N.E.2d 879

370 Mass. 303

NATIONAL ACADEMY OF SCIENCES

v. CAMBRIDGE TRUST COMPANY, trustee.

Supreme Judicial Court of Massachusetts, Middlesex.

Argued Jan. 7, 1976.

Decided May 13, 1976.

Winslow A. Robbins, Boston (Stanley V. Ragalevsky, South Boston, with him) for Cambridge Trust Co., trustee.

Richard D. Leggat, Boston (Janis M. Berry and William H. Thedinga, Boston, with him), for National Academy of Sciences.

Alex J. McFarland and Howland S. Warren, Boston, for The First Nat. Bank of Boston, amicus curiae, submitted a brief.

William Minot, Boston, for State Street Bank and Trust Co., amicus curiae, submitted a brief.

John A. Perkins, Boston, for New England Merchants Nat. Bank, amicus curiae, submitted a brief.

John E. Rogerson and John C. Thomson, Boston, for Boston Safe Deposit and Trust Co., amicus curiae, submitted a brief.

Before REARDON, QUIRICO, BRAUCHER, KAPLAN, and WILKINS, JJ.

REARDON, Justice.

This matter is before us for further appellate review, the Appeals Court having promulgated an opinion.

The facts which give rise to the case are essentially as follows. Leonard T. Troland died a resident of Cambridge in 1932 survived by his widow, Florence R. Troland. By his will executed in April, 1931, he left all of his real and personal property to be held in trust by the Cambridge Trust Company (bank) with the net income of the trust, after expenses, 'to be paid to, or deposited to the account of (his wife) Florence R. Troland' during her lifetime so long as she remained unmarried. He further provided that '(k)nowing my wife, Florence's, generosity and unselfishness as I do, I wish to record it as my intention that she should not devote any major portion of her income under the provisions of this will, to the support or for the benefit of people other than herself. It is particularly contrary to my will that any part of the principal or income of my estate should revert to members of my wife's family, other than herself, and I instruct the trustees to bear this point definitely in mind in making decisions under any of the options of this will.' The testator went on to provide in part that on his wife's death or second marriage the bank would transfer the trusteeship to The National Research Council of Washington, D.C., which the petition alleged to be an agency of the National Academy of Sciences (academy), to constitute a trust to be known as the Troland Foundation for Research in Psychophysics. He directed that income be accomulated and added to principal until sufficient to produce an annual income of $50,000 or the 1931 purchasing power equivalent of that amount of money, at which time the income was to be applied by the academy within certain specific guidelines set out in the will. The testator further provided instructions to the academy as successor trustee concerning his wife's support should she he widowed again after a second marriage or should her second husband fail to support her.

The will was allowed, the trust was established as provided by the testator, and the bank paid the income thereof to the widow until her death in 1967. During the period from 1932 to 1945 the widow provided eighteen different mailing addresses for income checks to be transmitted to her by the bank. On February 13, 1945, she married Edward D. Flynn in West Palm Beach, Florida, and failed to advise the bank of her remarriage. Following her remarriage she lived in Perth Amboy, New Jersey. Commencing on April 14, 1944, she directed the bank to forward all her monthly checks to her in care of Kenneth D. Custance, her brother-in-law through marriage to her sister. Over the years these checks were forwarded to two Boston addresses and were made payable to 'Florence R. Troland.' Custance in turn forwarded the checks to Florence R. Flynn who indorsed them in blank 'Florence R. Troland' and returned them to Custance who also indorsed them prior to depositing them in bank accounts in his name maintained at the State Street Bank and Trust Company in Boston and the National Bank of Wareham, Massachusetts. After Florence R. Flynn's death on December 25, 1967, the bank for the first time learned of her remarriage. Throughout her second marriage Florence R. Flynn lived with her husband who was able to provide support for her and who, although aware that she was receiving payments from the trust, was ignorant of the limitation on her rights to receive such payments. In March, 1968, the bank brought a suit in equity in the Superior Court, Suffolk County, against Custance, the National Bank of Wareham, the State Street Bank and Trust Company, and Edward D. Flynn for recovery of amounts 'represented by checks made payable to Florence R. Troland and collected by Florence R. Flynn subsequent to the date of her marriage.' In this litigation the bank recovered $41,416.64 from which it paid legal fees and disbursements of $14,475.49. The total of all checks collected by Florence R. Flynn following her marriage in 1945 up to the date of her death is $106,013.41. The twelfth through thirty-third accounts of the bank covering that period between her remarriage and October 8, 1966, were presented to the Probate Court for Middlesex County in separate proceedings and allowed. The academy had formal notice prior to the presentation of the twelfth through fourteenth accounts and the eighteenth through thirty-third accounts, and with respect to the fifteenth through seventeenth accounts assented in writing to their allowance. The academy, unaware of the widow's remarriage, did not challenge any of the accounts and they were duly allowed.

The petition brought in the Probate Court by the academy seeks revocation of the seven decrees allowing the twelfth through thirty-third accounts of the bank, the excision from those accounts of 'all entries purporting to evidence distributions to or for the benefit of 'Florence R. Troland' . . . subsequent to February 13, 1945,' the restoration by the bank to the trust of the amounts of those distributions with interest at the rate of six per cent, a final account reflecting the repayments and adjustments, appointment of the academy as trustee, and payment by the bank of the costs and expenses of the academy's counsel.

Following hearing a judge of the Probate Court revoked the seven decrees allowing the twelfth through thirty-third accounts, ordered restoration to the trust of $114,314.18, representing amounts erroneously distributed to Florence R. Flynn plus Massachusetts income taxes paid on those amounts from trust funds, together with interest thereon in the sum of $104,847.17 through March 31, 1973, and interest thereafter at the rate of six per cent per annum to the date of restoration in full. The probate judge allowed as a credit against the amount of interest payable $41,416.64, the amount recovered by the bank from Custance, and further allowed the bank to show as an appropriate charge against the trust corpus the amount of $14,475.49 paid to counsel in connection with the recovery of those funds. The bank was ordered to pay $15,000 to the academy's counsel for legal services and expenses incurred in behalf of the academy in the proceedings in the Probate Court; and finally the bank was ordered to prepare a final account reflecting the adjustments ordered by the judge and the transfer of the restored principal and accumulated income to the academy. The Appeals Court affirmed the decree with the sole exception of striking therefrom that paragraph wherein the bank was permitted to charge the estate for legal services and disbursements involved in the recovery against Custance. National Academy of Sciences v. Cambridge Trust Co., --- Mass.App. ---, ---, ^a 329 N.E.2d 144 (1975).

The issues before us have to do with the power of the Probate Court judge to order the revocation of the decrees allowing the twelfth through thirty-third accounts, and the propriety of charging the bank for the amounts erroneously disbursed, as well as the disposition of the several claims for counsel fees, interest and disbursements.

The bank recited in the heading of each of the challenged accounts that the trust was 'for the benefit of Florence R. Troland,' and stated in schedule E of each account (in the first four accounts specifically as 'Distributions to Beneficiary') that monthly payments of $225 or more were made to 'Florence R. Troland.' The Appeals Court held that these recitals and statements 'constituted a continuing representation by the bank to the academy and to the court that the widow remained 'Florence R. Troland' despite her (then unknown) remarriage to Flynn, and that she remained the sole income beneficiary of the trust.' --- Mass.App. at ---, ^b 329 N.E.2d at 147 (1975). The court further held that those representations were technically fraudulent in that '(t)hey were made as of the bank's own knowledge when the bank had no such knowledge and had made absolutely no effort to obtain it.' Id. at ---, ^c 329 N.E.2d at 147. With these views we find ourselves substantially in accord.

The doctrine of constructive or technical fraud in this Commonwealth is of venerable origin. As we pointed out in Powell v. Rasmussen, 355 Mass. 117, 118--119, 243 N.E.2d 167 (1969), the doctrine here was developed in two opinions by Chief Justice Shaw. In Hazard v. Irwin, 18 Pick. 95, 109 (1836), it was defined in the following terms: '(W)here the subject matter is one of fact, in respect to which a person can have precise and accurate knowledge, and . . . he speaks as of his own knowledge, and has no such knowledge, his affirmation is essentially false.' This rule was reiterated by Chief Justice Shaw in Page v. Bent, 2 Met. 371, 374 (1841): 'The principle is well settled, that if a person make a representation of a fact, as of his own knowledge, in relation to a subject matter susceptible of knowledge, and such representation is not true; if the party to whom it is made relies and acts...