Vinal v. Gove

• Decision Date: 02 April 1931
• Citation: 275 Mass. 235
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: ARTHUR H. VINAL & others v. AROLINE C. GOVE, executrix. MABELLE GUNTHER v. AROLINE C. GOVE, executrix, & another.

275 Mass. 235

ARTHUR H. VINAL & others v. AROLINE C. GOVE, executrix. MABELLE GUNTHER v. AROLINE C. GOVE, executrix, & another.

Supreme Judicial Court of Massachusetts, Suffolk.

April 2, 1931

February 4, 5 1931.

Present: RUGG, C.

J., CROSBY, PIERCE SANDERSON, & FIELD, JJ.

Trust Trustee's duty of fidelity. Equity Pleading and Practice Master: findings.

The property of a real estate trust consisted of land and an apartment building thereon, subject to a mortgage for $100,000. The trust was unsuccessful from the beginning, and could not have earned enough to show a profit even if the property had been unencumbered. A succeeding trustee continued in office for a year, in which period he personally advanced money for interest and taxes, and paid off notes of the trust amounting to $30,000 by placing a second mortgage. This mortgage was assigned to the trustee's wife, who paid for it out of her own money.

She also was the owner of a majority of the shares of the trust. At the end of the year, the trustee notified the shareholders of the trust of its unprofitable condition, that he was unable to pay the mortgage interest and that the property would be sold by the first mortgagee in foreclosure at a certain time. The trustee could not have prevented the foreclosure except by further personal contributions or contributions by the shareholders. At the foreclosure sale, the property was bid in, in behalf of the trustee's wife, by his son at his direction at a price of $103,000. The conduct of the trustee in dealing with the trust was bona fide and without intent to defraud its shareholders or creditors; and his conduct at the foreclosure sale was not "antagonistic to the performance of his duties." In purchasing the property, his wife was actuated at least in part by a desire to protect the amount of her second mortgage and did not desire or intend to cheat either the creditors of the trust or the other shareholders.

The property at the time of the sale did not exceed $130,000 in value. In a suit in equity by shareholders and creditors of the trust against the trustee and his wife for an accounting and to have the purchase of the land by the wife declared void, it was held, that

(1) The defendant wife, as second mortgagee and shareholder, had an interest in the property to protect;

(2) The rule of law, preventing either a trustee or his wife from purchasing property of the trust at a foreclosure sale, therefore was inapplicable, the sale being for a fair price and free of fraud;

(3) In the circumstances, the suit could not be maintained.

Upon all the facts and evidence in the report of a master in the suit in equity above described, including a finding that the fair market value of the property at the time of the foreclosure sale was $155,000, it was held, that the finding as to value was inconsistent with the other findings; and that there was no error in a conclusion by a judge who heard the suit thereafter that a "valuation in excess of $130,000 is not warranted."

TWO BILLS IN EQUITY, filed in the Superior Court on July 17, 1913 and September 11, 1913, respectively.

The first bill was against William H. Gove and the second against him and his wife, Aroline C. Gove. Both bills sought an accounting as to the affairs of Bay State Road Trust, of which the defendant William H. Gove was trustee. The second bill also sought to have it adjudged that the conveyance to the defendant Aroline C. Gove of the real estate of the trust was fraudulent and void. Upon the death of William H. Gove, Aroline C. Gove, as executrix under his will, was admitted as a defendant. The suits were referred to a master for hearing together. Material facts found by the master are stated in the opinion. By order of Gray, J., there were entered an interlocutory decree sustaining one of the defendants' exceptions, as described in the opinion, and otherwise confirming the report; and a final decree dismissing the bills. The plaintiffs appealed from both decrees.

A.L. Taylor, (F.J. Johnson with him,) for the plaintiffs. J.W. Morton, for the defendants.

PIERCE, J. These are appeals by the plaintiffs from interlocutory decrees modifying a master's report and from final decrees dismissing two bills in equity, one by a creditor and the other by certain stockholders of the Bay State Road Trust. The allegations in both bills and the issues raised under the pleadings in both cases were practically the same. Both cases were referred to the same master to be heard together, and his reports in all material matters are identical except for descriptions of the parties. The reports were confirmed in the Superior Court with the exception of his finding as to the market value of the property involved in 1912.

The Bay State Road Trust, hereinafter called the trust, was organized on May 1, 1905, for the purpose of purchasing certain real estate situated at the corner of Bay State Road and Deerfield Street, in Boston, and erecting thereon an apartment house which was to be conducted and managed by the trustee. In pursuance of the authority given under the trust deed, the first trustee obtained through a savings bank mortgage $100,000, and by the sale of one thousand shares of the stock raised an additional $100,000, and with the money thus secured purchased real estate and erected thereon an apartment house at an approximate cost of $200,000. The first trustee, one Evans, acted as trustee from May 1, 1905, to December 12, 1911. "The total income for five years was between $63,000 and $64,000; the total expenses for something over five years nearly $92,000, and of this sum the interest on the first mortgage is only $24,000 for six years." Despite the facts that the trust project was a losing proposition financially from the start, that the expenses exceeded the income and the trust would have lost money had the shareholders owned the building free of the mortgage, over $21,000 "were paid in dividends."

Sometime in 1911, William H. Gove, one of the defendants and the owner of five shares of the trust, who was also the husband of the defendant Aroline C. Gove, the owner of five hundred forty shares of the total issue of one thousand shares, became dissatisfied with Evans's management and retained accountants to examine the affairs of the trust. When he learned from their report that the trust was in a serious condition, he requested and forced Evans to resign, and secured his own election as trustee. During the next year Gove found out that the trust "could not be operated at a profit . . . during that year he personally advanced money out of his own pocket to pay mortgage interest and taxes on the property." He found that Evans had borrowed $30,000 represented by notes outstanding, and that the noteholders were pressing for payment and would not renew them unless Gove indorsed the renewal notes individually and as trustee. He was unwilling and unable to do this, and therefore negotiated a second mortgage on the trust property to the amount of $30,000. This mortgage was assigned by the mortgagee to the defendant Aroline C. Gove, "who paid for said mortgage out of her own estate and the proceeds were used to retire the notes for $30,000 above referred to." After the experience of one year, on December 10, 1912, Gove sent out a statement of the condition of the trust to the stockholders. This letter set forth that no money was available for the payment of interest and taxes and other bills, that he had advanced money in payment of taxes and interest and did not care to make any further advances, and that he had notified the bank that he was unable to pay the interest late in 1912. This letter of December 10, 1912, further stated that "on account of the non-payment of $2,000 due for interest October 1, 1912, the property of the Trust has been advertised to be sold under the mortgage, December 26, 1912, at three o'clock in the afternoon, on the premises." He listed the various sums of his own money, amounting to over $3,500, which he had advanced. He summarized the report of the accountants employed to investigate Evans's management, and pointed out that in addition to the first mortgage of $100,000, Evans had borrowed $30,000 on notes and had thus reached the limit of the borrowing power of the trust under the declaration of trust.

The master found at the request of the defendant, that "Gove could not have prevented the foreclosure except by personal contributions from his own funds or by obtaining the necessary amount from the shareholders or otherwise and that unless this was done the foreclosure was a natural outcome of the condition of the Trust at that time." The letter further stated that as the writer saw no prospect of any substantial improvement in the affairs of the trust, he would not make any further advances out of his own funds, and that he "did not think . . . [he] ought to ask any one else to do what . . . [he] would not venture to do" himself; that,...