Worcester Bank & Trust Co. v. Nordblom

• Decision Date: 30 December 1933
• Citation: 188 N.E. 492,285 Mass. 22
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: WORCESTER BANK & TRUST CO. v. NORDBLOM et al.

285 Mass. 22

188 N.E. 492

WORCESTER BANK & TRUST CO.

v.NORDBLOM et al.

Supreme Judicial Court of Massachusetts, Worcester.

Dec. 30, 1933.

Case Reserved and Report from Supreme Judicial Court, Worcester County.

Bill by the Worcester Bank & Trust Company against Robert A. Nordblom and others, as trustees of the Worcester Investment Trust. On reservation and report.

Decision in accordance with opinion.

B. B. Gilman, stated the case.

C. B. Rugg and C. H. Smith, both of Boston, for defendant Worcester Bank & Trust Co.R. H. Davison and L. L. Wadsworth, Jr., both of Boston, for defendants Nordblom and others.

LUMMUS, Justice.

The plaintiff is a Massachusetts trust company, in the possession of a conservator under St. 1933, c. 87 (G. L. c. 172, §§ 83-89). The trustees of the Worcester Investment Trust, hereinafter called the defendants, owning the Worcester building in Worcester, gave a mortgage thereon in 1923 to the plaintiff as trustee for bondholders to secure an issue of bonds of $800,000. The mortgage indenture provided that twice a year the defendants should make specified payments into a sinking fund to be held by the plaintiff as trustee, to be used from time to time to retire bonds.

The conduct of the plaintiff as trustee of the sinking fund was regulated by the second, third and fourth paragraphs of article 2, § 2, of the mortgage indenture, which read as follows: The Trustee shall deposit, as a special fund or funds any and all sums, including payments into the Sinking Fund, which may be at any time received by it under any of the terms or provisions of this Indenture, in such bank, banks or trust companies, including its own banking department, as it may in its reasonable discretion select. The Trustee shall account for all interest actually received by it upon deposits made by it in other banks or trust companies, as stated above, and shall allow interest upon all deposits made, as above stated, in its own banking department, at such current rates as are then allowed in the City of Worcester on similar deposits; but, except as above stated, the Trustee shall not be bound to account for or pay any interest upon payments made to it hereunder, and it shall not incur any liability except for the amounts actually deposited with and received by it. All funds, whether sums paid into the Sinking Fund or otherwise, at any time paid to or deposited with the Trustee or held by it under any of the provisions of this Indenture, shall be held by the Trustee as agent for the Grantors, hereby irrevocably appointed, to be used by it in accordance with the terms of this Indenture and in accordance with law, and no such funds shall be security for the bonds secured by this Mortgage or Deed of Trust.'

The bill, the truth of which is admitted by the answers, shows that the plaintiff as trustee under the mortgage indenture received for the sinking fund various payments which it deposited in an account in its own commercial department, designated as ‘Worcester Bank & Trust Company, Trustee, Worcester Investment Trust, Sinking Fund.’ The plaintiff allowed interest thereon at the current rate paid in the city of Worcester on similar deposits. The amount on deposit in that sinking fund account on March 4, 1933, was $29,055.92. During the entire period of the receipt by the plaintiff of sinking fund and other payments from the defendants, up to the time of the segregation of the amount in question hereinafter described, the cash available for the payment of deposits in the commercial department never fell below the total amount of such sinking fund and other payments deposited by the plaintiff in that department. The plaintiff always maintained a trust department, and all sinking fund and other payments received by the plaintiff as trustee were entered on the books of the trust department before being deposited in the commercial department. The entire record, including the plan of reorganization hereinafter described, is silent as to the existence of any savings department, and it may fairly be inferred that there was none.

After the financial difficulties of the plaintiff had caused the appointment of a conservator, a plan of reorganization of the plaintiff was prepared and was declared effective by the commissioner of banks on June 9, 1933. Under that plan the assets of the commercial department have, for the most part, been conveyed to a national bank, which has agreed to allow the depositors in the commercial department the right at present to draw checks up to a certain fractional part of their deposits, with a right to share in further liquidation later. But the plaintiff retained and segregated in the hands of its conservator the sum of $29,055.92, which was the amount of the sinking fund deposit, pending the determination of the question whether the defendants are entitled to payment of that sum in full, in priority to other depositors in the commercial department. This bill for instructions is brought to determine that question.

Apart from statute, in the distribution of the assets of an insolvent or deceased trustee, a claim based on the duty of the trustee or its breach is entitled to no priority because of its origin. Inherently a claim upon a grocery bill or a promissory note ranks as high. Attorney General v. Brigham, 142 Mass. 248, 7 N. E. 851;Little v. Chadwick, 151 Mass. 109, 23 N. E. 1005,7 L. R. A. 570. It is only where some of the assets can be shown to be a part of the trust estate, or the product of the conversion of specific funds or property of the trust estate into another form, that the trust estate can obtain an advantage over the creditors generally. That advantage is not a right to priority or preference, but rather a right to reclaim assets of the trust estate that can be traced and found. Bresnihan v. Sheehan, 125 Mass. 11;Lowe v. Jones, 192 Mass. 94, 78 N. E. 402,6 L. R. A. (N. S.) 487, 116 Am. St. Rep. 225,7 Ann. Cas. 551;Morin v. Kirkland, 226 Mass. 345, 115 N. E. 414;People's National Bank v. Mulholland 228 Mass. 152, 117 N. E. 46;Glover v. Waltham Laundry Co., 235 Mass. 330, 337, 127 N. E. 420;Salem Elevator Works, Inc., v. Commissioner of Banks, 252 Mass. 366, 148 N. E. 220;Downing v. Cunningham, 256 Mass. 285, 152 N. E. 365;Atkins v. Atkins, 279 Mass. 1, 180 N. E. 613. In tracing the trust funds, however, the trust estate is aided by a presumption that a trustee, drawing upon a deposit in which his private funds and trust funds are mingled, intends to draw first his private funds which he has a right to use, leaving the trust fund intact as far as the amount remaining permits. Hewitt v. Hayes, 205 Mass. 356, 361, 91 N. E. 332,137 Am. St. Rep. 448;Supreme Lodge of Portuguese Fraternity of United States v. Liberty Trust Co., 215 Mass. 27, 102 N. E. 96;Moore v. O'Hare, 224 Mass. 283, 112 N. E. 863;Moore v. Mansfield, 248...