Ashley v. Winkley , 209 Mass. 509 ( 1911 )

Braley, J.

The defendants are trustees under an express trust, and in accounting for their administration of the property which they admit that they have received, the burden is on them to show' that in the discharge of their duties they have exercised reasonable skill, prudence and judgment. Andrews v. Tuttle-Smith Co. 191 Mass. 461. Pine v. White, 175 Mass. 585. Little v. Phipps, 208 Mass. 331. If we examine the allegations of the bill, they are charged with having failed to protect the property from foreclosure of a second mortgage whereby the equity of redemption was lost, and generally that they grossly neglected their duties, entailing great pecuniary loss to the plaintiffs in common with other beneficiaries and shareholders. But in the report of the master to whom the case was referred, the transactions which the plaintiffs contended were imprudent and unjustifiable are specifically stated and reviewed. The trust estate when conveyed consisted of the Copley Square Hotel, with the appurtenant land, upon which were mortgages for $300,000-, The equity of redemption, valued and capitalized at the nominal sum of $200,000, was divided into shares which if possible were not to be less than $100 each, for which certificates were issued in accordance with the provisions of the declaration or instrument of trust. By the death of one trustee and the resignation of another, only the defendant Frederic Pope of the original trustees remained, and at the request of Albert A. Pope, who had become the owner of two thirds of the shares, the defendant Winkley, with the consent of some of the other principal shareholders, was appointed to one of the vacancies, while the other vacancy remained unfilled. It was during the incumbency of Winkley that the. transactions took place on which the plaintiffs rely as proof of a flagrant mismanagement of the estate. The evidence is not reported, and the master’s findings as to Winkley’s personal relations to Albert A. Pope, and the reasons for his appointment, and Pope’s control of Winkley, and through Winkley of the management of the trust are not only important, but should not be reversed unless clearly wrong. It is only when these relations are understood, that the unfortunate conduct of the trustees becomes intelligible. The report states, that this defendant was his confidential secretary and bookkeeper and became trustee because of the large interest which his employer had acquired while the defendant Frederic Pope was the cousin of Albert A. Pope, to whom he was beholden for financial assistance at various times. The master concludes, that in administrative capacity the trustees, and especially Winkley, were not well qualified to administer the trust, and that his double employment “ goes far to explain many things which happened later.” It appears that from Winkley’s accession to the day of the foreclosure the influence of Albert A. Pope was dominant in all important business affairs with which the trustees dealt.

The very full statements relating to the defendants’ first and third exceptions need not be reviewed. The master reports the facts, but does not decide the question of liability. If when the defendants took possession of the premises for the purpose of terminating the lease of their tenant one Risteen, or the occupancy of his successor, the Copley Square Hotel Company, and while seeking for a new tenant carried on the business, they also took and used supplies which were in the hotel, and furniture belonging to the tenant’s wife, they were accountable to the owners for their value. The settlements arranged with them upon the advice of competent counsel do not appear to have been so injudicious and unwarranted that the defendants should be personally charged with the amounts paid. Pine v. White, supra.

But the payment to Albert A. Pope of $5,200 for thirteen months’ use of the furniture, stands upon a different footing. If under the circumstances it is assumed, that the trustees had implied authority to buy the furniture, fixtures and household supplies which were in the hotel, but permitted or requested Pope to act for the sole benefit of the trust as apparently he did, the master finds, that he had been fully reimbursed by the trustees for the loss sustained when he sold the property to their new lessee for a less sum than that which he paid. The trustees themselves were doubtful as to the propriety of recognizing his claim for rent. It was after their promissory note had been given in payment for the combined amount, that, acting under the suggestion of counsel, they signed an antedated paper with a preamble, and form of vote containing recitals, that the purpose of the note was, "to reimburse him for his loss sustained in behalf of the Copley Square Hotel property in the sale of the furniture, and for the use of the same.” The master fittingly characterized their action as a “posthumous record of an imaginary meeting.” It was ineffective as an act of ratification, for the payment was unauthorized, and his disallowance of this item was right and should not be disturbed. Rowland v. Maddock, 183 Mass. 360. Hayes v. Hall, 188 Mass. 510. Andrews v. Tuttle-Smith Co. 191 Mass. 461.

But the principal sum for which the plaintiffs seek to charge the defendants is the loss arising from the foreclosure of the second mortgage. The powers of the defendants are defined by the instrument under which they were appointed. By section 5, they were given discretionary authority to mortgage the estate, either to pay in whole or in part outstanding mortgages, or to renew them, and it is no excuse that they may have been ignorant of the scope of their duties or of the legal requirements con-' nected with their office. Pierce v. Prescott, 128 Mass. 140, 145-147. The second mortgage became due either when Winkley became trustee, or some five years later and remained overdue, * but “he made no effort to pay, renew or extend it,” and “failed to exercise the care and prudence which the law demands of a trustee in his position.” The findings which we have quoted were amply justified by the history of his management set forth at length in the report. Having taken no precautions to provide for a contingency which must occur if the mortgage was not paid, renewed or extended, a foreclosure followed extinguishing the equity of redemption, which the master valued at $100,000. If the foreclosure resulted from improvident management, the master further determined that the property even then could have been saved, if the trustees had acted promptly and judiciously. It would not be profitable, nor is it material, to recount the efforts which finally were put forth, or the participation of Albert A. Pope, who the master reports, “ virtually directed the sale.” But his findings, that a loan sufficient to have paid the mortgage could have been obtained and was offered to them upon terms which would have saved the property and should have been accepted, is proof of their further delinquency.

If there is no doubt that Winkley must be charged with the full amounts previously stated, the defendant Pope urges that he should be exonerated from all blame. It is well settled, that a trustee is not responsible for the acts or misconduct of a co-trustee in which he has not joined, or to which he does not consent, or has not aided or made possible by his own neglect. Hayes v. Hall, 188 Mass. 510, 514. Pom. Eq. Jur. (3d ed.) §§ 1081, 1082. The defendant was required to inform himself of the various business transactions involved in the execution of the trust. He could not properly discharge his duty by surrendering the substantial or entire control to Winkley, or delegate his authority to him, or to Albert A. Pope, or be indifferent, when the course of affairs was distinctly disadvantageous to the beneficiaries whose interests he had been selected to protect. But even if he is given the benefit of the master’s finding, that Winkley misled and deceived him in the final attempt to preserve the property from foreclosure, his previous findings, that with knowledge of the transaction he assented to the payment for the use of the furniture and was responsible with his co-trustee for the loss sustained through their failure to provide for the payment or extension of the second mortgage, having been amply warranted, he cannot escape liability to the shareholders. Stowe v. Bowen, 99 Mass. 194. Hayes v. Hall, 188 Mass. 510. Cunningham v. Pell, 5 Paige, 607.

We may add, that, notwithstanding the defendants’ contention that the Sheldon Corporation, which is one of the parties plaintiff, should not be permitted to recover, it is not estopped upon the facts reported from sharing in the distribution of the amounts which the defendants must pay, but, Albert A. Pope having participated in their misconduct, they should not be charged with the proportion of the loss represented by his shares. Andrews v. Tuttle-Smith Co. 191 Mass. 461, 468, and cases cited.

The result is, that the interlocutory decree must be modified by overruling the defendants’ second exception to the master’s report, and the final decree should charge the defendants with the sum of $100,000 with interest from September 19,1907, and the additional sum of $4,000 with interest from September 30, 1905, and when so modified the decrees severally are affirmed, and the plaintiffs are respectively entitled to recover the amounts as therein specified.

Ordered accordingly.