In re the Judicial Settlement of the Intermediate Account of the Acts & Proceedings of Title Guarantee & Trust Co. , 245 A.D. 22 ( 1935 )

Carswell, J.

It is sought to surcharge the trustee of these two estates in excess of a million dollars. The detail is indicated to some extent in the minority opinion. We favor a modification of the decrees declining so to do, by eliminating the allowances to thé respondent for counsel fees, amounting to $25,000, and, as so modified, an affirmance of the decrees in so far as appealed from, without costs.

Our views for affirmance stem from the genesis of the relationship in life of the decedents with the corporate trustee and its corporate affiliates, likewise given in some detail in the minority opinion. We state, somewhat summarily, our reasons for so concluding.

(1) In.our opinion the successor trustee under both wills succeeded to all the discretionary powers given by the two decedents to the original trustee.

(2) Under the will of Thomas F. Balfe the trustee was authorized to act in respect of the securities in the estate without regard to whether or not the trustee had a personal interest in these same kinds of securities or the companies to which they related. The decedent, through a provision in the will, in effect deprived his estate of the benefit of the doctrines in the cases that forbid a trustee acting under circumstances that involve what is called “ divided loyalty.” The decedent was willing that the trustee should act under conditions of divided loyalty. He had the power and right to so provide. That which he knowingly did with his own property did not impinge public policy or involve the doing of anything malum in se or malum prohibitum. The only safeguard left to the estate was that the trustee act honestly and in good faith. Decedent had confidence it would so act. The question,, therefore, is whether there is evidence of bad faith.

There can be no bad faith predicated on the want of diversification or the undue concentration of the assets of the estate in particular securities. The decedent himself turned over the securities in the non-diversified form. He exempted the trustee from the statutes on legal investments. Decedent’s relations with the corporate trustee and acts respecting the estate furnish a background which indicates that the decedent cast the lot of his estate with the lot of these two companies with which he had such an intimate connection during his life. He had stuck by the company and retained his holdings during the only periods comparable to the present one, to wit, the prior and less severe panic of 1907 as well as the post-war period of depression. It may be said fairly that the trustee has done exactly that which the decedent would have done if he had been alive during this same period during which the trustee acted.

. The trustee declared dividends when a wiser policy, viewing the matter in retrospect, would have been not to declare them, but it must be said that, in so far as the trustee acted to save the companies, in making these dividends, it was likewise acting in the interest of the estate and its beneficiaries. Whatever helped the companies helped the estate and its beneficiaries, since their respective fortunes were intertwined almost inextricably. If that which was done to help the companies did not help them, then of course it did not help the estate or its beneficiaries; but such acts as were done, whether wisely or unwisely, such as declaring dividends in certain years or buying stock of the companies to sustain market values, were done in good faith, even though they were futile acts, as subsequent events indicate.

This all resolves itself into the proposition that the testator, as he had a right to do, deprived himself and his estate of the benefits of the rules of law found in the statutes and in the cases, which rules were designed to protect such estate funds. The only rule of law of the benefit of which he did not deprive his estate was that which requires a trustee to act honestly and in good faith. We find no dishonesty. In view of the background of this estate, we do not find that there was bad faith. The fault, therefore, for the misfortune that has befallen this estate must be visited upon the testator himself (through the objects of bis bounty) as a consequence of his placing this estate in the hands of the trustee bereft of all the safeguards provided by law for such funds, with the exception of the rule exacting good faith on the part of the trustee and the refraining from misfeasance.

(3) The same is true with respect to the estate of Mary A. Balfe. Her will seems not to have as broad a provision depriving the estate of the benefit of the rules of law forbidding a trustee to act under circumstances that may involve divided loyalty, such as is contained in the will of Thomas F. Balfe. But she, too, authorized the trustee to act without regard to “ the general rules of law or any statute applicable thereto.” This would include authorizing the trustee to act where there would otherwise be a violation of the rule prohibiting “ divided loyalty.” She likewise deprived her estate of any protection consequent upon the acts of the trustee, other than those involving a want of exercise by the trustee of “ good faith ” or want of common honesty. These provisions likewise authorized the trustee to refrain, if acting in good faith, from complying with the rules, in respect of trust funds, requiring a reasonable degree of diversification.

Respecting the mortgage certificates, there is no showing that these were purchased under circumstances involving bad faith' or want of ordinary prudence. The purchase of mortgages from itself, otherwise illegal, became lawful perforce the provisions in the will, making inapplicable the case law and statutory safeguards, because they were bought in good faith.

Accordingly, we see no basis for surcharging the trustee under either will.

The decrees should be modified by eliminating the allowances to the respondent for counsel fees, amounting to $25,000, and as so modified affirmed, in so far as appealed from, without costs.