Some Aspects of the Obligations of New York Fiduciaries with Respect to the Making of Investments, II
Some Aspects of the Obligations of New York Fiduciaries with Respect to the Making of Investments, II
Louis C. Haggerty
Recommended Citation Louis C. Haggerty, Some Aspects of the Obligations of New York Fiduciaries with Respect to the Making of Investments, II, 16 Fordham L. Rev. 153 (1947). Available at: http://ir.lawnet.fordham.edu/flr/vol16/iss2/1
SOME ASPECTS OF THE OBLIGATIONS OF NEW YORK
FIDUCIARIES WITH RESPECT TO THE MAKING
AND RETENTION OF INVESTMENTS, I*
LOUIS C. HAGGERTYt
A Fiduciary's Transactions with Itself
PROBABLY no transaction in which a fiduciary may engage is subject
to such adverse criticism as one where the fiduciary acts as both
buyer and seller, in its representative capacity on the one hand and in
its individual capacity on the other. Unless expressly authorized, any
such transaction is voidable even though the fiduciary may have acted
in good faith, with the best of motives and impelled by a desire to aid
the estate. 15 It is not necessary to prove fraud. The doctrine is
enforced "... . to.avoid the possibility of fraud and to avoid the temptation
of self interest.", The very fact that a fiduciary has done business with
itself means that it has ". . . placed itself in a position where its interest
was or might be in conflict with its duty. Either is sufficient to cause
surcharging of the trustee."101 7 The doctrine is by no means new. In 1875,
the Court of Appeals, in discussing it, said:
"The rule is founded in the highest wisdom. It recognizes the infirmity of
human nature, and interposes a barrier against the operations of selfishnezs and
greed. It discourages fraud by taking away motive for its perpetration. It
tends to insure fidelity on the part of the trustee, and operates as a protection
to a-large class of persons whose estates, by reason of infancy, infirmity, or other
causes,- are intrusted to the management of others."'lO
The doctrine that a fiduciary may not deal with himself has been
observed and enforced by the courts in accordance with the spirit, and
over and above the letter of the rule. A fiduciary will not be permitted
to do indirectly what he is barred from doing directly. Thus, a trustee
was held liable for a mortgage loan made with trust funds to his own
wife 9 and for investments purchased from a corporation of which he
was an officer and director.Y Corporate fiduciaries may not purchase
investments from affiliated companies and if there are interlocking
directors and officers, and a unity of stock ownership between corporate
buyers and sellers, the veil of corporate entity will be pierced.1 71
The only current exception to the absolute prohibition against
transactions between a fiduciary and itself arises when the testator or grantor
himself has authorized such a practice. For although it has been said
that it is against public policy for a trustee to act as both buyer and
seller when dealing with trust funds172 a direction in a will permitting
transactions between a fiduciary and the trust estate has been held to
be valid, the court saying:
"The decedent was willing that the trustee should act under conditions of
divided loyalty. He had the power and right so to provide. That which he did
with his own money did not impinge upon public policy or involve the doing
of anything malum per se or malum prohibitum. [Since the transactions were
in good faith, they were not disallowed.] "173
But no matter how broad may be the authority which the testator
has given the fiduciary to deal with himself, he still remains subject to
the ". . . great principles of equity which are the life of every trust ...,174
and remains ". . . nevertheless bound to exercise this power in the best
of faith and to evince the highest degree of distinterestedness, loyalty
and honor.'17 And the court cannot be deprived by exculpatory clauses
from exercising its own jurisdiction over the administration of the
A grant of power to engage in self-dealing is strictly construed. Thus,
not only is a fiduciary barred from lending trust funds to himself
without express authority to do so117 but an authorization to engage in
selfdealing does not include the right to lend trust funds to oneself." 8 And
even if a fiduciary is given the broadest powers to deal in the purchase
and sale of securities for the trust estate with any firm in which he
himself might be a member or have an interest, the transactions must
be based on market values and the profit to the firm must be limited to
usual and customary commissions or compensation. 170
It should be noted, however, that it is permissible for the trustee of
one trust to sell securities to itself as trustee of another trust, provided
the sales are at fair prices.'"0 In such instances, the trustee has no
interest of its own and the transaction is between two strangers.
Transactions Under Subdivision 7 of Section 188 of the
From 1917 until 1936, a trust company acting as a fiduciary was
permitted to deal with itself to a limited extent. The practice was
sanctioned in the first instance by the court in a case where it appeared that
a trust company combined funds from several trusts and invested them
in one mortgage which was held by the trust company in its own
name. 181 But although the trust company was not surcharged, the court
criticized it for making the investment in its individual name, rather
than as trustee. 2 The decision was followed by the enactment in 1917
of subdivision 7 of Section 188 of the Banking Law, which permitted
a trust company acting as a fiduciary to apportion to any of its trusts a
part interest in a bond and mortgage which it held individually or in a
representative capacity. The trust company was required to notify
promptly each adult income beneficiary of the fact that the investment
had been made.lr
The amendment met with some judicial disapproval or begrudging
sanction" but the legality of mortgage investments made by trust
companies for their trusts was upheld. However, the law was interpreted
strictly. Thus, it was held in a number of instances that a trust
company could not transfer to one trust an entire mortgage which it
owned' and this finding was upheld by the Court of Appeals when
the issue was presented to it.' Moreover, the courts lost little time
in holding that the failure to give notice of the transaction to the
beneficiaries as required by the statute went to the legality of the entire
investment and, if the required notice was not given as directed, the
trustee was subject to surcharge for the full amount of the investment." 7
It is not necessary to prove that the loss resulted from the failure to
give the statutory notice; the very failure to give it is sufficient to
establish liability on the part of the trustee. 8 8
Subdivision 7 to Section 188 was repealed in 1936.180 Its importance
is now limited to those trusts which continue to hold participations made
pursuant to the statute.
This comparatively brief period of deviation from the rule against
self-dealings by a fiduciary has served to strengthen the rule. The
doctrine that a trustee may not act in its individual and in its
representative capacity as both buyer and seller is more strongly established today
than ever before. The slightest deviation from the rule, however
innocent in purpose, will result in a surcharge.' 0
It follows, therefore, that if there is a suspicion of self-interest in
any transaction between a fiduciary and his estate, the transaction
should be avoided as the fiduciary will only become the guarantor of
the investment. If the transaction is for the best interests of the estate,
the fiduciary may obtain judicial permission to enter into it, and thus
be protected against attack.'
OBLIGATIONS OF NAEW YORK FIDUCIARIES
The Right of a Fiduciary to Hold Its Own Stock
From time to time, corporate fiduciaries have held shares of their owm
stock as part of trust estates.1 9 2 The practice was denounced by the
Court of Appeals in 1943 in Matter of Cannon, on the ground that
ownership by a trustee of shares of its own stock violated the rule of
undivided loyalty. The court applied to such a situation the same
doctrine applicable to self-dealing, saying:
"... for when the trustee has a selfish interest which may be served the law
does not stop to inquire whether the trustee's action or failure to act has been
unfairly influenced. It stops the inquiry when the relation is disclosed and
sets aside the transaction or refuses to enforce it, and in a proper case,
surcharges the trustee as for an unauthorized investment."19 3
This, it is submitted, reads well and sounds well but is a dangerous
over-simplification of the problem. The application of this doctrine to
out and out self-dealing by a fiduciary, a practice always considered
objectionable, is one thing; its application to the ownership by a trustee
of its own stock, is something else again and resembles law by judicial
cich&. The practice is not shocking in itself, or at least, it did not
shock the Appellate Division of the Fourth Department in 1935 when
it ruled expressly that ownership by a trustee of its own stock was not
objectionable in itself.' Nor is the practice mzalum in se as is
evidenced by the established doctrine that it is permitted if expressly
authorized. As a matter of fact, in Matter of Cannon itself, the fiduciary
was not subjected to any surcharge because the trust was revocable and
the grantor had emphatically approved the act of the trustee in
holding its own stock. It seems unfortunate that the casual circumstance
that the trust was revocable was determinative of the issue of liability
while the admitted good faith of the fiduciary was deemed immaterial.
Considered realistically, the doctrine that the very existence of a
selfish interest to be served makes a transaction voidable has an unreal
foundation and can hardly be given universal application. The fact
that a fiduciary may be surcharged for losses on investment is in itself
sufficient to create a selfish interest. Thus, when a fiduciary with broad
powers of investment is called upon to make investments and to choose
between the common stocks which the testator may have preferred for
his beneficiaries and government bonds, he may select the latter for the
purely selfish reason that the risk of being surcharged for such an
investment is practically nil. Yet the existence of such a selfish interest
would not be deemed grounds for voiding an investment in government
bonds or other "legals" that happened to result in a loss.
It should also be realized that a corporate fiduciary has no financial
interest in the market value of its own shares. Its assets are not increased
or decreased by any changes therein. If the interest which it may have,
if there be any at all, is sufficient to create the "selfish interest" which
is the object of the court's condemnation, it would seem that a more
direct and a more selfish interest exists when a fiduciary, whether
corporate or individual, buys for his trust in the open market a bond of
the same issue in which the fiduciary has invested his own funds. The
benefits gained by the fiduciary for his own account may be
infinitesimal and highly theoretical, particularly if the security which is
common to the trust holdings and to the individual holdings is a
government bond. But the courts have yet to apply the "De Minimis" rule
to the rule against "selfish interest," and the latter is applied, not
because the trust estate has actually suffered a loss but because it might
have been damaged.
It is, therefore, submitted that the excellent teaching that the
standards of a fiduciary should be of the highest and not of the lowest, is
weakened by a ruling that admitted good can ever be immaterial. Such
a ruling savors of a regulation by the kind of administrative board which
cannot be bothered by considerations of justice in individual cases
because of "administrative difficulties." Just because there is no machine
which will X-ray and bare the motives of fiduciaries as they exist in
fact, it is not necessary to proceed on the theory that they are evil and
base as a matter of law.
Nor is an unyielding rigid and unreasonable enforcement of the
doctrine of "undivided loyalty" which disregards actual good faith
conducive to efficient estate management on a long range basis. It should
be remembered that one of the reasons why the courts have
measured the liability of fiduciaries by the norm of ordinary prudent men,
rather than of supermen, was that otherwise, no prudent men would
accept the responsibility of a fiduciary.'l For the same reason good
195. Crabb v. Young, 92 N. Y. 56 (1883); Higgins v. Whitson, 20 Barb. Ch. 141 (N. Y.
faith of fiduciaries or lack thereof should be measured by facts rather
than by rhetoric and formulae.
The rule in the Cannon case was applied to the strictest possible
extent by the Court of Appeals in a recent case.100 And yet at the same
time, the court placed a surprising limitation on its applicability. The
testator had given his residuary estate to three trustees, to wit, a trust
company, the testator's own attorney and the testator's brother-in-law
who was the president of the trust company and had granted to them
the power to invest his estate ". . . with all the authority, and powers
in connection with the same, I would possess if living." Included in the
residuary estate were shares of stock of the trust company which the
testator had received from his father who had been one of its organizers.
The testator himself had been one of its directors. The trustees not
only retained the shares which they received but added to them by
exercising subscription rights to new stock. The stock depreciated
substantially in value and the Court of Appeals, reversing the Appellate
Division, held that the trustees were liable for the loss. The finding was
based upon the holding that the corporate fiduciary had breached the
rule against undivided loyalty promulgated in Matter of Calton. The
majority opinion stated that while the will gave the trustees broad
powers, the language did not serve to relax the rule against undivided
loyalty. In the opinion as originally handed down, the court said that if
the testator had intended to permit his trustees to disregard the 11...
fundamental rule of absolute loyalty and fidelity prohibiting any purchase
or retention of securities involving a divided loyalty, the authority
should have been explicitly stated by an express grant of power to
retain the shares of the corporate trustee and to purchase additional
shares." But later, the court omitted the word "explicitly" and the
entire clause ". . . by an express grant of power to retain the shares of
the corporate trustee and to purchase additional shares." Consequently,
the opinion now reads that "if the testator intended that all these things
could be done without regard to the fundamental rule of absolute
loyalty and fidelity prohibiting any purchase or retention of securities
involving a divided loyalty, the authority should have been stated." Any number
of interpretations can be placed upon the revised language, particularly in
the light of the elisions referred to. Some interpretations go to lessening
the severity of the doctrines, others go to making it harsher to the point
of unreasonableness. It is hoped that the court itself will sometime
explain the significance of the change of language.
196. Matter of Durston, 297 N. Y. 64, 74 N. E. 2d 310 (1947) ; Matter of Volkenburgh,
116 N. Y. L. J. 83
(N. Y. Co. July 15, 1946)
Collins, S.; Matter of T. F. Ryan, 57 N. Y. S. 2d
(N. Y. Co., 1945)
Foley, S.; Matter of Stillman, 53 N. Y. S. 2d 718
(N. Y. Co. 1945)
In any event, so far as Matter of Durston is concerned, it can hardly
be doubted that it was the express desire and wish of the testator that
the stock be retained, even though the fiduciaries whom he selected
might have a selfish interest in its retention and it is suggested that the
judicial determination that he did not intend to give his trustees the
power to retain the stock would surprise most of all the testator himself.
The court was just as strict in enforcing responsibility upon the
testator's attorney as a co-trustee and gave no weight to the fact that his
approval of the retention and purchase of the Trust Company's own
stock was admittedly "entirely disinterested and uninfluenced by any
consideration other than the interest of the beneficiaries." His estate was
surcharged because he had approved an investment prohibited to his
co-trustees. The ruling on this point raises several questions which will
not be discussed here.
The surprising limitation made by the court to the Cannon case was
with respect to the applicability of Section 111, subdivision 6, of the
Decedent Estate Law and of Section 21, subdivision 6, of the Personal
Property Law to the doctrine of undivided loyalty in relation to the
retention by a trustee of its own stock. These subdivisions were added
in 1938 and provide in effect that a fiduciary is not liable for losses on
ineligible investments which have been received under a will or other
instruments, provided the fiduciary exercises due care in their retention
or disposition. The court ruled that the amendments did not serve to
protect the fiduciaries either in the Cannon case or in the instant case
because the transaction involved in both had occurred before the
enactment of the statutes in 1938. If this negative pronouncement is changed
to an affirmative one, it would seem that a fiduciary is not liable for
a loss arising out of the retention of its own stock if the stock has been
received from a testator or grantor of a trust after Sections 111 and 21
of the two statutes were amended by the addition of subdivision 6 to
each of them. This is surprising in itself because the language of the
amendments is not in any sense as broad as the direction of the testator
that his trustees could invest "with all the authority and powers in
connection with the same, I would possess if living." And it might also be
argued that the doctrine of the Cannon case has no applicability to a
stock received from a testator or grantor even prior to the amendments
on the ground that the amendments were little more than statutory
codifications of a doctrine already established.
It is, therefore, gratifying to note that in determining the liability
of a fiduciary for holding its own stock, the lower courts have paid
attention to the real facts and have no0t Tslavishly followed the rule of
thumb suggested by Matter of Cannon.'
197. Matter of Durston, supra note 196.
Liability of Fiduciaryfor the Investments of Corporations
Controlled by Fiduciary
A fiduciary who controls a corporation may be surcharged for losses
to the estate arising from the corporation's losses on its investments.
Thus, fiduciaries who, under direction of the will, organized a
corporation, transferred to it assets of the testator and administered its affairs
as its directors were held liable in the Surrogate's Court for the losses
to the corporation arising from its purchase of non-legal securities,
not for negligence but on the theory that the testamentary limitation
to legal investments applied to investments by the corporation as well.Y
The decree was reversed upon appeal on the ground that the powers of the
corporation to invest its funds came from the state which granted the
corporate charter and not from the testator and that hence it was
authorized to invest in non-legals.1 " But the reversal was limited to the
question of the power to invest and there is nothing in the decision of
the higher court to cast doubt on the proposition that fiduciaries may
be held liable for losses sustained by a corporation under their control,
if the losses are due to their negligence. This is in keeping with the case
in which a fiduciary was held liable to his trust estate for losses which
it sustained through the embezzlement by the fiduciary of the funds of
a corporation, part of whose stock was held in the trust. 43It might be
mentioned here that if a fiduciary controls a corporation, he must
account for its operations as well as for his own acts- ' and that in
determining if he has control, any shares which he may hold individually
must be added to the estate holdings.2-02 The rule does not apply if the
fiduciary has only a minority interest.2 3 In a case where the fiduciaries
had become officers and directors in their individual capacities and bad
only a minority interest as fiduciaries, it was held that they could not
be examined as to the affairs of the corporation by a beneficiary of the
Questions may arise as to the extent to which a fiduciary is
responsible for the investments made by the Board of Directors which he put
into office or by the officers whom such directors proceeded to elect.
In one instance, the court severely criticized three fiduciaries who
elected themselves and three others as directors of a corporation, all the
stock of which was owned by the fiduciaries. 0 5 But a single fiduciary
would seem to have no alternative under Section 5 of the Stock
Corporation Law of New York than to elect two other directors in which event
it is suggested that his liability for their acts should be limited to the
care which he exercised in selecting them.200
Validation of Improper Investment
If a fiduciary makes an investment which is improper at the time of
making for one or more reasons, he may escape liability if the defect
is cured and the investment becomes a permissible one before a loss has
been realized.2"7 The fact that later on there may be a loss or
depreciation in value will not interfere with the application of this doctrine.
Thus, fiduciaries who made mortgage investments in incompleted
buildings were saved from surcharges when the buildings were finished and
became valid investments before any loss occurred. One reason for the
rule is that the fiduciary might have sold the investment when it had
become a proper one and immediately re-purchased it.2 08
There are, however, certain exceptions to the application of the rule.
Thus, if a fiduciary makes a mortgage investment in property which is
subject to a prior lien in the form of unpaid taxes, and if the tax default
was casual or unintentional, the subsequent payment of the taxes will
relieve the fiduciary from liability.20 0 But if the default arose because
the rentals of the property were less than its operating charges, the
curing of the tax default will not necessarily relieve the fiduciary from
surcharge. This, because if the fiduciary had made the inquiry which
was incumbent upon him and had discovered that taxes were in arrears
because of an inability to pay them, the investment would never have
been made. As a result, the curing of the default would not excuse the
basic negligence which attended the making of the investment.210
In another somewhat analogous case, a city official had received funds
for deposit "subject to the further order of the court." He invested the
funds in 1927 without a court order and later sought protection under
Chapter 837 of the Laws of 1928 2 11 on the ground that this statute cured
any defects which might have been inherent in the original investment.
But the court held that since the original investment was improper
when made, the act of making it was a conversion and not merely a
dereliction of duty and hence was not validated by the 1928 statuteY21
Mlandatory Directions to Sell
Occasionally, a testator will direct his executor to sell a given asset on
or before a specified date, as a result of which the fiduciary will find
himself called upon to sell at an unfavorable time. In one such
instance, when the fiduciary was required by the terms of the will to sell
real estate within a period which expired in January, 1934, he applied
to the court for permission to postpone compliance with the
testamentary direction. The court held that while the power of sale was
imperative, the best interests of the estate required that the sale be postponed
until a better market might be foundY2.1 But when another executor, who
was required to sell listed securities at the end of a period which expired
in August, 1934, applied for permission to hold them longer, the court
held that no question of sacrificing assets was involved as the stocks
were readily saleable and the executors should not speculate on a rise
in market value. 14
The two decisions are not necessarily in conflict. The complete
doctrine would seem to be that if the asset to be sold is one for which a free
market exists, the direction must be obeyed; but that if there is no free
or actual market for the asset in question, the time may be further
extended for the best interests of the estate. But the fiduciary should not
attempt to decide the matter himself. He should ask for the
instructions of the court as was done in the two cases cited.
Mandatory Directions Not to Sell
A testator may fail to grant to his fiduciaries any power of sale
whatsoever, or he may go further and expressly prohibit the sale of some
given asset. But in either event, the fiduciary is not relieved from
responsibility for retaining the investment and may not stand by idly
while the asset becomes worthless. If he decides in the exercise of his
judgment that the property should be sold, he must apply to the court
for permission to do so, regardless of his own lack of power and in
spite of testamentary directions that the property should not be sold.
The power to direct a sale is inherent in the court.215 If it appears to
the court that the interests of the estate require that the sale be made,
it will grant the necessary power to do so. 1 '
Impossibiliy of Compliance with Mandatory Directions
as to Investments
Occasionally, a testator will impose mandatory investment directions
upon his fiduciary who later finds that by reason of changed economic
circumstances, compliance with them is either impossible of
performance or else will defeat or substantially impair the accomplishment of
the purposes of the trust. In such a case the rule that a fiduciary must
invest in conformity with the terms of the instrument under which he
acts will be waived and he will be excused from compliance.211 Thus, a
fiduciary who was required to invest in mortgages on property which
must be worth twice the amount of the loan was excused from
compliance upon proof that no mortgage loans of such a character were
available,21 as was the fiduciary who reported to the court his inability to
find any real estate mortgages at all.2 10 One fiduciary had to apply for
judicial relief because he was called on to function under a will which
limited investments to "legals" which yielded 5%, and learned that none
was available,220 and another fiduciary found that he was limited to
Liberty Bonds of happy memory.2 2'
But although these fiduciaries were naturally excused from doing the
impossible, they were not permitted to go beyond the legal range and
were confined to statutory investments.
Right of Fiduciary to Exercise Rights to Subscribe to Stock
In the absence of testamentary authority to do so or to invest
outside the legal field, a fiduciary has no right to exercise subscription rights
to new stock issued by a corporation whose stock he already holds, in
spite of the fact that he may have the right to retain the original stock.
However, executors who lacked the power to sell the rights before their
expiration date by reason of a delay in the probate of the will, but who
managed to exercise such rights and thus saved them from extinction
were not surcharged. 21 Nor were they held liable when they exercised
rights to subscribe which were of value but for the sale of which there was
no market.2 4
Even though a fiduciary lacks the power to exercise rights to
subscribe, he remains liable for their value as rights and if he permits them
to expire without selling them, he will be surcharged for their market
Exercise of Conversion Rights
A fiduciary may not exercise a conversion right contained in a
security, even though he has the right to retain the security itself, unless
he has been granted the express power to exercise the conversion
privilege or unless he has the power to invest outside of the legal field.
Thus, a fiduciary who, without power to do so, converted a bond of
a corporation into stock of the same company in accordance with the
conversion rights provided for therein was held liable for the loss which
was sustained 220
Lack of Diversification as Grounds for Surcharge
The generally accepted doctrine of investment policy in the financial
world that there should be diversification in the manner of investing an
estate of any substantial amount is generally accepted by the courts as
correct. It is true that one judge referred with some degree of
approbation to the admonition "to put all your eggs in one basket and watch
the basket, 122 7 but the older and better known adage that "it is unwise
for a man to put all his eggs in one basket" 2 has the greater number
of judicial adherents.
But the courts have been reluctant to hold that lack of diversification
in and of itself is a basis of a surcharge. There have been cases in which
failure to diversify was mentioned as one among other reasons why a
surcharge should be made. There have been cases in which the courts
have dismissed objections based on lack of diversification because they
found as a fact that a sufficient degree of diversification actually existed,
and from this, it may be inferred- that the objections would have been
sustained had the facts supported them. Whether there has been any
case in which lack of diversification has been the exclusive reason why
the fiduciary was surcharged is debatable. There have been so many
dogmatic utterances that lack of diversification is not in itself a basis
of surcharge that the conclusion might be reached that the time is not
yet here when failure to diversify is in itself cause for a surcharge.
But it would seem that that time is not far distant.
Consider first those cases in which lack of diversiAcation was given
as a contributing cause for a surcharge. In Durant v. Crowley, decided
in 1922, the Appellate Division of the First Department surcharged a
fiduciary for making a mortgage loan. It appeared that he had ignored
the financial responsibility of the mortgagor and that the mortgaged
property was highly speculative in its nature and difficult to rent. But
the court also referred in its opinion to ". . . this investment of $25,000.,
nearly one-half of the whole of the trust fund, in one mortgage ....),2
The remark might perhaps seem incidental to the main issue but it was
given importance by the Appellate Division of the Second Department
in Matter of Flint, when, in refusing to surcharge a fiduciary, it said:
"We do not have here the investment of the whole or greater part of a trust
fund in a single property, coupled with other elements of hazard, which
sustained a finding of imprudence or negligence because of undue concentration.
Durant v. Crowley, 197 App. Div. 540, 189 N. Y. Supp. 385, aff'd, 234 N. Y.
And in a case where the liability of a fiduciary for an investment was
unquestioned because of self-dealing, the court nevertheless saw fit
to add that:
"The gross improvidence of the action here taken is obvious. In the first
place, the entire fund was invested in a single security, which, in view of its
not inconsiderable size, was a matter of questionable wisdom."'23
Then, there are the cases in which the courts have overruled
objections based on lack of diversification by concluding that diversification
did in fact exist. Thus in Matter of Fltt,2- where a fund of $45,000.
had been split up among eleven mortgages, the court, after stating that
"a partiality for first mortgage securities on a sound value basis has
never been deemed an imprudent thing," held that spreading the fund
among eleven different mortgages had provided the very diversification
which was claimed to be lacking; and in another instance, the court
held that under the circumstances of the situation, the investment of
$9,800. out of a fund of $10,000., in two guaranteed mortgages "will
be held to have accomplished sufficient diversification."2- 3 It seems
natural to assume that these courts would have surcharged the
fiduciaries if they had found them guilty, and not innocent, of failing to
diversify, as otherwise the acquittals would be meaningless.
And yet there have been unequivocal statements on many occasions
to the effect that lack of diversification is not itself a ground of
surcharge, although different reasons have been expressed. One court said
tersely that "lack of diversity is not a basis of surcharge."- In other
instances, the court said that "There is no law in this State
requiring diversification of investments, 23 5 or based their refusal to
surcharge on the fact that there was no judicial authority for surcharging
for lack of diversification.23 One court refused to surcharge because
of the absence of any statute indicating the degree of diversification
which was required.3 7 In a case where the trustee had invested about
40% of the estate in a single security, the court did not affirmatively
approve it but said that it was ". . . no such demonstration of
improvidence on the part of the trustees ... as to justify the court in declaring
as a matter of law that their action was improper.) 23 8
Before discussing the correctness of these various pronouncements, it
might be well to set forth the mathematical facts on which some courts
have refused to surcharge fiduciaries. Since these cases must be
considered in the light of all their facts and circumstances as well, they are
not guides which may be blindly followed.
No surcharges were made: where 80% of the estate was invested in
railroad stocks and 68% in the stock of one single corporation;230 where
$50,000. out of a fund of $75,000. was invested in a single mortgage;2 10
where $17,000. out of a trust of $39,000. was invested in two
guaranteed mortgages;241 where the entire fund of $10,000. was invested in a
single guaranteed mortgage; 2 where a fund of $45,000. was invested
in eleven guaranteed mortgages;2-13 where $9,800. out of $10,000. was
invested in two guaranteed mortgages; 2-4 - where about 40% of an estate
was invested in the one security;240 and where 89% of the fund was
invested in one mortgage participation and the remaining 11% in
Up to April, 1941, there seemed to have been no decision with respect
to which it might be convincingly argued that lack of diversification
had been the sole basis for surcharging a fiduciary. As had been said
by one court in an opinion handed down on February 4th, 1941:
"I have not been referred to any case, nor have I found any, holding that the
mere lack of diversification in and of itself constitutes negligence."2 7
But in April, 1941, the Appellate Division of the Second Department
decided Cobb v. Gramatan National Bank and what was said in its per
curiam opinion seems to be the present high-water mark in treating lack of
diversification per se as grounds for surcharge. The fiduciary had
invested an entire trust fund of $25,000. in a single mortgage. The lower court
surcharged it for negligence in failing to investigate the merits of the
loan, and in relying exclusively upon the guarantee of a mortgage
company.2- s The Appellate Division affirmed the surcharge.2 0 It cannot be
said dogmatically that in so doing, it excluded completely from
consideration the undesirable character of the mortgage and the failure of the
fiduciary to examine into the investment it was making. But there is no
doubt that the surcharge was predicated to a very great extent upon the
ground that diversification was obligatory not only under the terms of
the particular trust involved but also as a matter of law. Thus, the
opinion pointed out that the maker of the trust had directed that it be
invested in "certificates" and that the use of the plural denoted an
intention that more than one investment should be made. It did not,
however, rest on this none too conclusive reason but went on to say
"Apart from that, the law likewise imperatively requires diversity.) 250
The court then referred to the contention of the fiduciary that it had
the right, as a matter of law, to rely on the assurances and
representations of the guarantor and said:
"These grounds of justification do not touch the breach of duty by the
trustee in respect of making the investment of such a large sum, representing the
entire corpus of the trust fund in a single security. The trustee in doing so
was grossly negligent as a matter of fact and as a matter of law. An additional
finding of fact and conclusion of law . ..will be made."1251
There was a strong dissent.252 To what extent Cobb v. GramatanNational
Bank will be followed remains to be seen. 3 In one recent case, the court
held that lack of diversification was not improvident or negligent as a
matter of law and attempted to distinguish the facts from the Cobb case
on the ground that the fiduciary before the court, a guardian, was acting
under a statute whereas the fiduciary in the Cobb case was acting under
a trust agreement which required diversification by express terms. " 4
But it is expressly stated in the Cobb case that diversification was
required as a matter of law, as well as by the terms of the particular
instrument involved. In another recent case, the court ruled that
diversification was not required as a matter of law but indicated that lack of
diversification might constitute negligence under a certain state of facts.
- The court was dealing with a trust, the principal of which was subject
to invasion. The court found as a fact that the trustee had acquired
sufficient readily saleable investments to meet the payments of principal
required, but it gave unmistakable indications that if there had been a
failure to diversify so as to include liquid assets, the fiduciary would
have been surcharged for negligence.255
To summarize the situation, it seems that the economic theory that
diversity should exist in the investments of a fund or estate has been
accepted by the courts to a limited extent. As a general rule, courts
have refused to consider lack of diversification as a basis of surcharge,
if there are no other elements of negligence present. But in the light of
Cobb v. Gramatan National Bank and considering the trend to discuss
lack of diversification as a possible basis of surcharge for negligence, the
careful and prudent fiduciary should seek diversification where it is
reasonably possible both for the benefit of the estate and for his own
There is, however, the further question for consideration namely the
extent to which a fiduciary should be held liable for failure to diversify.
It was pointed out by one court that there was "nothing in the record
establishing that lack of diversification was the cause of the loss
complained of." 7 Conceivably, however, such proof could be supplied. If
the court applies the doctrine that the act complained of "must be
shown to have been the proximate cause of the loss "2- then it follows
that any surcharge for lack of diversification should not be for the
'enteixrceesasmivoeu.2n9t invested but only for that portion of it which is found to be
Investment in a Single Security Beyond Testamentary Limitation
Testator may direct that his fiduciary shall not invest more than a
stated amount in a single security or class of securities. If the
instruction is violated, the fiduciary is not liable for the entire investment but
only for that portion of it which is in excess of the permitted amount.2 c'
In such an instance, no loss need be established. The fiduciary, upon
paying the surcharge, would be entitled to take over the excessive
interest in the investment.
Desirableand UndesirableTypes of Investments for Fiduciaries
Even though a fiduciary is authorized to invest the funds of his
estate in his discretion and is not confined to legal investments, he is
not thereby freed from responsibility for the investments which he
makes. He will be held liable for those which are made imprudently or
point, it was not advisable to sell. The court found that the decision
not to sell more securities had been reached in a prudent manner from
the standpoint of security administration, but that they were obligated
as a matter of law and not a matter of judgment to sell sufficient
securities to pay the debts within the specified time. Consequently, it
surcharged the executors with the difference between the price eventually
received for the securities and their value one year after death. 2
Sales to Pay Legacies
There are also two conflicting decisions with respect to the
obligation of executors to sell securities in order to pay legacies, but they
may be reconciled on their facts. The time element in both cases was
subordinate, however, to the Zonflict between the rights of general
legatees and residuary legacies.
In the earlier of the decisions, Matter of Andrews, the testator
created general legacies of about $1,150,000. and left the rest of his estate,
about $350,000., to a hospital. The chief asset of the estate was a
block of 17,000 shares of an insurance company. The stock was
regarded as a conservative and high-grade jnvestment. The executors
qualified in January, 1931. They naturally found that selling the 17,000
shares of stock was a problem. They consulted with three men
described by the court as being "of great repute in financial matters."
They started selling the stock in February, 1931, and had disposed of
10,000 shares by April when the market value dropped to a point which,
by almost unanimous consent, was less than its intrinsic value. No
further sales were made and the remaining shares were eventually
distributed in kind to the general legatees at such reduced values that their
legacies were not paid in full. Nothing was left for the residuary
The residuary legatee filed no objections but the general legatees
objected on the ground that the executors owed a different duty to them
than to the residuary legatee, and should have sold enough of the stock
to pay the general legacies, regardless of the effect upon the residuary
estate. The Appellate Division of the Second Department emphatically
repudiated the theory that there was any difference between executors'
duty toward the general legatees and toward the residuary legatees, and
refused to surcharge the fiduciaries.2
In Matter of Stumpf, two of the three executors were also residuary
legatees. They retained common stocks over the accounting period, not
328. 233 App. Div. 32, 265 N. Y. Supp. 386 (2d Dep't 1933).
Matter of Witkind, 167 Misc. 885, 2 N. Y. S. 2d 933 (N. Y. Co. 1938)
Dolebecause some of them at least could not have been sold at prices equal
to their value at date of death, but because, according to the finding
of the court, they hoped that the stocks would regain their cost to the
testator. But in fact, they depreciated to the extent that the general
legacies could not be paid in full and the executors were surcharged for
the resultant defect in the payment of the general legacies."
Matter of Andrews and Matter of Stumpf are not in conflict on their
facts. In the Andrews case, the executors started to sell promptly; they
ran into a declining market; they acted diligently and prudently and
their judgment was not affected by any selfish consideration. In the
Stumpf case, at least some stocks could have been sold at their value
at time of death; the executors sought the original cost and a selfish
interest existed. The ruling in Alatter of Stumpf does not contravene
the general doctrine of Matter of Andrews that a fiduciary owes the
same duty to both general and residuary legatees and that the interests
of neither are preferred.
Sales to Pay Taxes
The varying opinions with respect to the retention of securities in the
face of an obligation to pay estate taxes are well illustrated in Chemical
Bank and Trust Co. v. Ott." ° The fiduciary was trustee under an inter
vivos trust, consisting chiefly of a large block of stock of an industrial
corporation, listed on the Stock Exchange. The trust was revocable and
hence the principal was taxable as part of the grantor's estate. The
grantor did not die possessed of sufficient assets to pay the tax on her
individual estate and the trust combined and hence it became necessary
to sell some of the stock held in the trust to obtain the cash required
for tax purposes.
Upon the accounting, the issue was raised as to the time or times
when the trustee should have sold the stock in order to pay the tax. The
settlor had died on June 23, 1930; a dispute among the beneficiaries
of the trust was settled by an agreement made on August 2, 1930; the
executor was appointed in September, 1930, and the stock was not sold
until 1932 and 1933.
The referee held that the stock should have been sold about the
middle of September, 1930, which would fix the date at less than three
months from the date of death. The Appellate Division reversed. Three
justices held that it should have been sold eighteen months after death;
a minority of two justices thought it should have been sold over a period
commencing four months and ending eighteen months after death.
329. 153 AMisc. 92, 274 N. Y. Supp. 466 (N. Y. Co. 1934) Delehanty, S.
330. 248 App. Div. 406. 2S9 N. Y. Supp. 228 (1st Dep't 1936), mod. and aoq'd, 274 N.
Y. 572, 10 N. E. 2d 557 (1937).
No liability at all
Liable for value of stock at end of 18 months
Liable for value of stock over 4 to 18 months period
Liable for value of stock at end of 3 months
These three conflicting opinions were not solved in the slightest
degree by the Court of Appeals when it reversed the Appellate Division.
In a per curiam opinion, five judges held that "under the peculiar facts
of this case the trustee was not negligent in the exercise of its
judgment." Two judges voted to affirm the decision of the referee. Thus,
out of thirteen judges who passed on the matter, the voting as to the
liability of the trustee was
But in spite of the indecisive character of the outcome of the Ott case,
it remains clear that every fiduciary who is called upon to pay taxes
must provide himself with whatever amount of cash he will need for
that purpose, and that if he must sell securities to obtain the cash, he
should make his plans well in advance. It is suggested that the
fiduciary who starts selling three or four months after date of death, and
avails himself of favorable markets over the next ten or twelve months
to obtain the necessary funds will not only have the cash to pay the
federal taxes fifteen months after death, but will in the absence of other
factors have smooth sailing on his accounting.
Retention After a Decision to Sell
If a fiduciary decides that a security should be sold he must sell it
within a reasonable time thereafter or else hold it at his peril, assuming,
of course, that he does not change his judgment as to the advisability
of selling. Thus, when a fiduciary decided in September to sell a
security but delayed the sale until the following February for reasons which
the court found inadequate, he was surcharged for the difference
between the sale price and the price at which it could have been sold at
the expiration of a reasonable period for making the sale. 881
Retention in Times of Panic and Depression
Judging from the reported cases, it would seem that a fiduciary is
seldom held liable for losses arising out of the retention of securities
through a period of financial panic and of the depression that may follow
it. This is not coincidental but the result of the operation of the
doctrines that govern the administration of securities by a fiduciary. A
331. Matter of Booth, 147 Misc. 353, 264 N. Y. Supp. 773 (N. Y. Co. 1933) Delebanty, S.
panic is by its very nature an unexpected happening. If it were
something that could be foreseen, it would not be a panic. And being
unforeseen, it brings disaster to the wise and prudent investor as well as
to the careless and reckless speculator. Consequently, a fiduciary whose
estate has'suffered by a panic can invoke the doctrine that he should
not be held liable for a result that he could not foresee and was unable
to prevent.332 Moreover, since the standard by which he is to be judged
is not one absolute in itself but a comparative one, fixed by the
conduct of other men deemed wise, diligent and prudent, he can claim that
he is not to be held liable for losses when many, if not perhaps all
the admittedly wise and prudent administrators of securities, were no
wiser nor more prudent than he.ara The courts, however, will be lenient
in applying these protective doctrines only if the conduct of the
fiduciary has been marked with honesty, diligence and prudence in other
The comparatively early case of Matter of Westoni 4 affords a good
illustration of how the courts treat losses which were occasioned by a
financial panic. The testator died on May 7, 1873, owning 1,500 shares
of a speculative stock which he had bought in 1872 at 59 and which had
risen to 94 in January, 1873. When he died, the stock was selling at
85. When his executors qualified in June, 1873, the stock was selling
at 80. The testator had left a ,memorandum directing that the stock
"was to be held firmly; a dividend expected in two years." The
executors were advised to hold the stock and did so. One of the executors
continued to retain the same stock for his personal account. In
September, 1873, the panic of "Black Friday" occurred and the stock
dropped to 55. The executors held on to it and their judgment received
the later approbation of the Court of Appeals which said:
"Certainly it was no time to sell. The stock was paid for and the estate
strong and able to carry it throughout the e.pected emergency."3' 5
332. Ormiston v. 01cott, 84 N. Y. 339 (18SI).
333. In Matter of Thompson, 41 Misc. 420, 422, S4 N. Y. Supp. 1111, 1112 (Saratoga
Co. 1903) Lester, S., aff'd sem.S,7 App. Div. 609, 83 N. Y. Supp. 1117 (3d Dep't 1903),
aff'd mesa., 173 N. Y. 554, 71 N. E. 1140 (1904), the lower court said: 'Itis to be noted
that the depredation was not in a single stock, through some particular loss, or as the
result of some mismanagement of the affairs or the unsuccessful operation of the business
of a particular corporation. It was a depreciation of the stocks of several different
corporations, and was due to influences that affected the market generally. To foresee such
periods of general depression, or periods when high prices prevail, is the constant efforts
of the keenest intellects in the financial world, but notwithstanding their vig lance and
tireless efforts, stimulated by the hope of great gains, they frequently find such knowledge
too high for them. The law does not require such prescience of administrators."
334. 91 N. T. 502 (1MS1).
335. Id. at 509.
By February, 1874, the stock had risen to 67 and the executors
continued to hold on to it. Their judgment was deemed to be justified, the
Court of Appeals saying that:
"The indications pointed to an eventual restoratioh of value and we cannot
say that it was finprudent or unwise to wait for it." 330
But in April, 1874, the stock was selling at 30; when the accounting
was started in June, 1874, it was appraised at 20; shortly after, it was
selling at 15. The court, nevertheless refused to hold the executors
liable, not only because the investment was one inherited from the
testator 3 7 but because the test of their liability did not exceed ". . . the
diligence and prudence of prudent and intelligent men in the handling
of their own affairs."'338 The court added the very delightful chiche that:
"... stocks of variable value ought not to be timidly and hastily sacrificed,
nor unwisely or imprudently held. ' 233
The court then laid down a doctrine referred to, which continues to
have universal application that:
"Even when there is a direction to sell, reasonable time must be given and
what that is must be determined in each case by its own surroundings."8 40
In a later case, the courts went even further in refusing to hold a
fiduciary liable for losses occasioned in part by the closing of the New
York Stock Exchange in August, 1914, because of the outbreak of World
War I; so far, in fact, that the decision cannot be used with any degree
of safety as a guide or standard. The testator died in the summer of
1913, leaving a will in which he directed his executor to convert his
assets into cash "as soon as may be after my decease." The executor
qualified on September 30, 1913. The stocks declined somewhat in
January, 1914, but he retained them upon investment advice to do so. He
sold some stocks in March and April, 1914, at the insistence of some
of the legatees but a number of shares were still in his possession
when war broke out in August, 1914, and the exchanges shut down.
The stocks were sold later on at substantial losses.
It will, of course, be noted that ten months had elapsed from the
date of letters testamentary until the outbreak of the war during which
the stocks could have been sold without difficulty. The court,
nevertheless, refused to hold the executor liable for the losses sustained,
say336. Id. at 510.
337. Id. at 511.
ing that they were the result of errors in judgment. The phrase "as soon
as may be after my decease" was interpreted to mean "as soon as
reasonably may be," a construction which would probably have surprised
the testator greatly but which may be just punishment for his
employment of cryptic phrases when unequivocal language was readily at
Needless to say, the losses which beneficiaries of estates suffered by
the market crash of October, 1929, and the depression which followed
led to many contested accountings. But almost without exception, the
fiduciaries were exonerated from liability. " The first of the reported
1929 crash cases seems to be Matter of Lazar 4 3 The decedent died
intestate and hence, there was no possible grant of the right to retain
his securities. Letters of administration were issued on June 18, 1929,
and the administrator found that the bulk of the estate consisted of
common stocks in a margin account. Acting on advice received, he
held on to them, saw them increase in value during the summer of 1929
and saw them start to crash in October of that year. He started selling
on October 30 and had disposed of all of the stocks by November 14
but at prices far less than the inventory values. The Surrogate
refused to hold him liable for the losses sustained, stating that they were
due to errors of judgment and that the crash could not have been
foreseen, as was attested by the fact that many men of financial shrewdness
and ability were also caught in the market collapse.
The same results were reached in numerous other cases where the
losses were due to a stock market crash and to an ensuing depression.
The table in the footnote3 3' lists some of the cases in which the
341. Matter of Varet, 131 App. Div. 446, 163 N. Y. Supp. 896 (1st Dep't 1918). af'd
snem. sub non Matter of Feitner. 224 N. Y. 573, 120 N. E. S62 (1918).
342. This would not apply, naturally, where other factors were involved such as
obligations to pay debts or taxes or legacies, or where the interests of beneficiaries had been
subordinated to the interests of the fiduciaries. The presence or absence of any exprecs
power to retain the securities with respect to which the loss had occurred does not appear
to have been any important factor in the results arrived at by the courts.
343. 139 Misc. 261, 247 N. Y. Supp. 230 (Bronx Co. 1930) Henderson. S.
343a. Character Power of Period
of Relen- of
RelenFiduciary lion lion
fiduciary escaped surcharge for losses, with notations as to the type of
fiduciary involved and whether or not he had power of retention-if
such fact appears-and the length of time during which he retained
the securities on which the losses occurred.
Retention Without Valid Reasons Thcrefor
It would be a serious mistake to decide that the courts seek after
reasons whereby they can exonerate fiduciaries from liability for losses
suffered by the estates committed to their care. For one thing, a
fiduciary must be able to advance a reason why he has retained securities
in a falling market, and the reason must be one sound in law as well
as in fact. If, for instance, a fiduciary without power to retain
securities, holds on to them under the belief that he is the owner of them
for his individual account, and if the claim to ownership is rejected
by the court, the fiduciary may be held liable for the loss in value which
they sustained while being retained. 3 In another instance, the
executors retained securities because of a will contest and on the alleged
ground of acquiescence. But the court held that the will contest was an
immaterial consideration and that there had been no acquiescence;
consequently, with the disappearance of the reasons for the retention of the
securities, the fiduciaries found that they were liable for the losses which
had been sustained.3 4' Another trustee who was empowered to retain
those securities which the testator owned at his death, kept certain
stocks which it thought came within that category. It was discovered,
however, that the stock had, in fact, been purchased by the executor
and hence the trustee, having retained it on an erroneous theory,
became liable for the depreciation in value which the stock happened to
have sustained.3 " And, of course, if the fiduciary is unable to give
any reason at all for the retention of securities over a period when they
are depreciating, he will be held liable for the loss without question. 4T
Matter of Horton, 166 Misc. Guardian No 5 Yrs.
768, 3 N. Y. S. 2d 217 (Bronx Co. 1933).
Matter of Greata, 172 Misc. 955, 17 Trustees Yes 7 Yrs.
N. Y. S. 2d 776 (Suffolk Co. 1939).
DEPRESSION OF 1937
Matter of Cuddeback, 163 Executor No 9 BIos.
Misc. 693, 6 N. Y. S. 2d 493
(Orange Co. 1933).
Matter of Easton, 13 N. Y. S. 2d Executor No 4 Yrs.
295 (Lewis Co. 1939).
344. Matter of McKee, 147 Misc. 839, 265 N. Y. Supp. 47 (N. Y. Co. 1933)
345. Matter of Frame, 245 App. Div. 675, 284 N. Y. Supp. 153 (1st Dep't 1935).
346. Villard v. Villard, 219 N. Y. 482, 114 N. E. 7S9 (1916).
347. Matter of Baker, 249 App. Div. 263, 292 N. Y. Supp. 122 (4th Dep't 1936);
FORDIJAM LAW REVIEW
What Constitutes a Reasonable Period of Retention of
Although the courts have repeatedly said that the period within which
an executor or administrator must reduce the estate to cash is not a
fixed and set number of days or months or years, they have
nevertheless stated what they consider a reasonable period to be in the absence
of unusual circumstances. The comparatively early case of Matter of
Weston suggested eighteen months as a reasonable time and other courts
have suggested the same period.3 48 However, as the time within which
an executor or administrator may be required to account has been
shortened, there have been expressions of opinion that a reasonable
period of the retention of securities is one year.34 Today, an executor
or administrator may be required to account at the end of seven
months." ' And it may well be that "the reasonable period of time" will
be reduced accordingly. As one court pointed out, in some cases, it
might be only two months.3"'
The courts have adopted the same general rule with respect to the
retention by trustees of securities which they lack the power to retain.
In an early and leading case, the trustee had retained certain bonds
without authority to do so, for a period of nine years, but since no
objections were filed with respect to the loss which ensued, it cannot
be said that any issue was presented for determination. The court,
however, undertook to discuss the situation, saying:
"We are not inclined to lay down a hard and fast rule in respect of this
matter. When a trustee finds the estate committed to him already invested in
interest bearing securities, we are not inclined to say that it is his absolute duty
at once to dispose of them without regard to the market, or the demand for
them or the ruling price or the probability of an advance in their value. It is
ter of Yung, 103 Misc. 358, 170 N. Y. Supp. 303 (N. Y. Co. 1918) Fowler, S.; Matter
of Drake, 152 Misc. 395, 274 N. Y. Supp. 198 (Oneida Co. 1934) Evans, S.
348. Matter of Weston, 91 N. Y. 502 (1883) ; Matter of Thompson, 41 Misc. 420, 84 N. Y.
Supp. 1111 (Saratoga Co. 1903) Lester, S., aff'd mern., 87 App. Div. 609, 83 N. Y. Supp.
1117 (3d Dep't 1903), aff'd mem., 178 N. Y. 554, 71 N. E. 1140 (1904); Matter of Frame,
245 App. Div. 675, 284 N. Y. Supp. 153 (1st Dep't 1935); Matter of Watson, 145 Misc.
425, 261 N. Y. Supp. 327 (Nassau Co. 1931) Howell, S.; Matter of See, 38 N. Y. S. 2d
(Westchester Co. 1942)
Millard, S.; Matter of Brown, 33 N. Y. S. 2d 459
Campbell, S.; Matter of Sheldon, 160 Misc. 194, 289 N. Y. Supp. 887
(Westchester Co. 1936) Slater, S.
349. Matter of Drake, 152 Misc. 395, 274 N. Y. Supp. 198 (Oneida Co. 1934) Evans, S.;
Matter of Winburn, 140 Misc. 18, 249 N. Y. Supp. 758 (Westchester Co. 1931) Slater, S.
350. N. Y. SURROGATE'S COURT ACT § 258.
351. Matter of Parsons, 143 Misc. 368, 257 N. Y. Supp. 339 (Albany Co. 1932)
sufficient to say, however, that ordinarily if a trustee sees fit to continue such
investments after he shall have had a reasonable opportunity to sell them
without loss, and to invest them in those securities which by law he is
authorized to hold, it must be an exceptional case which will justify him in his failure
to do so, where as a result of such failure there has been a loss.' 'a 2
In spite of the unsatisfactory character of the decision, by reason of
the failure of any beneficiary to object, the doctrine remains
unchanged." Sometimes, however, as with executors a court will
indicate what constitutes a reasonable time. Thus, a trustee who held
preferred stocks without authority for eleven years was told that he should
have sold them within six months of their receipt and the surcharge
was computed on the basis of their value six months after their
receiptY On the other hand, when a trustee who had no authority to
retain stocks asked for the instructions of the court, he was told that
in the absence of modifying circumstances, eighteen months might be
reasonable.Y5 In another instance, a trustee who bad held foreign
bonds from March 1, 1931, until October 1, 1936, without authority,
was not surcharged for any loss, but as the loss actually was sustained
by June, 1931, or within four months of acquisition, the retention for
the next five and a half years was immaterial."
However, these transactions occurred prior to the enactment in 1938
of the amendments to the Decedent Estate Law and the Personal
Property Law and the decisions may be obsolete if, as is possible, it is held
that the amendments eliminate the factor of time as an element in
It might be added that when a trust terminated in January, 1933, and
the trustee did not file its account until August of that year, during
which time certain investments dropped from 45 to 50 points, the
trustee was surcharged with their value as of their value when the trust
Retention After Investments Cease to Be "Legals"
A fiduciary who purchased bonds in 1928 when they were legal
investments, retained them until 1934, although they were dropped from
"the legal list" in 1930. The court held that they should have been
sold within eighteen months after they ceased to be "legals," computed
their market value over the eighteen months period and surcharged
them for the amount by which such average price exceeded the sales
price.358 The court did not refer to the applicability of subdivision 6
of Section 111 of the Decedent Estate Law and of subdivision 6 of Section
21 of the Personal Property Law to an ineligible investment which "was
eligible... when the investment was made by the fiduciary." This may
have been due to the fact that the transactions took place before 1938
when subdivision 6 of these Sections came into force and effect. Or it may
have been due to the fact that the court considered that the
amendments did not eliminate the time factor from consideration in disposing
of securities which were "legal" when bought and which were later
dropped from the legal list. It is, however, possible that some other
court may hold that if an investment which was on the legal ist when
bought is subsequently dropped, there is no time limit at all to its
continued retention, but only the exercise of care and prudence.
Basis of Computation of Surcharge When Liability Has
It is not possible to lay down a general rule as to how a court will fix
the amount of a surcharge, once it has determined that an investment
has been improperly retained. In one case already referred to, when a
trustee held on to preferred stocks without authority for a number of
years, he was held liable for their value at the end of six months from
the date of their receipt. 359 In another case, a trustee retained bonds
of the Interborough Rapid Transit Company during World War I when
earnings were declining in the face of a fixed fare and rising operating
costs. The court held that the New York City Administration was
hostile to the subway company and sought to wreck it, that the only hope
of relief would come from legislative action granting an increased fare
and that when the 1918 Legislature adjourned in April without taking
such action, the fiduciary should have sold the bonds within two months
thereafter. Consequently, he was surcharged with the excess of their
June market values over the selling price.801 When an executor was
Matter of Brown, 33 N. Y. S. 2d 459
(Madison Co. 1942)
Matter of Hamersley, 180 N. Y. Supp. 887 (N. Y. Co. 1920) Foley, S.
Matter of Jarvis, 110 Misc. 5, 180 N. Y. Supp 324 (Westchester Co. 1920) Slater, S.
charged for retaining stocks without authority for six years during which
time they rose greatly in value and then suffered a substantial loss, it
was surcharged on the basis of their value at time of death regardless
of intervening rises.3 61 In another somewhat similar case, an executor
retained stocks for ten years although he could have sold them above
the values at time of death for a period of eighteen months thereafter.
He was surcharged on the basis of their inventory value. 0 2 The same
result was reached in another case where an executor retained various
stocks for a period from 21 to 30 months during which time they
fluctuated greatly in value. Since the court could not fix the exact date as
of which they should have been sold, it established liability on the values
as of date of death. 3
General Principles Affecting Improper Retention of
Each and every case must be decided on its own facts. The important
thing to remember is that if a security is not one that should be
retained, whether because of lack of power to retain it or because of its
own lack of worth, the sooner the fiduciary disposes of it, the better off
he will be. Occasionally, factors will exist which make the security
difficult to dispose of. This is particularly true of unlisted securities.
In another instance, the market may be so "thin" that the security must
be offered in small lots for fear of driving the price down 30 Or the
security may be selling at depressed prices and there may be reason to
believe that its intrinsic value is substantially greater than its market
value. When considerations such as these exist, the time within which
securities must be sold may be fixed by the courts in terms of many
months. But if the security enjoys a ready market, and, for instance,
is a bond selling above its call price so that it cannot very well go up
and can only come down in value, it is not impossible that a court might
fix the time for sale in period of weeks. It is well to keep in mind at
all times that a fiduciary holds a security which he is not authorized
to retain at his own risk"'3 and should guard himself accordingly.
Retention of Securities Received in Exchange for Testator's
It is not uncommon for a testator to empower his fiduciary to retain
such securities as the testator may leave but to limit all re-investments
to "legals." If, thereafter, it becomes necessary to exchange one of the
testator's own investments for a new security, pursuant to a merger, a
corporate reorganization or the like, the question will naturally arise
as to the right of the fiduciary to retain the new security. The doctrine
of law is well established that this can be done only if the new security
is substantially the same as the original investment, and the issue thus
becomes one of fact. The issue raised in Mertz v. Guaranty Trust
Co. 6. involved the question of a power of sale but the doctrine
enunciated is applicable to the question of retention. The trustee involved
held shares of common stock of a corporation which had no preferred
stock. It merged with another corporation with the intention of changing
both the product sold and the method of selling it, and the trustee
received shares of common stock in the new corporation which were
subject to certain priorities enjoyed by the preferred stock. The Court of
Appeals ruled that the identity of the old company had been destroyed
by the merger, Judge Cardozo saying in his felicitous style that:
"The old investment has been subordinated to alien priorities. The ancient
venture has exposed itself to strange and unexpected hazards." 307
The court also held that a fiduciary authorized to retain stock of the
Farmers Loan and Trust Company lacked power to retain the stock
of the National City Bank when the two institutions merged, as the
original company functioned primarily in New York City as a trust
company whereas the National City Bank carried on a commercial
banking business with branches all over the world .8 But when, in spite of
a corporate reorganization, the business and the management remained
unchanged and the rights of the original security holders were not
subordinated to other forms of securities, the fiduciary was authorized to
retain the new securities received in exchange."O0
Burden of Proof
As a general rule, the party who objects to the purchase or
retention of an investment by a fiduciary on the ground that it was bought
366. 247 N. Y. 137, 159 N. E. 888 (1928).
367 Id at 142, 159 N. E. at 889 See also Matter of Whittemore, 41 N. Y. S. 2d 823
(Kings Co. 1943)
368. Matter of Ralston, 162 Misc. 194, 294 N. Y. Supp. 112 (N. Y. Co. 1937) Foley, S.
369. Matter of Erwin, 19 N. Y. S. 2d 863
(N. Y. Co. 1939)
OBLIGATIONS OF AEW YORK FIDUCIARIES
or retained negligently has the burden of proof on the issue of
negligence."' If the investment complained of is a mortgage, then:
"The burden of proof so far as the legality of the investment is dependent
upon the facts of title, value of the mortgaged property, percentage of
mortgage to such values, the general nature of the mortgaged property, etc., is upon
the objectant.' '371
In accordance with general doctrines, the burden of going forward
will shift to the fiduciary if the objectant makes out a prima facie case
of negligence. But merely showing that there has been a loss or
depreciation in value is not sufficient to shift the burden? 2 However, if not
only a loss appears but an apparent breach of duty as well, the burden
of going forward will pass to the accounting party. This distinction
is well exemplified by two fairly recent cases. When an executor who
was limited to "legals" retained the common stock of a corporation for
eight years, during which time its value dropped from $100. a share to
$1. a share, the court said:
"A prima facie case of negligence having been made out, it would hardly
seem unreasonable to ask the executor, if it seeks to overcome the inference
which might otherwise arise from its conduct, to come forward and frankly
disclose what it had done, if anything, in regard to selling this security."373
But where an executor sold securities with due diligence but
nevertheless at a loss, the court said:
"Proof only of loss or shrinkage in value without any proof of want of care
of prudence, the sales having taken place within a year of the executor's
appointment does not establish negligence and does not present a prima facie
case. 3 74
There is another distinction which must be observed. If the losses
which are the subject of a controversy were sustained in connection
with the purchase or retention of non-legal securities and the question
at issue is not one of negligence but power and authority of the
fiduciary to make or keep the investment, then, in the language of one court:
"The burden of proof is strictly imposed upon any fiduciary who continues
non-legal investments to demonstrate the testamentary authority for such
holding beyond the time necessary for prudent liquidation. '375
If the accounting shows on its face that the fiduciary has made
unauthorized investments, the objectant need prove nothing more. 10
Extent o1 Inquiry and Investigation Demanded of
A fiduciary who seeks advice from worthwhile sources in connection
with the making of investments will find that the practice will be of
help to him, should his judgment in making the investments be
subsequently attacked. 7 7 It is equally true that the seeking of advice with
respect to the sale of investments will go a long way toward escaping
a surcharge for losses on retention, providing, again, that the issue
is one of care, prudence and diligence.37 8 But the inquiry must be made
from an unbiased source. Thus, the fiduciary who in purchasing bonds
for his estate relied on the recommendations of the bank which had
underwritten them, found that while he was relieved from any charge
of bad faith, he was not protected from responsibility for making an
improvident investment, 379 and the trustee who bought securities,
relying on the statement of the salesman, was also surcharged38 0 It is true
W YORK FIDUCIARIES
that the Chamberlain of the City of New York was held to have been
justified in relying on the representations of a mortgage guarantee
company, functioning under the supervision of the State Superintendent of
Insurance, 3s but in another case in which the fiduciary pleaded
reliance on the supposed worth of a mortgage guarantee company, he was
held liable for the ensuing loss, the court saying:
"That reliance is not a substitute for investigation. No inquiry was made
about the building. The word of the salesman was accepted as to the
completion of the building and its occupancy. Nothing is shown of actual
investigation as to its earnings or as to its capacity to pay its carrying charges."35
Moreover, in making an investigation, facts are more important than
opinions. Thus, a fiduciary purchased bonds for his trust, relying upon
the editorial opinion of a standard investment manual that the bonds
were legal for trust fund. But unfortunately, the figures which
appeared in the same manual negatived the opinion so expressed and
he was surcharged for the making of an unauthorized investment.3
Like other facts which are involved in the matter of making and
retaining investments, the question of investigation and inquiry resolves itself
into the standards of a prudent man handling his own affairs.
Limitation of Surcharge to Successful Objectants
Not everyone will benefit by a judicial determination that a fiduciary
must account for a loss sustained by the estate. If a beneficiary refrains
from filing objections to an account, he will not be permitted to share
in any surcharge arising out of the objections of other interested
parties. Thus, when fiduciaries were surcharged for retaining securities
in a falling market under circumstances which rendered them liable,
the amount of the surcharge was limited to the loss sustained by those
who had objected. sm And if some legatees have acquiesced in the actions
of a fiduciary and others have not, the liability will be limited to the
actual loss sustained by those who are not estopped to object.as
Balancing Profits Against Losses
If a fiduciary is otherwise liable to an estate for investments
improperly made, he may not offset the amount of the surcharge by the
381. Mills v. Bluestein, 275 N. Y. 317, 9 N. E. 2d 944 (1937).
382. Matter of Foillon, 163 Iisc. 897, 298 N. Y. Supp. 220 (N. Y. Co. 1937)
383. Matter of Keeler, 49 N. Y. S. 2d 592 (N. Y. Co. 1944) Delehanty, S.
384. Matter of Dempsey, 259 App. Div. 1033, 21 N. Y. S. 2d 844 (2d Dep't 1940);
Matter of Buck, 55 N. Y. S. 2d 841 (Westchester Co. 1945) Grifiths, S.; Matter of Stumpf,
153 Misc. 92, 274 N. Y. Supp. 466 (N.Y. Co. 1934) Delehanty, S.
385. Matter of Garvin, 229 App. Div. 803, 242 N. Y. Supp. 330 (2d Dep't 1930).
profits accruing from other investments which he made for the estate.
In King v. Talbot, the court said:
"The rule is perfectly well settled, that a cestui que trust is at liberty to
elect to approve an unauthorized investment and enjoy its profits or reject it
at his option; and I perceive no reason for saying, that when the trustee has
divided the fund into parts and made separate investments, the cestui que trust
is not at liberty, on equitable as well as legal grounds, to approve and adopt
such as he thinks it for his interest to approve." 380
The doctrine has continued in full force and effect and is currently
applied.3 87 But if the issue is limited to care and diligence and does not
involve lack of investment power, the fact that profits were made as
well as losses sustained will not be overlooked. As one court said, the
"... should receive the benefit of the care and prudence with which he has
administered the estate, and [should] not be mulcted in damages when the
whole estate has been administered so as to result in a profit, because certain
of the investments may not have turned out as well as had been
Employment of Investment Counsel
There are conflicting decisions on the right of a fiduciary to employ
investment counsel at the expense of the estate. It was held in New
York County that it could not be done 8 0 but in a later case, decided in
Suffolk County, the court held that a fiduciary other than a corporate
fiduciary might employ investment counsel at the expense of the
Additional Responsibilities of Corporate Fiduciaries
The question as to whether corporate fiduciaries are held to a higher
degree of responsibility than individual fiduciaries is not yet definitely
settled. It has been answered in the affirmative and in the negative. It
would seem, however, that the trend is toward holding the corporate
fiduciary to a degree of liability commensurate with its special
knowledge and its wider sources of information. Thus, about ten years ago
the Appellate Division of the First Department approved the ruling of a
386. 40 N. Y. 76, 90 (1869).
387. Matter of Buck, 55 N. Y. S. 2d 841 (Westchester Co. 1945).
388. Lawton v. Lawton, 35 App. Div. 389, 395, 54 N. Y. Supp. 760, 763 (1st Dep't
389. Matter of Gutman, 17i Misc. 680, 14 N. Y. S. 2d 473 (N. Y. Co. 1937) Delchanty, S.
390. Matter of Greata, 172 Misc. 955, 17 N. Y. S. 2d 776 (Suffolk Co. 1939).
. . a great trust company, having at its command special knowledge of
markets and financial conditions and an organization skilled in the investment
of funds must in the exercise of ordinary care bring to the management of
estates entrusted to its care this special knowledge since an ordinary prudent
man in the exercise of ordinary care would not fail to do this in the
management of his own affairs if such advantages were available to him."3'
A few months later, the Appellate Division of the Fourth
Department, in surcharging the corporate fiduciary for the negligent
retention of some common stocks, said:
"It is very true that, unless otherwise prescribed by statute, a corporate
executor is subject to no greater liability than that which devolves upon an
individual executor. Matter of Peoples Trust Co., 169 App. Div. 699, 701,
155 N. Y. Supp. 639. Nevertheless a bank has certain advantages over an
individual in determining the wisdom of retaining or disposing of securities
belonging to an estate. It not only has its trust officer, who is supposed to be
more or less familiar with market prices of securities, and whose business it is
to be posted concerning market conditions, but over the trust officer are the
officials of the bank, and the directors, men of affairs, assumed to be chosen
bdeiscpaoussael ooff tthheeir trsuoustndofbfiucseirn."e3:s1s2 judgment. The advice of these men is at the
The reference to the People's Trust Company case is curious. The
one issue involved in that case was the rate of interest which a
corporate fiduciary was required to pay on funds which it held as executor
and deposited with itself in its banking capacity. The court held that
it was obligated to pay not the six percent fixed by the Surrogate, but
the rate which it paid its other depositors. In the course of its opinion,
the court said that:
"A [trust company] is subject to a liability no greater than that which
devolves upon an individual executor except as prescribed by statute.' ' 93
But the statement has no bearing on the factors of care, prudence and
In a more recent case, the court, in passing upon the liability of a
trustee for investing in mortgage participations, said, citing Matter of
Rya, 3 M Matter of Union Trust CoY°9 and Matter of Clarke,3 that:
391. Chemical Bank & Trust Co. v. Ott, 24S App. Div. 406, 415, 289 N. 1. Supp. 228,
233 (1st Dep't 1936), mod. and aff'd, 274 N. Y. 572, 10 N. E. 2d 557 (1937).
392. Matter of Baker, 249 App. Div. 265, 269, 292 N. Y. Supp. 122, 129 (4th Dep't 1936).
393. Matter of Peoples Trust Co., 169 App. Div. 699, 701, 155 N. Y. Supp. 639, 640
(2d Dep't 1915).
394. 291 N. Y. 376, 52 N. E. 2d 909 (1943).
395. 219 N. Y. 514, 114 N. E. 1057 (1916).
396. 257 N. Y. 132, 177 N. E. 397 (1931).
"... generally speaking and in the absence of any agreement to the contrary,
a corporate trustee has no greater duty or responsibility than an individual
acting in the same capacity. 3 97
But, it is submitted, none of the cases so cited is authority to any such
effect. In Matter of Union Trust Co., the court was discussing the right
of a corporate fiduciary to allocate to trusts participations in a mortgage
which was held in its own name. In discussing the established doctrine
that a fiduciary may not engage in self-dealing, the court said:
there is no difference between a corporate trustee and an individual
trustee in its or his duty with respect to investments."398
This was repeated by the court in Matter of RyanP91 where
selfdealing was again at issue. But it is submitted that a declaration that
a corporate fiduciary must live up to the same standards of conduct as
is imposed upon an individual fiduciary, when the issue is one of
selfdealing, is not authority for the proposition that a corporate fiduciary
should not be subjected to even higher standards than an individual
where the issue is one of prudence and diligence. And a court may well
hold that a large corporate fiduciary in a large city should be held to
a higher standard of care and prudence than a smaller institution in
a rural community, which lacks the facilities and means of obtaining
information enjoyed by the larger bank.
It would seem that what the Appellate Divisions said in Chemical
Bank and Trust Co. v. Ott, and in Matter of Baker was sound and logical
and probably reflects the tacit, if not the expressly promulgated views of
most of the courts. In any event, it is suggested that it would be good
business for corporate fiduciaries to welcome, rather than oppose the idea
that they should be held to a higher degree of diligence and alertness
than the individual fiduciary.
Liability for Co-Fiduciary
A fiduciary is not only liable for his own acts and omissions but
may become liable as well for what his co-fiduciary does or fails to do.
Sometimes, the difficulty will arise out of an honest difference of
opinion. In one instance, a testatrix appointed her sister and a bank
as trustees with directions that if they disagreed on investments, the
wishes of the sister should prevail. When a disagreement arose, the
corporate trustee asked for the instructions of the court. It was told that
when differences arose, the written decision of the sister would prevail
397. Matter of City Bank Farmers Trust Co., 68 N. Y. S. 2d 43
(Sup. Ct. N. Y. Co. 1942)
398. 219 N. Y. 514, 521, 114 N. E. 1057, 1060 (1916).
399. 291 N. Y. 376, 52 N. E. 2d 909 (1943).
OBLIGATIONS OF ATEW YORK FIDUCIARIES
and that the corporate fiduciary would have no responsibility with
respect to it unless it believed that the decision of the sister amounted to
gross negligence, in which event, it should again seek the instructions
of the court. 0 ' In a later case, when the corporate and the individual
fiduciaries disagreed as to investments, and the judgment of the former
proved to be correct, it was surcharged because it had failed to apply
to the court for instructions as to how to act. It appeared that in
October, 1930, the corporate trustee arrived at the opinion that certain
securities should be sold. The co-trustee, the widow of the testator,
refused to join in selling them. Subsequent requests in December, 1930,
and in March, 1931, that they be sold were also refused and by the
time the trustees accounted, the depreciation feared by the bank had
taken place. The court held the bank liable for the loss, based on
December, 1930, values, stating that it owed to the decedent a duty greater
than merely to be pleasant to his family and that when the widow
refused to sell in October, 1930, the bank should have sought the
instructions of the court. 01'
It is not always safe for one fiduciary to rely upon the special
knowledge of another, particularly if the latter has a selfish interest to serve.
This was illustrated in a case when a corporate and an individual
fiduciary held among the assets of the trust shares of stock of the company
of which the individual fiduciary was president. The original
investment was made by the testator and additional stock was purchased by
the trustees at the instance of the individual fiduciary, the corporate
trustee acquiescing reluctantly. The company failed and both trustees
were held liable. The individual fiduciary was obviously aware of the
weak condition of the corporation of which he was the chief executive
but retained the stock nevertheless. The corporate fiduciary was held
liable upon the ground that it was not permitted to rely upon the
assurances of its co-trustee as to the stock, but on the contrary was called
upon to exercise even greater caution in dealing with an investment in
which the co-trustee had a personal interest.0 2
Courts have been lenient in dealing with the liability of one fiduciary
for losses occasioned by the deliberate theft of a co-trustee,103 and when
400. Matter of Langdon, 154 Misc. 252, 277 N. Y. Supp. 5S1 (Wectchester Co. 193S).
401. Matter of Garland, 159 Aisc. 333, 287 N. Y. Supp. 913 (Brona Co. 1936).
402. Matter of Richardson, 149 Misc. 192. 266 N. Y. Supp. 3S3 (Kings Co. 1928)
Wingate, S. In Matter of Durston, 297 N. Y. 64, 74 N. E. 2d 310 (1947), the Court of Appmls
held a corporate fiduciary liable for losses arising out of the retention of its own stock
because it violated the rule of undivided loyalty; and held the two co-trustees, one of
whom was president of the corporate fiduciary, equally liable, because they acqulesced in
the violation of the rule.
403. Wilmerding v. McKesson, 103 N. Y. 329, 8 N. E. 665 (18S6); Matter of Mann, 147
one fiduciary was ill, he was not surcharged for relying on his
co-fiduciary.4 °4 The issue as to the liability of one trustee for the sins of another
arises most frequently where one or more fiduciaries sits back and
entrusts the administration of the estate to a co-fiduciary whose
administration proves unprofitable to the trust estate, whether through
carelessness or recklessness or outright neglect. Under these circumstances,
it will be difficult for any of the fiduciaries to escape a surcharge.0°
Continuing Business of Decedent
For all practical purposes, the decision of the Court of Appeals in a
case decided many years ago,4 °6 sets forth everything that one ought
to know about the power and liability of a fiduciary to operate the
business of the decedent. The court laid down the general rule that an
executor had no authority by virtue of his office to continue the
business of the decedent except to convert the assets into money; that
testamentary authority to do so must be granted by direct, explicit and
unequivocal language of the will or else will not be deemed to have been
conferred, and that even if the power to continue the business is given,
"[It] will be construed as an authority simply to carry on the trade or
business with the fund invested in it at the time of testator's death, and to subject
that fund only to the hazards of the trade and not the general assets of the
The court also reiterated the common law doctrine that:
.. . a debt contracted by an executor after the death of his testator, although
contracted by him as executor, binds him individually, and does not bind the
estate which he represents, notwithstanding it may have been contracted for
the benefit of the estate .... It has been held in numerous cases that an
executor, carrying on a trade under the authority of the will, binds himself
individually by his contracts in the trade. He is not bound to carry on the trade
and incur this hazard, although authorized or directed to do so, but if he does
carry it on, the contracts of the business are his individual contracts. '408
Misc. 873, 266 N. Y. Supp. 110 (Suffolk Co. 1933) Pelletreau, S.; Matter of Halstead, 44
Misc. 176, 89 N. Y. Supp. 806
(Dutchess Co. 1904)
404. Hines v. Huntington, 118 App. Div. 585, 103 N. Y. Supp. 535 (4th Dep't 1907).
405. A somewhat striking illustration will be found in Gould v. Gould, 126 Misc. 54,
231 N. Y. Supp. 286 (Sup. Ct. N. Y. Co. 1926) where one trustee who was noted for her
philanthropies and whose integrity was never questioned was held jointly liable for the
administration of her father's estate by her brother, a co-trustee.
406. Willis v. Sharp, 113 N. Y. 586, 21 N. E. 705 (1889).
407. Id. at 590, 21 N. E. at 708.
408. Id. at 591, 21 N. E. at 708.
OBLIGATIONS OF NrEW YORK FIDUCIARIES
With this decision as a foundation, there is not much to add1 The
doctrine that the authority to carry on the testator's business must be
plain and unequivocal was put to the test by the testamentary statement
by a business woman that "It is my wish that my husband continue
the clothing business as long as he remains sober and of good habits to
properly conduct the same." The court found the language
insufficient."' An oral request to carry on his business made by the testator
before he died to the executor named in the will is obviously
The courts will pierce the veil of corporate entity and invoke the
doctrine when the testator's business is carried on in corporate form. And
this, even though the testator did not own all the stock of a company.
As one court phrased it:
"The equitable powers of a Surrogate's Court permit it to penetrate into the
inner verities of the situation. Thus where the business in question is actually
within the sole control of the testator, his testamentary fiduciaries will be
held to a strict accountability in this regard, whether or not the formality of
incorporation has taken place. In the absence of unequivocal authority for
continuance contained in the will, an executor or administrator has no authority
virtzute oficii to continue it, except for the temporary purpose of converting
the assets employed .... ,412
A most important thing for a fiduciary to remember is that even
though he may have necessary testamentary right and authority to
carry on the testator's business, he is not compelled to do so.
Consequently, if he elects to exercise his power, he must take the consequences
of his voluntary act and run the risk of becoming personally liable to
those with whom he does business. And the potential liability to the
beneficiaries of the Estate is not to be overlooked, regardless of the
extent of the authority granted by the testator.41 3
409. Columbus Watch Co. v. Hodenpyl, 135 N. Y. 430, 435, 32 N. E. 239 (1392) ;
Matter of Peck. 79 App. Div. 236, S0 N. Y. Supp. 76, aff'd, 177 N. Y. 538, 69 N. E. 1129 (1903) ;
Matter of Garra, 135 Misc. 93, 9S, 236 N. Y. Supp. 709, 712 (Kings Co. 1929); Matter
of Archer, 77 Misc. 2S8, 137 N. Y. Supp. 770 (Rockland Co. 1912).
410. Saperstein v. Ulman, 49 App. Div. 446, 63 N. Y. Supp. 626 (4th Dep't 1900), aji'd,
16S N. Y. 636, 61 N. E. 553 (1901).
411. Matter of McCullom, So App. Div. 363, SO N. Y. Supp. 755 (2d Dep't 1903).
412. Matter of Stulman, 146 Misc. 861, 874. 263 N. Y. Supp. 197, 213 (Kings Co. 1933)
413. In Matter of Kellner, 66 N. Y. S. 2d 727 (Erie Co. 1946), the Surrogate ruled
that the language of the will authorizing his executors to "manage, control and operate
any property or business owned by me" applied to two ice companies in which the testator
had a controlling interest. But the court proceeded to warn the fiduciaries that the
business was a hazardous one and suggested and directed that they device a plan within three
months "whereby this increasing danger to the Estate and themselves be removed!"
169. Matter of Randolph, 134 N. Y. Supp. 1117 ( N. Y. Co . 1911 ) Fowler, S., ag'd mem ., 150 App. Div. 902 , 135 N. Y. Supp . 1138 ( 1st Dep't 1912 ).
170. Matter of Huffnagel, 258 App. Div. 1088 , 18 N. Y. S. 2d 76 ( 2d Dep't 1940 ) ; Matter of Wohl, 36 N. Y. S. 2d 931 ( N. Y. Co . 1942 ) Foley, S.
171. Matter of Ryan, 291 N. Y. 376 , 406 , 52 N. E. 2d 909 , 923 ( 1943 ); Matter of Whitmore, 172 Misc. 277 , 15 N. Y. S. 2d 379 ( Monroe Co . 1939 ) Feely, S. ; Matter of Jones, 155 Misc. 315 , 280 N. Y. Supp . 521 ( Westchester Co . 1935 ) Slater, S.
172. Matter of Long Island Loan & Trust Co ., 92 App. Div. 1 , 87 N. Y. Supp . 65 ( 2d Dep't 1904 ) ; Matter of Jones , supra note 171.
173. Matter of Balfe, 245 App. Div. 22 , 24 , 280 N. Y. Supp. 128 , 130 (2d Dep't 1935 ), affirming 152 Misc . 739 , 274 N. Y. Supp . 284 ( Orange Co . 1934 ) Taylor, S.
174. Carrier v. Carrier , 226 N. Y. 114 , 126 , 123 N. E. 135 , 138 ( 1919 ).
175. Heyman v , Heyman , 33 N. Y. S. 2d 235 , 241 ( Sup. Ct. N. Y. Co . 1942 ). See also, Wolfer v. National City Bank , 68 N. Y. S. 2d 212 ( Sup. Ct. N. Y. Co . 1947 ).
176. Heyman v. Heyman , 33 N. Y. S. 2d 235 , 242 ( N. Y. Co . 1942 ).
177. Matter of Petrie, 5 Dem . 352 , 355 ( N. Y. Co . 1886 ) Rollins, S.
17S. Carrier v. Carrier , 226 N. Y. 114 , 125 , 123 N. E. 135 , 138 ( 1919 ).
179. Heyman v. Heyman , 33 N. Y. S. 2d 235 , 241 ( Sup. Ct. N. Y. Co . 1942 ).
180. Matter of Kramer, 172 Misc. 59S , 605 , 15 N. Y. S. 2d 7C0 , 707 (N. Y. Co . 1939 ) Foley, S.
181. Matter of Union Trust Co., 219 N. Y. 514 , 114 N. E. 1057 ( 1916 ).
1S2. But when a corporate fiduciary acquired a mortgage in its own name through a clerical error and its records showed clearly that the investment was made for an estate, it was held not liable . Matter of Montant , 117 N. Y. L. J. 1897 (N. Y. Co . May 14, 1947 ) Collins, S.
1s3. N. Y. Laws 1917 , c. 385 .
184. E.g., Matter of Peck , 152 Misc. 315 , 318 , 273 N. Y. Supp. 552 , 555 ( Westchester Co . 1934 ) Slater, S.
185. Matter of Roche, 245 App. Div. 192 , 281 N. Y. Supp . 77 ( 4th Dep't 1935 ) ; Matter of Schmidt, 163 Misc . 156 , 297 N. Y. Supp. 328 ( N. Y. Co . 1937 ) Foley, S. ; Matter of Tuttle, 162 Misc. 286 , 292 , 294 N. Y. Supp. 230 , 236 ( N. Y. Co . 1937 ) Delehanty, S.
186. Matter of Ryan, 291 N. Y. 376 , 404 , 52 N. E. 2d 909 , 922 ( 1943 ).
187. Matter of Peene, 155 Misc. 155 , 279 N. Y. Supp . 131 ( Westchester Co . 1935 ) Slater, S.
188. Matter of Ryan, 181 Misc. 566 , 48 N. Y. S. 2d 522 ( N. Y. Co . 1941 ) Delehanty, S.
189. N. Y. Laws 1936 , c. 898 .
190. E.g., Matter of Lewisohn , 294 N. Y. 596 , 63 N. E. 2d 589 ( 1945 ); Marcellus v . First Trust & Deposit Co. , 291 N. Y. 372 , 52 N. E. 2d 907 ( 1943 ).
191. Matter of Smythe, 36 N. Y. S. 2d 605 , 614 ( Westchester Co . 1942 ) Millard, S.
192. Or an individual fiduciary may hold in the trust estate, though at greater rzl, stock of a corporation in which he has an interest, as in Matter of Richardson, 149 Mie . 192 , 268 N. Y. Supp. 3SS (Kings Co . 1928 ) Wingate, S.
193. City Bank Farmers Trust Co. v. Cannon, 291 N. Y. 125 , 132 , 51 N. E. 2d 674 , 676 ( 1943 ).
194. Matter of Roche, 245 App. Div. 192 , 281 N. Y. Supp . 77 ( 4th Dcp't 1935 ). Nor does it shock the New Jersey courts . Matter of Grigns , 125 N. J. Eq . 73 , 4 A. 2d 59 (Prerog . Ct. 1939 ), aff'd, 127 N. J. Eq . 362 , 12 A. 2d 705 ( Err . & App . 1940 ); Matter of Riker, 124 N. J. Eq . 228 , 1 A. 2d 213 ( Prerog Ct . 1938 ), aft'd, 125 N. 3. Eq . 349, S A. 2d 685 (Err . & App . 1939 ); Matter of Oathout, 25 N. 3 . lisc. 186 , 52 A. 2d 42 ( Orphan's Ct . 1947 ).
19S. Matter of Doelger , 164 Misc. 590 , 299 N. Y. Supp. 565 ( N. Y. Co . 1937 ) lehanty, S.
199. Matter of Doelger, 254 App. Div. 178 , 4 N. Y. S. 2d 334 ( 1st Dep't 1938 ), a'd, 279 N. Y. 646 , 18 N. E. 2d 42 ( 1938 ). See, also, Matter of Woodin, 136 BMc. S57 , 65 N. Y. S. 2d 630 ( N. Y. Co . 1945 ) Foley, S., involving the administration by fiduciaries of a holding corporation, organized not by them but by the testator during his lifetime .
200. Matter of Auditore, 249 N. Y. 335 , 164 N. E. 242 ( 192S ).
201. Matter of Steinberg, 153 Misc. 339 , 274 N. Y. Supp . 914 ( Kings Co . 1934 ) Wingate, S.
202. Matter of Barrett, 168 Misc. 937 , 6 N. Y. S. 2d 698 ( N. Y. Co . 1938 ) Delehanty, S.
203. Matter of Witkind, 167 Misc. SS5, 893 , 4 N. Y. S. 2d 933 , 945 ( N. Y. Co . 1938 ) Delebanty, S.
204. Matter of Ebbets, 149 Misc. 260 , 266 , 267 N. Y. Supp. 263 , 276 ( Kings Co . 1933 ) Wingate, S. Other decisions dealing with the same general subject are Matter of Smythe, 36 N . Y. S. 2d 605 , 614 (Westchester C6. 1942 ) Millard, S. ; Matter of Browning, 172 Misc. 1088 , 16 N. Y. S. 2d 841 ( N. Y. Co . 1939 ) Delehanty, S. ; Matter of Gerbereux, 148 Misc. 461 , 466 , 266 N. Y. Supp. 134 , 140 ( Westchester Co 1933 ) Slater , S. ; Matter of Kinreich, 137 Misc. 735 , 244 N. Y. Supp. 357 ( N. Y. Co . 1930 ) Foley, S. ; Farmers Loan & Trust Co . v. Pierson, 130 Misc. 110 , 222 N. Y. Supp . 532 ( Sup . Ct. N. Y. Co . 1927 ).
205. Matter of Kirkman, 143 Misc. 342 , 348 , 156 N. Y. Supp. 495 , 501 ( Kings Co . 1932 ) Wingate, S.
206. Matter of Woodin, 186 Misc. 857 , 65 N. Y. S. 2d 630 ( N. Y. Co . 1945 ) Foley, S., suggested that in administering a corporation owned by trustees, life tenants of the trust might be given representation on its board of directors but warned against permitting them to constitute a majority of the board, as they might favor investments yielding a high income at the expense of principal.
207. RESTATEmENT, TRUsTs § 230, comment f ( 1935 ).
208. Matter of Toel, 39 N. Y. S. 2d 898 ( N. Y. Co . 1943 ) Foley, S. : Matter of Adriance, 145 Misc. 345 , 260 N. Y. Supp . 173 ( Kings Co . 1932 ) Wingate, S.
209. Matter of Poillon, 163 Misc. 897 , 901 , 298 N. Y. Supp. 220 , 224 ( N. Y. Co . 1937 ) Delehanty, S.
210. Ibid .; Matter of Laing, 167 Misc. 10 , 13 , 3 N. Y. S. 2d 409 , 411 ( Westchezter Co . 1938 ) Millard, S. ; Matter of Dalsimer, 160 Misc. 905 , 291 N. Y. Supp. 34 ( N. Y. Co . 1936 ) Delehanty, S., afi'd, 277 N. Y. 717 , 211 N. E. 1035 ( 193S ).
211. Now N. Y. F=cANcE LAW § 182 .
212. Geldmacher v. City of New York, 175 Misc. 7SS . 790 , 25 N. Y. S. 2d 30 , 3M (City Ct. N. Y. Co . 1940 ).
213. Matter of Simon, 91 N. Y. L. J. 31 (N. Y. Co . Jan. 3 , 1945 ) Foley, S.
214. Matter of Schinasi, 1S3 Misc. 114 , 274 N. Y. Supp. 4E0 (N. Y. Co . 1934 ) Delehanty, S.
215. Toronto General Trusts Co. v. Chicago, B. & Q. R. R. , 64 Hun 1 (N. Y. 1892 ), aff'd en ., 138 N. Y. 657 ( 1893 ).
216. Matter of Pulitzer, 139 Misc. 575 , 249 N. Y. Supp. 87 ( N. Y. Co . 1931 ) Foley, S., aff'd, 237 App. Div . 808 , 260 N. Y. Supp . 975 ( 1st Dep't 1932 ).
217. Matter of Goebels, 177 Misc. 552 , 31 N. Y. S. 2d 27 ( N. Y. Co . 1941 ) Foley, S.
218. Matter of Young, 178 Misc. 378 , 34 N. Y. S. 2d 468 ( Ontario Co . 1942 ) Clecere, S.
219. Matter of Norvell, 35 N. Y. S. 2d 496 ( Richmond Co . 1942 ) Boylan, S.
220. Matter of Cohn, 158 Misc. 96 , 285 N. Y. Supp . 279 ( Kings Co . 1936 ) Wingato, S.
221. Matter of Thompson, 43 N. Y. S. 2d 392 ( Westchester Co . 1943 ) Millard, S.
222. Matter of Davidson, 134 Misc. 769 , 774 , 236 N. Y. Supp. 437 , 443 ( Kings Co . 1929 ), aff'd mem ., 230 App. Div. S67 , 245 N. Y. Supp. 731 ( 2d Dep't 1929 ) ; Matter of John Blake , 146 Misc. 776 , 778 , 263 N. Y. Supp. 317 , 320 ( Kings Co . 1933 ) Wingate, S. ; Matter of McCafferty, 147 Misc . 179 , 193 , 264 N. Y. Supp. 38 , 60 ( Kings Co . 1933 ) Wingate, S
223. Ibid .
224. Ib .
225. Matter of Belcher, 129 Misc. 213 , 220 , 221 N. Y. Supp. 711 , 713 ( N. Y. Co . 1927 ) Foley, S.
226. Matter of McCafferty, 147 Misc. 179 , 264 N. Y. Supp . 38 ( Kings Co . 1933 ) Wingate, S.
227. Matter of Adriance, 145 Misc. 345 , 352 , 260 N. Y. Supp. 173 , 181 ( Kings Co . 1932 ) Wingate, S. For arguments in support of this point of view , see Matter of Balfe , 152 Misc. 739 , 756 , 274 N. Y. Supp. 284 , 302 ( Orange Co . 1934 ) Taylor, S.
228. Matter of First Nat'l Bank, 25 N. Y. S. 2d 221 , 226 ( Sup. Ct. N. Y. Co . 1941 ). In Matter of Jacobs , 152 Misc. 139 , 141 , 273 N. Y. Supp. 279 , 281 ( Delaware Co . 1934 ) O'Connor. S., said: "One of the fundamental principles of a safe and sound investment policy is diversity of investment."
229. 197 App. Div. 540 , 546 , 189 N. Y. Supp. 385 , 389 (1st Dep't 1921 ), aff'd, 234 N. Y. 581 , 138 N. E. 455 ( 1922 ).
230. 240 App. Div. 217 , 223 , 269 N. Y. Supp. 470 , 472 (2d Dep't 1934 ), aff'd, 266 N. Y. 607 , 195 N. E. 221 ( 1935 ). In Matter of Curtiss , 261 App. Div. 964 , 25 N. Y. S. 2d 819 , 820 (2d Dep't 1941 ) , aff'd ,nem ., 2S6 N. Y. 716 , 37 N. E. 2d 452 ( 1941 ), the court said: "The ruling on certificate No. 4957 was properly made, not only for the reasons given but because of negligence in respect of want of diversification."
231. Matter of Harbeck, 142 Misc. 57 , 64 , 254 N. Y. Supp. 312 , 314 ( Kings Co . 1931 ) Wingate, S.
232. 240 App. Div. 217 , 269 N. Y. Supp . 470 ( 2d Dep't 1934 ), af'd, 266 N. Y. 607 , 195 N. E. 221 ( 1935 ).
233. Matter of Kirby, 35 N. Y. S. 2d 651 , 654 ( Westchester Co . 1942 ) Millard, S.
234. Matter of Gottschalk, 167 Misc. 397 , 409 , 4 N. Y. S. 2d 13 , 24 ( N. Y. Co . 1938 ) Delehanty, S.
235. Matter of Young, 159 Misc. 611 , 616 , 288 N. Y. Supp. 569 , 575 ( Westchester Co . 1936 ) Slater, S. ; Matter of Sheldon, 160 Misc. 194 , 196 , 289 N. Y. Supp. 887 , 890 ( Westchester Co . 1936 ) Slater, S. The court said that the size of the mortgage was immaterial, if it was legal when acquired . Matter of First Nat'l Bank , 25 N. Y. S. 2d 221 ( Sup. Ct. N. Y. Co . 1941 ).
236. Matter of First Nat'l Bank, supra note 235; Matter of Balfe , 152 Misc. 739 , 755 , 274 N. Y. Supp. 284 , 302 ( Orange Co . 1934 ) Taylor, S. The court said: "No New York case has been cited in support of this proposition [lack of diversification as being Improper management] and it is doubted if our courts would so hold in the absence of controlling statute." The decision was affirmed, with an immaterial modification, 245 App . Div. 22 , 24 , 280 N. Y. Supp. 128 , 130 (2d Dep't 1935 ). But the court limited its discussion of the factor of lack of diversification to the statement that the concentration of investments in mortgages was not proof of bad faith on the part of the fiduciary (this being an important issue in the case), because the decedent himself turned over the securities In a non-diversified form. It is submitted, therefore, that the opinion of the Appellate Division in Matter of Balfe is of no importance, except as applicable to the precise set of facts before the court .
237. President and Directors of Manhattan Co. v. Erlandsen, 36 N. Y. S, 2d 136 , 140 (Sup. Ct. Queens Co. 1940 ), aff'd, 266 App. Div. 883 , 43 N. Y. S. 2d 639 ( 2d Dep't 1943 ).
238. Matter of Adriance, 145 Misc. 345 , 352 , 260 N. Y. Supp. 173 , 181 ( Kings Co . 1932 ) Wingate, S.
239. Matter of First Nat'l Bank, 25 N. Y. S. 2d 221 ( Sup. Ct. N. Y. Co . 1941 ).
240. Matter of Nugent, 280 N. Y. 505 , 19 N. E. 2d 918 ( 1939 ). No opinion in any court; the facts are found in the record of appeal.
241. Matter of Young, 159 Misc. 611 , 288 N. Y. Supp, 569 ( Westchester Co . 1936 ) Slater, S.
242. President and Directors of Manhattan Co. v. Erlandsvn, 36 N. Y. S. 2d 136 (Sup . Ct. Queens Co. 1940 ), aff'd, 266 App. Div. 33 , 43 N. Y. S. 2d 639 ( 2d Dep't 1Q43) .
243. Matter of Flint, 240 App. Div. 217 , 269 N. Y. Supp . 470 ( 2d Dep't 1934 ), afl'd, 266 N. Y. 607 , 195 N. E. 221 ( 1935 ).
244. Matter of Kirby, 35 N. Y. S. 2d 651 ( Westchester Co . 1942 ) Millard, S.
245. Matter of Adriance, 145 Misc. 345 , 260 N. Y. Supp . 173 ( Kings Co . 1932 ) Wingate, S.
246. Matter of Beebe, 52 N. Y. S. 2d 736 ( Kings Co . 1943 ) McGarey , S. , aFd, 263 App. Div. 1041 , 52 N. Y. S. 2d 796 ( 2d Dep't 1945 ).
247. Matter of First Nat'l Bank, 25 N. Y. S. 2d 221 ( Sup. Ct. N. Y. Co . 1941 ).
248. Cobb v. Gramatan Nat'l Bank , 21 N. Y. S. 2d 49 , 50 ( Sup. CL Westchester Co . 1940 ), aff'd, 261 App. Div. 1086 , 26 N. Y. S. 2d 917 ( 2d Dep't 1941 ).
249. Cobb v. Gramatan Natl Bank, supra note 248. Opinion of the Appellate Divilion , 261 App. Div. 1086 , 26 N. Y. S. 2d 917 ( 2d Dep't 1941 ).
250. Id . at 1086 , 26 N. Y. S. 2d at 918.
251. Id . at 1086 , 26 N. Y. S. 2d at 919.
252. It was based on Mills v . Bluestein , 275 N. Y. 317 , 9 N. E. 2d 944 ( 1937 ), and Matter of Smith, 279 N. Y. 479 , 18 N. E. 2d 666 ( 1939 ), rather than on the factor of diversification.
253. President and Directors of Manhattan Co. v. Erlandsen, 36 N. Y. S. 2d 136 (Sup . Ct. Queens Co. 1940 ), aff'd, 266 App. Div. 883 , 43 N. Y. S. 2d 639 ( 2d Dep't 1943 ) ; Matter of Montant, 117 N. Y. L. J. 1897 (New York Co. May 14, 1947 ) Collins, S.
254. Matter of Harmden, 64 N. Y. S. 2d 180 ( Queens Co . 1946 ) Saverese, S.
255. Matter of City Bank Farmers Trust Co ., 68 N. Y. S. 2d 43 ( Sup. Ct. N. Y. Co . 1947 ).
256. 'Unless the size of the estate makes it inadvisable. When an estate amounted to only $1,000. the court properly said that any attempt to diversify its investments bordered on the ridiculous , Matter of Froelich , 150 Misc. 371 , 375 , 269 N. Y. Supp. 541 , 546 ( Kings Co . 1934 ) Wingate, S.
257. Matter of First Nat'l Bank, 25 N. Y. S. 2d 221 , 226 ( Sup. Ct. N. Y. Co . 1941 ).
258. Matter of Adriance, 145 Misc. 345 , 352 , 260 N. Y. Supp. 173 , 181 ( Kings Co . 1932 ) Wingate, S.
259. Kimball v. Whitney , 233 Mass. 321 , 123 N. E. 665 ( 1919 ); Appeal of Davis, 133 Mass. 499 , 67 N. E. 604 ( 1903 ).
260. Matter of Toel, 39 N. Y. S. 2d 898 ( N. Y. Co . 1943 ) Foley, S.; REsTATm=. T TRusTs § 228 , comment h ; ( 1935 ).
352. Matter of Wotton, 59 App. Div. 584 , 69 N. Y. Supp . 753 (Ist Dep't 101 ), afl'd inem., 167 N. Y. 629 , 60 N. E. 1123 ( 1901 ).
353. In 1939, the Court of Appeals said , in Guaranty Trust Co. v. Lewis , 279 N. Y. 396 , 400 , 18 N. E. 2d 635 , 637 ( 1939 ), "In the absence of a provision in the trust indenture authorizing the trustee to retain the securities which are non-legals, the trustee would have been under a duty to dispose of them within a reasonable time unle3 specal circumstances warranted retention. Ordinarily, a trustee may not retain scuritle3 in which he would not be permitted to invesL"
354. Matter of Hamersley, 1S0 N. Y. Supp. 8S7 (N. Y. Co . 1q20) Foley , S.
355. Matter of Watson, 145 Misc. 245 , 261 N. Y. Supp . 327 ( Nassau Co . 1931 ) Howell, S.
356. St . Louis Trust Co. v. Stoffregen, 40 N. Y. S. 2d 527 ( Sup. CL N. Y. Co . 1942 ).
357. Matter of Jacobs, 152 Misc. 139 , 273 N. Y. Supp . 279 ( Delaware Co . 1934 ) O 'Connor , S.
361. Matter of Frame, 245 App. Div. 67S , 234 N. Y. Supp . 1- 3 (lst Dep't 1935 ).
362. Matter of See, 3S N. Y. S. 2d 47 ( Westchester Co . 1942 ) Millard, S.
363. Matter of Buck, 55 N. Y. S. 2d 841 (Westchester Co. 1Q45) Grifiths , S.
364. Matter of Mercantile Trust Co., 156 App. Div. 224 , 141 N. Y. Supp . 460 (lst Dep't 1913 ) where the court complimented the corporate fiduciary for its skill in selling a large block of volatile stock in a fluctuating market .
363. Matter of King, 130 Misc. 296 , 224 N. Y. Supp. 2S3 (N. Y. Co . 1927 ) O 'Brien , S.
370. Central Hanover Bank v. Brown , 30 N. Y. S. 2d 35 , 91 ( Sup. CL N. Y. Co . 1941 ); Matter of Raplee, 160 Misc. 615 , 620 , 290 N. Y. Supp. 517 , 524 ( Yates Co . 1936 ) Baler, S. ; Matter of Adriance, 145 Misc. 345 , 260 N. Y. Supp . 173 ( Kings Co . 1932 ) Wingate, S. ; Matter of Winburn, 140 Misc. 18 , 23 , 249 N. Y. Supp. 758 , 764 ( Westchezter Co . 1931 ) Slater, S.
371. Matter of Turner, 156 Misc. 63 , 71 , 249 N. Y. Supp. 452 , 456 ( Orange Co . 1935 ) Taylor, S.
372. Matter of Watson, 16S Mvisc. 135 , 140 , 5 N. Y. S. 2d 416 . 422 (Oneida Co . 1933 ) Ringrose, S. ; Matter of Raplee, 160 Misc. 615 , 620 , 290 N. Y. Supp. 517 , 524 ( Yates Co . 1936 ) Baker, S. ; Matter of Booth, 147 Misc. 353 , 264 N. Y. Supp. 773 ( N. Y. Co . 1935 ) Delehanty, S. ; Matter of Menzies, 54 Misc. 18S , 195 , 105 N. Y. Supp . 92S , 929 ( Madion Co . 1907 ) Kiley, S.; McRae v . McRae , 3 Bradf . 199 ( N. Y. Co . 1855 ) Bradford, S.
373. Matter of Baker, 249 App. Div. 265 , 269 , 292 N. Y. Supp. 122 , 129 (4th Dep't 1936 ).
374. Matter of Cuddeback, 163 Misc. 698 , 702 , 6 N. Y. S. 2d 493 , 497 ( Orange Co . 1938 ) Taylor, S.
375. Matter of Stulman, 146 Misc. 861 , 874 , 263 N. Y. Supp. 197 , 212 ( Kings Co . 1932 ) Wingate, S.
376. Matter of Easton, 178 Misc. 611 , 35 N. Y. S. 2d 546 ( Lewis Co . 1942 ) Moran, S., aff'd, 266 App. Div . 713 , 41 N. Y. S. 2d 190 ( 4th Dep't 1943 ).
377. Matter of Wildenburg, 177 Misc. 49 , 29 N. Y. S. 2d 896 ( N. Y. Co . 1941 ) Foley, S.
378. E.g., Matter of Clark , 257 N. Y. 132 , 177 N. E. 397 ( 1931 ) ; Matter of Andrews, 239 App . Div. 32 , 265 N. Y. Supp . 386 ( 2d Dep't 1933 ) ; Matter of McCafferty, 147 Misc . 179 , 264 N. Y. Supp . 38 ( Kings Co . 1933 ) Wingate, S . In Matter of Bunker, 184 Misc. 316 , 318 , 56 N. Y. S. 2d 746 , 748 ( N. Y. Co . 1944 ) Foley, S., the court in exonerating the fiduciary of negligence stressed the testimony that the fiduciary " . . before buying or selling any of the investments, sought the advice of experienced and high officials of a bank in this city. He consulted the partners and subordinates of two firms of bankers and brokers who were members of the New York Stock Exchange . He continuously studied recognized financial periodicals . ..."
379. Matter of Hurlburt, 210 App. Div. 456 , 206 N. Y. Supp . 448 ( 2d Dep't 1924 ).
380. Matter of McDowell, 102 Misc. 275 , 169 N. Y. Supp . 853 ( Chemung Co . 1918 ) Swartwood, S. OBLIGATIONS OF NA