Some Aspects of the Obligations of New York Fiduciaries with Respect to the Making of Investments, II

Fordham Law Review, Dec 1947

By Louis C. Haggerty, Published on 01/01/47

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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: - Article 1 VOLU-ME XVI NOVEMBER, 1947 NUMBER 2 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 trust. 76 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 Banking Law 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 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.' 1947] 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 [Vol, 16 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. 1855). 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 462 (N. Y. Co., 1945) Foley, S.; Matter of Stillman, 53 N. Y. S. 2d 718 (N. Y. Co. 1945) Delehanty, S. 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 estate.2o0 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 1947] 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 1947] 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 value. 2 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: 1947] "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. 581."123o 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 1947] 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 another.2-40 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 immediately thereafter: "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 1947] 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 protection.2:j 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 legatee. 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 327. hanty, S. 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 5 3 2 3 13 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 respects. 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. 338. Ibid. 339. Ibid. 340. Ibid. 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 hand4 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 1947] 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) Delehanty, S. 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); Mat FORDIJAM LAW REVIEW What Constitutes a Reasonable Period of Retention of Securities 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 47 (Westchester Co. 1942) Millard, S.; Matter of Brown, 33 N. Y. S. 2d 459 (Madison Co. 1942) 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) Schenck, S. 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 determining liability. 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 terminated.? 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 Been Established 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 sur Matter of Brown, 33 N. Y. S. 2d 459 (Madison Co. 1942) Campbell, S. 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 Securities 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 Investments 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) McGarey, S. 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) Delehanty, S. 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 Fiduciaries 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 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) Ddehanty, S. 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 fiduciary: "... 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 anticipated."38 8 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 estate. 390 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 referee that: 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 1898). 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 diligence. 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 407 estate.,, 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 insufficient.4 " 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) WVingate, S. 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

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Louis C. Haggerty. Some Aspects of the Obligations of New York Fiduciaries with Respect to the Making of Investments, II, Fordham Law Review, 1947,