Opinion
September 5, 1890.
TRUSTEES — INVESTMENT OF TRUST-FUND.
A trustee invested between one-fourth and one-fifth of the amount of a trust-fund in the stock of a railroad company, paying a premium therefor. The road had been constructed, at great expense, through a new and comparatively unsettled country. It was heavily indebted, and its continued prosperity depended on circumstances so uncertain as to make the investment of trust-funds in its stock a considerable risk. He shortly afterwards invested in it a second amount nearly equal to the first, and paid a higher premium for the stock. Held that, while both investments were made in good faith, he was not justified in putting so large a proportion of the fund into such stock, and he should be charged with the amount of the second investment.
Appeal from a decree of the judge of probate for Hampshire county, disallowing, in part, the account of Willam A. Dickinson, as trustee, under a deed of trust.
Wells Barnes, for appellant. Bond Mason, for Lucius M. Boltwood, appellee.
The general principles which should govern a trustee, in making investments, when the creator of the trust has given no specific directions concerning investments, have been repeatedly declared by this court. College v. Amory, 9 Pick. 446; Lovell v. Minot, 20 Pick. 116; Brown v. French, 125 Mass. 410; Bowker v. Pierce, 130 Mass. 262; Hunt's Appeal, 141 Mass. 515, 6 N.E. Rep. 554. The rule, in general terms, is that a trustee must, in the investment of the trust-fund, act with good faith and sound discretion, and must "observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety, of the capital to be invested." It is said in the opinion in Brown v. French, supra, that, "if a more strict and precise rule should be deemed expedient, it must be enacted by the legislature. It cannot be introduced by judicial decision without working great hardship and injustice." It is also said that "the question of the lawfulness and fitness of the investment is to be judged as of the time when it was made, and not by subsequent facts, which could not then have been anticipated." A trustee in this commonwealth undoubtedly finds it difficult to make satisfactory investments of trust property. The amount of funds seeking investment is very large. The demand for securities which are as safe as is possible in the affairs of this world is great, and the amount of such securities is small when compared with the amount of money to be invested. Trusts frequently provide for the payment of income to certain persons during their lives, as well as for the ultimate transfer of the corpus of the trust property to persons ascertained, or to be ascertained at the termination of the trust; and a trustee must, so far as is reasonably practicable, hold the balance even between the claims of the life-tenants and those of the remainder-men. The life-tenants desire a large income from the trust property, but they are only entitled to such an income as it can earn when invested in such securities as a prudent man, investing his own money, and having regard to the permanent disposition of the fund, would consider safe. A prudent man, possessed of considerable wealth, in investing a small part of his property, may wisely enough take risks which a trustee would not be justified in taking. A trustee, whose duty it is to keep the trust-fund safely invested in productive property, ought not to hazard the safety of the property under any temptation to make extraordinary profits. Our cases, however, show that trustees in this commonwealth are permitted to invest portions of trust-funds in dividend-paying stocks and interest-bearing bonds of private business corporations, when the corporations have acquired, by reason of the amount of their property and the prudent management of their affairs, such a reputation that cautious and intelligent persons commonly invest their own money in the stocks and bonds as permanent investments. The experience of recent years has perhaps taught the whole community that there is a greater uncertainty in the permanent value of railroad properties in the unsettled or newly settled parts of this country than was anticipated nine years ago. Without, however, taking into consideration facts which are now commonly known, and confining ourselves strictly to the evidence in the case and the considerations which ought to have been present to the mind of the appellant when, in May and August, 1881, he made the investments in the stock of the Union Pacific Railroad Company, we think it appears that he acted in entire good faith, and after careful inquiry of many persons as to the value of the stock and the propriety of the investment. We cannot say that it is shown to our satisfaction that the trustee so far failed to exercise a sound discretion that the investments should be held to be wholly unauthorized. Still, it must have been manifest to any well-informed person, in the year 1881, that the Union Pacific Railroad ran through a new and comparatively unsettled country; that it had been constructed at great expense, as represented by its stock and bonds, and was heavily indebted; that its continued prosperity depended upon many circumstances, which could not be predicted, and that it would be taking a considerable risk to invest any part of a trust-fund in the stock of such a road. In this case the whole trust-fund appears, by the first account, to have been $16,260.05. On May 9, 1881, the trustee bought 30 shares of the stock of the Union Pacific Railroad Company, at $119 per share, which with commissions amounted to $3,573.75. This is an investment of between one-fourth and one-fifth of the whole trust-fund in this stock, and is certainly a large investment, relatively to the whole amount of the trust-fund, to be made in the stock of any one corporation. After this, on August 16, 1881, he purchased 20 shares more at $123 per share, amounting with commissions to $2,475. The last investment we think cannot be sustained as made in the exercise of a sound discretion. While we recognize the hardship of compelling a trustee to make good out of his own property a loss occasioned by an investment of trust property which he has made in good faith and upon the advice of persons whom he thinks to be qualified to give advice, we cannot on the evidence hold that the trustee was justified in investing in such stock as this was so large a proportional part of the property.
It appears by the report of the single justice before whom this cause was tried that "the time has now come for a final distribution of said trust-fund." It does not appear that when the first account was allowed there was any adjudication of the questions now before us, and they are not therefore res adjudicate, and no assent to these investments is shown on the part of the persons now entitled to the trust property.
The result is that this last investment is disallowed, and that the trustee must be charged with the amount of it, to-wit, $2,475, and with simple interest thereon from August 16, 1881, and must be credited with any dividends therefrom which he has received and paid over, with simple interest on each from the time each dividend was received.
The decree of the probate court must be modified in accordance with this opinion.
Decree accordingly.