This matter is before us on a reservation and report of twenty questions of law by a judge of the
The judge referred all three matters to a single lawyer (master-auditor) to hear the parties, receive their evidence, find the facts and report his findings to the court. The trustee's account was referred to him as an auditor whose findings of fact were to be final, and the other two petitions were referred to him as a master. The master-auditor filed a combined report on all three matters. Underlying all of the interlocutory questions reported by the judge to this court is the controlling question whether
At his death on March 31, 1930, William G. Dwight (testator) was survived by the following heirs: his widow Minnie R. Dwight who was his second wife, his son Henry Dwight, the child by his first wife who died shortly after Henry's birth, his son William Dwight, and his daughters Helen Dwight Schoeffler and Laura Dwight
For many years prior to his death on March 31, 1930, the testator had been associated with the publication of a newspaper first called the "Holyoke Transcript" which in 1926 was changed to the "Holyoke Daily Transcript-Telegram." Since nothing in this opinion turns on the precise name used, the newspaper will be referred to as the "Transcript." Formerly the testator was the sole proprietor of this newspaper business but about January 12, 1921, he transferred it to Holyoke Transcript, Inc., a Massachusetts corporation. The corporation was authorized to issue 800 shares of stock. It issued 798 shares to the testator, one share to his wife, Minnie R. Dwight (Mrs. Dwight), and one share to their daughter Helen (now Helen Dwight Schoeffler, a respondent). The testator never acquired the latter two shares. When he died his estate included the 798 shares and certain other assets, but the present litigation does not involve those other assets.
The will of the testator was drawn on June 28, 1926, naming Mrs. Dwight as executrix. It was allowed on April 23, 1930, and Mrs. Dwight was appointed executrix. She served in that capacity until her death on July 31, 1957. The will first gave all of the testator's property to Mrs. Dwight "for and during the term of her natural life, she to have full control and management of the same and receive the income from the same during the term of her natural life," and it gave her the power to sell assets without obtaining permission from the Probate Court. The will provided for the following distribution of the shares of stock of Holyoke Transcript, Inc., after the death of Mrs. Dwight: 401 shares to the testator's son William Dwight, 133 shares to the testator's daughter Laura Dwight Lewis, 133 shares to the testator's daughter Helen Dwight Schoeffler, and 133 shares to the Holyoke National Bank, "as trustee and in trust for my son, Henry Dwight... he to have the use and income of the same during his life
Although the will purported to dispose of 800 shares of stock in Holyoke Transcript, Inc., we have noted above that the testator held only 798 such shares, the corporation having issued one to Mrs. Dwight and one to their daughter Helen. Shortly after the testator's death Mrs. Dwight transferred her one share to her son William, and on advice of counsel she sold five more shares to him from the 798 held in the estate of which she was executrix. The sale was made at the appraised value of $333.53 a share. This left only 793 such shares for distribution when the life estate terminated at the death of Mrs. Dwight on July 31, 1957. The actual distribution made, instead of that provided in the will, was as follows: 397 shares to William, 132 shares each to Laura and Helen, and 132 shares to the Holyoke National Bank as trustee for Henry for life and then to his heirs or legal representatives. Since William and Helen previously held shares of the same corporation, this distribution increased their holdings to 403 shares for William and 133 for Helen.
After the death of the testator on March 31, 1930, his son William was made managing editor of the Transcript and he commenced to participate in managerial
On January 15, 1934, Mrs. Dwight, Arthur Ryan and William Dwight formed a Massachusetts business corporation under the name of Holyoke Transcript-Telegram Publishing Co., Inc. (Publishing Company). They caused the corporation to issue 198 shares of its stock to Mrs. Dwight individually and not in her capacity as executrix or life tenant, and one share to each of the other two incorporators. The corporate purposes of the new Publishing Company were almost identical to those of the Holyoke Transcript, Inc. In so far as the stated purposes were concerned, there was nothing which the new corporation could do which the prior corporation could not also do. Thus, both corporations were authorized to publish a newspaper. Mrs. Dwight in her capacity as executrix held the controlling shares in the Holyoke Transcript, Inc., and in her individual capacity held the controlling shares in the Publishing Company. She was president of both corporations, and she, her brother, Arthur Ryan, and her son William were the principal officers of both corporations.
While the corporate situation was as described above, the Holyoke Transcript, Inc., leased its entire physical plant, including its real estate, presses and other personal property, to the Publishing Company for a term of five years beginning March 1, 1934, at an annual rental of $75,000. That rental payment also covered a license given to the Publishing Company to publish the newspaper under the name of "Holyoke Daily Transcript and Telegram," and the right of the lessee to use that name as part of its corporate name.
The annual rental of $75,000 was originally fixed by the three persons who were the principal officers of both corporations. The annual rents actually paid by the Publishing Company for the years from the beginning of the lease were the following:
1934 $ 75,000 (prorated for part of the year) 1935 75,000 1936 75,000 1937 70,000 1938 40,000 1939 through 1941 50,000 annually
1942 through 1945 60,000 annually 1946 75,000 1947 80,000 1948 and 1949 96,000 annually 1950 108,000 71951 through 1954 120,000 annually 1955 126,000 1956 and 1957 132,000 annually.
The decisions to pay the reduced rent in the years 1937 through 1945 were made by Mrs. Dwight. Holyoke Transcript, Inc., had the right to terminate the lease for nonpayment of the agreed rent, but it did not exercise that right. The amount of rent which Mrs. Dwight agreed or permitted the Publishing Company to pay to Holyoke Transcript, Inc., was determined more by the financial needs, and ultimately the financial success, of the Publishing Company than by any consideration of the rental value of land, buildings and equipment rented, and the rent charged and paid was directly related to the right to publish the newspaper and was not rent in the ordinarily accepted sense.
Under the testator's will the trust was to receive 133 (actually reduced to 132 as noted above) of the 800 shares of stock of Holyoke Transcript, Inc., which, at the testator's death, was in the business of publishing the newspaper. When the life estate of Mrs. Dwight terminated and distribution of the 132 shares was made to the trust, Holyoke Transcript, Inc., was no longer in the business of publishing the newspaper, and the trust received no part of the shares of stock of the Publishing Company to which that business had been diverted by the three persons controlling both companies. Two of such persons, Mrs. Dwight and William Dwight, were at all times beneficiaries under the testator's will, and each was at some time the executrix or administrator thereunder.
Regardless of the motive which prompted Mrs. Dwight,
When the Publishing Company was incorporated in 1934, Mrs. Dwight became the owner of 198 of the 200 shares originally issued. The total number of such shares owned by her increased over the years, in large part due to stock dividends declared on capitalization of earned surplus. Starting in 1946 Mrs. Dwight made annual gifts of these shares to her son William and to her daughters Helen and Laura, thus diluting her ninety-nine per cent ownership of the corporation's shares in 1934 to about fifty-four per cent by the end of 1956. Despite these gifts, she still owned 32,388 shares of the Publishing Company at the time of her death on July 31, 1957. These shares were appraised at a total of $195,623.50 in the inventory of her estate, and they were all bequeathed to her son William, and to her daughters Helen and Laura. William was the executor of the will.
There is no indication that Mrs. Dwight ever gave or bequeathed any of these shares to Henry Dwight or to any trustee for his benefit. Although the master-auditor reported no finding of the number of such shares now held by any of the respondents, his report included the following statement in a footnote: "During the hearings the Guardian ad Litem developed undisputed evidence of intra-family gifts of stock in the Publishing Company ... made by Mrs. Dwight and by William Dwight. Subsequently all the donees of these gifts were made parties respondent to these proceedings. Since the donees and the amounts of stock comprising each gift are not contradicted I make no further findings concerning either here."
The Publishing Company started in 1934 with a total paid in capital of $1,000 received for the 200 shares which it then issued for $5 each. No additional capital was paid in thereafter. The profitability of its newspaper business is indicated by the following. By capitalizing earned surplus it declared three stock dividends, $24,000 in 1941, $125,000 in 1954 and $150,000 in 1956, for a total of $299,000. It paid cash dividends of $30,000 a year from 1947 through 1955, and $36,000 a year for 1956 and 1957, for a total of $342,000. At the end of 1957 it still had a balance of $105,029 in its earned surplus account.
Mrs. Dwight's first account as executrix was filed on December 31, 1956, for the period from the date of her
Mrs. Dwight and all four children of the testator assented to the allowance of the first account of the executrix. On February 19, 1957, the judge appointed a guardian ad litem (other than the present guardian) to represent the interests of various named minors and of "unborn and unascertained persons [who] may be interested" in the allowance of the account. On the following day that guardian ad litem filed a written assent to the allowance of the account. The judge allowed the account by a decree entered on February 26, 1957. No appeal was claimed from that decree. This
Mrs. Dwight died on July 31, 1957, having filed no further account as executrix. On October 11, 1957, her son William was appointed administrator to succeed her. He prepared and filed the second and final account for the deceased executrix covering the period from December 1, 1956, through October 14, 1957. Basically, it showed that the executrix started that period with the balance of $269,758.02 which she had at the end of the period covered by her first account, that she received two small items of interest and paid three items of expense, and that the balance of $269,327.39 was turned over to her successor, William Dwight, as administrator. That account was assented to by the four children of the testator and it was allowed by the judge by a decree entered on April 24, 1958, without appointment of a guardian ad litem. No appeal was claimed from that decree. This is the second of the three decrees which the guardian asks the Probate Court to revoke.
William filed his inventory as administrator on December 16, 1957. It listed personal property having a total appraised value of $269,327.39, which was the amount received from the deceased predecessor executrix. This total included the item of "793 shs. Holyoke Transcript, Inc. — $264,490.29." These shares were thus appraised at $333.53 each as they had been in the original 1930 inventory of the testator's estate.
William's first and final account as administrator was filed on February 20, 1958, for the period from his appointment on October 14, 1957, through January 31, 1958. It showed a complete distribution of all personal property of the estate of the testator. One item of distribution was "Holyoke National Bank, Trustee for Henry Dwight, distribution of stock $44,025.96." This represented the distribution of 132 shares of stock of Holyoke Transcript, Inc., accounted for at the appraised value of $333.53 a share. This account was assented to by all four children of the testator, and by the Holyoke
The testamentary trustee for the benefit of Henry Dwight and others was appointed by the Probate Court on September 10, 1957, and later that month it received from William, as administrator, the 132 shares of stock of Holyoke Transcript, Inc., due it under the will. On or before October 21, 1957, these shares were appraised at $760 each, for a total of $100,320, by three appraisers appointed by the Probate Court. One appraiser was a vice-president of the trustee, one was a real estate and insurance broker, and one was a certified public accountant who had been the accountant for Holyoke Transcript, Inc., since 1921 and had also served in a similar capacity for other Dwight family firms. In determining the value of the shares the appraisers had available to them all necessary information from financial records of Holyoke Transcript, Inc., but not of the Publishing Company or of other related corporations. In its inventory filed on November 12, 1957, the trustee listed these shares at the appraised value as its sole asset.
When William delivered the certificate for the 132 shares of stock to the trustee, he told the latter's trust officer that it was the policy of the Holyoke Transcript, Inc., management to build up earned surplus against the day when a new plant would be built and equipped and, therefore, not to pay dividends. Some time before October 21, 1957, he offered to purchase the same 132 shares from the trustee at the appraised value, 100 of the shares to be purchased by Holyoke Transcript, Inc., and the other 32 shares by Valley-Photo, a corporation controlled by him. On October 22, 1957, the trustee's board of directors voted to accept the offer, and at the same meeting or prior thereto voted to make collateral loans of $65,000 and $25,000 to Holyoke Transcript, Inc., and Valley-Photo, respectively. The proceeds of these loans
The trustee filed its first account on October 1, 1958, for the year ending September 13, 1958. The account showed that the trustee had sold the 132 shares of stock of Holyoke Transcript, Inc., and replaced them with a variety of diversified securities and some bank deposits. On January 13, 1959, Philip O'Brien, Jr., Esquire, was appointed guardian ad litem in connection with this account. On November 25, 1960, he filed a lengthy written objection to the allowance of the account (Young v. Tudor, 323 Mass. 508, 509), stating therein many of the facts later alleged by him in his petition in equity and petition to revoke decrees, thus commencing the proceedings now before this court on report by the judge of the Probate Court.
Both by his petition in equity and his petition to revoke decrees, the guardian alleges that assets of the estate were wrongfully and unlawfully used, transferred or diverted from the estate by the executrix to or for the benefit of two additional corporations, Valley-Photo owned and controlled by her son William, and Hampden-Hampshire in which the executrix held at least a substantial, and perhaps a controlling, number of shares. As to these two corporations the guardian seeks the same kind of relief, for the benefit of the trust, which he seeks with reference to the Publishing Company. Briefly, he asks that the respondents be ordered to turn over to the trust its proportionate part of the shares of these corporations and to account to the trust for profits, unjust enrichment and damages. The master-auditor made detailed findings on this part of the guardian's claim, but basically he found the facts against the guardian as to each of the corporations.
Valley-Photo was formed by William on June 1, 1935, after the Publishing Company had decided to discontinue its own photo-engraving operation. This decision was made primarily by Mrs. Dwight, the executrix and life tenant, for purposes properly connected with the
Hampden-Hampshire was formed by Mrs. Dwight on February 3, 1937, for the purpose of operating a commercial radio station to serve the Holyoke and Northampton area. She was joined in that enterprise by a lady from Northampton of whom the master-auditor said that she, like Mrs. Dwight, was "the matriarch of a newspaper family." The required license was obtained in October, 1940, and broadcasting began in March, 1941. The Holyoke studio was in space leased at an annual rental of $1,200 from Holyoke Transcript, Inc., and located in the same building occupied by the Publishing Company. The lessor expended $4,928.77 to construct the studio. The rent for the period from March 14, 1941, through December 31, 1942, amounting to $2,196, was never paid. In the beginning the Publishing Company, with Mrs. Dwight's approval, aided the radio station operation by making available to the latter's employees information and news items obtained over the newspaper wire services and by the newspaper reporters. This did not interfere with the duties of the newspaper employees. Later the radio station set up its own news staff and
The master-auditor finds the following financial transactions relating to Hampden-Hampshire. About February 3, 1937, Mrs. Dwight paid it $30,000 for its initial issue of 600 shares of capital stock at $50 a share. On February 26, 1937, Holyoke Transcript, Inc., loaned it $10,000 which was paid back by 1943. The master-auditor made no finding whether any interest was charged or paid on this loan. Between 1937 and 1941 Mrs. Dwight loaned Hampden-Hampshire $8,400. At some time in 1937 Mrs. Dwight borrowed $30,000, without interest, from Holyoke Transcript, Inc., which the master-auditor infers and finds was used to purchase stock of Hampden-Hampshire. She repaid the corporation $20,000 of the loan in 1938 and she repaid the balance in instalments by the end of 1951, and she had owed it nothing since then. Holyoke Transcript, Inc., borrowed $20,000 from the Holyoke National Bank on February 26, 1937, and increased the borrowing to $30,000 on May 5, 1937. It repaid the bank in full on March 7, 1938. It borrowed $25,000 from the bank on April 4, 1939, and repaid the bank in full on April 4, 1940. Although the master-auditor recites these borrowings by Holyoke Transcript, Inc., he adds that the records and evidence did not disclose why the money was borrowed or the dollar amount of interest paid on the loans. He recites no inference, if any, drawn by him from these three loans by the bank.
The only other significant finding of the master-auditor on the radio station business of Hampden-Hampshire was that "it was never at any time an enterprise related to the publishing, ownership or control of `Holyoke Daily Transcript' or Holyoke-Transcript, Inc. as the pre-1934 publisher of Holyoke Daily Transcript-Telegram.... [I]t may have developed more newspaper buyers but this was an indirect benefit, at best. It was a separate activity in the news media
In both his petition in equity and his petition to revoke decrees the guardian alleges that the testamentary trustee was guilty of negligence in the discharge of its duties, particularly in its alleged failure to take action necessary to gather into the trust all the assets to which the trust is entitled. The master-auditor made extensive findings on this subject and concluded that the trustee was negligent. The recital and discussion of these is deferred to a later part of this opinion.
Having summarized the pertinent facts appearing in the record, except as to the alleged negligence of the trustee, we turn now to the consideration of the questions reported by the judge for our decision. Before considering the twenty questions, either individually or in groups by subject matter, it is appropriate to comment briefly on the source and scope of the authority of the judge to make such a report. The sole source of the power of a probate judge to "reserve and report" a case or question to "the full court" is G.L.c. 215, § 13. The power thereby conferred is limited to two classes of cases: (a) cases which have been "heard for final determination," in which cases the judge may "reserve and report the evidence and all questions of law therein for consideration of the full court, and thereupon like proceedings shall be had as upon appeal," and (b) cases in which an interlocutory decree or order has been made which, in the opinion of the judge, "so affects the merits of the controversy that the matter ought, before further proceedings, to be determined by the full court." In the latter case the judge may report questions to "the full court." Dunlop v. Claussen, 313 Mass. 715, 716. Since the present case has not been "heard for final determination" it comes within the second class of cases which may be reported.
By a series of orders and interlocutory decrees the judge (a) denied the pleas in bar of all respondents to the guardian's petition in equity and his petition for revocation of decrees allowing prior accounts, (b) overruled
1. Questions Relating to the Guardian's Authority as to Accounts Previously Allowed. The guardian was "appointed to act as guardian ad litem or next friend for" two named minors and other "persons unborn or unascertained who are or may become interested in" the first account of the trustee, and "to represent their interest in said account." The guardian thereupon embarked on an in-depth investigation of the conduct of the executrix and of the administrator prior to the allowance of their three accounts ultimately closing out the estate and showing the transfer of certain assets to the trustee. He then filed objections to the allowance of the first account of the trustee, brought a petition to revoke the decrees allowing the earlier accounts in the estate, and a petition in equity against the individual respondents for recovery of alleged estate assets. The
The language of the pleas in bar and the demurrers and of the report of the judge would seem to raise the questions (a) whether the appointment of the guardian in connection with the trustee's first account by an order in the usual form authorized him to inquire into the prior accounts of other fiduciaries and to bring the petition in equity and the petition to revoke the decrees allowing those accounts, or (b) whether the guardian required express authorization from the judge before taking such action. The trustee does not argue the question of the guardian's authority in any manner in its brief, and the individual respondents argue it only as a part of their general argument on their pleas and demurrers which we shall consider below. Therefore, since the only brief which specifically argues the question is that of the guardian who argues in support of his action, we are not required to decide this question separately even though it is specifically reported by the judge. However, it is appropriate to note that the judge was aware of the action taken by the guardian and that he upheld the guardian on every occasion when his authority to act was questioned, thus impliedly ratifying the guardian's action to the extent, if any, that it was not authorized by his original appointment.
2. Questions Relating to the Sufficiency of Allegations in Pleadings as Raised by Pleas in Bar and Demurrers. The pleas in bar filed by the respondents to the guardian's petitions have been described above. Additionally, the respondents demurred to both petitions on several grounds, one of which, that the guardian acted
The trustee does not argue the questions arising from its pleas in bar and demurrers in any manner in its brief. The individual respondents argue their pleas and demurrers only briefly. As to the guardian's petition in equity they argue that it "constitutes a collateral attack on prior allowed accounts, ... that a decree of the Probate Court within its jurisdiction is good unless it is set aside and it cannot be attacked collaterally and cannot be set aside in equity even for fraud," citing Bloom v. Bloom, 337 Mass. 480, 482. The respondents' statements quoted from their brief are correct, but they ignore the fact that after the respondents demurred to the petition in equity the guardian did file a petition to revoke the decrees with the result that he need not rely on the equity petition for a collateral attack on the decrees, but may still rely on it as the vehicle for requiring the respondents to restore assets to the trust if the accounts are reopened and the respondents are found liable.
As to the guardian's petition to revoke the decrees the individual respondents argue that their plea should have been allowed and their demurrer sustained because
Before stating our answer to the judge's questions to us whether he correctly denied the pleas in bar and overruled the demurrers, we repeat some pertinent dates and occurrences in this now prolonged litigation. The guardian filed his petition in equity on June 29, 1961. The respondents' plea in bar to that petition was denied on September 28, 1961, and their demurrer to it was overruled on November 29, 1961. The guardian filed his petition to revoke decrees on November 16, 1961. The two petitions, together with the trustee's first account, were all referred to a master-auditor no later than November 30, 1961. By June 7, 1963, the judge found that the hearings before the master-auditor had become so protracted that he ordered bifurcated hearings and reports on the issues of liability and damages. By September 18, 1967, the master-auditor apparently had not completed hearings and report on the liability issue and the judge ordered him to complete that phase without taking any further evidence on damages. The master-auditor filed his report on the liability phase of the litigation on November 15, 1967. Hearings on objections to the report and on motions to recommit followed. On May 12, 1970, all of the objections were overruled and the motions were denied. On June 18, 1970, the judge confirmed the report of the master-auditor. On February 4, 1971, all of the following events occurred: (a) the individual respondents and the trustee filed, and the judge allowed, separate motions asking leave to file pleas in bar, demurrers and answers to the petition to revoke decrees, which petition had been filed by the guardian on November 16, 1961; (b) the respondents filed their pleas, demurrers and answers, and (c) the judge denied the pleas and overruled the demurrers. Nothing in the record sheds any light on this unusual
When viewed against this historical background, the judge's 1971 report to this court of questions 2, 3, 4 and 5, asking whether he correctly denied the pleas in bar and overruled the demurrers, thereby ruling that the 1961 allegations in the guardian's petitions were legally sufficient, is an exercise in utter futility. If the judge seriously doubted the correctness of his rulings in this regard he had an opportunity to report them as early as November 29, 1961, before the near decade of legal blood letting had intervened. By 1971 the time had long since passed when this court should be asked to deal with niceties of ancient pleadings to determine whether the allegations were legally sufficient. By 1971 we had the benefit of actual findings by the master-auditor. The real test in 1971 was not whether the 1961 allegations were sufficient, but whether the facts found were sufficient to entitle the guardian to relief. If they were, he would be entitled to ask the court to permit him to amend his pleadings to conform to his proof under our liberal and far-reaching statutory authority given to courts to allow, "at any time before final judgment ... [any] amendment in matter of form or substance in any process, pleading or proceeding, which may enable the plaintiff to sustain the action for the cause for which it was intended to be brought." G.L.c. 231, §§ 51, 52.
Neither the ends of justice nor the interests of the parties will be served in any way by a present decision by this court on the question whether the judge correctly ruled that the guardian's 1961 allegations were legally sufficient to entitle him to relief. The crucial question is whether the facts found by the master-auditor entitle him to relief. We shall focus instead on that question in later paragraphs of this opinion.
The mere statement of even this skeletal outline of
"Since the report shows upon its face all the subsidiary facts which the master [-auditor] had in mind and upon which he based his ... [general findings], we are in no way bound by ... [his general findings], and we must take these subsidiary findings together with the inferences that ought to be drawn from them and reach our own conclusion." Murray v. Bateman, 315 Mass. 113, 117. McOuatt v. McOuatt, 320 Mass. 410, 411. Samia v. Central Oil Co. of Worcester, 339 Mass. 101, 122. Corrigan v. O'Brien, 353 Mass. 341, 346. LiDonni
Questions 8 and 9 reported by the judge ask whether he correctly overruled the motions of the respondents to recommit the report to the master-auditor. Although the guardian has argued at length against these motions in his brief, the respondents who were the moving parties did not argue the matter in their respective briefs. We take this to mean that they have no interest in having this court consider the denial of their motions. Accordingly, we are not required to answer questions 8 and 9. S.J.C. Rule 1:13, 351 Mass. 738. Lolos v. Berlin, 338 Mass. 10, 13-14.
4. Question Relating to Sufficiency of Findings to Vacate Decrees Allowing Prior Accounts — Transfer to Publishing Company. Question 11 reported by the judge asks whether the facts found by the master-auditor are "sufficient to sustain the guardian ad litem's burden of proof that there was fraud committed by the accountants in the various challenged allowed accounts so that they may be reopened under ... [G.L.c. 206, § 24]." Section 24 prescribes the notice to be given and procedure to be followed for the allowance by the Probate Court of accounts of fiduciaries. Statute 1938, c. 154, § 1, added the following language which still appears in § 24: "After final decree has been entered on any ... account it shall not be impeached except for fraud or manifest error." The basic question involved here is whether the conduct of Mrs. Dwight and of her son William as found by the master-auditor constitutes
As the first step in answering that question we must determine whether the transfer of the newspaper business from the Holyoke Transcript, Inc., to the Publishing Company constituted a breach of the fiduciary duties of Mrs. Dwight and her son William. We hold that it did.
The general principles governing the conduct of fiduciaries dealing with trust property which are to be applied in judging the conduct of Mrs. Dwight and her son William in this case are clear. In Bowen v. Richardson, 133 Mass. 293, 296, we said: "The rule is general and fundamental, that no person holding trust funds can be allowed to derive any personal gain or advantage, either directly or indirectly, from the use [or sale] thereof ... [that] he must account for all the profits arising from such use, if profits are made, ... [and that t]his rule is applicable to every kind of fiduciary relation: to executors, administrators, trustees, guardians, directors of corporations, and all persons who hold funds in trust for others. It is also applicable to every mode in which such trustees may either directly or indirectly seek to derive a personal gain or advantage from the use of trust funds, whether by using the same in their personal business, or by treating the same as a loan to one or more or all of themselves ... or to a firm of which they are members, or otherwise. Whatever form the transaction may assume, the salutary rule must be enforced which forbids them from reaping a personal profit from the method which they adopt of investing or managing the trust estate."
The principles quoted above have been reaffirmed or restated and applied in many of our decisions too numerous to cite. In Boston Safe Deposit & Trust Co. v. Lewis, 317 Mass. 137, 140-141, we restated the principles and added thereto: "Personal gains accruing to a trustee from the transfer of trust property to himself must be accounted for by him even though he was acting
No prolonged discussion is necessary to demonstrate that Mrs. Dwight and her son William violated these long established principles governing the conduct of fiduciaries when they caused the newspaper business to be transferred from the Holyoke Transcript, Inc., to the Publishing Company. When the transfer was made, Mrs. Dwight was the sole executrix and sole beneficiary of the estate which owned 798 out of the 800 outstanding shares of stock of Holyoke Transcript, Inc. The will specifically bequeathed all of these shares to other persons after the death of Mrs. Dwight. She and her son William constituted a majority of the directors of Holyoke Transcript, Inc. She and her son owned 199 of the 200 outstanding shares of stock of the Publishing Company and they constituted a majority of its directors. The transfer was made without consideration paid or payable to the estate or to Holyoke Transcript, Inc., other than the rent payable to the latter corporation as lessor of the newspaper plant. William participated in the transfer with full knowledge of all the facts, and he is chargeable with equal responsibility for its consequences. Neither Mrs. Dwight as executrix, nor William as successor administrator of the estate, ever accounted for or otherwise disclosed the transfer in their several accounts as such fiduciaries.
We are now faced directly with the ultimate question
Formerly, decrees of the Probate Court allowing interim accounts of fiduciaries did not have the same force and effect as other decrees of that court, and they were subject to review in connection with the allowance of the final account of the fiduciary. "The purpose and effect of St. 1938, c. 154, § 1 [amending G.L.c. 206, § 24], was to make decrees in Probate Courts on interim accounts after compliance with the requirements of the statute as fully effective as decrees entered in those courts in other proceedings which could be revoked only for fraud or manifest error." Jose v. Lyman, 316 Mass. 271, 280.
The finality accorded to Probate Court decrees and their protection against direct attack by proceedings to vacate them did not originate with the 1938 amendment to § 24. The statute is a recognition of a long established rule based on considerations of public policy. One of the most frequently quoted statements of the rule is the following from the opinion in Zeitlin v. Zeitlin, 202 Mass. 205, 207: "It is in the interests of justice that, after a trial and final judgment in a case, the matters heard and adjudicated shall not be opened for a further hearing because of a supposed error in the determination of facts by the tribunal that heard the evidence. A contention that some part of the material testimony was false might be made with plausibility in a large proportion of the cases that are tried. A contention that the prevailing party knowingly gave or procured false testimony, upon an issue involved, might be made and strongly supported in a great many cases. It is against public policy to open cases on no other ground than this." To the same effect, see Renwick v. Macomber, 233 Mass. 530, 533-534, involving an alleged suppression or concealment of material facts, and Stephens v. Lampron,
The public policy considerations stated in the Zeitlin case have never been held to deprive a Probate Court of the power to revoke a decree where the interests of justice require such action. In Edson v. Edson, 108 Mass. 590, 597, the court said: "It is no doubt true, that a decree or judgment which stands unreversed and in force cannot be called in question or impeached in collateral proceedings, by one of the parties to the original suit; it is a very different proposition to maintain that an innocent party cannot invoke the power of the court by which the original judgment or decree was rendered, to vacate and annul it on the ground that it was procured by a fraud practised on the court to his gross injury." In Child v. Clark, 231 Mass. 3, involving sham proceedings in the Probate Court without notice to a claimant of real estate involved in a petition for license to sell, we said, at p. 6: "It would be a reproach to our law if such an injustice to the rights of the petitioners could be perpetrated by means of a fraud practised upon the Probate Court (as that court has found), and no redress be afforded. That the Probate Court has a broad power to revoke or correct its decrees on the ground of fraud practised upon the parties or upon the court is too well established to require discussion."
In a continuing line of decisions, this court has carved a number of exceptions out of the general rule stated in the Zeitlin case, supra. The case of Child v. Clark, cited in the paragraph above is such a case. In Sullivan v. Sullivan, 266 Mass. 228, 229, and Lovell v. Lovell, 276 Mass. 10, 11, the court applied an exception permitting a decree to be vacated where a party has been deprived of an opportunity to make a defence on the merits of a case by accident or mistake or by the negligence of his attorney. In Parsekian v. Oynoian, 299 Mass. 543, 544-545, this court upheld the legal sufficiency of a petition to vacate a decree allowing a will subsequently alleged to have been a forgery. In Agricultural Natl. Bank v.
There is yet another exception which we discuss last because of its relevance to the present case. Under this exception a decree of the Probate Court may be vacated if it was procured by the fraud of a party which operated to deprive an interested party of his day in court or of his opportunity to litigate an issue claimed to have been adjudicated by the decree. In some cases, such as Child v. Clark, 231 Mass. 3, 6, and O'Sullivan v. Palmer, 312 Mass. 240, the fraud involved consisted of the intentional failure to name known interested parties with the resulting failure to give them notice of the proceeding. See McLaughlin v. Ferrick, 276 Mass. 180, 182-183. In Jose v. Lyman, 316 Mass. 271, one of three co-executors sold to himself, at private sale, some securities which the testator had pledged to him as security for a loan, and to protect their value he entered into an agreement with another large holder of the closely held securities that they would not place their blocks of shares on the market for eighteen months. He did not disclose these facts to legatees or the beneficiaries of a testamentary trust under the will. When filing their account the executors included an item which stated that the shares held by the executor in question had been sold and the cash proceeds paid to him on account of his claim. The account did not disclose that the executor was the buyer of the
In Taylor v. Worcester County Natl. Bank. 361 Mass. 687, 691, we referred to Jose v. Lyman, supra, as involving "self-dealing by a trustee and failure to disclose." In Jackson v. United States Trust Co. 360 Mass. 333, 338, we referred to it as involving "the kind of conflict which brings into play the stringent rules against profit from self-dealing." The case now before us is certainly one of "self-dealing" by fiduciaries and also a "failure to disclose" such self-dealing by their accounts. If the fiduciaries had disclosed their self-dealing in their probate accounts, the interests of the minor and unborn or unascertained beneficiaries of the trust could have been protected by the guardian ad litem appointed for that purpose, or perhaps by the trustee, before assenting to their accounts. This failure to disclose operated to deprive these beneficiaries of their day in court on this wrongful conduct of the fiduciaries. We therefore hold that the present case is controlled by our decision in Jose v. Lyman, supra, at 282, and that "the proper conclusion is that the allowance of the ... [fiduciaries'
Unlike the case of Zeitlin v. Zeitlin, 202 Mass. 205, 207, in the present case there are no considerations of public policy which should deter this court from denying to a fiduciary, found by the master-auditor to have engaged in wrongful self-dealing with trust assets, the benefits, protection and immunity flowing from the finality usually accorded to a decree of the Probate Court allowing an account.
By their brief the individual respondents argue in one instance that "the Jose case should not be followed," and in another instance that "it should be overruled." We reject both arguments. The holding of that case is an important step in maintaining a reasonable balance between the obligations undertaken by the fiduciary when he accepts the position and the right of the beneficiaries of an estate, trust or other fiduciary relationship to receive the benefits due them from the proper discharge of the fiduciary's duties. The rules applied and the results reached in the Jose case and in the present case impose no new or additional risk, burden or liability on any fiduciary whose conduct complies with the long established basic principles governing the conduct of fiduciaries in their dealings with trust property.
Accordingly, we answer question 11 in the affirmative as to fraud with respect to the transactions described above involving Mrs. Dwight and her son William as executrix and administrator respectively and as directors of Holyoke Transcript, Inc., and of the Publishing Company, and involving these two corporations.
5. Question Relating to Trust's Share of Ownership of the Publishing Company. Question 12 reported by the judge asks whether on the facts found by the master-auditor the trust is entitled to a share of the ownership of
6. Questions Relating to Valley-Photo and Hampden-Hampshire Corporations. Question 13 asks whether, on the facts found by the master-auditor, "the trust [is] entitled to a share of the ownership of Valley Photo-Engraving Corporation, and if so, to what share is it entitled?" Question 14 is the same with reference to Hampden-Hampshire. We answer questions 13 and 14 in the negative for reasons apparent from the findings of the master-auditor. He did not find these corporations to be, in any sense, the recipients or present owners of any property or assets wrongfully transferred or diverted from the estate or from Holyoke Transcript, Inc., nor did he find that they represent the fruits of any business opportunity which in equity or good conscience should have been exercised and developed by or for the benefit of the estate or of Holyoke Transcript, Inc. As to the photo-engraving business it is clear that for good and sufficient reasons Holyoke Transcript, Inc., decided to get rid of that business, and that it profited, at least indirectly, by its relations with Valley-Photo. As to Hampden-Hampshire, there is no finding that its business, which was radio broadcasting at first and also television broadcasting later, was ever a part of the newspaper publishing business involved in the estate. On the facts found Mrs. Dwight was not legally prevented from developing that business independently of the estate.
By reason of our negative answers to questions 13 and 14, the trust is not entitled to a share of the ownership of Valley-Photo or Hampden-Hampshire. Therefore,
In Perry v. Perry, 339 Mass. 470, 480-481, we said that "a beneficiary of a trust of shares in a family corporation may in appropriate proceedings force an examination of the corporate affairs, and also the equivalent of a stockholders' suit (see [Cahn, Estate Corporations,] 86 U. of P.L. Rev. 136)." In certain respects the present case was tried as though it were a minority stockholders' suit. See Samia v. Central Oil Co. of Worcester, 339 Mass. 101, 122-124. The guardian appeared to be pressing the claim of contingent beneficiaries of a trust holding a minority interest in Holyoke Transcript, Inc., when presenting evidence of the transactions between that corporation and the other three corporations: the Publishing Company, Valley-Photo and Hampden-Hampshire. The intercorporate transactions were fully litigated and we have already discussed those involving the Publishing Company. As to Valley-Photo and Hampden-Hampshire, the guardian argues that, in addition to a share of ownership, the trust is entitled to relief against each because (a) they owe Holyoke Transcript, Inc., rent either not paid or forgiven, and (b) they owe Holyoke Transcript, Inc., and perhaps the Publishing Company interest on money loaned to them either directly or through Mrs. Dwight who in turn loaned it to them.
The findings of the master-auditor are insufficient to establish any liability for rent allegedly due. On the other hand, the loans were substantial and they were outstanding in part for a number of years. In a similar situation, we said in Perry v. Perry, 339 Mass. 470, 483, that "on the facts before us no basis appears for the corporation to forego interest on loans to officers which were outstanding for any substantial period and were not made for the benefit of the [lending] corporation." The same applies to the several loans made by Holyoke Transcript, Inc., or the Publishing Company to or for the use and benefit of Valley-Photo and Hampden-Hampshire
Since the estate of Mrs. Dwight is not a party to these cases we make no comment on whether it would be liable to Holyoke Transcript, Inc., for interest on money which she borrowed from that corporation.
7. Questions Relating to Nature and Extent of Relief as to the Publishing Company. Questions 15 through 19 reported by the judge relate to the nature and extent of relief to which the trust is entitled. We answer these questions below only as to the Publishing Company.
Question 15. This question asks whether, if the trust is entitled to a proportionate share of the ownership of the Publishing Company, the share is to be paid in the form of stock of that corporation or its equivalent value in cash. The guardian's petition in equity, by its third prayer, seeks an order that the individual respondents "give over, and transfer to, said testamentary trust said shares as the Court shall find are due and owing to it" of the Publishing Company and other corporations. We do not answer this question beyond noting the guardian's prayer quoted above. We intimate no opinion on whether, assuming an appropriate amendment to the petition, the relief ordered could be in the form of money damages equivalent to the value of the shares of stock. That question is not now before the court on the pleadings.
Question 16. This question asks whether the trustee or the beneficiary has the right to determine whether the trust shall be paid its proportionate share of the ownership of the Publishing Company in shares of stock or in cash. For the reasons stated in answer to question 15, we do not answer this question.
Question 17. This question asks whether the trust's right to a proportionate share of the ownership of the Publishing Company accrued at the death of Mrs. Dwight
Question 18. This question asks whether the trust is entitled to a proportionate share of "all dividends declared from the date of the death of the executrix and life tenant, or some other time, to the present," in addition to the share of the ownership. It is entitled to dividends declared after the death of Mrs. Dwight on its proportionate part of the shares of the Publishing Company.
Question 19. This question asks whether the trust is entitled to interest on such dividends, and for what period. It is entitled to interest on dividends declared on its proportionate part of the shares of the Publishing Company after the death of Mrs. Dwight, from their payment by the company to the date the trust ultimately receives them.
8. Question Relating to Alleged Negligence of Trustee. Question 20 asks whether the master-auditor's finding that the trustee "was negligent in performing its duties ... [is] supported by the subsidiary facts found by ... [him] and by his summaries of evidence." We answer this question in the negative.
The master-auditor made lengthy findings describing in detail the business relationships between the trustee and the Dwight family and the various corporations in which the family was interested, and also describing in detail many things which the trustee did in its capacity as trustee in this case. There are many findings of facts known to employees of the trustee and the master-auditor attributes such knowledge to the trustee. From these detailed findings the master-auditor makes general findings that the trustee was negligent (a) in assenting to the second and final account of Mrs. Dwight as executrix and to the first and final account of her son William as administrator, (b) in assuming that the allowance of the two accounts precluded any right to attempt recovery
It is not disputed that if the trustee was negligent with resulting damage to the trust or its assets, it is liable therefor. The principal issue is whether the subsidiary facts found by the master-auditor warrant a general finding that the trustee was negligent. We hold that they do not.
The standard of conduct required of a trustee has been stated in numerous decisions of this court over many years. Although many of the decisions deal particularly with the investment of trust funds, their language applies generally to the duties of trustees. As early as 1830, this court said in Harvard College v. Amory, 9 Pick. 446, 461, 465: "All that can be required of a trustee ... is, that he shall conduct himself faithfully and exercise a sound discretion." "Trustees ... [should] conduct themselves honestly and discreetly and carefully, according to the existing circumstances, in the discharge of their trusts." After quoting some of the above language, we said, in Kimball v. Whitney, 233 Mass. 321, 331: "Good faith and sound discretion, as these terms ought to be understood by reasonable men of good judgment, were thus made the standard by which the conduct of trustees is to be measured. That is a comprehensive principle. It is wide in its scope. It is not limited to a particular time or a special neighborhood. It is general and inclusive, so that while remaining itself fixed, it may continue to be a safe guide" in changing circumstances.
In Berry v. Kyes, 304 Mass. 56, 58-59, we said that a trustee was "required to act in good faith, with reasonable prudence and sound judgment, guided by a due and
Many wills or other instruments creating trusts include exculpatory clauses limiting the liability of trustees in connection with the discharge of their duties. In speaking of such clauses in New England Trust Co. v. Paine, 317 Mass. 542, 550, we said: "The law does not look with special favor upon attempts to impair the breadth and strength of the safeguards which experience has erected for the protection of those whose property has been confided to the good faith and sound judgment of trustees. And certainly this general attitude should not be softened first for the benefit of trust companies and professional trustees who hold themselves out as fully conversant with the duties of trustees and fully competent to perform them."
The will creating the trust in the present case contains no exculpatory clause and it is therefore governed by the general principles discussed above. That is the yardstick by which we are to measure the acts of the trustee which the guardian now contends were negligent. That yardstick is to be applied to the facts and circumstances existing at the time of the acts complained of, without the benefit of any knowledge or experience gained through the many years since then. We must judge the acts of the trustee from the position which it occupied when it acted, and not by hindsight from our present vantage point.
The first act of the trustee which the guardian contends was negligent was its assent to the allowance of the second and final account of Mrs. Dwight as executrix and to the first and final account of her son William as administrator. The trustee was in effect representing the interests of the beneficiaries of the trust in the matter of the allowance of those accounts, and therefore no guardians
The master found many detailed facts in isolation from which he drew strained inferences, and then stacked inference upon inference to conclude that the trustee was negligent in not taking action to recover assets of the trust from the present respondents. The conclusion of negligence was not warranted. It is true that the Dwight family and its various corporations had been customers of the trustee in its banking business, and that in that connection the trustee had gained some knowledge and information about their operations. However, that does not add enough to the other evidence to constitute a base to support a general finding that the trustee was negligent in accepting the 132 shares of stock of Holyoke Transcript, Inc., without demanding shares in other Dwight family corporations. Judging from hindsight
The trustee's inventory listed the 132 shares of Holyoke Transcript, Inc., stock at $760 a share. That was the amount at which the shares were appraised by three appraisers appointed by the Probate Court. The trustee sold the shares at that price. The guardian contends, and the master found, that the trustee was negligent in relying on the appraisal without having another appraisal made. The mere fact that the appraisers were the trustee's vice-president, a real estate and insurance broker and a certified public accountant who had business relations with Holyoke Transcript, Inc., does not mean that the trustee was negligent in relying on their appraisal. In Exchange Trust Co. v. Doudera, 270 Mass. 227, 228-229, we held that a trustee selling trust property "can be held accountable for an amount larger than that actually received only when it acts in bad faith or fails to exercise reasonable skill, prudence and judgment." By that standard, the trustee cannot be held accountable for more than the $760 which it received for each of the 132 shares
Although we have now answered all of the questions reported by the judge, as to some of them we have done so despite the fact that they may not be within the power of a judge to report under G.L.c. 215, § 13. Each of the first eleven questions is directly related to "an interlocutory decree or order" entered by the judge. The same cannot be said for many of the last nine questions. As to those questions we would ordinarily apply the rule that when the discretion conferred upon judges "in reporting cases before they are ripe for final judgment ... [is] too generously exercised, and ... moot, speculative or subsidiary questions are reported, they would not be considered." John Hetherington & Sons, Ltd. v. William Firth Co. 212 Mass. 257, 259. Terry v. Brightman, 129 Mass. 535, 537-538. Commonwealth v. Henry's Drywall, Inc. 362 Mass. 552, 556. However, because of the many years that this case has now been pending, and since all of the questions have been argued, we have elected to answer all of the questions in the hope that doing so may help to dispose of the controversy without further delay. Wellesley College v. Attorney Gen. 313 Mass. 722, 731.
Further proceedings at the Probate Court level will be required. Although we have noted the discretion reposed in a trial court judge to refer cases to masters or auditors, we now add that we consider it desirable that the Probate Court give serious consideration to the expeditious completion of the trial of this case before a judge in order to avoid any further delay which seems to be inherent in the reference of cases to masters or auditors.
The case remains in the Probate Court for further proceedings consistent with this opinion.