person holding trust funds may require such personal bonds or guaranties of payment to accompany investments as may seem prudent, and all premiums paid on such guaranties may be charged to or paid out of income, providing that such charge or payment be not more than at the rate of onehalf of one per centum per annum on the par value of such investments. But no trustee shall purchase securities hereunder from itself. § 2. This act shall take effect immediately.17 Section 9 of the former Personal Property Law (quoted above) was originally taken from chapter 65, Laws of 1889. CHAP. 65. An Act authorizing the investment of trust funds in stocks or bonds of any of the cities of this state. Approved by the Governor March 14, 1889. Passed, three-fifths being present. The People of the State of New York, represented in Senate and Assembly, do enact as follows: Section 1. It shall be lawful for executors, administrators, guardians and trustees and others holding trust funds for investment to invest the funds so held by them in trust in bonds or stocks of any of the cities of this state issued pursuant to the authority of any law of this state.18 § 2. This act shall take effect immediately.19 Investments by Trustees. Formerly (and the rule has not been materially changed by this section of this act), if the instrument creating the trust directed the trustee to make investments of a certain kind, a neglect to follow the directions might be a breach of trust,20 and, conversely, if he followed the directions and any loss ensued, he was not responsible.21 17 Repealed by § 80 of art. 5 of Pers. Prop. Law of 1909, except as to guardians, etc. 18 Repealed by Pers. Prop. Law, art. III, chap. 417, Laws of 1897. 19 Repealed by the Pers. Prop. Law, art. III, chap. 417, Laws of 1897. 20 Birrell, Duties and Liabilities of Trustees, Lecture IV; Denike v. Harris, 84 N. Y. 89, 94; Meldon v. Devlin, 20 Misc. 56; Clark v. Clark, 23 id. 272. Where the instrument creating a trust leaves it to the trustee's discretion, or is silent respecting the mode and character of his investments, either statutes, or else the courts possessing jurisdiction over trusts, usually prescribe, directly or indirectly, what character of investments will relieve such trustee from personal responsibility for a breach of duty to make prudent and safe investments.22 Trustees might formerly invest in first mortgages of estates in fee simple, if adequately secured by such real estate, situate in this State;23 also in New York State bonds, and in United States government securities.24 Investments in stocks, leaseholds,25 personal obligations, securities of foreign States, or in second mortgages and the like, were at the trustees' risk.26 Chapter 65, Laws of 1889, set out above, first added the securities of the municipalities of this State to the list of authorized investments. General Guardians. General guardians must have leave to invest their ward's property in real estate."7 Investments Already on Hand. If a trustee takes over with a trust investments of a kind unauthorized in law, and retains them, without any such direction by settlor, he renders himself liable 22 See above, 8 III of this act; King v. Talbot, 40 N. Y. 76; Adair v. Brimmer, 74 id. 539, 550; Dunklee v. Butler, 30 Misc. 58; Matter of Reed, 45 App. Div. 196; Matter of Hall, 48 id. 488, modified, 164 N. Y. 196; Matter of Menzie, 54 Misc. 188. Cf. Lawton v. Lawton, 35 App. Div. 389. 23 Ackerman v. Emott, 4 Barb. 626; Delafield v. Schuchardt, 2 Dem. 435; Chesterman v. Eyland, 81 N. Y. 398; Matter of Reed, 45 App. Div. 196; Matter of Ball, 55 id. 284, 287; Matter of Wotton, 59 id. 584. 24 Wiggins v. Howard, 83 N. Y. 613; Ormiston v. Olcott, 84.id. 339, 343; Roosevelt v. Roosevelt, 6 Abb. N. C. 447; Mills v. Hoffman, 26 25 Matter of Stark, 39 N. Y. St. Rep. 393; s. c., 15 N. Y. Supp. 729; Matter of Decker, 37 Misc. 527. 26 Ibid., supra, and In re Kettletas, 6 N. Y. Supp. 668; Matter of Petrie, 5 Dem. 352; Judd v. Warner, 2 id. 104; Fellows v. Longyor, 91 N. Y. at p. 328; Gillespie v. Brooks, 2 Redf. 349; Warren V. Union Bank of Rochester, 157 N. Y. 259; Matter of Reed, 45 App. Div. 196; Matter of Hall, 48 id. 488, modified, 164 N. Y. 196; Matter of Menzie, 54 Misc. 188. 27 Matter of Decker, 37 Misc. 527. thereby. It is his duty to part with them and reinvest in legal securities.28 Disposal of Trust Funds. A trustee must not commingle trust funds in a bank with his own funds, and if he do and loss ensue he must bear it.29 Present Law Regulating Trustees' Investments. This section now specifies particularly the class of investments proper for trustees. But it does not expressly prohibit other investments. As the law regulates with care the investments proper for savings banks, those laws are now practically extended to trustees of personal property, and authorize such trustees to acquire and hold the same securities as banks for savings. Chapter 813, Laws of 1895, authorized trustees of savings banks to invest in obligations of the United States, obligations of this State, or any other State not in default for ten years past. Chapter 328, Laws of 1903, added stocks or bonds of any city, county, town or village of this State, if issued pursuant to the authority of any law of the State. Chapter 581, Laws of 1906, authorized savings banks to invest in municipal bonds of cities of other States of the Union if situated in a State admitted to the Union prior to January 1, 1896, and if the city is not in default since January 1, 1861, and contains not less than forty-five thousand inhabitants and corresponds with the other particulars specified in the statute last mentioned. Chapter 401, Laws of 1905, and chapter 581, Laws of 1906, further regulate investments of banks for savings. All these laws are now consolidated in the Banking Law, section 146, chapter 2, Consolidated Laws. Premiums and Amortization. The restricted character of trustees' investments: (1) Bonds and mortgages on property in this State worth fifty per cent. more than the amount loaned; (2) Securities in which banks for savings may invest causes the latter 28 Matter of Wotton, 49 App. Div. 584; Matter of Reed, 45 id. 196; In re Wolfe's Estate, 2 N. Y. Supp. 494, revd. on another point, 5 id. 634. Cf. Matter of Menzie, 54 Misc. 188; Jones v. Jones, 19 N. Y. St. Rep. 436; s. c,. 2 N. Y. Supp. 844; Steele v. Leopold, 135 App. Div. 247, 255. 29 Mumford v. Murray, 6 Johns Ch. I; Matter of Stafford, 11 Barb. 353; Steele v. Leopold, 135 App. Div. 247. class of investments to command a premium. This premium the trustee is authorized to pay.30 He, accordingly, must charge it either against income or against principal. If the premium is charged against income it certainly should not be written off at one time, but should be absorbed by what is termed amortization, or in other words by deducting from the annual yearly income a sum sufficient to sink the premium at the maturity of the obligation.32 31 Breaches of Trust. In some cases beneficiaries encourage trustees to hold on to depreciated and improper securities, or they connive at and acquiesce in trustees' investments. In such cases the beneficiaries may be precluded from questioning the propriety of the investments.33 It is the duty of a trustee who speculates with trust funds to disaffirm his own acts, and restore or recover the funds misapplied.34 30 Brown v. Chesterman, 30 N. Y. St. Rep. 537, 9 N. Y. Supp. 187. 31 New York Life Ins. & Trust Co. v. Barber, 165 N. Y. 484; Matter of Stevens, 187 id. 471. 32 A very intelligent little book on Amortization was lately published by the Guaranty Trust Co. of New York city. 33 Matter of Reed, 45 App. Div. 202; Adair v. Brummer, 74 N. Y. 539, 553; Matter of Hall, 164 N. Y. 196, 201; Woodbridge v. Bockes, 59 App. Div. 503, 581; Raley v. Ridehalgh, 7 DeG., M. & G. 104; Sawyer v. Sawyer, 28 Ch. D. 598; Birrell, Duties of Trustees, 118 seq. 34 Steele v. Leopold, 135 App. Div. 247, 254, 255. § 112. Executors de son tort abolished. No person shall be liable to an action as executor of his own wrong, for having received, taken or interfered with, the property or effects of a deceased person; but shall be responsible as a a wrong-doer in the proper action to the executors, or general or special administrators, of such deceased person, for the value of any property or effects so taken or received, and for all damages caused by his acts, to the estate of the deceased. Formerly 2 R. S. 449, § 17. § 17. No person shall be liable to an action as executor of his own wrong, for having received, taken or interfered with, the property or effects of a deceased person; but shall be responsible as a wrongdoer in the proper action to the executors, or general or special administrators, of such deceased person, for the value of any property or effects so taken or received, and for all damages caused by his acts, to the estate of the deceased.35 Executors De Son Tort. Prior to the Revised Statutes any stranger, who, without authority, wrongfully took upon himself the character of an executor or meddled in any way with the assets formerly of a person deceased, was treated in law as an executor of his own wrong (de son tort), and was held liable to all the trouble of an executorship without any of the profits or advantages thereof.38 It is generally said that an executor de son tort could not retain or deduct for his own debt.37 But by statute he might do so in this State. The Revised Statutes, in any event, abolished any such right of retention." 88 The Revised Statutes expressly provided also that no person wrongfully receiving assets should be liable thereafter as an executor de son tort, but was to be accountable for such assets or their 85 Repealed, 130, Decedent Estate Law. 36 Wentworth, Office of Executor, (ed. 1589), 57, 58; 4 Burn's Ecc. Law, 307; 2 Black. Comm. 507; Goodeve, Pers. Prop. (3d ed.), 360; I Williams on Executors, 148; 3 Holdsworth, Hist. Eng. Law, 450. 37 Thomas v. N. Y. Life Ins. Co., 50 N. Y. Sup. 225, 235; Mo. 527; Poph. 125; 1 Williams on Executors, 156; sed cf. 43 Eliz. chap. 8. 38 2 J. & V. 44, § 7; 1 K. & R. 538, § 12; 1 R. L. 313, § 13. 39 2 R. S. 81, § 60; and see note 35, Appendix II, infra. |