
    Fanny Garrison Villard, Individually, and Others, Respondents, v. Fanny Garrison Villard, as Executrix, and Horace White and Charles A. Spofford, as Executors, etc., of Henry Villard, Deceased, and Others, Respondents, Impleaded with The Farmers’ Loan and Trust Company, as Trustee under the Last Will and Testament of Henry Villard, Deceased, of the Trust Created by Paragraph 6th Thereof for the Benefit of Helen Villard Bell and Remaindermen, and as Trustee under Said Will of the Trust Created by Paragraph 7th Thereof for the Benefit of Emma Von Xylander and Remaindermen, Appellant.
    Second Department,
    February 26, 1915.
    Will—duty of testamentary trustee — negligence in failing to turn securities into cash — liability for resulting loss.
    Where a will required the executors to set apart certain amounts in cash or securities to be held in trust by the defendant, an incorporated trust company, for the payment of two specified annuities, and further gave to the trustee power to retain in the trust fund any securities owned by the testator at the time of his death, received by the trustee for the purposes of the trust without being liable for the fact that such securities were not legally permissible for trust investments, the trustee may, nevertheless, be held liable where certain securities turned over to it by the executors so decreased in value while in its hands that it was unable to pay the annuities, if it was negligent in that it took no steps to ascertain the fact that the securities turned over were not those originally held by the testator, but had been purchased by the executors with the proceeds of securities sold by them, and took no steps to turn the securities into cash or other securities during the time that they were decreasing in value.
    Appeal by the defendant, The Farmers’ Loan and Trust Company, as trustee, etc., from a judgment of the Supreme Court in favor of the plaintiffs and certain of the defendants, entered in the office of the clerk of the county of Westchester on the 17th day of June, 1913, upon the decision of the court after a trial at the Westchester Special Term.
    
      Charles F. Brown [Frederick Geller and Edward H. Blanc with him on the brief], for the appellant.
    
      William H. Wherry, Jr., for the plaintiffs, respondents.
    
      
      William R. Begg [Franklin W. M. Cutcheon and Charles E. Hughes, Jr., with him on the brief], for the respondents, executrix and executors, etc., of Henry Villard, deceased.
    
      Frederic E. Mygatt, for the respondents Helen Villard Bell and Emma Von Xylander.
    
      Raymond M. Lowes, guardian ad litem, for infant respondents.
   Carr, J.:

This action was brought in equity by the residuary legatees under the last will of Henry Villard, deceased, to procure an interpretation of some parts of the will, an accounting by the executors and an accounting by the Farmers’ Loan and Trust Company of its acts as trustee of two express trusts set apart to it for the payment of annuities of two life annuitants. Every person interested in the estate was made a party to the action. There were several infant defendants represented by a guardian ad litem. The controversy now before us on the appeal relates particularly to the settlement of the accounts of the trustee, appellant, under which a surcharge was made against it in a sum in the neighborhood of over $100,000 for alleged negligence on its part in caring for the amounts of the two trust funds. The trustee, the Farmers’ Loan and Trust Company, is the sole appellant, and this trustee complains that there has been a practical coalition against it by all the other parties to thrust upon it the burden of a loss for which it is not responsible legally or equitably. There are six briefs. The record appears voluminous, but the first 387 pages are devoted to the pleadings, findings, proposed findings, exceptions, etc., and there are but a little over 100 pages of actual testimony, exclusive of long documentary exhibits which fill up the latter part of the case on appeal.

Henry Villard died possessed of a very large estate, mostly in “ gilt-edged ” securities. His will gave several, general legacies, and provided that the executors should set apart in cash or in securities two separate amounts to be held in trust by the Farmers’ Loan and Trust Company for the payment of specified annuities to two specified annuitants. The funds so set apart were to be sufficient in amount to pay the specified annuities on the separate trusts, which were provided for under separate clauses of the will (6th and 7th). This will contained a very important clause, the 24th, which seems to have given rise to this particular controversy. The clause prescribes in substance that the trustee may retain in the trust fund any securities owned by the testator at the time of his death, received by the trustee for the purposes of the trust, without being hable for the fact that such securities were not legally permissible for trust investments, but it also provides in detail in what classes of securities the trustee may on its own account, as trustee, make investments of the trust moneys.

A claim was presented against the executors by a person claiming a large indebtedness to him by the decedent, in an amount of several hundred thousands of dollars, and the settlement of the estate was delayed pending the compromise of this claim. In the meantime, the residuary legatees, in writing, requested the executors to sell some of the low interest bearing securities and to reinvest the proceeds, at their discretion, in certain specified securities which yielded a larger profit, and among the securities so specified were the stock of the Metropolitan Street Railway Company and the Baltimore and Ohio Railroad Company. The executors complied with this request and sold certain securities held by the decedent and purchased 500 shares of the Metropolitan stock and 500 shares of the Baltimore and Ohio stock. It is to these last two mentioned stocks that the present controversy relates. Thereafter the executors set apart these blocks of stock as parts of the trust funds for the annuitants, the Metropolitan stock going under the 6th clause of the will and the Baltimore and Ohio stock under the 7th clause. The executors addressed to the trustee a written communication as to each trust fund, partly as follows: “In compliance with the direction contained in article sixth of the last will and testament of Henry Villard, deceased, a copy of which we have furnished you, we herewith deliver to you [specification of securities] to be held by you as Trustee for the purposes of the trust thus created,” etc. There was a similar writing as to the trust created under the 7th clause of the will. On the receipt of the securities and the communications aforesaid the trustee gave receipts in writing, one for each trust, reciting the securities received and declaring that the same were “ to be held by this Company as Trustee under the Sixth [or Seventh] clause of the will of said Henry Villard.” This was in January, 1902. The trustee, instead of converting these securities into cash and reinvesting the proceeds in securities authorized for reinvestment under the 24th clause of the will, maintained in specie the Metropolitan and Baltimore and Ohio stock. In the course of years the value of the Metropolitan stock disappeared entirely, and that of the Baltimore and Ohio railroad depreciated considerably. The annuitants failed to receive their annuities, and in this action the residuary legatees and the annuitants ask the trust company to make good the loss. The position of the trust company is that it was guilty of no negligence, that it had no actual knowledge that the securities turned over to it were not actually owned by Henry Villard at his death; that, although it made no inquiry on this matter and obtained no information until 1912, ten years later, it was entitled to assume that the securities so coming to it were a part of Villard’s estate when he died, and thus they were in the protection of the 24th clause of the will. As a final ground the appellant trustee urges that the executors, by turning over no cash but securities never owned by the testator, failed in fact to set apart or “constitute” the trust funds, and that as to the securities which actually came into its hands it never received nor held the same as a trustee, and, therefore, it has no liability to the annuitants and residuary legatees, and it asks that the executors should now be compelled to “ constitute ” the trust funds out of the residuary estate at the expense of the residuary legatees against whom it claims an estoppel, in its favor.

The position of the respondents is that when the executors set apart the trust funds they were not obliged to pay over actual cash or to deliver securities owned by the decedent; that the trustee should have inquired whether the securities tendered by the executors were owned by the decedent; that having failed to make such inquiry, it actually accepted the tendered securities as just so much cash, at their then market value, and should have converted them into cash and invested the proceeds as provided in the 24th clause of the will. There is no evidence that the executors suppressed intentionally any information, and the trial court has so found. It is evident that in January, 1902, both the executors and the trustee considered the transaction of the setting apart of the two trust funds as entirely regular at that time. The securities at the time of their delivery had an ample cash market value which could be realized immediately by either party. The loss to the residuary legatees and the annuitants arose, not from the delivery and receipt of these securities in January, 1902, but from what the trustee did or omitted to do in regard to them in the years following. After these securities got into the hands of the trustee, the duties of the executors as to these two trust funds were ended. When the trustee got and receipted for these securities, it could have inquired as to the origin of their possession by the executors, and if it intended to treat or consider these securities as within the protective scope of the 24th clause of the will, then an inquiry would have been but a simple act of prudence, required by the measure of care owed by the trustee in the discharge of its duties. If such inquiry had been made and the facts elicited, as concededly they would have been, then, the facts being known, the executors could have turned these securities into cash and reinvested the proceeds as directed in the will. It was entitled to a reasonable time to do this, which the trial court fixed at six months. But the trustee was passive, probably from lack of prudent attention, and loss has followed, for which, as we think, it is clearly responsible. The amount at stake, the elaborate character of the main briefs and the skill and eminence of counsel invest the case with an appearance of complication and difficulty, which disappears after consideration of the truly pivotal points of the controversy.

The judgment is affirmed, with costs.

Jenks, P. J., Stapleton and Putnam, JJ., concurred; Bürr, J., not voting.

Judgment affirmed, with costs.  