City of Boston v. Curley

177 N.E. 557, 276 Mass. 549, 1931 Mass. LEXIS 1026

• Court: Massachusetts Supreme Judicial Court
• Decided: September 11, 1931
• Status: Published

Opinion

Rugg, C.J.

This is a petition for instructions as to the proper custody, management and control of two funds held for public charitable purposes, one known as the Franklin fund and the other as the Carnegie donation. The plaintiffs are the city of Boston and the city treasurer of Boston. The defendants are The Franklin Foundation, a corporation created by St. 1908, c. 569, the individuals constituting the members of that corporation and the same individuals described as members of the board of managers of the Franklin fund. The Commonwealth and the Attorney-General have been joined as defendants. A public charity is in issue. By its answer the Commonwealth disclaims interest.

The case has been reserved for the determination of this court upon the bill and answers. Therefore all allegations of fact well pleaded in the petition so far as not denied in the answers and all averments in the answers responsive to the petition must be taken to be true. Joslin v. Boston & Maine Railroad, 274 Mass. 551, and cases cited.

The Franklin fund had its origin in the codicil to the will of Benjamin Franklin whereby one thousand pounds sterling were given to the town of Boston. Testamentary instructions were given for the investment of this fund. The testator directed that at the end of one hundred years, estimating that the original gift with its accretions of interest would then amount to one hundred thirty-one thousand pounds, one hundred thousand pounds should then be laid out in public works of the most general utility to the inhabitants of Boston and the remainder of the fund should constitute a fund to be invested and accumulated for another one hundred years. The testator also provided that the gift should be managed under the direction of the selectmen of the town and the ministers of the oldest Episcopalian, Congregational and Presbyterian churches in the town. Question was 'raised whether the legal title to the fund was in the town or in the managers, and in 1898 it was held in Higginson v. Turner, 171 Mass. 586, that that title was in the municipality in trust for the purposes specified and not in the managers. It was decided in Boston v. Doyle, 184 Mass. 373, that the selectmen of the town of Boston were abolished when Boston was incorporated as a city, that the aldermen of the city did not succeed the selectmen of the town as managers of the fund, that therefore the board of managers as constituted by the testator ceased to exist in 1822, that only the clerical members remained eligible to continuance in the administration of the trust, and that a court of general equity jurisdiction had power and ought to appoint nine managers from among the virtuous and benevolent citizens of Boston selected because of their intellectual and moral qualifications, of whom the mayor of Boston should be one, to serve, together with the three ministers specified in the codicil, as a board of managers. Pursuant to that decision a decree was entered in 1904, appointing twelve persons, including the three ministers, the mayor and eight citizens at large, as a board of managers to have the charge and management of the entire Franklin fund.

The estimate of the testator as to the size of the fund at the end of the first one hundred years was not realized. Therefore it was divided in the proportions indicated. The sum of $322,490.20 was set aside and devoted to the establishment of an industrial school known as the Franklin Union and the sum of $102,455.70 was held to accumulate for the second one hundred years.

By St. 1908, c. 569, those at that time constituting the board of managers were made a body corporate under the name The Franklin Foundation. It was provided that these and their successors in office should continue a body corporate, that the members of the corporation should be as specified in said decree of 1904, that vacancies in the class of eight virtuous and benevolent citizens of Boston should be filled by the court which made that decree and that any of those eight members might be removed for cause. It was further provided that, the corporation be deemed a board or department of the city of Boston and on behalf of the city should have the custody, management and com trol of the Franklin Union and of the part of the fund accumulating for the second one hundred years. The powers of the corporation as set out in the several sections of the act were the same as the powers of the board of managers set forth in the codicil to the will and in the decree of 1904. It was specified that the legal title to the property “now constituting said Franklin Union,” to that part of the Franklin gift already appropriated for the establishment of the Union and to any Other fund or property already given to the city of Boston for the benefit of the Franklin Union should remain in the city of Boston, but the corporation was to hold the title to and invest and reinvest real or personal property thereafter given for the benefit of the Franklin Union. Other powers were conferred not relevant to the case at bar. By St. 1927, c. 40, the powers of the corporation as to gifts and funds other than the Franklin fund, given to it or its predecessor the board of managers of the Franklin fund, were much enlarged.

There was nothing illegal in the incorporation of the managers as The Franklin Foundation to manage the Franklin fund. The departure from the precise plan of management outlined by the testator was required by the incorporation of the town of Boston as a city. That departure was declared to be necessary and the new scheme for the selection of managers was framed all in accordance with a decision of this court. The board of managers as existing just prior to the enactment of said c. 569 was legal and its powers were defined. The act of incorporation wrought no change in the membership of the board of managers. The succession in case of vacancies conformed to the terms of the testamentary gift as necessarily modified by our decision. The powers and responsibilities of the managers continued to be the same without extension or restriction save in nonessential particulars tending toward ease in execution of the duties arising under .the trust. The corporation is simply a means to enable the trustees to execute the trust with less difficulty. The control of the funds has been always and still continues to be with designated individuals in their private capacities clothed with a corporate being. The title to the fund is continued in the city of Boston by explicit words. The beneficiaries and ultimate disposition of the fund are undisturbed. No change is attempted in the title, the management, or the uses of the trust. In Nelson v. Cushing, 2 Cush. 519, it appeared that a testator left a fund for the establishment of a free school to be paid over by his executors to trustees to be appointed to administer the trust by the selectmen of Newburyport. The selectmen pursuant, to the will appointed seven trustees to receive the fund and manage the trust. After the money was paid over a statute was enacted making the trustees a corporation with the usual powers, privileges and restrictions of charitable corporations, with liberty to hold property to be applied to the purposes of education in conformity to the will of the testator. It was said by Chief Justice Shaw at page 527: “This act, in our judgment, does not vary the powers or the duties of the trustees, or change the character of the school placed under their management. It enables them to act in a corporate name, and to have a corporate seal; and it affords them the facility of taking conveyances, obligations and securities, in their corporate name, and avoids the necessity of changing such securities upon a change of individual members composing the board,” (as to this last clause see now G. L. c. 203, § 6; Glazier v. Everett, 224 Mass. 184, 187-188); and at page 529: “. . . the act of incorporation . . . did not constitute this charity. It did not enlarge or diminish the powers of the trustees, except as to the mode of acting in certain particulars, and it did not exempt them from the duties and responsibilities, which would have devolved upon them as trustees acting in their natural capacities.”

The case at bar appears to be covered in every essential particular by the grounds stated and the point decided in Nelson v. Cushing. This is one of the instances where the corporation, although a separate entity for all purposes to facilitate the administration and execution of the trust, does not afford a shield to the managers in any of their trust responsibilities to the court, or to the representatives of public authority rightly acting toward the enforcement of the trust. The court' will look through the corporate form in order to hold the individual members to the responsibilities and duties resting on trustees in their natural capabilities.

There is nothing inconsistent with this conclusion in the reasoning or points decided in Stone v. Framingham, 109 Mass. 303, Winthrop v. Attorney General, 128 Mass. 258, Cary Library v. Bliss, 151 Mass. 364, or Adams v. Plunkett, 274 Mass. 453. Without reviewing those decisions in detail, it is enough to say that in each of them an attempt was made to change the legal title to the trust, the method of administering the trust or the uses to which the trust should be put, from the design established as to those matters by the donor of the trust. As already pointed out, the statute here assailed does not undertake to do any one of these things or anything similar in kind. The trust remains unimpaired as to title, use and management. This conclusion also receives some support from the decision in Ware v. Fitchburg, 200 Mass. 61, where a corporation was established as an agency of the municipality to execute a trust, the founder of which was silent as to managers.

The enactment of St. 1909, c. 486, amending the charter of the city of Boston, provides in § 9 that all heads of departments and members of municipal boards, with exceptions not here material, shall be appointed by the mayor. That section does not control the selection of the managers of the Franklin fund and the members of The Franklin Foundation. ' The clause of § 2 of said c. 569 that the corporation thereby created shall be deemed a board or department of the city of Boston does not have that effect. The general principles of law, which became operative on that subject when the scheme of the testator turned out to be impossible by reason of changed conditions, govern that subject. Those general principles as applicable to a trust already accepted and operative cannot be abrogated as to any particular instance by the General Court. Opinion of the Justices, 237 Mass. 613, 617 — 618. See Opinion of the Justices, 237 Mass. 619, 623. These two statutes together cannot be presumed to have been intended to have that effect. Robinson’s Case, 131 Mass. 376, 377. Kennedy v. Commissioner of Corporations & Taxation, 256 Mass. 426, 430. The members of The Franklin Foundation owe their selection to the will of the donor and the decrees of the court and not to any action on the part of the mayor of Boston.

It follows from this analysis of the scope and effect of the statute that its enactment does not conflict with art. 30 of the Declaration of Rights of the Constitution forbidding any one of the three departments of government to exercise the powers of either or both of the other departments. That principle is to be scrupulously observed. Opinion of the Justices, 234 Mass. 612, 621. Worcester County National Bank, petitioner, 263 Mass. 444, 457, and cases cited. There is nothing in said c. 569 violative of that principle.

The interpretation already given to said c. 569 demonstrates that no one of its provisions violates the prohibition of art. 1, § 10, of the Constitution of the United States against the enactment by a State of a law impairing the obligation of contracts. Courts are alert to see that there is no infraction of that inhibition. Cary Library v. Bliss, 151 Mass. 364, 375-378. Adams v. Plunkett, 274 Mass. 453. It is not pertinent to the statute as here construed. That statute does not in any degree impair the contract arising from the acceptance of the trust under the will of Benjamin Franklin.

Part of the Franklin fund set aside to accumulate for the second one hundred years, valued as of January 31, 1930, at $476,348.99, is at present invested with the Massachusetts Hospital Life Insurance Company in three certificates of deposit. The Franklin Foundation voted on January 21, 1930, to withdraw these funds, to reinvest $100,000 in the same company and to reinvest the balance “in securities in which funds of savings banks of this commonwealth may by law be invested.” Copies of these votes were transmitted to the treasurer of the city of Boston. Under the by-laws of The Franklin Foundation the city treasurer is ex officio the custodian of all funds or property, title to which is in the city of Boston, for the establishment, maintenance or benefit of the Franklin Union, and is required to invest and reinvest the same in such securities and on such terms as The Franklin Foundation may direct. The treasurer of The Franklin Foundation transmitted to the city treasurer his powers of attorney to cancel the certificates of deposit and to collect the amounts due thereon. . The city treasurer raises question as to his obligation to act in accordance therewith. As has already been pointed out, the legal title to the Franklin fund is in the city of Boston and the management and the control of that fund are in The Franklin Foundation as the successor of the managers originally designated by the testator with all the fiduciary obligations incident thereto and hereinbefore amplified.Boston v. Doyle, 184 Mass. 373, 381-382. Worcester City Missionary Society v. Memorial Church, 186 Mass. 531. This is the arrangement recognized and continued by St. 1908, c. 569, § 4. The city treasurer is bound by the vote of The Franklin Foundation of January 21, 1930, to convert into cash the certificates of the Massachusetts Hospital Life Insurance Company and to reinvest $100,000 thereof in a new certificate in the same company. The final determination of that subject is vested in The Franklin Foundation. It is stated in the record that the Massachusetts Hospital Life Insurance Company has long enjoyed the highest reputation, is financially prosperous and has long been considered by trustees a proper depository for trust funds under the form of contracts set out in the record. Thus it conforms to the standard established by the law of this Commonwealth as to trust investments. The withdrawal of nearly four fifths of the fund from a single investment to the end that it be reinvested in other choice securities, thus giving a wider variety of stable investments, cannot be pronounced beyond the power of trustees acting in accordance with the degree of care required in this Commonwealth. Kimball v. Whitney, 233 Mass. 321, and cases reviewed. The power of attorney coupled with the copy of the vote was sufficient to require the city treasurer to act in cashing the certificates and making investment of part of the money .thus procured in a new certificate of the Massachusetts Hospital Life Insurance Company. This was not an improper delegation of power and extended no further than to incidental and administrative details. McClure v. Middletown Trust Co. 95 Conn. 148. Speight v. Gaunt, 9 App. Cas. 1, 11, 20.

The vote to make reinvestment of the balance of the cash to be realized from cancellation of the certificates “in securities in which funds of savings banks of this Commonwealth may by law be invested” was too indefinite even when coupled with the by-law of The Franklin Foundation to the effect that investments be made in such securities of that nature as the finance committee may direct. Every member of that corporation is charged with the obligations of a trustee and must exercise as to every investment his best judgment and wise discretion. To make investments is fundamental, not merely administrative, in the administration of a trust. To be a manager of the fund involves the performance of personal duty, which as to investments to be made cannot be delegated to a committee or an agent. In general the duties of a trustee cannot be delegated. They are personal. Determination to make an investment does not necessarily require the affirmative vote of all members of the corporation but it requires action by a majority with opportunity and obligation, so far as reasonably practicable, for all to express their judgments. Morville v. Fowle, 144 Mass. 109. Trustees of Andover Theological Seminary v. Visitors, 253 Mass. 256, 294. In re Bellamy & Metropolitan Board of Works, 24 Ch. Div. 387, 400, 403-404. In re Flower & Metropolitan Board of Works, 27 Ch. Div. 592. Bohlen’s Estate, 75 Penn. St. 304, 317. Bales v. Perry, 51 Mo. 449. It is only by thus preserving the individual members of the corporation, The Franklin Foundation, as managers of the trust fund in essential features, such as the investment of the corpus of the trust, that the constitutionality of said c. 569 creating the corporation can be sustained against objections which would be fatal to it under the doctrine declared in Cary Library v. Bliss, 151 Mass. 364. The corporation does not supplant the individuals in the performance of these fundamental attributes of the trustees. As has been said, its purpose is to facilitate the administration and execution of the trust, not to relieve the individuals composing it from the obligations incident to their fiduciary obligation as managerial trustees. It follows that the city treasurer is bound to make new investments only upon specific direction manifested by a vote participated in by the individuals composing the corporation.

The form of certificate of deposit, bond or other investment of the Franklin fund should indicate, so far as practicable, the legal owner, the trustee and the trust. A designation of the payee or holder to accomplish that result may be in substance of this tenor: City of Boston — The Franklin Foundation — Franklin Fund.

The prayers of the petition numbered 1-8 both inclusive and 13-18 both inclusive, all relating to the Franklin fund, have been sufficiently answered by what has been said.

The relevant facts concerning the Carnegie donation are these: — In 1904 Andrew Carnegie indicated his willingness to duplicate in amount the Franklin fund provided conditions were met as to the kind of school to be established and that the city of Boston should provide a site for it. There was compliance with those conditions. Correspondence touching the subject was had with the chairman of the managers of the Franklin fund and with the mayor of Boston who was also one of the managers. The city of Boston provided the site for the school under St. 1905, c. 448. 'The Franklin Union, as the school was named, was constructed by the managers on the site thus provided. The managers were notified informally at a meeting in January, 1906, that 'the city treasurer of Boston had received from Mr. Carnegie $408,396.48 as an endowment fund for the proposed Franklin Union, $408,000 being in bonds of the United States Steel Corporation and $396.48 in the form of a check. Pursuant to vote of the managers their secretary sent a letter of appreciation to Mr. Carnegie. No vote was ever passed by the city council of Boston accepting the Carnegie donation and no notice of acceptance by the city was ever sent to the donor.

The Carnegie gift of bonds has remained intact with the city treasurer and the donation has been treated by the managers both before and after their incorporation under said c. 569 as funds under their management and control and the income has been used for the benefit of the Franklin Union. In 1929 notice was sent to the city treasurer that funds had been provided for the redemption of those bonds “at 115 and interest.” On January 21, 1930, a vote was passed by The Franklin Foundation at a special meeting directing the city treasurer to accept this offer of redemption and thus to convert these bonds into cash. The city treasurer challenges the binding force of this vote. It is a rather close question whether the title to the Carnegie donation vested in the city of Boston or in the managers of the Franklin fund as trustees. It is apparent from the correspondence that the purpose of Mr. Carnegie was centered on the establishment of the school subsequently established under the name Franklin Union. That was the public work to which was devoted the portion of the Franklin fund required by the governing testamentary provision to be expended at the expiration of the first one hundred years. It was to the support of that school that Mr. Carnegie desired to contribute. He wanted to “duplicate’’ the fund of Benjamin Franklin. Apparently it was due to the insistence of Mr. Carnegie that the city of Boston provided the site for that institution. The title to land for the site was to be taken in the name of the city under St. 1905, c. 448, § 2. The bonds and check constituting the donation were sent to and received by the city treasurer of the city of Boston. They have been continuously in his custody as have also the securities in which the Franklin fund has been invested. The managers of the Franklin fund and The Franklin Foundation have exercised control and management over the Carnegie donation on the same footing as over the Franklin fund. They have used the income of the donation to the support of the school. No specific directions as to the devolution of title or management of this donation were given by Mr. Carnegie. The reference in §§ 2 and 4 of said c. 569 to money, fund or property already given to the city of Boston for the benefit of the Franklin Union other than that derived from the Franklin gift appears to be to the Carnegie donation.

All these factors lead to the conclusion that the Carnegie donation is to be treated in the same way as the Franklin fund. It is to be presumed in the absence of any indication to the contrary that its title and management follow the same course as that of the Franklin fund. Trustees of Andover Theological Seminary v. Visitors, 253 Mass. 256, . The management and the control of this donation were in the board of managers before the effective date of said c. 569, and since then have been in The Franklin Foundation, and the legal title is in the city of Boston.

Whatever has been said respecting the Franklin fund and the powers of The Franklin Foundation so far as applicable are equally pertinent to the Carnegie donation. Thus the prayers of the petition, numbered 9-12 both inclusive and other prayers touching the Carnegie donation are sufficiently answered.

Ordered accordingly.

*

The rescript accompanying this opinion ordered that a decree be entered stating in substance that the answers to the several prayers of the bill were as follows:

“ To Prayer 1. The city treasurer has no discretion as to investments of the Franklin fund but must follow directions in votes of the members of The Franklin Foundation. No such direction is set forth in this record except as to the reinvestment of $100,000 in a certificate of the Massachusetts Hospital Life Insurance Company.

To Prayer .2. The certificates and other evidences of title and investments should" be in this form: City of Boston —• The Franklin Foundation — Franklin Fund.

To Prayer 3. The same as to prayer 2.

To Prayer 4. The custody of the Franklin fund under the act of incorporation of The Franklin Foundation and article V, section 6 of its by-laws is in the treasurer of the city of Boston subject at all times to the direction of The Franklin Foundation.

To Prayer 5. Yes.

This is answered by 4. To Prayer

The Franklin Foundation has such power acting by vote of its To Prayer 7. members.

To Prayer 8. The same as to prayer 7.

To Prayer 9. The treasurer of the city of by given by The Franklin Foundation by vote of its members.

To Prayer 10. The same as to prayer 4.

To Prayer 11. City of Boston — The Franklin Foundation — Carnegie Donation.

To Prayer 12. No.

To Prayer 13. No.

To Prayer 14. Covered by answer to prayer 1.

To Prayer 15. Yes, to the extent stated by answer to prayer 1.

To Prayer 16. No.

To Prayer 17. Yes.

To Prayer 18. Yes.

To Prayer 19. No answer is required.”