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Supreme Court of the United States
February 8, 1950, Argued ; April 24, 1950, Decided
[*307] [**654] [***869] MR. JUSTICE JACKSON delivered the opinion of the Court.
This controversy questions the constitutional sufficiency of notice to [***870] beneficiaries on judicial settlement of accounts by the trustee of a common trust fund established under the New York Banking Law. The New York Court of Appeals considered and overruled objections that the statutory notice contravenes [****4] requirements of the Fourteenth Amendment and that by allowance of the account beneficiaries were deprived of property without due process of law. 299 N. Y. 697, 87 N. E. 2d 73. The case is here on appeal under 28 U. S. C. § 1257.
Common trust fund legislation is addressed to a problem appropriate for state action. Mounting overheads have made administration of small trusts undesirable to corporate trustees. In order that donors and testators of moderately sized trusts may not be denied the service of corporate fiduciaries, the District of Columbia and some [*308] thirty states other than New York have permitted pooling small trust estates into one fund for investment administration. 1 The income, capital gains, losses and expenses of the collective trust are shared by the constituent trusts in proportion to their contribution. By this plan, diversification of risk and economy of management can be extended to those whose capital standing alone would not obtain such advantage.
[****5] Statutory authorization for the establishment of such common trust funds is provided in the New York Banking Law, § 100-c (c. 687, L. 1937, as amended by c. 602, L. 1943 and c. 158, L. 1944). Under this Act a trust company may, with approval of the State Banking Board, establish a common fund and, within prescribed limits, [*309] invest therein the assets of an unlimited number of estates, trusts or other funds of which it is trustee. Each participating trust shares ratably in the common fund, but exclusive management and control is in the trust company as trustee, and neither a fiduciary nor any beneficiary of a participating trust is deemed to have ownership in any particular asset or investment of this common fund. The trust company must keep fund assets separate from its own, and in its fiduciary capacity may not deal with itself [**655] or any affiliate. Provisions are made for accountings twelve to fifteen months after the establishment of a fund and triennially thereafter. The decree in each such judicial settlement of accounts is made binding and conclusive as to any matter set forth in the account upon everyone having any interest in the common fund or in any [****6] participating estate, trust or fund.
In January, 1946, Central Hanover Bank and Trust Company established a common trust fund in accordance [***871] with these provisions, and in March, 1947, it petitioned the Surrogate's Court for settlement of its first account as common trustee. During the accounting period a total of 113 trusts, approximately half inter vivos and half testamentary, participated in the common trust fund, the gross capital of which was nearly three million dollars. The record does not show the number or residence of the beneficiaries, but they were many and it is clear that some of them were not residents of the State of New York.
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339 U.S. 306 *; 70 S. Ct. 652 **; 94 L. Ed. 865 ***; 1950 U.S. LEXIS 2070 ****
MULLANE, SPECIAL GUARDIAN, v. CENTRAL HANOVER BANK & TRUST CO., TRUSTEE, ET AL.
Prior History: [****1] APPEAL FROM THE COURT OF APPEALS OF NEW YORK.
Overruling objections to the statutory notice to beneficiaries by publication authorized by § 100-c of the New York Banking Law, a New York Surrogate's Court entered a final decree accepting an accounting of the trustee of a common trust fund established pursuant to that section. 75 N. Y. S. 2d 397. This decree was affirmed by the Appellate Division of the Supreme Court of New York (see 274 App. Div. 772, 80 N. Y. S. 2d 127) and the Court of Appeals of New York (299 N. Y. 697, 87 N. E. 2d 73). On appeal to this Court, reversed, p. 320.
Disposition: 299 N. Y. 697, 87 N. E. 2d 73, reversed.
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