Nat'l Acad. of Scis. v. Cambridge Tr. Co. - 370 Mass. 303, 346 N.E.2d 879 (1976)

Rule:

Fraud as used in Mass. Gen. Laws ch. 206, § 24 contemplates the standard of constructive fraud at least to the extent that the fiduciary has made no reasonable efforts to ascertain the true state of the facts it has misrepresented in the accounts. This rule is not a strict liability standard, nor does it make a trustee an insurer against the active fraud of all parties dealing with the trust. Entries in the accounts honestly made, after reasonable efforts to determine the truth or falsity of the representations therein have failed through no fault of the trustee, will not be deemed fraudulent or provide grounds for reopening otherwise properly allowed accounts.

Facts:

In his will, the decedent directed that all his real and personal property was to be held in a trust by the bank. The net income of the trust was to be paid to his wife during her lifetime so long as she did not remarry. Furthermore, the will provided that if the decedent's wife remarried or died then the remains of the trust would have been paid to the beneficiary. After the decedent passed away, the bank started to make trust payments to the decedent's widow. Unbeknownst to bank, the decedent's widow remarried soon after the decedent's death and continued to receive trust payments until death. It was not until the death of the widow that the bank discovered that she had remarried. Petitioner beneficiary sought revocation of payments made by respondent bank to decedent's widow. The Appeals Court (Massachusetts) affirmed the probate court's decision, which ordered the bank to restore the erroneous payments. However, it struck the probate court's decision that permitted the bank to charge the estate for legal services the bank incurred in a recovery action. The bank appealed.

Issue:

Did the bank's failure to attempt to ascertain whether or not the widow had remarried and its continuing representation in its annual probate accounts to the effect that the widow had not remarried, although made in good faith, constitute fraud within the meaning of G. L. c. 206, § 24, and warranted the reopening of the accounts?

Answer:

Yes.

Conclusion:

The court noted that the bank made the disputed payments for 22 years and during that time made no effort to ascertain if the decedent's widow had remarried. Therefore, the court held that marital status of the decedent's wife fully justified the reopening of the accounts. With respect to the surcharge, the court held that the bank was liable to the beneficiary to make restitution. The court also saw no reason to disturb the probate court's award of attorney fees.