Ashton S. Bullard, successor trustee of the Bullard Realty Trust (the "Bullard Trust") under a Declaration of Trust dated July 14, 1962 and registered with the Plymouth County Registry District of the Land Court (Exhibit No. 10) as document No. 157727, as amended by an instrument registered as document No. 157728, seeks by his Amended Complaint to cancel mortgages from Richard K. Bullard, a former trustee of the Bullard Trust, acting as such trustee, to John A. Irwin and to Margaret J. MacDonald (now Margaret J. MacDonald-Bullard, as explained in footnote 1) herein generally MacDonald-Bullard, respectively, covering two parcels of land in East Bridgewater in the County of Plymouth. The mortgage to Irwin is dated September 22, 1977, and recorded with Plymouth Deeds, Book 4410, Page 206 (Exhibit No. 13) and the mortgage to MacDonald-Bullard is dated February 23, 1978, and recorded with said Deeds, Book 4410, Page 209 (Exhibit No. 12). Each mortgagee answered, contending that the mortgage secured moneys due from the Bullard Trust, and its execution was not a breach of fiduciary duty. I hold that the trustee in each in stance was authorized to execute a mortgage on the trust real estate to secure certain obligations of the trust but that the stated amount of each mortgage debt far exceeds the amount properly chargeable to the Bullard Trust. I further hold that neither mortgagee may foreclose by entry or the exercise of the power of sale set forth in the mortgages without a further judgment of this Court and that the amounts secured by said mortgages mature at the time of the sale of the premises and are to be paid from the proceeds thereof or otherwise at the election of the plaintiff.
A trial was held at the Land Court on January 8, 1982 at which a stenographer was appointed to record and transcribe the evidence. The plaintiff was the only witness who testified in his behalf, and the three defendants testified in their cause. All exhibits introduced into evidence are incorporated herein for the purpose of any appeal.
On all the evdence, I find and rule as follows:
1. The defendant, Richard S. Bullard, was the settlor of the Bullard Trust and the trustee named therein.
2. The Declaration of Trust gives the trustee, in Article III, subparagraphs (h) and (k) the following powers:
"(h) To buy, hold, improve, manage, let, lease, hire, sell at public auction or by private sale at any time or times in his discretion, and to mortgage or pledge any or all of the personal estate or real estate held or acquired by him as Trustee hereunder for such purposes, and for such terms as he may judge best and to convey the same by proper instruments of conveyance, and to invest the proceeds thereof in the manner he deems for the best interests of the Trust Estate. All such act or acts of the Trustee shall be done by him without the necessity of seeking confirmation of his acts from any Court of competent jurisdiction and without confirmation from any or all of the beneficiaries herein.
(k) The Trustee may borrow money upon such terms and conditions as he deems proper for the purposes of this Trust, and may issue notes, bonds, debentures or other evidence of the Trust, secured or unsecured, and to secure the same he may execute and deliver mortgages, assignments of mortgages, debentures, deeds of trust and collateral agreements."
He also is authorized by Article IV, subparagraph (c) 1 to pay from the gross receipts of the Trust charges and expenses in connection with its operation, including lawyers' fees; if the trust income is insufficient, assets may be sold to meet the obligation.
3. The beneficiaries of the trust are Roland K. Bullard, Ashton S. Bullard (successor trustee and the plaintiff herein), Pamela Bullard and Nancy Bullard. They are the children of Richard K. Bullard and his former wife, Nancy.
4. The settlor (and original trustee) reserved the right to amend the trust in whole or in part, subject to the limitation that any amendment which would direct income or principal to Richard K. Bullard or his estate, or his or its creditors or terminate the trust prior to the stated date was not to be binding.
5. By deed dated May 22, 1974 and recorded with said Deeds in Book 3989, Page 432 (Exhibit No. 11), Richard K. Bullard and his then wife, Nancy, conveyed to the Bullard Trust two parcels of land on the southerly side of West Street in East Bridgewater. This is the land described in said mortgages. The property had been purchased in 1954 and appears to have been the family home. The Bullard Trust also allegedly held title to other properties in Vermont.
6. Richard K. Bullard is a real estate developer who formed multiple corporations of which he was president and/or treasurer. In November of 1976, Berkshire Bank and Trust Company ("Berkshire Bank") brought suit against Bullard, the Bullard Trust, seven Bullard corporations and others to recover more than $700,000 and to reach assets of Bullard standing in the name of others, specifically for our purpose, the Bullard Trust. The Complaint in this case, Plymouth County Superior Court CA76-4182 is Exhibit No. 2.
7. Bullard engaged John A. Irwin, Esquire, to represent him in the suit, and Irwin obtained the services of Louis Karp, Esquire, to act as trial counsel. Mr. Karp appeared for all defendants except Barbara McDermott, Trustee and Bankers Life Company.
8. An attachment in the amount of $750,000 of the Estate of Richard K. Bullard standing in his name or standing in the name of Richard K. Bullard, Trustee of the Bullard Realty Trust, was approved by a Justice of the Superior Court on November 10, 1976, and all real estate of the Bullard Trust in Plymouth County was attached pursuant thereto. (Exhibit No. 3A). The attachment is recorded in Book 4218, Page 299.
9. At a conference between Bullard and Irwin (joined later by Karp), Irwin informed Bullard that his fee for services would be $15,000 (which was to be divided evenly with Karp) with $5,000 to be paid in advance. Bullard retorted that he did not then have funds to pay the retainer but that he was hopeful something would be worked out so that he eventually would have the money to pay counsel. On another occasion he told Irwin that he would give him security for the fee.
10. The defendant, Margaret J. MacDonald-Bullard resided with the defendant Bullard in the East Bridgewater premises from June 1, 1977 until May, 1981 when the plaintiff obtained a judgment of eviction from the Brockton District Court. She gave the defendant Bullard checks payable to him personally during 1977 and 1978 in the amount of $23,294.30. Of these amounts, the sum of $14,094.30 was given to him in 1977 and $800 in 1978 up to the time the promissory note dated February 24, 1978 and payable to her order in the amount of $16,000 was executed by the defendant Bullard, both individually and as trustee of the Bullard Trust (Exhibit No. 18). The difference between the face amount of the note and the sums advanced, was intended to represent interest.
11. The parties agreed that Exhibit No. 19 shows no less than $3,932.77 for expenses at 178 West Street paid by defendant Bullard during the period from June 1, 1977 to February 13, 1978.
12. The promissory note to MacDonald-Bullard was secured by a third mortgage on the West Street premises dated February 23, 1978 and recorded with said Deeds, Book 4410, Page 209 (Exhibit No. 12).
13. An answer was filed in the case brought by Berkshire Bank by Mr. Karp on behalf of nine of the defendants including the Bullard Trust. The complaint had alleged in the section entitled "Assets of Richard K. Bullard" that Richard K. Bullard was the real owner of the properties described in subparagraphs 1 (a) to (d) of which the present locus is described in l (a), that such properties had been listed in personal financial statements and that certain properties in Vermont had been transferred without fair consideration. Paragraph 20 of the answer addresses these allegations and reads:
"20. With respect to the schedule in said Complaint entitled "Assets of Richard K. Bullard," Richard K. Bullard denies he is the real owner of the property set forth under (a) to (d) inclusive of paragraph 1 of said schedule; and he denies that he has treated the said properties as his own, as alleged in paragraph 2 of said Schedule, but he admits that he has listed the same in financial statements delivered to the plaintiff on the dates alleged, but in submitting such statements the plaintiff was informed and aware of the fact that he was not the real owner thereof, and it, through its officers advised Bullard to include such properties in said statements knowing that Bullard was not in fact the true owner of such properties.
20. A. With respect to the allegations of paragraph 3 of said Schedule of Assets, the same are denied." (Exhibit No. 4).
14. On May 27, 1977 a settlement was reached in the Berkshire Bank case pursuant to which defendant Bullard was to pay $60,000 by June 15, 1977 and an additional $15,000 by December 15, 1977. If the payments were not made, agreement for judgment was to enter and execution issue forthwith (Exhibit No. 8). Payment not being made, the latter course was followed and an agreement for judgment was filed (Exhibit No. 5). This subsequently was vacated under Rule 60 and a new judgment entered on October 5, 1977 (Exhibit No. 6). The judgment was against Richard K. Bullard only.
15. After the case against defendant Bullard, individually, was disposed of, defendant Irwin did nothing to clear the records of the attachment against the property of the Bullard Trust. It remained outstanding on the records as to the Bullard Trust's West Street premises. The Berkshire Bank case now having been dismissed for lack of prosecution, (Exhibit No. 7) presumably the attachment can be disposed of by the recording of a clerk's certificate. The docket entries in the Superior Court case are Exhibit No. 1.
16. Some time in 1977, the plaintiff herein, his brother, and two sisters, requested the Plymouth County Probate Court to remove their father as trustee and to appoint the present plaintiff successor trustee of the Bullard Trust. The defendant Bullard's answer suggests that the complaint was motivated by the separate support and divorce petition pending before said Court between the parents of the plaintiff (Exhibit No. 14).
17. It was after the filing of the probate court complaint to remove the defendant Bullard as trustee but before the entry of judgment that the defendant Bullard executed the two mortgages here in issue. The second mortgage to the defendant Irwin was dated September 22, 1977, was stated to have been acknowledged on February 25, 1978, an apparent mistake, and was recorded on February 24, 1978 in Book 4410, Page 206 (Exhibit No. 13). The third mortgage to Margaret J. MacDonald (herein MacDonald-Bullard) was dated, acknowledged and recorded on February 24, 1978; it appears in Book 4410, Page 209 (Exhibit No. 12).
18. The probate court judgment was entered on October 23, 1978. It was ordered and adjudged that defendant Bullard be removed as trustee and an accounting of his management of the trust be filed within thirty days. No evidence was presented in this present case as to whether the accounting had been filed.
19. In the Financial Statement filed in the separate support and divorce action (Exhibit No. 17) the second mortgage to John A. Irwin appears as a personal obligation of defendant Bullard.
20. After his removal as trustee, defendant Bullard continued to occupy the West Street premises. Demand was made on him to vacate the premises, and he did so in May of 1981 under pressure of a district court eviction notice. No rent ever was paid by Richard and Margaret, but they argue that their "caretaker" status benefited the trust by protecting it from intrusions of man or nature.
21. The present complaint was filed with this Court on December 5, 1980.
The vicissitudes of the Bullard Trust have engaged the attention of four departments of the Trial Court. The root difficulty not only in this case and this trust, but in the marketplace generally, stems from the propensity of the entrepreneur to use various legal entities for his business operations but to treat each of them as if he personally were solely involved. It would appear that it was for this reason that the Berkshire Bank named the Bullard Trust as a defendant in its Superior Court case and sought to reach real estate standing in its name to apply against Bullard's personal debt to the Bank. Bullard's liability stemmed from his guaranty of corporate notes; the Bullard Trust was not a maker of any notes or otherwise indebted to the Berkshire Bank. For purposes of the original litigation it appears to havebeen an innocent by-stander with a valuable asset. Defendant Irwin grounds his right to recovery from the trust of his fee for legal services on the argument that it alone had any assets and that, therefore, his services were more valuable to it than to any of the other defendants. This reasoning, however, is specious. The principal defendant in the Berkshire Bank case was defendant Bullard, individually. If defendant Irwin chose to represent him, it was to him and his personal assets that Irwin should have understood he was to look for payment of the principal part of his fee. To the extent the other defendants also were benefited by Irwin's services, then they also should contribute to payment of the fee. Indeed the trust instrument specifically provides for payment of fees for legal services from the trust income. It further provides for the sale of trust assets to pay such expenses if the income is insufficient. It is arguable that since there are specific provisions as to payment of legal fees, any payments from other sources are excluded and without the power of the trustee. So far as appears, however, the trust has no income from which such payments can be made, and while a sale of locus is now anticipated, a sale under pressures of real estate as distinguished from personalty may be imprudent. In view of the nature of the trust assets an interpretation that the power to pay legal fees is so limited might well bar the trust from securing necessary legal advise in other cases. I, therefore, concur with the arguments of the defendant that it was within the powers of the trustee to give a mortgage to secure the attorney fees the trust otherwise was unable to pay. The trustee clearly has power to mortgage the trust res, [Note 2] and it would seem that the power is broad enough to authorize a mortgage to secure legal services to the trust. Nonetheless, it is within the province of this Court to inquire as to the propriety of the amount of the fee charged the trust and the benefit to the trust of its legal representation.
It is clear from the initial conferences of client and attorney that Bullard personally was the main subject of concern. This conclusion is reinforced by counsel's failure to have the complaint dismissed against the trust when the agreement for judgment was filed with the Court. Services to the trust seem to be but a small part of the defendant Irwin's services. He may have convinced Bank's counsel not to pursue the trust's assets, but he failed to take the elementary steps to have the real estate freed from the attachment when the agreement for judgment was filed. The attachment stayed in the records and contributed to chilling the market for the property's sale. Counsel's failure to attend to the interests of the trust negate his argument that the trust owning valuable real estate, had more to lose than the other defendants and should bear the entire bill for legal services. It might well be said that since defendant Bullard's misconduct in treating the trust assets as his own led to the joinder of the Bullard Trust as a defendant, no recovery can be had against the trust and the attorneys must look to Bullard personally. See Gordon v. Guernsey, 316 Mass. 106 , 110-111 (1944); Lane v. Cronin, 345 Mass. 52 (1962) Am. Law Inst. Restatement: Trusts §245. Nonetheless, in construing the somewhat analogous problems arising under G. L. c. 206 §16 and c. 215 §39A the benefit conferred upon the estate by an attorney is given weight. It does appear that Irwin and Karp convinced the lawyers for Berkshire Bank not to pursue the allegation that the trust assets were the property of Richard K. Bullard. This is so despite their failure to have the attachment discharged. Accordingly, I find and rule that Irwin is entitled to a reasonable attorney's fee from the Bullard Trust, but that the entire charge is to be prorated among the defendants. I find and rule that defendant Bullard individually should bear two-thirds of legal fees and expenses and the remaining eight defendants should divide the remaining $5,000 charge with each assuming $625. Therefore, the second mortgage from Richard K. Bullard, trustee to John A. Irwin is to be reformed by striking the amount secured thereby of $15,000 and substituting in place thereof the sum of $625. Said mortgage is also amended to provide that the amount secured thereby is to mature at the time of the sale of the mortgaged premises and is to be paid at that time from the proceeds thereof or otherwise at the election of the trustee and it is not to be foreclosed by entry or sale without approval by a justice of this Court. This resolution of the mortgage problem is similar to that suggested in the Restatement supra, §244, Comment C.
As to the third mortgage, the mortgagee made the advances secured by the mortgage to defendant Bullard individually, but he used some of such moneys for the benefit of the trust. A noted commentator has explained the Massachusetts cases as follows:
"There are cases in Massachusetts in which it is held that the lender cannot reach the trust estate where the trustee was not authorized to borrow money for the estate, even though the proceeds of the loan were used in the payment of taxes on trust property or otherwise for the benefit of the trust estate. These cases may possibly be supported on the ground that it did not appear that on an accounting there was a balance due to the trustee, and in Massachusetts the creditor can reach the trust estate only through the trustee's right to indemnity. If the view of the court was that the trustee was not entitled to indemnity to the extent to which the trust estate was benefited through the use of the proceeds of the unauthorized loan, its view is contrary to the great weight of authority and it is submitted it is unsound. There is no reason why the trust estate should benefit at the expense of the trustee or of the lender." (footnotes omitted)
2 Scott On Trusts (1939) §245.1. In the present case, we need not be concerned with the trustee's right of' reimbursement since it is clear that the trustee did have the right to borrow funds for purposes of the trust. The first mortgage payments were made from the MacDonald-Bullard moneys until the end of 1980 when both mortgage and real estate taxes were in arrears.
A mortgage to secure such sums is not vulnerable to attack by the beneficiaries to the extent the funds were employed to benefit the trust estate, but that portion of the secured amount which represents personal expenditures by the trustee must be disallowed. It is only those sums shown to be expended for the benefit of the Bullard Trust which the third mortgage can secure. The parties agreed that this was no less than $3,932.77. No other sums have been proven to the Court's satisfaction. This mortgage therefore is reformed so that the amount secured is stated to be $3,933, it is to mature at the time of the sale of the mortgaged premises, and is to be paid at that time from the proceeds thereof or otherwise at the election of the plaintiff. It is not to be foreclosed by entry or sale without approval by a justice of this Court.
The complaint does not seek to recover rent for use and occupancy of the premises from the defendants Bullard and MacDonald-Bullard. The rule is that the trustee must account for rent chargeable to his occupation in the same way as if rent had been received from a third party. See McIntire v. Mower, 204 Mass. 233 (1910). If there is to be an accounting, the probate court would seem to be the appropriate forum. While Bullard may be charged with use and occupation of the premises, he personally made mortgage, insurance and tax payments for which he may be entitled to credit. Much of the information required to rule properly in these matters is not before me. In addition, the trust assets in East Bridgewater comprised the family home and were not income producing. Expenses were borne by the settlor as in the case of any family residence, and accordingly he occupied the property seemingly without a thought of payment of rent. In an appropriate forum for such an accounting such matters can be thoroughly explored. Such was the import of the probate court's decree when defendant Bullard was removed from office.
The plaintiff has asked this Court to make certain requested findings of fact and rulings of law. The Court grants Nos. 1, 2 (with a correction of the date to May 22, 1974), 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, l8, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 38, 41, 43, 44, 45, 46, 47, 48, 49, 50 and 52. Requests Nos. 3, 39, 40, 42, 51, 53, 54, 56, 57 and 58 are denied. Request No. 7 is granted other than as to the date of the entry of the judgment of eviction. I decline to rule on Request No. 55 as its subject matter is covered in this decision.
[Note 1] Since the filing of the complaint, the defendant named therein as Margaret J. MacDonald, has married the defendant Richard K. Bullard.
[Note 2] Without a stated power in the trust instrument, the trustee cannot execute a mortgage of the trust assets. Hoyt v. Jaques, 129 Mass. 286 (1880); Donnelly v. Alden, 229 Mass. 109 (1918).