Mullane v. Central Hanover Bank & Trust Co.
Encyclopedia
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306
(1950), was a case in which the Supreme Court of the United States
set forth the constitutional requirements for notice
of judicial proceedings
to a potential party under the Fourteenth Amendment to the United States Constitution
.
into a large common fund
administered by a corporate
fiduciary, with the income
, expense
s, and capital gains and losses
shared by the constituent trusts in proportion to their contribution to the common fund. The purpose of this legislation (and similar laws in other states
) was to provide corporate fiduciary services to modestly sized trusts which would be too costly to manage individually, promoting economies of scale
in the American
trust management industry
and better risk management
for smaller trusts. Central Hanover Bank & Trust Co. in New York City
was the manager
& trustee
of one such common trust fund.
In March of 1947, Central Hanover petitioned the New York Surrogate's Court
for a settlement
of its first account
as common trustee
. By this time there were approximately 113 trusts participating in the fund, about half inter vivos trusts and half testamentary trust
s, with combined gross capital assets of nearly three million dollars.
The only notice of the settlement proceedings required by §100-c to be given the trusts' beneficiaries
was that after filing such petition for judicial settlement of its account the petitioner shall cause to be issued by the court in which the petition is filed and shall publish not less than once in each week for four successive weeks in a newspaper
to be designated by the court a notice or citation addressed generally without naming them to all parties interested in such common trust fund and in such estates, trusts or funds mentioned in the petition, all of which may be described in the notice or citation only in the manner set forth in any related court order and without setting forth the residence of any such decedent or donor of any such estate, trust or fund. When the fund had just been started, however, Central Hanover sent notice by mail of the future proceedings. Subsequent notice in its paper included only the name of the trust, the date of establishment and the estates in the trust. The names of beneficiaries were not included. Appellant Kenneth Mullane was appointed special guardian and attorney for those parties known or unknown who had any interest in the income of the fund, and James N. Vaughan was appointed to represent those parties with interest in the principal.
Mullane appeared specially
to object to the statutory provision for notice, claiming that it was inadequate to afford the due process
required by the Fourteenth Amendment. The Surrogate overruled Mullane's objections, and entered a decree
accepting the accounting and terminating any rights the beneficiaries may have had against Central Hanover for mismanagement of the trust. The New York Supreme Court Appellate Division subsequently affirmed, as did the New York Court of Appeals. The U.S. Supreme Court then granted certiorari
.
began his examination of the issues of the case by discussing the nature of the jurisdiction
which the Surrogate's Court was exercising. He explained some of the differences in the service of process
required in in rem
, quasi in rem
, and in personam
actions. Mullane had argued that this was essentially an in personam action, and that the Surrogate could not exercise jurisdiction on out-of-state residents upon whom personal service had not been made.
Jackson did not explicitly determine what type of jurisdiction was being exercised here, but held that the Fourteenth Amendment applied to all of them regardless of how the state classified the action. The beneficiaries' property rights were at stake here, and without proper notice, the "right to be heard" provided by the Fourteenth Amendment was of no practical consequence. Constructive service via newspaper publication, wrote Jackson, was an unreliable method of giving notice, because newspapers have limited circulation and even then, many people do not examine the legal notices, which are usually in small typeface
on the back pages. In this case, the legal notice at issue did not even mention the names of the beneficiaries. Furthermore, under normal circumstances, property holders are directly aware of legal proceedings regarding their property, either directly or through a caretaker. But in this case, the caretaker was the beneficiaries' adversary - the trustee itself - which could not be expected to give them reasonable notice, and the special guardian was also not required to give notice.
Jackson held that notice must be "reasonably calculated" to inform known parties affected by the proceedings. Thus, §100-c(12), the section of the statute which dealt with notice to beneficiaries, was unconstitutional. He further held that notice by publication was acceptable for missing or unknown parties, for those whose whereabouts could not be ascertained by due diligence
, and for those whose future interest
s were too conjectural to be known with any certainty. However, Jackson noted that in many cases, notice to the known parties would help the information of the proceedings to reach those who were unknown by the trustee.
wrote a brief dissent, remarking that since the states created legislation creating the common trust funds, that the decision of what notice was required in such situations should be left to the states.
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1950), was a case in which the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
set forth the constitutional requirements for notice
Notice
Notice is the legal concept in which a party is made aware of a legal process affecting their rights, obligations or duties. There are several types of notice: public notice , actual notice, constructive notice, and implied notice....
of judicial proceedings
Lawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
to a potential party under the Fourteenth Amendment to the United States Constitution
Fourteenth Amendment to the United States Constitution
The Fourteenth Amendment to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments.Its Citizenship Clause provides a broad definition of citizenship that overruled the Dred Scott v...
.
Background
Section 100-c of the New York State Banking Law provided for the pooling of small trustsTrust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
into a large common fund
Collective investment scheme
A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
administered by a corporate
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
fiduciary, with the income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
, expense
Expense
In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...
s, and capital gains and losses
Capital loss
Capital loss is the difference between a lower selling price and a higher purchase price, resulting in a financial loss for the seller. The IRS states that "If your capital losses exceed your capital gains, the excess can be deducted on your tax return"....
shared by the constituent trusts in proportion to their contribution to the common fund. The purpose of this legislation (and similar laws in other states
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
) was to provide corporate fiduciary services to modestly sized trusts which would be too costly to manage individually, promoting economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
in the American
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
trust management industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
and better risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
for smaller trusts. Central Hanover Bank & Trust Co. in New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
was the manager
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
& trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
of one such common trust fund.
Facts and procedural history
The common trust fund at issue in this case was established on January 17, 1946, and §100-c provided for an accounting of each fund to be undertaken twelve to fifteen months after the establishment of a fund, and then for every three years thereafter.In March of 1947, Central Hanover petitioned the New York Surrogate's Court
New York Surrogate's Court
The Surrogate's Court handles all probate and estate proceedings in the state of New York. All wills are probated in this court and all estates of people who die without a will are handled in this court...
for a settlement
Settlement (trust)
In the context of trusts, a settlement is a deed whereby real estate, land, or other property is given by a settlor into trust so that the beneficiary only has the limited right to the property , but usually has no right to transfer the land to another or leave it in their own will...
of its first account
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
as common trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
. By this time there were approximately 113 trusts participating in the fund, about half inter vivos trusts and half testamentary trust
Testamentary trust
A testamentary trust is a trust which arises upon the death of the testator, and which is specified in his or her will...
s, with combined gross capital assets of nearly three million dollars.
The only notice of the settlement proceedings required by §100-c to be given the trusts' beneficiaries
Beneficiary (trust)
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often...
was that after filing such petition for judicial settlement of its account the petitioner shall cause to be issued by the court in which the petition is filed and shall publish not less than once in each week for four successive weeks in a newspaper
Newspaper
A newspaper is a scheduled publication containing news of current events, informative articles, diverse features and advertising. It usually is printed on relatively inexpensive, low-grade paper such as newsprint. By 2007, there were 6580 daily newspapers in the world selling 395 million copies a...
to be designated by the court a notice or citation addressed generally without naming them to all parties interested in such common trust fund and in such estates, trusts or funds mentioned in the petition, all of which may be described in the notice or citation only in the manner set forth in any related court order and without setting forth the residence of any such decedent or donor of any such estate, trust or fund. When the fund had just been started, however, Central Hanover sent notice by mail of the future proceedings. Subsequent notice in its paper included only the name of the trust, the date of establishment and the estates in the trust. The names of beneficiaries were not included. Appellant Kenneth Mullane was appointed special guardian and attorney for those parties known or unknown who had any interest in the income of the fund, and James N. Vaughan was appointed to represent those parties with interest in the principal.
Mullane appeared specially
Special appearance
A special appearance is a term used in the American law of civil procedure to describe a civil defendant's appearance in the court of another state solely to dispute the personal jurisdiction of the court over that defendant...
to object to the statutory provision for notice, claiming that it was inadequate to afford the due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...
required by the Fourteenth Amendment. The Surrogate overruled Mullane's objections, and entered a decree
Decree
A decree is a rule of law issued by a head of state , according to certain procedures . It has the force of law...
accepting the accounting and terminating any rights the beneficiaries may have had against Central Hanover for mismanagement of the trust. The New York Supreme Court Appellate Division subsequently affirmed, as did the New York Court of Appeals. The U.S. Supreme Court then granted certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
.
Majority opinion
Justice JacksonRobert H. Jackson
Robert Houghwout Jackson was United States Attorney General and an Associate Justice of the United States Supreme Court . He was also the chief United States prosecutor at the Nuremberg Trials...
began his examination of the issues of the case by discussing the nature of the jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
which the Surrogate's Court was exercising. He explained some of the differences in the service of process
Service of process
Service of process is the procedure employed to give legal notice to a person of a court or administrative body's exercise of its jurisdiction over that person so as to enable that person to respond to the proceeding before the court, body or other tribunal...
required in in rem
In rem
In rem is Latin for "against a thing." In a lawsuit, an action in rem is directed towards a piece of property rather than against a person . The action disputes or seeks to transfer title to property. When title to real estate In rem is Latin for "against a thing." In a lawsuit, an action in rem...
, quasi in rem
Quasi in rem
Quasi in rem is a legal term referring to a legal action based on property rights of a person absent from the jurisdiction. In the American legal system the state can assert power over an individual simply based on the fact that this individual has property in the state...
, and in personam
In personam
In personam is a Latin phrase meaning "directed toward a particular person". In a lawsuit in which the case is against a specific individual, that person must be served with a summons and complaint to give the court jurisdiction to try the case, and the judgment applies to that person and is called...
actions. Mullane had argued that this was essentially an in personam action, and that the Surrogate could not exercise jurisdiction on out-of-state residents upon whom personal service had not been made.
Jackson did not explicitly determine what type of jurisdiction was being exercised here, but held that the Fourteenth Amendment applied to all of them regardless of how the state classified the action. The beneficiaries' property rights were at stake here, and without proper notice, the "right to be heard" provided by the Fourteenth Amendment was of no practical consequence. Constructive service via newspaper publication, wrote Jackson, was an unreliable method of giving notice, because newspapers have limited circulation and even then, many people do not examine the legal notices, which are usually in small typeface
Typeface
In typography, a typeface is the artistic representation or interpretation of characters; it is the way the type looks. Each type is designed and there are thousands of different typefaces in existence, with new ones being developed constantly....
on the back pages. In this case, the legal notice at issue did not even mention the names of the beneficiaries. Furthermore, under normal circumstances, property holders are directly aware of legal proceedings regarding their property, either directly or through a caretaker. But in this case, the caretaker was the beneficiaries' adversary - the trustee itself - which could not be expected to give them reasonable notice, and the special guardian was also not required to give notice.
Jackson held that notice must be "reasonably calculated" to inform known parties affected by the proceedings. Thus, §100-c(12), the section of the statute which dealt with notice to beneficiaries, was unconstitutional. He further held that notice by publication was acceptable for missing or unknown parties, for those whose whereabouts could not be ascertained by due diligence
Due diligence
"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations...
, and for those whose future interest
Future interest
In property law and real estate, a future interest is a legal right to property ownership that does not include the right to present possession or enjoyment of the property. Future interests are created on the formation of a defeasible estate; that is, an estate with a condition or event...
s were too conjectural to be known with any certainty. However, Jackson noted that in many cases, notice to the known parties would help the information of the proceedings to reach those who were unknown by the trustee.
Dissent
Justice BurtonHarold Hitz Burton
Harold Hitz Burton was an American politician and lawyer.He served as the 45th mayor of Cleveland, Ohio, as a U.S. Senator from Ohio, and as an Associate Justice of the Supreme Court of the United States. He was known as a dispassionate jurist who prized equal justice under the law.-Biography:He...
wrote a brief dissent, remarking that since the states created legislation creating the common trust funds, that the decision of what notice was required in such situations should be left to the states.