Boland v. Mercantile-Commerce Bank & Trust Co.

• Decision Date: 03 June 1942
• Docket Number: 37797
• Citation: 163 S.W.2d 597,349 Mo. 731
• Parties: Julia Eleanor Boland and Joseph M. Boland, Plaintiffs-Respondents, v. Mercantile-Commerce Bank & Trust Company and John L. Boland, Trustees Under Deed of Trust of Catharine M. Boland, and John L. Boland and Mercantile-Commerce Bank & Trust Company, Defendants-Appellants, Katharine T. Clemens, Defendant
• Court: Missouri Supreme Court

163 S.W.2d 597

349 Mo. 731

Julia Eleanor Boland and Joseph M. Boland, Plaintiffs-Respondents, v. Mercantile-Commerce Bank & Trust Company and John L. Boland, Trustees Under Deed of Trust of Catharine M. Boland, and John L. Boland and Mercantile-Commerce Bank & Trust Company, Defendants-Appellants, Katharine T. Clemens, Defendant

No. 37797

Supreme Court of Missouri

June 3, 1942

Rehearing Denied July 1, 1942.

Appeal from Circuit Court of City of St. Louis; Hon. Ernest F Oakley, Judge.

Reversed.

Thompson Mitchell, Thompson & Young, Samuel A. Mitchell and Richard D. Shewmaker for appellants; Herbert W. Ziercher for appellant John L. Boland.

(1) A trustee cannot be held liable for acts done in good faith in the exercise of his discretion, even if his judgment turns out to have been unsound; it must also be shown that his action was such as no reasonably prudent trustee would have taken. The court will not substitute its discretion for the discretion of the trustee. 2 Scott on Trusts, sec. 187, p. 988; Rand v. McKittrick, 346 Mo. 466, 142 S.W.2d 29; St. Louis Union Trust Co. v. Toberman, 140 S.W.2d 68; Restatement of Trusts, sec. 227; Fairleigh v. Fidelity Natl. Bank & Trust Co., 335 Mo. 360, 73 S.W.2d 248; In re Dickinson's Estate, 318 Pa. 561, 179 A. 443. (2) The fundamental error of the trial court is its holding that whenever a security held by a trustee is "endangered," it is the trustee's duty to sell. This is not the law. One of the principal duties of a trustee is to evaluate dangers and determine whether action should or should not be taken. Even where a security held by a trustee has become clearly improper, the trustee is not required immediately to sell but is required to use his judgment and discretion for the best interests of the trust. Rand v. McKittrick, 346 Mo. 466, 142 S.W.2d 29; Restatement of Trusts, sec. 231, comment c., pp. 675-676; 2 Scott on Trusts, sec. 230.2, pp. 1242-1243; Matter of Clark (In re Fulton Trust Co.), 257 N.Y. 132, 177 N.E. 397, 77 A. L. R. 499, reversing In re Clark's Will, 136 Misc. 881, 242 N.Y.S. 210; Green v. Crapo, 181 Mass. 55, 62 N.E. 956; Matter of Weston, 91 N.Y. 502; In re Bartol, 182 Pa. 407, 38 A. 527; In re Detre's Estate, 273 Pa. 341, 117 A. 54; Beam v. Paterson Safe Deposit & Trust Co., 83 N.J.Eq. 628, 92 A. 351; In re Pettigrew's Estate, 115 N.J.Eq. 401, 171 A. 152, affirmed by the Court of Errors and Appeals on the opinion of the lower court, 116 N.J.Eq. 566, 174 A. 478; Marsden v. Kent, L. R. 5 Ch. Div. 598; Chemical Bank & Trust Co. v. Reynaud, 150 Misc. 821, 270 N.Y.S. 301, affirmed by the appellate division without opinion, 271 N.Y.S. 952, affirmed by the Court of Appeals without opinion, 266 N.Y. 484, 195 N.E. 164; In re Kent's Estate, 261 N.Y.S. 698, 146 Misc. 155; In re Allis' Estate, 191 Wis. 23, 209 N.W. 945, 210 N.W. 418; Creed v. McAleer, 275 Mass. 353, 175 N.E. 761, 80 A. L. R. 1117; Bowker v. Pierce, 130 Mass. 262; Annotations in 37 A. L. R. 559, 77 A. L. R. 505, 80 A. L. R. 1124, and 112 A. L. R. 355. (3) The trustees were expressly given "further power to continue to hold" the Frisco stock and bonds "as long as they may consider the same desirable investments," regardless of whether they were "in law proper investments of trust funds." It was therefore necessary for the plaintiffs to show that the Frisco stock and bonds were, at the times in question, of such character that the trustees could not, in the exercise of the discretion given the trustees, have considered them desirable investments within the meaning of the above-quoted provision. There is no such evidence in this case. In re United States Trust Co., 189 A.D. 75, 178 N.Y.S. 125; Matter of Clark (In re Fulton Trust Co., 257 N.Y. 132, 177 N.E. 397, 77 A. L. R. 499; In re Allis' Estate (1926), 191 Wis. 23, 209 N.W. 945, 210 N.W. 418; Fairleigh v. Fidelity National Bank & Trust Co. (1934), 335 Mo. 360, 73 S.W.2d 248. (4) The trustees in retaining the Frisco stock and bonds acted reasonably in view of the circumstances known to them at the time. 2 Perry on Trusts (7 Ed.), sec. 890, p. 1508; 65 C. J., Trusts, 1053; Offenstein v. Gehner, 223 Mo. 318, 122 S.W. 715; Green v. Crapo, 181 Mass. 55, 62 N.E. 956; Beam v. Paterson Safe Deposit & Trust Co., 81 N.J.Eq. 195, 86 A. 369, 83 N.J.Eq. 628, 92 A. 351; In re Allis' Estate, 191 Wis. 23, 209 N.W. 945, 210 N.W. 418; In re Westfield Trust Co., 117 N.J.Eq. 429, 176 A. 101.

Bryan, Williams, Cave & McPheeters, Thomas S. McPheeters, George W. Simpkins and Thomas S. McPheeters, Jr., for respondents.

(1) Trustees are charged with the duty of acquainting themselves with all facts and circumstances necessary to determine whether the safety of their trust is endangered, to consider such facts and circumstances intelligently and then to exercise their judgment as trustees with prudence and skill, having in mind the safety of their trust. In re Winburn's Will, 249 N.Y.S. 758; Cornet v. Cornet, 269 Mo. 298, 190 S.W. 333; Restatement of the Law on Trusts, sec. 228; Appeal of Dickinson, 152 Mass. 184, 25 N.E. 99; Appeal of Davis, 183 Mass. 499, 67 N.E. 604; In re Ward's Estate, 192 A. 68; Wild v. Brown, 183 A. 899; Beam v. Paterson Safe Deposit & Trust Co., 86 A. 369; In re Jarvis Estate, 180 N.Y.S. 324; In re Frank's Will, 208 N.Y.S. 254; St. Louis Union Trust Co. v. Toberman, 140 S.W.2d 68; Rand v. McKittrick, 346 Mo. 466, 142 S.W.2d 29. (a) A professional corporate trustee should be held to greater accountability than a nonprofessional trustee. 2 Scott on Trusts, sec. 174.1, pp. 927-928; 3 Bogert on Trusts & Trustees, sec. 541, pp. 1712-1713; In re Allis Estate, 191 Wis. 23, 209 N.W. 945, rehearing denied 210 N.W. 418; In re Will of Church, 221 Wis. 472, 266 N.W. 210; In the Matter of Baker, 249 A.D. 265, 292 N.Y.S. 122; National Trustees Co., etc., v. Finance Co., Judicial Committee of Privy Council, 1905, A. C. 373. (2) The record here shows that the trustees failed to perform their duties with the prudence and skill required of them by law. (3) The mere right of retention given by the trust instrument is not sufficient to excuse the trustees from liability when the record shows that the trustees knew or should have known that the safety of their trust was gravely endangered. Wild v. Brown, 183 A. 899; In re Ward's Estate, 192 A. 68; In re Jarvis Estate, 180 N.Y.S. 324; In re Frank's Will, 208 N.Y.S. 254; Beam v. Paterson Safe Deposit and Trust Co., 86 A. 369; In re Allis Estate, 191 Wis. 23, 209 N.W. 945, rehearing denied 210 N.W. 418; Leibrandt v. Cameron Trust Co., 229 Mo.App. 450, 83 S.W.2d 234.

Ryland, Stinson, Mag & Thomson, Roy B. Thomson and Lawrence R. Brown amicus curiae.

(1) Trustees here not only did not act wrongfully but pursued the only legal course open to them. Taylor v. Hite, 61 Mo. 142; Fairleigh v. Fidelity Natl. Bank & Trust Co., 335 Mo. 360, 73 S.W.2d 249; Rand v. McKittrick, 346 Mo. 466, 142 S.W.2d 29; St. Louis Union Trust Co. v. Toberman, 140 S.W.2d 68; 122 A. L. R. 806; 135 A. L. R. 1528; 1 Restatement of Trusts, pp. 664, 668, sec. 230, and comment g. (2) If appellants are here held liable trustees can never safely give effect to a trustor's desire and intent that his investments be retained. St. Louis Union Trust Co. v. Toberman, 140 S.W.2d 68.

Dalton, C. Hyde and Bradley, CC., concur.

OPINION

DALTON

This is an action in equity to surcharge the defendants, trustees of a trust estate of which plaintiffs are beneficiaries, for loss suffered by the alleged improper retention of certain stock and bonds issued by the St. Louis-San Francisco Railway Company (hereinafter referred to as Frisco) and owned by the estate. The trial court found that the trustees should be surcharged $ 37,728.25 on account of loss of principal by improper retention of the stock and bonds and $ 21,209.62 for loss of income. The court taxed the costs, including attorneys' fees for $ 7500.00, against the trustees, individually. Said defendants have appealed.

The trust was created in 1919 by Mrs. Catharine M. Boland for the benefit of her daughter Julia Eleanor Boland, named as life beneficiary, and certain contingent remaindermen. Pursuant to the terms of the trust instrument 329 shares of common stock of the St. Louis-San Francisco Railway Company of $ 100 per share par value (prior to 1921 it was in the form of voting trust certificates for common stock), and twenty $ 1000.00 Prior Lien Mortgage Five Per Cent Bonds, Series B, of the same company, were delivered to the defendant John L. Boland and the Mercantile Trust Company. In May, 1929, the latter company consolidated with the Bank of Commerce Trust Company to form defendant, Mercantile-Commerce Bank and Trust Company, hereinafter referred to as Trust Company. Defendant, John L. Boland is a son of Catharine M. Boland and a brother of plaintiff, Julia Eleanor Boland.

The trust instrument, dated November 10, 1919 contained the following provisions: "The Trustees shall hold said property and such other property as they may subsequently acquire pursuant to the powers and authority herein given to them (all of which said property, for convenience, will hereinafter be referred to as the 'Trust Estate') and any increment thereto, with full power to sell, exchange, lease, encumber or dispose of all or any portion thereof, in such manner and upon such terms and conditions as to said Trustees may seem desirable; and the Trustees shall keep such trust funds at all times invested in safe income-bearing securities or other property, and shall have full power to invest and reinvest said trust estate and the proceeds of the sale of any portion thereof in such stocks, bonds, securities or other property, real or personal, as to said Trustees may seem suitable, and to change investments and to make new investments from time to...