Citizens and Southern Nat. Bank v. Haskins

• Citation: 254 Ga. 131,327 S.E.2d 192
• Decision Date: 14 March 1985
• Docket Number: Nos. 41195-41197,s. 41195-41197
• Parties: CITIZENS AND SOUTHERN NATIONAL BANK v. HASKINS, Co-Trustee et al. HASKINS, Co-Trustee et al. v. CITIZENS AND SOUTHERN NATIONAL BANK MERCER, Guardian Ad Litem v. HASKINS, Co-Trustee et al.
• Court: Supreme Court of Georgia

Page 192

327 S.E.2d 192

254 Ga. 131

CITIZENS AND SOUTHERN NATIONAL BANK v. HASKINS, Co-Trustee et al.

HASKINS, Co-Trustee et al. v. CITIZENS AND SOUTHERN NATIONAL BANK

MERCER, Guardian Ad Litem v. HASKINS, Co-Trustee et al.

Nos. 41195-41197.

Supreme Court of Georgia.

March 14, 1985.

Rehearing Denied March 28, 1985.

John D. Comer, Ed S. Sell III, Sell & Melton, Macon, for Citizens and Southern Nat. Bank (case nos. 41195 and 41196).

Groover & Childs, Frank H. Childs, Jr., for appellant (case no. 41197).

Kice H. Stone, Martha C. Christian, Stone, Wingate, Christian & Peterman, P.C., Macon, for Louis Haskins, Co-Trustee et al.

Durward B. Mercer, Macon, Sidney H. Haskins, Atlanta, Larry A. Cohen, Marvin B. Cohen, John Wolford Haskins, Melvin Harrold Haskins, Burtrand Stanley Haskins, Cindy Haskins Bock, Nina Haskins Hershon, Barbara Haskins Rubin, Jill Haskins Rosenberg, Kim Stephens Haskins, pro se.

CLARKE, Justice.

These appeals arise from a suit filed by Louis and Harry Haskins as individual co-trustees and as beneficiaries along with their sister, Ester Friedman (hereinafter "plaintiffs"), against a corporate co-trustee, Citizens and Southern National Bank ("CSNB"); Sidney Haskins, the other individual co-trustee and those who held remainder interests in the trust were also named as defendants. The trust at issue was established in the will of Arthur Haskins, who died in 1959, and named three of his sons and CSNB as co-trustees; the trust was funded in 1974.

Arthur Haskins was survived by five children and twelve grandchildren. The trust provides that income be paid equally to his five children during their lifetimes and to descendants of a deceased child per stirpes. The trust terminates upon the death of the last surviving child or grandchild who was in life at the time of Arthur Haskins' death. At termination, the corpus is to be distributed to the lineal descendants per stirpes.

The will directs that the trust pay income equally to each child "during their lifetime at least annually or at such more frequent intervals as the trustees may agree upon." The will also sets forth an allocation clause for the trust; because the use of this allocation clause is in contention in the litigation we now set it out here in full:

"(m) My executors and trustees shall have discretion to determine whether items should be charged or credited to income or corpus or allocated between income and corpus in such manner as they may deem equitable and fair under all the circumstances, including the power to amortize or fail to amortize any part or all of any premium or discount, to treat any part or all of the profit resulting from the maturity or sale of any asset, whether purchased at a premium or at a discount, as income or corpus or apportion the same between income and corpus, to apportion the sales price of any asset between income and corpus, to treat any dividend or other distribution on any investment as income or corpus or apportion the same between income and corpus, and, except as provided in paragraph (j) above, charge any expense against income or corpus or apportion the same and to provide or fail to provide a reasonable reserve against depreciation or obsolescence on any asset subject to depreciation or obsolescence, as they may reasonably deem equitable and just under all the circumstances."

When the trust was funded in 1974, the co-trustees were CSNB, David Haskins, Louis Haskins and Sidney Haskins. David Haskins died in 1979 and was replaced by Harry Haskins under the terms of the will.

This action was filed by Louis, Harry and their sister Ester Friedman; she is an income beneficiary along with the other children but not a co-trustee. Co-trustee Sidney was named as a party defendant.

The plaintiffs contended that the corporate trustee, CSNB, had been negligent in its management of the trust, violated its fiduciary duties, breached its contractual duties, made unauthorized investments and misrepresented the status of the trust properties to the co- trustees. They sought actual damages, punitive damages and expenses of litigation.

Plaintiffs also contended that the corporate trustee, CSNB, had breached the trust by failing to properly exercise its discretion as required by the allocation clause and sought removal of CSNB as co-trustee. The complaint also asked for an interpretation of the allocation and for the court to order an allocation of capital to income.

The issue of damages was tried before a jury with the issues of the allocation clause, removal of trustee and trustee fees being reserved for the court.

The plaintiffs were seeking actual damages of approximately $400,000 based upon allegations of bonds purchased negligently and without authority and which had either been sold at a loss or were still in the trust, failure to communicate recommendations to sell certain stock and negligence in either selling or failing to sell other stocks.

After a lengthy trial the jury found CSNB, as co-trustee, to be responsible for losses in value of the Haskins trust. By way of a special verdict form they awarded $28,167 as loss on bonds purchased and still held by the trust. The jury awarded no damages for stocks sold at a loss or bonds sold at a loss. The jury declined to award punitive damages but did award attorney fees in the amount of $10,000 finding the bank had been stubbornly litigious or had caused plaintiffs unnecessary trouble and expense.

The trial court disposed of the remaining issues without a jury. He made findings on the plaintiffs' request for allocation and CSNB's request on guidelines for future allocations. The court found that the corpus of the trust was valued at approximately $907,000 when funded in 1974 and approximately $1,456,695 at the time of trial. An allocation under the terms of the trust from corpus to income had not been made since December of 1974. The court did not remove any trustees, ordered that an allocation from corpus to income of $250,000 be made immediately and paid to the income beneficiaries and ordered that no further allocation be made until two years after the death of the last surviving child of Arthur Haskins. He ordered trustee fees due to CSNB under a contract with Arthur Haskins to be paid from corpus and declined to award further attorney fees to either the plaintiff or to CSNB.

I.

We first turn to the appeals involving the jury trial. CSNB contends there is no evidence to support the finding of breach of trust on their part and even if damages were allowable, the evidence does not support a $28,000 verdict on the bonds, but a $17,000 loss at most. The bank further contends that the attorney fee award of the jury was not authorized. Plaintiffs/cross-appellants complain that the jury was not properly qualified as to whether or not they were employees of CSNB or had banking relationships with the bank. They also contend it was error not to give their request to charge on strict liability for unauthorized purchases by a co-trustee and that it was error to charge the jury that they could consider overall performance of the trust in considering punitive damages and attorney fees. They also contend the court erred in allowing evidence of transactions which occurred before the creation of the trust.

1. The issue of the bank's liability is whether there was sufficient evidence of a loss and whether that loss was caused by a breach of trust on the part of the bank. The bank contends there can be no liability for the decline in the value of the bonds which was caused by rises in interest rates.

A trustee is not liable for losses or depreciation in the value of trust property unless there has also been a breach of trust. Restatement of Trusts 2d, § 204 (1959). The bank relies on this principle and market fluctuation cases in their contention that as trustee they are not liable for loss on the bonds. See Hamilton v. Neilsen, 513 F.Supp. 204 (N.D.Ill.1981) and Stark v. United States Trust Co. of New York, 445 F.Supp. 670 (S.D.N.Y.1978), which held that a trustee is not a guarantor of the value of assets and that where a loss is caused solely by changes in the financial market, there is no liability. However, a trustee may be liable for losses if there is a breach of trust.

"A breach of trust is a violation by the trustee of any duty which as trustee he owes to the beneficiary." Restatement, supra, § 201. One manner in which the trustee may breach the trust is the failure to exercise the degree of care and skill as a person of ordinary prudence would exercise in administering the trust. Scott, The Law of Trusts, § 201 (3rd ed.). "A trustee is under a duty not merely to exercise care ... but he must also exercise a reasonable degree of skill. The standard is an external standard, that of the reasonably prudent man." Scott, supra, § 2272. OCGA § 53-8-2.

The bank contends there can be no liability for the bond losses because they were proper fiduciary investments when made and the bank was authorized to retain them. It is not disputed that the bonds were a proper investment in the sense that they were a legal investment. The issue is whether it was proper to retain them when the financial market changed applying the standard of the prudent man, or, more importantly, whether adequate attention was given to the administration of the trust estate.

The Restatement provides that "if the trustee holds property which when acquired by him was a proper investment, but which thereafter becomes an investment which would not be a proper investment for the trustee to make, it becomes the duty of the trustee to the beneficiary to dispose of the property within a reasonable time." Restatement, supra, § 231. This duty is a continuing one and although it does not require a trustee to "watch the ticker as a speculator would" it does require review and the exercise of the necessary care and skill. Scott, supra, § 231.

Courts have held that a violation of the prudent...