Clark v. American Nat. Bank & Trust Co. of Chattanooga

• Decision Date: 30 August 1974
• Citation: 531 S.W.2d 563
• Court: Tennessee Court of Appeals
• Parties: Norma Frances Raoul CLARK et al. (Original Appellants), v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHATTANOOGA (Original Appellee).

Page 563

531 S.W.2d 563

Norma Frances Raoul CLARK et al. (Original Appellants), v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHATTANOOGA (Original Appellee).

Court of Appeals of Tennessee, Western Section.

Aug. 30, 1974.

Certiorari Denied by Supreme Court July 7, 1975.

Supreme Court Denied Petition to Rehear Aug. 11, 1975.

Leonard R. Tanner, Jr. and Richard P. Jahn, Chattanooga, for appellants.

Jere T. Tipton, Miller, Martin, Hitching, Tipton, Lenihan & Waterhouse, John P. Gaither, Witt, Gaither, Abernathy & Wilson, Chattanooga, for appellee.

NEARN, Judge.

This is a trust case involving an alleged breach of trust and it is the second time that the matter has come before this Court. Previously, this Court remanded for additional findings by the Chancellor.

In the original complaint, filed in 1964, the benficiaries of express trusts charged the defendant Trustee, American National Bank and Trust Company of Chattanooga, Tennessee, with negligence in the exchange of certain stocks held in trust; in failing to prevent the redemption of the exchanged stock by appropriate court action; and breach of trust.

The main thrust of the complaint was that the Trustee had committed a breach of trust in 1944 when certain shares of trust stock were exchanged for a different type of stock in the same corporation. Prior to the complained of 1944 transfer of stock the Trustee held shares of Cavalier Corporation 'no-par' common stock. These shares were voting shares with no dividend preference and would share equally on dissolution of the Corporation. In 1944 the 'no-par' common stock was voluntarily exchanged by the Trustee for a like number of what was termed '$100.00 par value common stock'. The par value stock enjoyed dividend preference and was subject to redemption by the Corporation.

In 1963 Cavalier called in and redeemed the $100.00 par value stock at $100.00 per share. Approximately four months thereafter Cavalier was sold to Seeburg Corporation for approximately 12 million dollars and Cavalier was liquidated. The holders of common stock in Cavalier participated in the division of the sale proceeds upon dissolution while the former holders of $100.00 par value stock did not. This fact precipitated this suit.

In addition to charging a breach of trust in the 1944 transaction, complainants contended at the first trial that the '$100.00 par value common stock' had the right to participate with other common shareholders on liquidation.

At the first trial the Trustee contended that the breach of trust claim was barred by the doctrine of laches and even if it were not, there had been no breach. Further, the $100.00 par value stock was not entitled to share upon liquidation with the no-par common stock.

The Chancellor held: (a) the '$100.00 par value common stock' was not true common stock but was preferred as to dividends and its par value; (b) upon liquidation it did not share with the common stock in the overage after payment of its par value; and (c) the plaintiffs were barred by the doctrine of laches on the breach of trust issue and, consequently, made no fact finding on that point.

On appeal, we affirmed the Chancellor's holding regarding the nature of the '$100.00 par value common stock', but reversed the Chancellor's holding regarding the application of the doctrine of laches and remanded for a finding of fact on the pretermitted issue. ¹

On remand, the Trustee, having lost the issue regarding laches, raised the issue of the statute of limitations as set out in T.C.A. § 28--309, and again insisted that the facts did not constitute a breach even if the claim was not barred by the statute of limitations.

The Chancellor has filed his finding of fact and conclusions and held that T.C.A. § 28--309 was not a bar to the suit and that the Trustee had committed a breach of trust in 1944 in exchanging the 'no-par' value stock for the '$100.00 par value stock'. Judgment in the amount of $3,941,799.74 was rendered against the Trustee.

Now the Trustee appeals and insists that the Chancellor erred in not sustaining the plea of the statute of limitations as well as in holding there had been a breach of trust. In addition, it is also insisted that the Chancellor erred in the manner of assessment of damages and interest.

For an understanding of this matter it is necessary to give some history of the trusts involved.

Gaston C. Raoul, uncle of Anne Raoul and Norma Raoul, planted the seed of the trusts in 1932. In that year, Gaston Raoul, the President of Tennessee Furniture Company and its prime movant, gave in trust to the defendant Trustee 124 shares of the company's no-par value common stock. ² The trust was for the benefit of his nieces, Anne and Norma Raoul, the complainants, and their father, Norman Raoul, who was Gaston's brother.

Subsequently, Gaston purchased from Norman his brother's interest in their father's (W. G. Raoul) estate. Gaston then gave in trust as additional corpus this interest, which included 160 shares of Cavalier no-par value common stock.

Complainants' grandmother, Mary M. Raoul, by testamentary disposition increased the trust corpus by 39 shares of Cavalier no-par value common stock.

Thus, it may be seen that at this point there were 323 shares of Cavalier no-par value stock held in trust. The trust provided that it was to terminate upon the youngest of the nieces reaching twenty-five years of age and the death of their father Norman Raoul, but in no event prior to Norman's death. Beneficiary Anne Raoul was born June 2, 1921, and Norma was born August 15, 1929. Norman Raoul died October 15, 1956.

In late 1949, prior to Norman Raoul's death, Gaston Raoul, the settlor became of the opinion that it would be better if the corpus was held in trust for the lifetime of his nieces instead of being distributed to them upon the death of their father, Norman Raoul. Therefore, Gaston proposed to deposit 50 shares of $100.00 par value shares of Cavalier stock ³ in a trust if Anne Raoul, who was over 21 years of age, would agree to place her expected share of the first trust, when that trust terminated, in trust with the 50 shares offered by Gaston. He also proposed to deposit an additional 50 shares of the same stock in that trust if Norma would likewise agree and would ratify the agreement upon reaching 21 years of age. Both Anne and Norma agreed; with Norma confirming the new trust arrangements subsequent to attaining majority. Of course, Norman Raoul, a beneficiary of the first trust, was not and could not be a party to the agreement as the first trust, according to its terms, was to terminate upon his death and the corpus distributed to his daughters. Gaston Raoul had in this manner placed 100 shares of $100.00 par value Cavalier stock in trust; which trust existed contemporaneously with the first trust until the first fell in upon the death of Norman in 1956. The named trustee of the second trust was the same as the first, that is, the defendant, the American National Bank and Trust Company of Chattanooga.

Hence, at one point in time there existed two separate trusts with the same named Trustee. One, the first in time, consisting of 323 shares, which is the subject of this suit, and the second consisting of 100 shares with which this litigation is not concerned.

While the Trustees of the trust were the same, neither the corpora, settlors, beneficiaries, or terms were the same. In the first trust, we may consider Gaston C. Raoul as the settlor with Anne, Norma and Norman Raoul as named beneficiaries with termination conditioned upon the death of Norman. In the second trust Gaston, Anne and Norma Raoul are the named settlors with Anne and Norma as the named beneficiaries with termination upon the death of Anne and Norma. The general purpose of the first trust was to provide for the maintenance and education of Norma and Anne Raoul and the maintenance of their father, Norman, if needed. However, the dominant purpose of that trust was to provide for Norma and Anne. The sole purpose of the second trust was to provide for Norma and Anne. The second trust contained a spendthrift clause while the first did not. Also, there existed contemporaneously for a time two distinct corpora; the first consisting of 323 shares and the second consisting of 100 shares.

Upon the death of Norman Raoul on October 15, 1956, the defendant Trustee transferred the 323 shares from the first trust to the corpus of the second.

Now, a brief summary of the events of 1944. Cavalier Corporation represented the life's work of Gaston C. Raoul. He was justly proud of his business and in 1944 began to contemplate about its future when death would remove him as captain of the ship. Over the years Cavalier had done its banking with the defendant bank. Mr. E. Y. Chapin, a director of the bank and a trust officer, became a personal friend of Gaston Raoul. Chapin also owned a few shares of Cavalier stock. In the year 1944 both Chapin and Raoul were members of the board of directors of both the defendant bank and Cavalier. Gaston conceived the idea of the $100.00 par value stock. His fear was that after his death the Corporation would be 'absentee' owned, that is, those who were actively engaged in the day to day operation of the Corporation would not be common shareholders and as a consequence the business would suffer for lack of real concern by those who were operating it. Also, as will be later shown, the exchange of common stock for par value stock would have definite tax benefits for Gaston Raoul. Therefore, he proposed that the Corporation offer to exchange $100.00 par value stock with dividend preference on a share-for-share basis for common stock. The ultimate hoped for result would be that those who did not actively contribute to the running of the business would exchange their common stock for the preferred stock, which would have the effect of making the common ownership stock available by purchase or bonus...