Clark v. Clark

• Decision Date: 12 September 1928
• Citation: 144 S.E. 787,167 Ga. 1
• Parties: CLARK et al. v. CLARK et al.
• Court: Georgia Supreme Court

144 S.E. 787

167 Ga. 1

CLARK et al. v. CLARK et al.

Supreme Court of Georgia

September 12, 1928

Syllabus by the Court.

Relatively to the removal of trustees having no personal interest in the trust, the welfare of the beneficiaries constitutes the chief matter for consideration.

(a) A testamentary trustee must act not only for the benefit of the trust estate, but also in such a way as not to gain any advantage, directly or indirectly, except such as the law specifically gives him; and he owes an undivided duty to the beneficiaries, and must not place himself in a position where his personal interest will conflict with their interests.

(b) The purpose of this rule is to require a trustee to maintain a position where his every act is above suspicion, and the trust estate can receive, not only his best services, but his unbiased and uninfluenced judgment; and when he acts otherwise, or when he has placed himself in a position that his personal interest has or may come in conflict with his duties as trustee, or the interests of the beneficiaries whom he represents, a court of equity never hesitates to remove him.

(c) A trustee's election of himself to a salaried office in a corporation, by means of stock owned by the trust estate therein, furnishes a good ground for his removal, because of the possible conflict between his individual interest to retain the stock, when the interest of the trust might require its sale.

Where testamentary trustees give bond, as required by the will with a surety company as their surety, under an arrangement by which they deposit with such company all of the assets of the trust estate which they represent to induce such company to become surety on their bond, such arrangement is contrary to public policy and is void, amounts to a breach of trust and furnishes ground for their removal.

Under our law, trustees may invest trust funds in any securities issued by this state, in county and municipal bonds which have been duly validated, and in farm loan bonds issued by Federal Land Banks or Joint-Stock Land Banks. Any other investment of trust funds must be made under an order of the judge of the superior court, or else at the risk of the trustees.

(a) Power of a trustee to retain investments received from the creator of the trust is, in the absence of contrary statute or provision in the instrument creating the trust, not different from his power to make investments; and where testamentary trustees receive, as a part of the trust estate stock in manufacturing corporations, they are not justified in the absence of some authority to the contrary in the instrument creating the trust, in continuing such investments, though made by the testator. It is their duty to convert said stocks into money within a reasonable time, and invest the proceeds in securities authorized by law or by an order of the superior court. Otherwise they are liable for loss arising from depreciation in value of such stock.

The testator in his will does not give directions, either express or implied, to his trustees to retain these stocks.

The authority to retain these stocks is not conferred by the provision in the will which confers upon the trustees the "power to borrow money when necessary, in their opinion, for the benefit or protection of the trust estate, and to mortgage the property of the trust estate, or to pledge the fee-simple title thereof to secure the same, so borrowed by them, and without the order or sanction of any court."

The paragraphs of the petition relating to the 40 shares of stock transferred by testator to the defendant, Clark, and the paragraph of the prayer for a decree requiring these defendants to transfer to the trustees these shares of stock, are not subject to the special demurrers.

The portion of the petition in which it is charged that the defendants are incompetent, and incapable of successfully operating these cotton mills, is not subject to the special demurrer.

The portion of the petition which alleges that the defendant, Clark, fixed his salary at $6,000 per annum is not subject to the special demurrer. This allegation was not made for the purpose of showing that this defendant was drawing an excessive salary, but for the purpose of showing that he had put himself in a position where his self-interest might prevent him from changing the investments in the stocks of these mills, when it was to the best interests of the beneficiaries that this should be done.

The allegations of the petition as to the agreement with the surety on the bonds of the trustees, and that portion of the petition which charges that the defendants had charged excessive commissions, are not subject to the special demurrer that the plaintiffs have a complete remedy at law in the court of ordinary. Trusts of every kind, not generally cognizable at law, are peculiar subjects of equity jurisdiction. If the trustee omits to act when required by duty to do so, or is wanting in necessary care and diligence in the due execution of the trust which he has undertaken, a court of equity will interpose. The relief granted will always be molded and framed so as to render the trust effectual, and secure the best interests of all parties. A court of equity, having assumed jurisdiction over the trust for one purpose, will give effect to all the rights of the beneficiaries.

Error from Superior Court, Richmond County; A. L. Franklin, Judge.

Petition by A. H. Clark and others against J. C. F. Clark and others. Petition was dismissed on demurrer, and petitioners bring error. Reversed.

Atkinson, J., and Beck, P.J., dissenting in part.

Callaway & Howard and James S. Bussey, Jr., all of Augusta, for plaintiffs in error.

Fleming & Fleming and Hammond & Kennedy, all of Augusta, for defendants in error.

HINES J.

The testator owned a majority of the stock of the Sutherland Manufacturing Company, and 200 shares of the stock of the Enterprise Cotton Mills, of Enterprise, Ala. He bequeathed 713 shares of the stock he owned in the former company, and his 200 shares in the latter company, to the defendants in trust for the use of his wife and minor children. These stocks constitute the principal part of the trust estate. Testator directed the trustees to pay from the income of the trust estate $400 monthly to his wife and children for their support and the education of his minor children. The petition states that the defendant Clark claims that in order to secure to the trustees the power to manage and control the Sutherland Manufacturing Company, the testator transferred to him individually 40 shares of the stock of that company, and took therefor his individual note for $6,000, under an arrangement by which Clark was to have and control these 40 shares until the time provided in the will for the distribution of the estate among the beneficiaries of this trust estate, the intention being to enable the trustees to control said company. Immediately upon the probate of the will and the qualification of the defendants as trustees thereunder, the defendants elected themselves to the main salaried offices of the company, electing the defendant Clark as president, at a salary of $6,000 a year, and the defendant Boller as secretary, at a salary of $2,100 a year. These defendants then took over the management and operation of said mill. The defendant Clark has continued in the office of president of said company ever since, and the defendant Boller remained in the office of secretary until recently, when he resigned. The company was doing a prosperous business during the lifetime of the testator, who operated this mill. Under its operation by the defendants there has been a net operating loss, since the death of testator, of $94,663.30. By reason of the operation of said company by the defendants, the company has ceased to pay dividends, and the wife and children of testator have been deprived of the $400 per month directed to be paid to them by the testator, and are now without sufficient income to support them, or to educate his minor children. The petition alleges that the defendants are incompetent and incapable of successfully operating this company, and are profiting by holding positions and drawing salaries for themselves as officers of said company by means of said stock held by them as trustees, and by means of the 40 shares of stock transferred by the testator in the above manner to the defendant Clark. The present proceeding was brought by the beneficiaries to remove these trustees, to charge them with the loss arising from the depreciation of these stocks, for an accounting, and for the recovery of illegal commissions charged by them.

1. The trustees have no personal interest in this trust. They are only entitled to such compensation as the law gives them for their services in properly executing the same. Relatively to removal of a trustee having no interest in the trust, the welfare of the beneficiaries constitutes the chief matter for consideration. Laughlin v. Wells Blg. Co., 179 Wis 56, 190 N.W. 899. "The trustee must not use the trust funds to his own profit." Civil Code, § 3767. It is a fundamental rule that a trustee can make no profit for himself out of the trust estate. This principle is so essential to the honest and proper management of trust property that the trustee is never encouraged to take risks with it for his own aggrandizement. On the contrary, he is restrained from so doing by being compelled, if his venture turns out unfortunately, to account to the beneficiary under the trust for the full value of what is lost. If the venture be successful, be is required to turn over his gain to the beneficiary of the fund embarked in the enterprise. Caruthers v. Corbin, 38 Ga. 75 (5); Roberts v. Mansfield, 38...