Covenant Presbytery v. First Baptist Church

• Decision Date: 31 March 2016
• Docket Number: No. CV–15–391,CV–15–391
• Citation: 489 S.W.3d 153,2016 Ark. 138
• Parties: Covenant Presbytery, Appellant Cross–Appellee v. First Baptist Church, Osceola, Arkansas, Appellee Cross–Appellant Sun TrustBank, as Trustee Under the Will of Stanley D. Carpenter, Appellee Cross–Appellee
• Court: Arkansas Supreme Court

2016 Ark. 138
489 S.W.3d 153

Covenant Presbytery, Appellant Cross–Appellee
v.
First Baptist Church, Osceola, Arkansas, Appellee Cross–Appellant

Sun TrustBank, as Trustee Under the Will of Stanley D. Carpenter, Appellee Cross–Appellee

No. CV–15–391

Supreme Court of Arkansas.

Opinion Delivered: March 31, 2016

Sanford Law Firm, PLLC, by: Josh Sanford, for appellant.

Branch, Thompson, Warmath & Dale, P.A., Paragould, by: Robert F. Thompson III, for appellee First Baptist Church, Osceola.

Rose Law Firm, by: Craig S. Lair and Bourgon B. Reynolds, Little Rock, for appellee SunTrust Bank.

RHONDA K. WOOD, Associate Justice

Covenant Presbytery appeals from a Mississippi County Circuit Court's order which applied the doctrine of cy pres to reform a trust. On direct appeal, Covenant Presbytery argues first that the circuit court erred in applying the cy pres doctrine because there was no charitable trust and because the gift to First Presbyterian vested upon the settlor's death. Second, it argues that, if the circuit court was correct to apply cy pres, then the court's application of the doctrine does not comport with the settlor's intent. In its cross-appeal, First Baptist contends that the circuit court erred in denying its claim that the trustee, SunTrust, breached its fiduciary duty. We granted First Baptist's petition for review of the court of appeals' decision. When we grant a petition for review, we consider the appeal as though it had been originally filed in this court. See, e.g., In re Matter of Hamilton Living Trust , 2015 Ark. 367, 471 S.W.3d 203. We vacate the court of appeals' opinion, reverse on the direct appeal, and dismiss the cross-appeal.

I. Factual and Procedural Background

In June of 1965, Stanley D. Carpenter executed a document entitled “Last Will and Testament” (“will”).¹ The document named National Bank of Commerce trustee and executor,

I nominate, constitute and appoint the National Bank of Commerce in Memphis, Tennessee, as executor and trustee of my estate, granting to them full power and authority to take possession of, hold, manage, invest and in every way to control and supervise all of my property in accordance with the terms of this Last Will and Testament and under the laws of the State of Arkansas; ...

Carpenter owned 237.87 acres of farmland in Mississippi County, and the will further provided that Carpenter's four relatives each would receive a one-fourth interest in the “net farm rents” for “life.” Additionally, two Osceola churches, First Presbyterian and First Baptist, were to receive “[a]ll the rest, residue and remainder” of the estate in equal shares. The will directed the trustee “to sell all real estate in their discretion as soon as the law permit[s], taking into consideration the existence of the life estates hereinbefore created, and distribution of the proceeds therefrom in accordance with this bequest.”

Carpenter died in 1967. When Carpenter's will was probated, his farmland was transferred, pursuant to court order, to National Bank of Commerce, as trustee. National Bank leased the farmland and disbursed the income to the four life-estate beneficiaries. As a life-estate beneficiary died, National Bank would divide and remit

489 S.W.3d 156

the deceased beneficiary's income equally to First Presbyterian and First Baptist.

In 2004, First Presbyterian voted to dissolve its congregation. In an “Overture of Dissolution” all assets of the church that had not previously been sold or distributed were transferred to Covenant Presbytery. First Presbyterian notified National Bank that First Presbyterian had dissolved and requested that all future payments from Carpenter's estate be made to Covenant Presbytery. Thereafter, National Bank distributed the income share to Covenant Presbytery.

In 2005, SunTrust acquired National Bank and succeeded as trustee for the trust. SunTrust continued to distribute payments to beneficiaries, including First Baptist and Covenant Presbytery. In 2011, a First Baptist board member contacted the trust advisor assigned to the trust and expressed his belief that the trust payments to Covenant Presbytery were improper. Thereafter, SunTrust filed a “Petition and Request for Instructions and Declaration of Rights” against First Baptist and Covenant Presbytery requesting that the circuit court determine the rights and interests of these parties in the farmland and its income. First Baptist counterclaimed against SunTrust for breach of fiduciary duty.

Following a bench trial in December 2012, the circuit court concluded that the will created a testamentary trust for the benefit of two churches in Osceola—First Presbyterian and First Baptist. Finding that Carpenter's intention was to benefit churches in his community and that First Presbyterian no longer had a church in Osceola, the circuit court applied the cy pres doctrine and reformed the trust to provide that First Presbyterian's distributions from the summer of 2011 forward should be transferred to First Baptist. The circuit court also held that SunTrust did not breach its fiduciary duty because it did not obtain actual knowledge of a potential dispute over payments with Covenant Presbytery until the summer of 2011. We granted First Baptist's petition for review of the court of appeals' decision to reverse and remand.

II. Appeal

This case is subject to a de novo standard of review. See In re Estate of Thompson, 2014 Ark. 237, 434 S.W.3d 877. The circuit court's decision should not be reversed unless there is a finding that is clearly erroneous. Id. A finding is clearly erroneous when the appellate court is left with a firm conviction that a mistake has been committed. Id. We give due deference to the superior position of the circuit court to review the credibility of the witnesses. Id.

This court's primary objective when construing the language in a will or trust is to ascertain and effectuate the intent of the testator or settlor as long as that intent is not contrary to the law. Bailey v. Delta Trust & Bank, 359 Ark. 424, 198 S.W.3d 506 (2004). Where the language of a will expressly states the testator's intention, the intent must be gathered from the four corners of the instrument. Id. It is only proper to invoke the rules of construction when the language is ambiguous. Id. In order to determine the intentions of the testator, consideration must be given to every part of the testamentary instrument. Id. Extrinsic evidence may be received on the issue of the testator's intent if the terms of the will or trust are ambiguous. Burnett v. First Commercial Tr. Co., 327 Ark. 430, 939 S.W.2d 827 (1997).

In its first point on appeal, Covenant Presbytery argues that the will created

489 S.W.3d 157

a testamentary trust for the sole purpose of managing the property and paying income to the life-estate beneficiaries. It contends that First Presbyterian's interest vested upon Carpenter's death and that the will did not direct the trustee to maintain the property for any charitable purpose; and therefore, the will did not create a charitable trust. Because First Presbyterian's interest in the trust vested upon Carpenter's death without limitation, it was freely assignable.

First Baptist agrees that the will created a testamentary trust for the administration of the life estate. However, it argues that the testamentary trust is also a charitable trust; and therefore, the churches' interests did not vest upon Carpenter's death. It further contends that First Presbyterian did not have an assignable interest in the property, and once First Presbyterian ceased to exist, it became proper for the court to employ the cy pres doctrine.

We agree with Covenant Presbytery's first point on appeal. First Presbyterian's interest vested upon Carpenter's death; therefore, we do not address its second point regarding the court's method of applying the cy pres doctrine. Covenant Presbytery correctly states that the churches are vested remainder beneficiaries. The Arkansas Trust Code,² defines “beneficiary,” in part, as a person that “has a present or future beneficial interest in a trust, vested or contingent.” Ark.Code Ann. § 28–73–103(3)(A). A vested remainder is a “present interest that cannot be defeated by any contingency.” Dickerson v. Union Nat'l Bank of Little Rock, 268 Ark. 292, 298, 595 S.W.2d 677, 680 (1980). An interest in a vested remainder “can be transferred ... even though the right of possession may not accrue until some time in the future.” Id.

In Dickerson, we described the “simplest example” of a vested remainder as a conveyance or devise “to A for life, remainder to B.” Id. This is precisely the situation here: Carpenter conveyed the rents of the farm to four relatives for life and the remainder of his property to First Baptist and First Presbyterian. The will clearly states that Carpenter intended to give “[a]ll of the rest, residue and remainder of my estate ... in equal shares, and to each, an undivided one-half each, to the First Presbyterian Church ... and the First Baptist Church....” This language created a present interest in the churches, which vested on Carpenter's...