In re Binder's Estate

Decision Date05 June 1940
Docket Number27860.
Citation27 N.E.2d 939,137 Ohio St. 26
PartiesIn re BINDER'S ESTATE. SQUIRE, Superintendent of Banks, et al. v. EMSLEY et al.
CourtOhio Supreme Court

[Copyrighted Material Omitted] [Copyrighted Material Omitted] Syllabus by the Court.

1. The Probate Court has jurisdiction to hear exceptions to the account of the Superintendent of Banks in charge of liquidation of an Ohio bank, as to a trust for which such bank, Before its liquidation, was trustee through appointment by that court; to settle such account; to surcharge the bank as such trustee; and to direct the Superintendent of Banks to issue a certificate of claim against the assets of such bank to and in favor of a successor trustee; but such court does not have jurisdiction to render a money judgment against the bank or Superintendent of Banks, or to determine the character of the claim as to preferences, or to impress a lien upon property held by the bank as trustee, in favor of the successor trustee.

2. A corporation or an individual, authorized to act in a trust capacity, is not inhibited by law from acting as trustee of multiple trusts, or from transferring securities from one of its trusts to another by purchase and sale, provided the trustee does not have a beneficial interest in the securities so transferred, and provided the terms of the sale and purchase are fair and made in good faith as between the several trusts.

3. There is no legal inhibition against a trustee setting up a special or independent trust in property other than his own and acting as trustee for the securities issued thereunder even though done for the sole purpose of selling such securities as an investment to toehr trusts for which he may also be trustee, provided the transaction is free from self-dealing or profit-taking on his own account, is fair and is made in good faith as between the several trusts.

4. A trustee may advance money to purchase securities for his trust before all the money is available in the trust estate for that purpose, and may make a reasonable charge for the money so advanced; but the trustee may not purchase such securities in his own right, or acquire a beneficial interest therein before turning them over or allocating them to a trust for which he is trustee.

5. When investments are purchased by a trustee for the benefit of his trust, it is not only necessary that such purchases be made for the trust, but, in order to avoid a charge of self-dealing, that immediate transfer and allocation of the securities to the trust for which they were purchased be made, accompanied by clear evidence that they have been so purchased and allocated.

6. When, in the purchase of property or securities by a trustee for his trust, it becomes necessary to pay off prior liens or incumbrances on the property which is the security for such investments, he may liquidate such liens even though they be owing to himself, provided the property is not taken and the liens paid for the purpose or with the result of liquidating a poor investment of his own.

7. A trustee may not engage in self-dealing, and may, therefore, neither invest money left with him in trust in securities in which he is interested by way of commission, promotion or profit, nor sell to himself as trustee his individual property or property in which he has a personal or beneficial interest. In such cases, it is immaterial that he acts in good faith in purchasing the property for the trust and that he pays a fair consideration therefor.

8. Departmental banks are single corporate entities, managed by a single board of directors and owned by shareholders who participate in the combined profits and losses of the several department. Therefore, transactions between separate departments of a bank, affecting a trust for which the bank is trustee, do not create any immunity against self-dealing as between the bank and the trust.

9. Reasonable compensation may be charged by a bank for the organization and creation of a trust, the securities of which are later sold by it to another trust for which it is trustee; but such bank cannot, bhrough commissions, schemes of underwriting or guaranteeing the sale of securities so created in the parent trust, advance the price of such securities so as to claim profits for itself before they are sold or transferred to other trusts for which it is trustee.

10. Self-dealing or breach of good faith on the part of a trustee, as distinguished from his failure to observe statutory directions as to the character of investments, cannot be excused on the ground that the instrument creating the trust and making him trustee gave him broad authority and unlimited discretion in the administration of the trust.

11. Where in a transaction relating to his trust a trustee has been guilty of self-dealing or breach of good faith, such transaction is voidable and the right of the beneficiary of the trust to rescind does not depend on whether the estate has suffered a loss. Where, under such circumstances, a loss has occurred, the trustee may be surcharged with any decline in the value of the property or securities purchased for the trust, notwithstanding any claim that he has acted in good faith and notwithstanding there may be no causal relation between his self-dealing and the loss or depreciation incurred.

12. There is no unjust enrichment to a beneficiary of a trust in allowing him to rescind a self-dealing transaction on the part of a bank as trustee in purchasing worthless securities for such trust, and to participate as a creditor in the distribution and liquidation of the assets of such bank on an equality with creditors of the other departments of the same bank.

On April 10, 1909, Henry Binder died leaving a will which was probated in Cuyahoga county, and which named The Guardian Savings & Trust Company both as executor and trustee of three testamentary trusts, one of which is the subject of controversy in this action. On December 17, 1910, The Guardian Savings & Trust Company, later The Guardian Trust Company, accepted the trust and qualified as a court trustee.

After providing certain bequests, the testator set up in his will the trust in question for the benefit of his daughter, Nellie Emsley, during her life, and after her death for her children, one of whom is the exceptor, Gordon B. Emsley. The trust property consisted of $4,000 in cash, and a farm of fifty-eight acres which was sold in 1920 for the sum of $58,000, the payment therefor being completed in 1924. Of this amount $30,000 was invested in mortgage participation certificates held by The Guardian Trust Company. Later, these were sold and the proceeds, together with $10,000 additional funds, were invested in land trust certificates designated and allocated as follows:

Michigan Office & Theatre Building

(fee ownership certificates) $ 5,000

Cleveland Hotel Building Site (fee

ownership certificates) 5,000

Neighbors Realty Company (land

trust certificates) 5,000

Euclid "Y" Corporation (land trust

certificates) 5,000

Euclid Ave.--Taylor Square Realty

Company (land trust certificates) 10,000

Fort Hayes Hotel (land trust

certificates) 5,000

Chester E. 18th St. (land trust

certificates) 5,000

The Guardian Trust Company was closed for liquidation and was taken over by the Superintendent of Banks, who, on May 11, 1933, filed in the Probate Court, a final account in this trust, which account showed the above-named securities in the portfolio of the bank as a part of the assets of the trust.

On and after June 17, 1933, separate exceptions to the final account of the Superintendent of Banks for The Guardian Trust Company as trustee, and to the fifth, sixth and seventh partial accounts of the trust company itself as trustee, were filed in the Probate Court of Cuyahoga county by Nellie Emsley and Gordon B. Emsley, her son, as heirs at law of Henry Binder, deceased, and beneficiaries of the trust under his will. The exceptions attacked the legality of the investments made by the trustee in the land trust certificates above described, demanded that they be declared illegal and void, and that the trustee be surcharged with the amounts invested therein on the ground that The Guardian Trust Company as trustee was disloyal to its trust in respects hereinafter mentioned. On April 21, 1933, The Guardian Trust Company filed its resignation as trustee and on the same day I. R. Winsper was appointed successor trustee by the Probate Court.

The Probate Court sustained the exceptions as to each and all of the investments in the land trust certificates and made a finding against the trustee for the full amount invested less income received, plus interest, and gave the successor trustee a lien upon the land trust certificates until the full amount of the claim should be paid. The Common Pleas Court, on appeal, overruled the exceptions as to the investment in the land trust certificates of the Cleveland Hotel Building Site and the Fort Hayes Improvement Company, but sustained the exceptions as to the investments in all other land trust certificates. Both parties appealed to the Court of Appeals, the cases there being consolidated, and on hearing the judgment of the Common Pleas Court was affirmed. The case is now in this court for review by reason of the fact that the Court of Appeals of the First Appellate District, sitting by designation in the Eighth Appellate District, has certified its judgment in this case to be in conflict with the judgment of the Court of Appeals of the Eighth Appellate District, two members of the Fifth Appellate District sitting by designation in Cuyahoga county, in the case of In re Estate of Stone, [1] now before this court on motion to certify. Other pertinent and necessary facts will be...

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