In re Melgaard's Will
| Decision Date | 06 August 1937 |
| Docket Number | No. 30879.,30879. |
| Citation | 274 N.W. 641,200 Minn. 493 |
| Court | Minnesota Supreme Court |
| Parties | In re MELGAARD'S WILL. MIDLAND NAT. BANK & TRUST CO. OF MINNEAPOLIS et al. v. MELGAARD et al. |
Appeal from District Court, Hennepin County; Levi M. Hall, Judge.
Proceeding in the matter of the trusteeship under the last will and testament of Hans L. Melgaard, deceased, wherein the Midland National Bank & Trust Company of Minneapolis and others filed a petition tendering their resignation as trustees and final account, to which Harold L. Melgaard, administrator, and others, filed objections. From an order vacating earlier orders settling annual accounts and approving certain action of the trustees and surcharging their final account on thirteen items, the trustees appeal.
Reversed and remanded, with directions.
Ueland & Ueland, of Minneapolis (Cobb, Hoke, Benson, Krause & Faegre, all of Minneapolis, of counsel), for appellants.
Bowen, Best, Flanagan & Rogers, of Minneapolis, for respondents Melgaard and others.
Mortimer H. Boutelle, A. H. David and M. H. Strothman, Jr., all of Minneapolis, amici curiæ.
Appeal by Midland National Bank & Trust Company of Minneapolis and Hardin Helland, two of three trustees of a testamentary trust, who for convenience will hereinafter be referred to as petitioners, from an order of the district court (appealable under the rule of In re Rosenfeldt's Will, 184 Minn. 303, 238 N.W. 687) vacating ten earlier orders (settling annual accounts and approving certain actions of the trustees) and surcharging their final account on thirteen items aggregating $33,439.69.
Hans L. Melgaard died testate October 7, 1923. His will was admitted to probate in Hennepin county. The petitioners and his wife, Hulda E. Melgaard, were the executors. They were also named as trustees of the express trust established by the will. That trust is the subject-matter of this litigation. November 24, 1924, their appointment was confirmed by an order of the district court. The residue of the estate was taken by the trustees under conditions which need not be stated in detail.
The property subject to the trust consisted of certain real estate and stock in several banks situated in Northwestern Minnesota. The par value of that stock was $54,300.
The six children of Mr. Melgaard were the beneficiaries of the trust, subject to the life interest of their mother. They were Agnes L. Melgaard, Irene M. Melgaard Hauser, Ruth E. Melgaard Sill Mildred D. Melgaard Rees, Harold L. Melgaard, and Carmen E. Melgaard. The two last named were minors at the time of the father's death. Their mother had been named in the will as their guardian and was appointed such by the probate court.
Annually, beginning with 1926 until and including 1929, the trustees petitioned the district court for the settlement of their detailed annual accounts. In each such case, all beneficiaries consented in writing to the allowance of the account, each consent accompanied by express approval of the actions of the trustees evidenced by the account in question. There is no suggestion that any of the accounts were defective either in form or substance, or otherwise than a correct and full statement of the doings of the trustees during the period covered thereby, during all of which the attorney for the trustees had been Walter U. Hauser, husband of the objector Irene M. Melgaard Hauser. He it was, in the main at least, who procured for the trustees the consents of the beneficiaries to the allowance of the preliminary orders.
Beginning with one of April 30, 1925, and concluding with one of April 23, 1930, the three trustees, Mr. Hauser acting as their attorney, procured eleven other orders from the district court. Each was consented to in writing by all the beneficiaries, by the minors through their guardian. These orders authorized disposition of trust property, surrender of some bank stock, payment of assessments on others, and the mortgaging of land belonging to the trust.
Finally, in April, 1931, the petitioners filed the petition which launched the present proceeding. They tendered therewith their resignation and final account, asking its approval. That petition met with formal "answer and objections" of the beneficiaries. A separate answer was filed on behalf of Harold L. Melgaard and Carmen E. Melgaard setting out the same objections as their cobeneficiaries and pleading their recent minority.
The widow, Hulda E. Melgaard, filed separate objections. So far as now important, they follow those of the beneficiaries. Before the trial, Mrs. Melgaard died. Her administrator has been substituted in her stead.
In December, 1931, the objectors moved for an order for an inspection of all records of the trustees. That motion was in part denied by an order of June 24, 1932, upon the ground that the evidence sought for "could not be material, because the answers and objections of the beneficiaries do not afford a basis for surcharging the account in question so long as * * * the four orders of this court allowing the intermediate accounts of the trustees stand in full force and effect." Thereafter, the petitioners filed their reply to the objections. Among other things, they pleaded, in bar to the objections, the prior orders settling their annual accounts and authorizing certain other actions complained of.
Finally came the fourth and final pleading. It was in the nature of a replication by the objectors to the second pleading by the petitioners. In substance it was a denial of the new matter therein. In addition, it averred only that "if" the preliminary orders "are of any effect whatsoever the same * * * were fraudulently obtained and should be vacated and set aside."
At the trial, counsel for objectors, "subject, of course, to our position that we do not believe the orders amount to anything," got leave to amend the prayer of their original objections as indicated by this request: "If the court should hold them [the orders] to be prima facie valid, in such case we ask for the relief that they be set aside and ask that the objections be amended accordingly." The trouble is that the pleading so amended, as to its prayer for relief only, contains nothing attacking the orders as orders.
In their original "objections" the objectors took an attitude towards the "preliminary orders" which may be thus summarized: They admit that petitioners have from time to time obtained the orders; that they (objectors) signed consents at the request of petitioners, but aver that it was upon the representation that it was their duty and obligation to do so; that petitioners failed to disclose to objectors and fraudulently concealed from them the fact that the petitions for the various orders contained their express consent and approval of the matters referred to therein; that they were ex parte orders, the court in signing them having no knowledge concerning any of the fraudulent conduct of petitioners and of their independent financial interests and no knowledge of the details of the various transactions represented by the petitioners. Objectors then, so far as words may do so, "disaffirm and rescind" all their "consents."
The fraud charged consists, as to the Midland Bank, in the main of concealment of its interest as a creditor of some of the banks, assessments on the stock of which were paid by the trustees. That sort of thing is charged also against Mr. Helland, with the additional claim that he was personally interested, adversely to the trust, as a large stockholder in one of the banks. All of them closed during the epidemic of the 20's fatal to so many banks. (It has not been made to appear how in any way the trustees could have escaped the necessity for paying, involuntarily, the equivalent of the assessments they paid voluntarily.)
On the side, the facts go far to show why commercial banks should keep out of the investment and trust field. In times of financial stress, any such bank, with much of a trust portfolio, is almost sure speedily to come into a predicament when its own broad banking interest is in conflict, either real or apparent, with its strict duty as trustee. If such opposition of interests results in litigation wherein a trier of fact holds against them, they will have only themselves to blame. The predicament will be of their own making.
We do not state either facts or issues in more detail, because we see no escape from deciding that the district court had jurisdiction to make the preliminary orders; they were in essence judgments; and the objectors must fail because their attack on such orders is collateral and not direct.
1. At the outset there is argument, advanced by amicus curiaæ, which challenges the jurisdiction of the district court, by mere order (or anything short of a decree binding in personam on all the beneficiaries, in a "plenary suit instituted in accordance with recognized equity practice") to settle any account of a trustee and discharge him pro tanto from further liability to the beneficiaries.
What a court may settle, and whom it may bind by order or judgment, depends on its overlying jurisdictional competence for the task and (actions in rem aside) its jurisdiction of the parties. It must have both. Both were present here.
True, in the absence of statute, a trustee may be discharged from liability only by (1) effective formal release, (2) operation of law, as by estoppel of the beneficiaries, or (3) a decree of a court of equity. Hill on Trustees, 608. The Trustee Relief Act of England passed in 1847 (10 and 11 Vict. c. 96) altered the law there. Laws Minn.1933, c. 259, entitled "An Act Relating to Procedure in Connection with the Administration of Trusts," was not in effect during the period here determinative.
But operative since 1875 (Gen.Laws 1875, c. 53) has been our statute, 2 Mason's Minn. St.1927, § 8090, declaring that "express trusts created under the provisions of this paragraph shall be...
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