Jones v. Ellis
| Decision Date | 29 September 1989 |
| Citation | 551 So.2d 396 |
| Parties | Yvonne E. JONES v. William ELLIS. William ELLIS v. Yvonne E. JONES. 87-1311, 87-1358. |
| Court | Alabama Supreme Court |
The original opinion in this case is hereby withdrawn and the following is substituted therefor.
This case involves an action for an accounting and for damages based on the alleged breach of fiduciary duties by the trustee of an alleged irrevocable trust, who also serves as a director of the corporation whose stock composes the corpus of that trust. The trial court found, as a matter of law, that the defendant had created a valid, irrevocable trust in favor of the plaintiff, and entered a summary judgment for the plaintiff on that issue, but reserved the remaining issues for trial. After a trial without a jury, the court entered judgment for the defendant, finding that he had not breached his fiduciary duties to the plaintiff. The plaintiff filed a motion to alter or amend the judgment, which was denied. Both parties appeal.
The record discloses that the plaintiff and the defendant were involved in a personal relationship over a period of about three years, during which time the defendant gave the plaintiff a number of expensive gifts, including real estate and automobiles. The plaintiff alleges that the defendant executed an irrevocable trust for her benefit in order to provide for the maintenance expenses on these gifts. Subsequent to the parties' termination of their relationship in October 1983, the plaintiff made inquiries of the defendant concerning the trust proceeds. The record shows that the defendant refused to respond to these inquiries and that at no time did the plaintiff receive proceeds from the trust. The plaintiff claims that the defendant, as a director of American Flexo Corporation (hereinafter "American Flexo"), deliberately attempted to decrease the corporation's profits in order to devalue the corpus of the trust, which was comprised solely of American Flexo stock. This alleged conduct is the basis of the plaintiff's claim that the defendant has breached fiduciary duties owed to her.
The plaintiff's appeal presents this Court with the following issues: 1) whether the trial court erred in finding that the defendant had not breached fiduciary duties owed the plaintiff; and 2) if so, whether the plaintiff is entitled to the costs of an accounting and the costs of litigation. On cross-appeal, the defendant raises the following issues: whether the trial court abused its discretion in finding, as a matter of law, the existence of an irrevocable trust in favor of the plaintiff; and 2) whether the trial court erred in not finding that the trust was invalid under the rule against perpetuities, or alternatively, was invalid under the accumulation trust statute, Code 1975, § 35-4-252.
Because the defendant asserts error in regard to the validity of the trust, we begin with the cross-appeal. It is undisputed that the defendant drafted the following two documents, which the plaintiff claims create a trust in her favor, comprised of the defendant's 50 percent stock interest in American Flexo, with the defendant serving as trustee. The first document, dated February 28, 1982, was handwritten by the defendant, and it provided as follows:
The second document, dated August 31, 1982, was typed and notarized, and it further provided as follows:
The trial court found, as a matter of law, that the second instrument created an irrevocable declaratory trust for the plaintiff. The trial court correctly ruled that a valid trust exists. This Court has held consistently that no particular form of words is required to create a trust, but that any instrument in writing signed by the parties, or party, at the time of the trust's creation, or subsequently, will suffice, if the nature, subject matter, and objects of the trust and manifested with reasonable certainty by the instrument. First Alabama Bank of Tuscaloosa, N.A. v. Webb, 373 So.2d 631, 638 (Ala.1979); Black v. Black, 286 Ala. 233, 238 So.2d 861 (1970); Gordon v. Central Park Little Boys League, 270 Ala. 311, 119 So.2d 23 (1960); and Hodge v. Joy, 207 Ala. 198, 92 So. 171 (1921). The two documents alleged to comprise the trust in this case clearly set forth the nature, subject matter, and objects of the trust. Additionally, Ellis's intent that this be an effective and valid trust is shown from the language of the documents, as required under Alabama law. Goodman v. McMillan, 258 Ala. 125, 129, 61 So.2d 55, 58 (1952).
On appeal, the defendant raises several issues concerning the validity of the trust instrument. First, the defendant argues that the trust instrument is void because, he says, it was fraudulently induced by the plaintiff's promise to modify her behavior with respect to alcohol and other controlled substances, which, he claims, she never intended to perform. The trial court found, however, that there was no evidence to support the defendant's allegation that the plaintiff, at the time her promise was made, intended not to perform it. This finding is supported by the record.
This Court recognizes the rule that a promise to do something in the future, made with the intention not to perform, can authorize the rescission of an instrument executed on the basis of that promise. See Popwell v. Greene, 465 So.2d 384, 386 (Ala.1985). However, that is not the case here. Even assuming that the plaintiff did not subsequently modify her behavior as she had promised, her mere failure to do so does not support a claim of fraudulent inducement. Cf., Popwell. Therefore, we affirm the summary judgment in favor of the plaintiff on this issue.
Ellis also contends that the trust violates the rule against perpetuities and the ten-year limit for accumulation trusts. We find these contentions to be without merit.
This trust is not an accumulation trust within the meaning of Ala.Code 1975, § 35-4-252. Specifically, an accumulation trust is one where the interest or income is added to the principal or corpus so as to prevent expenditure of the interest or income. Tumlin v. Troy Bank & Trust Co., 258 Ala. 238, 245, 61 So.2d 817 (1950); Ramage v. First Farmers & Merchants Nat'l Bank of Troy, 249 Ala. 240, 246, 30 So.2d 706 (1947); G. Bogert, The Law of Trusts and Trustees, § 215 (2d ed. 1979). The purpose of the statute prohibiting accumulation for longer than ten years is to prohibit the "building up of great fortunes and the concentration of wealth in the hands of an individual or a family." G. Bogert, supra, p. 247. This is not the case here, since there was no income to be accumulated. "The fact that in its due administration, the whole income from the trust fund may not be expended or distributed, and, to such an extent, is an incidental accumulation during the course of the administration, does not destroy the ordinary character of the trust and make it [an accumulation] trust...." Ramage, supra, at 246, 30 So.2d 706. Further, this Court is to give a constructional preference in favor of finding that the income is "disposed of," rather than "accumulated." Id.
Ellis also contends that the trust is invalid under the rule against perpetuities. That common law rule states that "no interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest." Ramage, supra; Henderson v. Troy Bank & Trust Co., 250 Ala. 456, 465, 34 So.2d 835 (1948). For the trust to be valid, the interest must vest within 21 years from Ellis's death. This trust will vest at his death; it therefore does not violate the rule.
We now consider the issues presented by the plaintiff's appeal. The plaintiff argues that the trial court erred in finding that the defendant had not breached fiduciary duties owed her and, more specifically, that the trial court erred in its application of the "good business judgment rule" and in failing to also apply the "prudent investor rule" as the appropriate standard of care. We agree.
In the present case, the defendant served both as the trustee of a trust created for the plaintiff and as a director of American Flexo, the corporation whose stock comprised the corpus of the trust. Thus, the defendant served the plaintiff in two distinct legal capacities, each with its own standard of care and duty of loyalty.
With regard to the defendant's role as a director of American Flexo, we start with the proposition that this Court generally will not interfere with the internal business management of a corporation. However, we recognize that this rule does not apply in cases of fraud or maladministration that is destructive or injurious to a corporation. See Scott v. East Alabama Education Foundation, Inc., 417 So.2d 572, 574 (Ala.1982); and Cadden v. Ladd, 358...
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