Manley v. Brattleboro Trust Co.

• Citation: 78 A.2d 488,116 Vt. 460
• Decision Date: 06 February 1951
• Docket Number: No. 1185,1185
• Parties: MANLEY et al. v. BRATTLEBORO TRUST CO. et al.
• Court: United States State Supreme Court of Vermont

Page 488

78 A.2d 488

116 Vt. 460

MANLEY et al. v. BRATTLEBORO TRUST CO. et al.

No. 1185.

Supreme Court of Vermont.

Feb. 6, 1951.

Barber & Barber, Brattleboro, J. Dinsmore Adams, New York City, for plaintiffs.

Francis E. Morrissey, Bennington, Guy M. Page, Burlington, for defendant Bank.

Gibson & Crispe, Brattleboro (Ralph Chapman and John S. Burgess, Brattleboro, on the brief), for defendants Haus.

Before SHERBURNE, C. J., and JEFFORDS, CLEARY, ADAMS and BLACKMER, JJ.

BLACKMER, Justice.

The plaintiffs brought their bill dated August 19, 1949, to the Windham County court of chancery. The bill makes these allegations in substance. John B. Manley by his last will and testament duly probated created a trust. The defendant Brattleboro Trust Company, a corporation, was named as trustee. It qualified and has since acted in that capacity. The plaintiffs are the cestuis que trust. The part of the trust res in dispute is improved real estate in Brattleboro known as Manley Apartments. Bernard H. Haus was at all consequential times a director of the Trust Company. His administrator, Bernard T. Haus, is a defendant. Bernard H. Haus' brother, Edmund J. Haus, also a defendant, was the proprietor of a business called Brattleboro Motor Company; Bernard H. Haus owned an interest in it. The Trust Company, as trustee, leased the first floor and basement of Manley Apartments to Edmund J. Haus for a term of seven years from November 1, 1939, to October 31, 1946. On April 3, 1942, the Trust Company leased the first floor to Edmund J. and Bernard H. Haus for a term of three years from August 1, 1942, to July 31, 1945, with the privilege of an extension for five years to July 31, 1950, at an annual rental of $2,100. Thereupon the lessees sublet this first floor to the Grand Union Company on substantially the same terms, but at a greatly increased annual rental of $3,300. Edmund J. Haus knew that the Trust Company was acting as trustee, and also knew that Bernard H. Haus was a director of the Trust Company. All three knew at the time the lease of April 3, 1942, was being negotiated that the Grand Union Company was prepared to sub-lease at the larger rental noted above. Then the Trust Company permitted Edmund J. and Bernard H. Haus to sub-lease the basement to Montgomery Ward Company at an annual rental of $900 through 1945, $1,500 for 1946, and $2,100 for 1947 and thereafter. On August 1, 1946, the Trust Company leased both the basement and the first floor to Edmund J. and Bernard H. Haus for a term of four years from August 1, 1946, to July 31, 1950, at an annual rental of $2,100. The Trust Company denies that it is trustee of the rents and profits derived from the sub-leases. Edmund J. Haus and Bernard H. Haus' administrator hold the leases and subleases, and all income and profits derived therefrom as constructive trustees and should be required to account. Since August 1, 1942, the Trust Company has 'reported' only income of $2,100 per annum on the first floor premises, plus various rentals on the basement. Edmund J. Haus, Bernard H. Haus and his administrator have derived and will continue to derive profits from the premises, but they refuse to pay to the Trust Company anything except the annual rental of $2,100 reserved in the lease of April 3, 1942. These profits can only be determined by an accounting. The plaintiffs have demanded that the Trust Company account for the profits derived by Edmund J. and Bernard H. Haus and the latter's administrator, but the Trust Company has refused and will refuse until after July 31, 1950. The plaintiffs have demanded that the Trust Company require Edmund J. Haus and Bernard H. Haus' administrator to transfer to the Trust Company all leases and sub-leases, but the Trust Company has refused. Edmund J. Haus and Bernard H. Haus' administrator have also refused to transfer such leases and sub-leases to the Trust Company, or to account to it for the profits derived therefrom. The Trust Company has made charges for its services which should be re-examined by the court of chancery.

The prayers are that the Trust Company distribute the profits derived by the Haus from the leases and sub-leases; that the Haus be decreed constructive trustees and required to pay their profits under the leases to the Trust Company; and that a portion of the Trust Company's fees be adjudged improper.

The bill, in sum, charges the Trust Company with self-dealing, and knowingly permitting others to profit at the expense of the trust.

The defendant Trust Company demurred to the bill on the ground that jurisdiction of the matters alleged lay in the probate court, not in the court of chancery, and that the bill was without equity. The defendants Edmund J. Haus and Bernard H. Haus' administrator answered, and later moved that if the Trust Company's demurrer were sustained, the same entry be made for them. After hearing, the demurrer was sustained and the bill was dismissed as to all defendants.

The first question for consideration is whether jurisdiction of the matters alleged lies in the court of chancery or in the probate court.

The probate court has general equity powers in regard to trusts and trust funds that arise in the settlement of estates. Abbott v. Abbott, 112 Vt. 449, 452, 28 A.2d 375; First National Bank v. Harvey, 111 Vt. 281, 295, 16 A.2d 184; Foss, Trustee, v. Sowles, 62 Vt. 221, 224, 19 A. 984; V.S.1947, Chapter 150, particularly V.S.1947, § 3132. Testamentary trustees, like executors, are strictly accountable to the probate court in the management and disposition of the trust estate. First National Bank v. Harvey, supra, 111 Vt. 296, 16 A.2d 184; V.S.1947, § 3129. However, these general equity powers are not as extensive as the full powers of the court of chancery. In re Watkins' Estate, 114 Vt. 109, 137, 41 A.2d 180, 157 A.L.R. 212; Wetmore & Morse Granite Co. v. Bertoli, 87 Vt. 257, 264, 88 A. 898; Wilder's Ex'x v. Wilder & Deavitt, 75 Vt. 178, 184, 53 A. 1072. Probate Courts do not have all the means employed by courts of chancery to enforce their decisions. Robinson v. Swift, 3 Vt. 283, 289. They must proceed in accordance with the statutes conferring jurisdiction; these statutes prescribe the manner of the exercise of equity powers by probate courts. Foss, Trustee, v. Sowles, supra, 62 Vt. 224, 228, 19 A. 984.

The jurisdiction of the court of chancery in probate matters is not original, but special and limited, and only in aid of the probate court when the powers of that court are inadequate. It must appear, among other things, that the probate court cannot reasonably and adequately handle the question. In re Will of Prudenzano, 116 Vt. 55, 61, 68 A.2d 704; Boyden v. Ward, 38 Vt. 628, 633. Testamentary trusts arise in the settlement of a testator's estate in due course of procedure, In re Cary's Estate, 81 Vt. 112, 120, 69 A. 736, a fact which makes these general principles applicable. V.S.1947, § 3132 provides that 'The probate court may further hear and determine in equity all other matters relating to' testamentary trusts, among others. But this statute does not preclude the established jurisdiction of the courts of chancery. V.S.1947, § 3132 had its origin in R.S.1839, C. 55, § 12. Except for Robinson v. Swift, supra, all the cases cited on the question of jurisdiction were decided subsequent to 1839. In particular, Wilder's Ex'x v. Wilder & Deavitt, supra, handed down in 1902, held that the court of chancery had jurisdiction over a testamentary trustee on an issue of subrogation.

In furtherance of these established rules, we are of the opinion that the plaintiffs are properly in chancery rather than in probate court. They cannot proceed through the trustee, it having denied responsibility and having refused to proceed against the other defendants. The beneficiaries are thereby entitled to carry on in their own right. Marsh v. Marsh, 78 Vt. 399, 403, 63 A. 159; Hall v. Windsor Savings Bank, 97 Vt. 125, 135, 121 A. 582, 124 A. 593; Bogert on Trusts and Trustees, Secs. 870 and 871.

The plaintiffs seek property which they say rightfully belongs to the trust estate, specifically the leases and their proceeds. This property is said to be in the hands of Edmund J. Haus and Bernard H. Haus' administrator as constructive trustees. It and they are not subject to the jurisdiction of the probate court. Bailey v. Bailey, 67 Vt. 494, 500, 32 A. 470; Marsh v. Marsh, supra, 78 Vt. 404, 63 A. 159; In re Cary's Estate, supra, 81 Vt. 120, 69 A. 736. Although the defendant Trust Company as trustee is strictly accountable to the probate court, such a proceeding would reach neither the Haus, the leases, nor the avails thereof. In...