Mark Twain Kansas City Bank v. Kroh Bros. Development Co.

• Decision Date: 10 April 1992
• Docket Number: No. 66889,66889
• Citation: 863 P.2d 355,250 Kan. 754
• Parties: MARK TWAIN KANSAS CITY BANK, Plaintiff/Appellee, v. KROH BROTHERS DEVELOPMENT COMPANY, Defendant, and Johnson County Bank, as Trustee of the Kroh Foundation, and the Kroh Foundation, et al., Defendants/Appellants.
• Court: Kansas Supreme Court

Page 355

863 P.2d 355

250 Kan. 754

MARK TWAIN KANSAS CITY BANK, Plaintiff/Appellee, v. KROH BROTHERS DEVELOPMENT COMPANY, Defendant and Johnson County Bank, as Trustee of the Kroh Foundation, and the Kroh Foundation, et al Defendants/Appellants.

No. 66889.

Supreme Court of Kansas.

April 10, 1992.

Syllabus by the Court

1. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. To defeat a properly supported motion for summary judgment, the nonmovant must come forward with specific facts showing that there is a genuine issue for trial.

2. If the parties to an action stipulate to the facts, an appellate court reviews the case de novo because the appellate court has the same opportunity to weigh the evidence as did the district court.

3. In an action for quiet title, the law of the situs of the real estate is applicable.

4. A fundamental principle of trusts is that the trustee holds legal title to the trust property.

5. A trustee acts as a fiduciary to the trust and may only exercise those powers as provided by the trust agreement. Any act by a trustee that violates the trust agreement is void.

6. A trustee cannot ratify an act that is in violation of the trust agreement because such an act is void.

Robert F. Bennett, of Bennett, Lytle, Wetzler, Winn & Martin, of Prairie Village, argued the cause, and Patricia A. Bennett, of the same firm, was with him on the briefs for appellants Johnson County Bank and the Kroh Foundation.

H. David Barr and J. Patrick Shepard, of Gage & Tucker, of Overland Park, were on the briefs for appellants Michael K. and Elinor K. Tourtellot.

Gordon E. Wells, Jr., of Lathrop & Norquist, of Overland Park, argued the cause, and John L. Vratil and Laura J. Bond, of the same firm, were with him on the brief for appellee.

HERD, Justice:

This is an action for quiet title and declaratory judgment by Mark Twain Kansas City Bank (Mark Twain) against Kroh Brothers Development Company; the Kroh Foundation; the foundation's Board of Control; Johnson County Bank, as trustee of the Kroh Foundation (Trustee); and others. All material parties moved for summary judgment. The district court granted Mark Twain's motion and denied all others. The Trustee, the Kroh Foundation, and the members of the Board of Control appealed.

The material facts in this case are not in dispute and were stipulated to in the district court. They are as follows:

John A. Kroh, Sr., was an original owner of Kroh Brothers Development Company, a Missouri corporation with offices in Kansas City, Missouri. His wife was Elizabeth Kroh. They had three children, George P. Kroh, John A. (Jack) Kroh, Jr., and Elinor Kroh Tourtellot. In 1957, John A. Kroh, Sr., established a trust entitled The Chatham Foundation. The Johnson County National Bank & Trust Company (now Johnson County Bank, N.A.) was the sole trustee.

The Chatham Foundation was established as a vehicle through which charitable donations could be made. The trust agreement provided Johnson County Bank, as trustee, would have no authority to determine and make charitable contributions except upon specific direction of the foundation's Board of Control. The trust specifically provides: "The Board of Control may ... conduct, directly or indirectly through other organizations or groups, such activities as the Board of Control deems advisable...." The original Board of Control was composed of John A. Kroh, Sr., Elizabeth Kroh, and attorney W.B. Cozad.

In 1970, John A. Kroh, Sr., and Elizabeth Kroh resigned as members of the Board of Control. Their sons, George and Jack, were appointed to fill their positions. Arch Wheeler, an officer and director of Kroh Brothers Development Company, became a member of the Board of Control in 1971 or 1972. In 1974, the name of The Chatham Foundation was changed to the Kroh Foundation.

During the period from 1957 to 1970, the Board of Control determined the nature and extent of charitable donations and how assets of the Kroh Foundation were to be invested, managed, sold, and reinvested. During that period, the Trustee wrote checks and paid expenses as instructed by the Board of Control. Beginning in 1977, general administrative work for the Kroh Foundation was carried out by Jenna Garretson, Jack Kroh's secretary and a Kroh Brothers Development Company employee. Garretson took over those duties from Wheeler who remained an inactive member of the Board of Control.

In September 1980, Freda Whitaker became an officer at Johnson County Bank and was primarily responsible for the Kroh Foundation account. At that time, its assets were a small bond, a small amount of cash, and some common funds. The Trustee exercised no independent discretion as to charitable contributions. Prior to 1987, the only investments the Trustee independently made on behalf of the Kroh Foundation was the investment of excess cash. Whitaker received and followed instructions from individual members of the Board of Control, as well as from Garretson. Whitaker considered Garretson's instructions as coming from the Board of Control.

When Elizabeth Kroh died, she left $300,000 to the Kroh Foundation. Three $100,000 certificates of deposit were purchased with this money; however, they were not titled in the name of the Trustee but in the name of the Kroh Foundation. The Trustee received the interest from the CD's. The Trustee was aware of how the CD's were titled and wrote Garretson, stating, "[T]hese Certificates of Deposit should be held by our Bank since we are the trustee for the foundation and probably should be holding the assets of the foundation." The Trustee finally obtained possession of the CD's in 1987.

In 1983, a brochure was prepared for the Kroh Foundation. It listed John, Jack, George, and Elizabeth Kroh as directors and Garretson as assistant secretary. The brochure stated the Kroh Foundation was "incorporated under the laws of Kansas," although the Kroh Foundation was never incorporated. Jack Kroh submitted invoices for the cost of designing and printing the brochure to Whitaker. The Trustee paid the invoices. The brochure was not widely distributed and Whitaker did not receive a copy.

In April 1981, John A. Kroh, Sr., and Elizabeth Kroh executed a deed conveying the real property at issue in this lawsuit to "the Kroh Foundation, a not-for-profit charitable organization." The deed conveying the property on April 17, 1981, was delivered to the Trustee in August 1981. The deed was thereafter listed and carried as an asset of the Kroh Foundation on the Trustee's books. This deed was recorded with the Register of Deeds on April 20, 1981.

It was the general practice of the Trustee to hold assets of a trust for which it was trustee in the bank's name, as Trustee, or in the nominee's name. Despite this policy, the property remained in the name of the Kroh Foundation. At the time it was transferred to the Kroh Foundation, the property was subject to a mortgage in favor of Farm & Home Savings.

Once the property was transferred to the Kroh Foundation, the Trustee paid the mortgage and taxes. The Trustee was not involved in collecting rent or managing the property, but left that function to Kroh Brothers Development Company. On an irregular basis the Trustee received payments that it was told were rents from the property.

In 1986, Mark Twain solicited loan business from Kroh Brothers Development Company. At this time Jack and George Kroh each owned 50% of Kroh Brothers Development Company. Jack Kroh wrote to Ed Enloe, president of Mark Twain, requesting a loan to "refinance" several properties, including the real property at issue in this case. On February 19, 1986, the Executive Loan Committee of Mark Twain approved credit of $4.4 million to Kroh Brothers Development Company "to purchase seven properties from Kroh Bros. Foundation."

In March 1986, Garretson wrote a letter to Scott Spiker, a loan officer at Mark Twain, stating in part:

"In regard to the Kroh Foundation property, as I mentioned to you yesterday, we can either transfer the property into Kroh Brothers Development Company and realize considerable tax consequence or we can transfer the property into an entity of which Kroh Brothers has less than 30% interest. Roger Phillips of the Jackson, Dillard firm tells me we can form a Kansas general partnership, which does not have to be filed with the Secretary of State as a limited partnership would, and transfer the building into that entity, transferring it at a later date into Kroh Brothers Development Company. This would involve another borrower where this loan is concerned."

Thereafter, Jack Kroh created 10770 El Monte Associates (general partnership). This partnership was made up of Kroh Brothers Development Company, as the managing partner holding a 30% interest, and Garretson and Jacob Mondschein, employees of Kroh Brothers Development Company, each with 35% partnership interests. Mondschein and Garretson characterized themselves in their depositions as "straw partners" to be "used sort of as placeholders until moneyed equity partners could be obtained."

Prior to the transfer of the property from the Kroh Foundation to the general partnership, the Chatham Foundation trust agreement, together with all its amendments, was sent to Mark Twain. The individuals at Mark Twain indicated that they "thought" they had read it, and that they had "skimmed" it, yet no inquiry was made to the Trustee regarding the proposed transaction.

After reviewing the trust document, Spiker determined Mark Twain needed "a letter of opinion from the borrower as well as title coverage to show that that had been legally conveyed." As a result, Mark Twain obtained an opinion letter from a Kroh Brothers Development Company attorney, a...