Neel v. Clark

• Decision Date: 09 April 1940
• Docket Number: 15060.
• Parties: NEEL v. CLARK.
• Court: South Carolina Supreme Court

8 S.E.2d 740

193 S.C. 412

NEEL v. CLARK.

No. 15060.

Supreme Court of South Carolina

April 9, 1940

Jesse W. Boyd and Evans, Galbraith & Holcombe, all of Spartanburg, for appellant.

Johnson & Johnson and J. C. Mooneyham, all of Spartanburg, for respondent.

CARTER Justice.

In 1922, M. G. Clark, father of both plaintiff and defendant died testate leaving a widow and six children. By his will he designated Newton T. Clark as testamentary trustee for Nannie Clark Neel, to hold in trust for her one-seventh of his personal property. It was provided that Newton T. Clark as such trustee, must pay to Mrs. Neel the income from the trust estate during her natural life and at her death to deliver the corpus of such estate to her children. In the division of the testator's personal property, four shares of the capital stock of the Central National Bank of Spartanburg was allotted to this trust. On July 11, 1932, the trustee surrendered possession of this stock to the bank and, in lieu thereof, the bank issued a new certificate to Mrs. Leatha Clark-- mother of plaintiff and of defendant--who executed an assignment in blank on the back thereof, and then delivered the certificate to Newton T. Clark. On October 25, 1935, Mrs. Nannie C. Neel and her children executed an agreement releasing Newton T. Clark from all liability under the trust, but the four shares of stock were not mentioned in the release.

On March 3, 1939, plaintiff brought this action for conversion. She alleges that at the time the release was signed as to the other trust property, her demand for the four shares of stock or the value thereof was refused, "defendant representing that he still held the stock for the plaintiff, but that it was worthless at that time"; that the defendant sold the four shares of stock to Mrs. Leatha Clark, without her knowledge or consent, and has never accounted to her for such sums as he received; that he concealed the transaction from her, and has continued to do so up until this time, she only recently having learned of the sale "and of the unlawful and wrongful conversion of the sum received.

Defendant, answering, denies that plaintiff made any demand upon him for the stock, or that he represented to her that he still held it for her, but respectfully shows on the contrary that the stock had been, by the mutual consent of the parties interested, and after discussion by them and with their full knowledge, transferred to Leatha C. Clark for the purpose of saving the trust estate from stockholders' liability, it having been agreed that should the financial depression of that period "run its course" and the bank show solvency and recovery of value of its stock, then Leatha C. Clark would pay the then book value, $20 per share, but that no such recovery was had and "the bank was subsequently placed in the hands of receiver and assessment of an amount equal to the value of the stock made against the owner, Leatha C. Clark". Defendant alleges that the release dated October 25, 1935, was not, nor was it intended to be, a dissolution of the trust, but that the "duties, obligations and responsibilities for the maintenance of the trust were thereby transferred from" him to the plaintiff and her four children, who assumed joint responsibility therefor; that such release was "a complete and full accounting for this defendant's trust".

On trial of the case, Judge Merchant refused defendant's motion for a directed verdict, and the jury found for plaintiff $108.60 actual and $500 punitive damages. Defendant thereupon moved the Court to set aside the verdict and dismiss the complaint or order a new trial, which was refused. Defendant now appeals to this Court. While seventeen exceptions are stated, only five questions are raised for our consideration. The first of these is: "Where a trustee shortly before the bank's failure, and for the purpose of saving the trust estate from potential stockholders' liability on national bank stock belonging to the trust, transfers the stock to another to whom the bank issues a new certificate for the same stock, which is simultaneously assigned to the trustee, who continues to hold the stock for the beneficiaries, is the trustee liable for conversion of the stock?"

Black's Law Dictionary defines conversion as, "An unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or the exclusion of the owner's rights."

It is true that there can be no recovery unless at the time of the alleged conversion the plaintiff had the title or right to possession of the property, as shown by Mr. Justice Bonham in Waldrop v. M. & J. Finance Corporation, 178 S.C. 527, 183 S.E. 460, 461: "It is settled law in this state that in order to maintain an action for conversion it is necessary for plaintiff to show title or right to possession of the chattel at the time of the conversion." Appellant contends that plaintiff did not have such title or right to possession of the stock as would allow her to maintain an action for conversion, but that he, as trustee under the will, had rightful possession thereof.

In 1932 the trustee had possession of the stock in question in trust for the beneficiaries, or for the beneficial interest of the cestui que trust. "A trustee is a person holding the legal title to property, under an express or implied agreement to apply it, and the income arising from it, to the use and for the benefit of another person, who is called the cestui que trust." 26 R.C.L. 1271.

However, as seen in 65 C.J. 697, "A trustee is held to great strictness in his dealings with the property in his hands, and he may not appropriate the trust fund to himself without concurrence of the cestui que trust with full knowledge of the facts. Consequently, unless he has been released from liability, or the cestui que trust has consented to, or ratified, his acts, where the trustee himself wastes, misappropriates, or converts the property to his own use, he is personally liable for the loss or damage caused thereby." In 26 R.C. L. 1372, we find: "When a trustee is given discretion as to the execution of the trust he will be protected so long as he acts honestly and exercises a reasonable discretion." And at page 1373 of the same work: "But the discretion of trustees may, without impropriety, be likened to that of Judges. It is not an arbitrary discretion. It does not include the unrestrained power to do what the trustee pleases."

As seen above, a trustee cannot exercise an arbitrary discretion with regard to the trust property. Dr. Clark did not get the consent of the beneficiaries before making the transfer of the stock; neither did he have such transfer ratified by them. Also, there was testimony for the plaintiff to the effect that Mrs. Neel was not satisfied with Dr. Clark's management of the trust estate and that she made demand that he surrender the trust property to her; that as a result of this demand, plaintiff and her children signed an agreement releasing the trustee of all liability under the trust whereupon he delivered to them all the trust property except the stock certificate in question; that demand was made for this stock certificate but that he refused to surrender it. We think that Dr. Clark's acts were such as would warrant the trial Judge in submitting to the jury the question as to whether Mrs. Neel had such right to demand possession of the stock, or...