Phillips v. Burton

• Decision Date: 12 October 1899
• Citation: 52 S.W. 1064,107 Ky. 88
• Parties: PHILLIPS et al. v. BURTON et al. [1]
• Court: Kentucky Court of Appeals

52 S.W. 1064

107 Ky. 88

PHILLIPS et al. v. BURTON et al. ^[1]

Court of Appeals of Kentucky.

October 12, 1899

Appeal from circuit court, Marion county.

"Not to be officially reported."

Action by Eusebia Q. Phillips and others against R. A. Burton and others for the settlement of a trust. Judgment for defendants, and plaintiffs appeal. Affirmed.

T. L Edelen, W. J. Lisle, and S. A. Russell, for appellants.

J. P Thompson, Wm. Lindsay, and Sam T. Spalding, for appellees.

HAZELRIGG C.J.

John A Burton died in 1874, leaving a widow and two sons and three daughters. He made a will by which, in effect, the children took portions to which they were entitled under the laws of descent and distribution; and the only apparent reason for making the will was because the testator desired, seemingly to give the widow something additional, and further desired to annex some restrictions to the devise to one of his daughters because her husband was not transacting business in his own name. The present controversy grows out of the provision for this daughter, and the clause as to her is as follows: "Fourth. That portion of my estate that falls to my daughter Eusebia Phillips, wife of J. G. Phillips, I wish placed in the hands of a trustee for her separate use and benefit, not subject to the liabilities of her husband or any other person. The interest to be paid to her annually. No person to have control of her said estate, except her trustee, so long as he acts as such, who shall execute the usual bond for the faithful performance of said trust. She to be authorized to select said trustee, and not to continue longer than she may desire. Should her husband change his present manner of business, and do business in his own name, then, in that case, I should prefer, if she thought it best, to call upon her trustee for a settlement of his trust, and take charge in her own right of the amount of what might be in his hands as her trustee." Under the authority of the will, Mrs. Phillips selected her brother Robert A. Burton as her trustee, who acted as such for some 20-odd years, during the whole of which time, except a short while towards the end of this period, the trustee and his sister were on the most friendly terms, and the business was transacted without friction or complaint. In the fall of 1896 Mrs. Phillips became dissatisfied with certain notes held by her trustee for her, and in December of that year this suit was brought by her against the trustee and his sureties for a settlement of the trust estate. During the progress of the suit the trustee turned over to the beneficiary, under the orders of the chancellor, the entire estate claimed by him to be in his hands, asking what he deemed to be a reasonable compensation for his services as trustee. The chancellor approved of the trustee's conduct in the management of the trust, and allowed him the compensation asked. From this judgment Mrs. Phillips appeals. Briefly stated, the grounds of her complaint are that the chancellor has accepted as correct, and has approved in the main, the accounts of the trustee as kept by him, and as furnished by him to her for her inspection and approval from time to time from the beginning to the end of his trust, whereas, as she contends, the court ought to have made up the accounts by compounding the interest at annual rests; and further it is claimed by appellant that no compensation should have been allowed her trustee. Other minor complaints will be noticed later on.

As to the first complaint, it is to be observed that with respect to trustees there is no statutory provision in this state requiring the compounding of interest either annually or biennially. Nor is there any judicial decision establishing any fixed rule to that effect. On the contrary, a trustee is chargeable only with such interest as "he actually receives, or, as a faithful and prudent fiduciary, he ought, and therefore should be presumed, to have received." Maupin's Ex'r v. Dulany's Devisees, 5 Dana, 594. The rule of a trustee's accountability for interest is stated in Clark v. Anderson, 10 Bush, 108, to be "that he is chargeable with the interest actually received, or with such as, in the prudent and faithful discharge of his duties, he ought to have received." It is stated in the text of the American & English Encyclopedia of Law (volume 27, p. 179), and supported by the authorities there cited, that "a trustee who exercises diligence and good faith in the custody of the trust funds is not chargeable with interest unless he has used them for his own profit, or has invested them so as to produce interest, or has suffered them to lie idle when they might have been invested, or has needlessly delayed settlement and surrender of the property." And further ( Id. p. 190): "Good faith is at once the duty of a trustee and his protection. A trustee who acts in good faith is treated with indulgence by the courts, and, in the absence of inexcusable neglect, misconduct, or fraud, will be relieved from responsibility for losses." When the fiduciary mixes the trust fund with his own, neglects to settle his accounts, and, when called upon, fails to show what disposition is made of the fund, a decree is proper requiring him to pay interest, and allowing annual rests in the computation of interest. Asay v. Allen, 124 Ill. 391, 16 N.E. 865. When the trustee uses the fund in his own business, or so mixes it with his own as not to be able to show the profits of the trust fund, or is otherwise negligent in the execution of the trust, then interest at rests of a shorter or longer period, in the sound discretion of the chancellor, may be charged as a punishment for a violation of his duty, and as a measure of damages for undisclosed profits. A trustee, therefore, who is faithful and diligent, and who executes the trust in accordance with the principles adverted to, has done nothing for which he may be punished; and such a trustee is chargeable only with the interest, be it simple or compound, which he actually receives, or which he might have received by the exercise of reasonable diligence. He may not bury the talent committed to him, and render unto his master only his own without its legitimate gain.

It is conceded in the case at bar that the trustee has accounted for large sums of interest. Whether he is to be charged with additional interest, and which he insists he did not receive depends upon the fidelity, honesty, and diligence displayed by him in the conduct of the business for the 23 years it was in his hands. It appears that the total estate belonging to his sister which came to his hands amounted to some $32,000. A large part of this he did not get until in 1882, 1884, and 1888. He paid out in 1876, and shortly thereafter, some $5,000 for a home for the beneficiary, and this much of the trust fund became unprofitable. He likewise paid out in 1886...