Rand v. McKittrick

• Decision Date: 03 July 1940
• Docket Number: 36286
• Parties: Frank C. Rand, Albert M. Keller and James L. Westlake, Trustees of Barnes Hospital, v. Roy McKittrick, Attorney General, Appellant
• Court: Missouri Supreme Court

142 S.W.2d 29

346 Mo. 466

Frank C. Rand, Albert M. Keller and James L. Westlake, Trustees of Barnes Hospital, v. Roy McKittrick, Attorney General, Appellant

No. 36286

Supreme Court of Missouri

July 3, 1940

Appeal from Circuit Court of City of St. Louis; Hon. Charles B Williams, Judge.

Affirmed.

Russell C. Stone, Assistant Attorney General, for appellant.

(1) A trustee is under a solemn duty to preserve the trust res and the general rule respecting the administering of a trust according to the "prudent man rule," is subject to limitations. (a) Statutes of Missouri. Laws 1937, p. 504 subdivs. 5 and 8; Laws 1935, p. 382; Laws 1939, p. 764; Secs 2915, 2921, 2924, 5423, 5329, R. S. 1929. (b) Missouri cases. Gamble v. Gibson, 59 Mo. 585; Taylor v. Hite, 61 Mo. 142; Merritt v. Merritt, 62 Mo. 150; Garesche v. Priest, 78 Mo. 126; Drake v. Crane, 127 Mo. 85, 29 S.W. 990; Garesche v. Levering Inv. Co., 146 Mo. 436, 48 S.W. 653; Cornet v. Cornet, 269 Mo. 298, 190 S.W. 333; Loud v. St. Louis Union Trust Co., 313 Mo. 552, 281 S.W. 754; Fairleigh v. Fidelity Natl. Bank & Trust Co., 73 S.W.2d 248, 335 Mo. 360. (2) Trustees should be limited in their investments of the trust res to governmental securities including state and municipal bonds and first mortgages. (a) Massachusetts and New York Rule. King v. Talbot, 40 N.Y. 76; Harvard College v. Armory, 9 Pick. 446; 3 Bogert on Trust & Trustees, pp. 2036, 2037, sec. 679; White v. White, 230 Ala. 641, 162 So. 368; Reed v. Reed, 80 Conn. 401, 68 A. 849; Clark v. Clark, 167 Ga. 1, 144 S.E. 787; White v. Sherman, 168 Ill. 589, 48 N.E. 128; Sellers v. Milford, 101 Ind.App. 590, 198 N.E. 456; Mattocks v. Moulton, 84 Me. 545, 24 A. 1004; Home Savings, etc., v. Strain, 130 Ohio St. 53, 196 N.E. 770; Taylor's Estate, 277 Pa. 518, 121 A. 310; Davis v. Davis Trust Co., 106 W.Va. 228, 145 S.E. 558; In re Grotenrath's Estate, 217 Wis. 109, 258 N.W. 453; Fox v. Harris, 141 Md. 495, 119 A. 256; In re Buhl's Estate, 211 Mich. 124, 178 N.E. 651; Wild v. Brown, 120 N.J.Eq. 31, 183 A. 899; Peckham v. Newton, 15 R. I. 321; Boggs v. Adger, 25 S. E. Eq. 408, 4 Rich. 408; Scoville v. Brock, 81 Vt. 405, 70 A. 1014. (b) The New York rule is the sounder and better rule for investment of trust funds by trustees. Walker v. James, 337 Mo. 750, 85 S.W.2d 876; Mertz v. Guaranty Trust Co., 247 N.Y. 137, 159 N.E. 888; Penn. v. Fogler, 182 Ill. 76; Hemphill's Appeal, 18 Penn. 303; Adriance's Estate, 260 N.Y.S. 173; Indiana Trust Co. v. Griffith, 95 N.E. 573.

Forest P. Tralles for respondents.

(1) While neither the New York rule nor the Massachusetts rule regulating the investment powers of trustees has been specifically adopted by the Missouri courts, the trend of decision favors the Massachusetts rule, which lays down no arbitrary classification, but requires trustees to make only such investments as a prudent man would make of his own property, having primarily in view the preservation of the estate and the amount and regularity of the income to be derived. Restatement of Trusts, sec. 227; Cornet v. Cornet, 269 Mo. 298, 190 S.W. 333; Loud v. St. Louis Union Trust Co., 313 Mo. 552, 281 S.W. 744; Lawson v. Cunningham, 275 Mo. 128; Garesche v. Levering Inv. Co., 146 Mo. 436; Drake v. Crane, 127 Mo. 85; Fairleigh v. Fidelity Natl. Bank & Trust Co., 73 S.W.2d 248, 335 Mo. 360; Cameron Trust Co. v. Leibrandt, 83 S.W.2d 234. (2) The trend of modern decision in the various states favors adoption of the Massachusetts rule rather than the New York rule. Restatement of Trusts, sec. 227; In re Estate of Buhl, 211 Mich. 124, 178 N.W. 651; Kimball v. Whitney, 223 Mass. 321, 123 N.E. 665; Fox v. Harris, 141 Md. 459, 119 A. 256; Gilbert v. Kolb, 85 Md. 627, 37 A. 423; Green v. Crapo, 62 N.E. 956; Ogden v. Allen, 225 Mass. 595, 114 N.E. 862; Bowker v. Pierce, 130 Mass. 262; Packham v. Newton, 15 R. I. 321, 23 A. 35; Scoville v. Brook, 81 Vt. 405, 70 A. 1014; Kimball v. Reding, 31 N.H. 352. (3) The court will take judicial notice of economic conditions. Saxbury v. Coons, 98 S.W.2d 662; State ex rel. v. Pub. Serv. Comm., 339 Mo. 641, 98 S.W.2d 699.

Rhodes E. Cave, Samuel A. Mitchell and Richard D. Shewmaker, amici curiae.

(1) The reasonable construction of the wills in question is that the trustees have power to invest in such securities as prudent men buy with their own funds, with a view, not to speculation, but to the safety of the principal and the production of a reasonable income; any rule imposing arbitrary limitations on the securities which may be bought is unsound in principle. Restatement of Trusts, sec. 227. (2) In the absence of statute no rule except the Restatement or Massachusetts rule and the New York rule has ever been laid down by any court in the United States; the New York rule arbitrarily condemns all corporate bonds and stocks, however sound. Scott on Trusts, sec. 227, p. 1198; Restatement of Trusts, sec. 227; King v. Talbot, 40 N.Y. 76; Harvard College v. Armory, 9 Pic. 446; Ormiston v. Olcott, 84 N.Y. 339; Session Laws New York, 1889, chap. 65, 1902, chap. 295, p. 852, 1892, chap. 689, sec. 116; New York General Laws & Statutes, 1902, Chap. 37, Art. III, Sec. 116; McKinney's Consol. L. N. Y., Banking Law, sec. 239, p. 429; New York Banking Law, sec. 235, subdiv. 7a; In re Maroney's Estate, 311 Pa. 336, 166 A. 914; White v. White, 230 Ala. 641, 162 So. 368; In re Allis' Estate, 123 Wis. 223, 101 N.W. 365; L. Wis. 1903, p. 510; White v. Sherman, 168 Ill. 589, 48 N.E. 128. (3) The law of Missouri, as shown by previous decisions of this court, requires the judging of each investment by a trustee on the merits of that particular investment, in accordance with the Massachusetts rule; this court has never attempted and should not now attempt arbitrarily to classify and limit the securities in which a trustee may invest. Harvard College v. Armory, 9 Pick. 446; Bogert, Trusts & Trustees, secs. 616, 663, 679; Saxbury v. Coons, 98 S.W.2d 662; State ex rel. v. Pub. Serv. Comm., 339 Mo. 641, 98 S.W.2d 699; Perry on Trusts, sec. 456; Mattocks v. Moulton, 84 Me. 545, 24 A. 1004; King v. Talbot, 40 N.Y. 76; Reed v. Reed, 80 Conn. 401, 68 A. 849; White v. Sherman, 168 Ill. 589, 48 N.E. 128; Tucker v. State, 72 Ind. 242; In re Allis' Estate, 123 Wis. 223, 101 N.W. 365; Hemphill's Appeal, 18 Pa. St. 303; In re Taylor's Estate, 5 S.W.2d 457; Cornet v. Cornet, 269 Mo. 298, 190 S.W. 333; Garesche v. Levering Inv. Co., 146 Mo. 436, 48 S.W. 653; Lawson v. Cunningham, 275 Mo. 128, 204 S.W. 1100; Drake v. Crane, 127 Mo. 85, 29 S.W. 990, 27 L. R. A. 653; Fairleigh v. Fidelity Natl. Bank & Trust Co., 335 Mo. 360, 73 S.W.2d 248; In re Estate of Buhl, 211 Mich. 124, 178 N.W. 651, 12 A. L. R. 569; Kimball v. Whitney, 233 Mass. 321, 123 N.E. 665.

Westhues, C. Cooley and Bohling, CC., concur.

OPINION

WESTHUES

This action was filed in the circuit court of the city of St. Louis, Missouri, by the trustees of Barnes Hospital, to determine the power and authority of the trustees, under the will creating the trust, in regard to the manner of investing the trust funds, and for an approval of the investments made. The trial court entered a decree for the trustees and the defendant appealed. The Attorney General of the State was made a party defendant as representing a class of unknown and unnamed charitable beneficiaries. A state officer being sued in his official capacity vests this court with appellate jurisdiction.

The facts are conceded. Robert A. Barnes, by his will, left a vast estate in trust for the purpose of erecting and maintaining a hospital in the city of St. Louis, Missouri for sick and injured persons without distinction of creed. In the year 1912, the trustees named in the will had on hand approximately $ 2,000,000 in property, consisting of real estate, cash, stocks and bonds. The hospital was immediately erected and has since been conducted under the name of Barnes Hospital. The plaintiffs in this case, Frank C. Rand, Albert M. Keller and James L. Westlake, are the present trustees. The trustees' duties included investment of the funds of this charitable trust. Since the hospital was constructed a number of bequests, totalling approximately $ 300,000, have been added to the endowment fund originally created by Barnes. At the time of the trial over $ 1,000,000 of the fund was found to have been invested in common and preferred stocks and bonds of private corporations, and about $ 150,000 was invested in United States Government securities. Nearly one-half of the fund was invested in stock and the other half in bonds. The income from these investments, for the year 1936, amounted to approximately $ 24,000 from the stocks and $ 18,000 from the bonds. The record shows that Barnes Hospital is no meager institution. The total income for the year 1936 was over $ 505,000. The total expense, including $ 25,000 depreciation, was approximately $ 680,000. The deficit in round numbers was $ 175,000. The hospital received a sum of $ 79,000 from the community fund on the theory that the hospital was largely a charitable institution. The record supports the theory. It was disclosed that for the year 1936 only about eleven per cent of the patients at the hospital paid in full for the services received. By the will of Barnes certain real estate was also devised to the trustees with the admonition that it was not to be sold, and that the net income from this property was to be utilized to maintain the hospital. The real estate is not involved in this controversy and it will not be further noticed.

The issue before the trial court and this court was thus stated in appellant's brief:

"The issue before this court is entirely one of law, to determine what are lawful investments trustees may make in the absence of limiting and restricting...