Russell v. Russell

• Court: Missouri Supreme Court
• Writing for the Court: PER CURIAM
• Citation: Russell v. Russell, 427 S.W.2d 471 (Mo. 1968)
• Decision Date: 08 April 1968
• Docket Number: No. 52744,No. 2,52744,2
• Parties: Frances RUSSELL, Executrix of the Estate of Robert Marlowe Russell, Deceased, Plaintiff-Respondent-Appellant, v. John Paul RUSSELL, James B. Russell, Jr., Cecil R. Sifers and J. B. Russell, Inc., a Corporation, Defendants-Appellants-Respondents

Page 471

427 S.W.2d 471

Frances RUSSELL, Executrix of the Estate of Robert Marlowe Russell, Deceased, Plaintiff-Respondent-Appellant, v. John Paul RUSSELL, James B. Russell, Jr., Cecil R. Sifers and J. B. Russell, Inc., a Corporation Defendants-Appellants-Respondents.

No. 52744.

Supreme Court of Missouri, Division No. 2.

April 8, 1968.

Motion for Rehearing, Modification of Opinion, or Transfer

to Court En Banc

Denied May 13, 1968.

Strop, Watkins, Roberts & Hale by Dan Hale, St. Joseph, for plaintiff-appellant.

Irvin Fane, Howard F. Sachs, Spencer, Fane, Britt & Browne, Kansas City, for appellants-respondents John Paul Russell, James B. Russell, Jr., and Cecil R. Sifers.

HYDE, Special Commissioner.

Action by executrix of estate of a life beneficiary of a trust against the trustees and a corporation in which the trust held stock (24 of 100 shares) seeking appointment of a receiver of the assets of the trust and the corporation, an accounting of the administration of the trust and its interest in the corporation, and a judgment against the trustees for $250,000.00 for profit alleged to have been made as a result of breach of trust, or for the share of income the beneficiary should have received during the term of the trust. The court entered judgment for plaintiff for $58,559.23. All parties have appealed and all say the court should not have entered the judgment it did. Plaintiff says the court should have ordered an accounting to determine the amount due. Defendants, although claiming no judgment should be entered against them, likewise say if they have any liability the amount must be determined by an accounting.

The trust was created by the Will of James B. Russell, Sr., the father of the three trustees and Robert Marlowe Russell, hereinafter called Marlowe, the beneficiary of the trust. The Will was executed August 23, 1939. Also in 1939, James B. Russell, Sr., organized the corporation involved (J. B. Russell, Inc.) and held 96 of its 100 shares. His four children, Paul Russell, James B. Russell, Jr., Cecil R. Sifers and Marlowe, each held one share and were directors with him. The first meeting of the Board of Directors was held on July 29, 1939. The corporation operated lumber yards in Lexington and Cameron. A third yard at Buckner was opened in 1941.

James B. Russell, Sr., died August 30, 1942. His Will gave each of his four children specified items of personal property and to all of them equally real estate in Oklahoma and then provided: 'Item Nine: All the remainder of my property, real, personal and mixed, whereever situated or located, I give, bequeath and devise as follows: One equal part of said remainder to said Cecil R. Sifers, one equal part to James B. Russell, Jr., and one equal part to John Paul Russell, each to take absolutely and in fee simple, and one equal part to said Cecil R. Sifers, James B. Russell, Jr., and John Paul Russell as Trustees upon the following trust, to-wit: Said Trustees shall hold said one equal part of said remainder for a period ending at the death of said Robert Marlowe Russell * * * Said Trustees shall take, receive, hold, manage and control said trust property during such trust period, and shall pay to Robert Marlowe Russell annually during his life time the net income thereof. I authorize and empower my Trustees to convert any personal property they may receive hereunder into cash, and to convert any personal property they may receive hereunder into other personal property. * * * If, at the death of Robert Marlowe Russell after my death, he shall leave lineal descendants, said Trustees shall turn over to such lineal descendants any and all personal property then in such trust fund and shall also convey to such lineal descendants any and all real estate then remaining in said trust fund. If, at the death of Robert Marlowe Russell after my death, he shall leave no lineal descendants, then the property in said trust fund shall be delivered and conveyed to such persons as, at that time, may be my heirs at law in such proportions as are provided by the law of Descents and Distributions of Missouri. * * * Said Trustees shall have the full power to vote any corporate stock that may come to them hereunder. The persons who are to take as Trustees hereunder shall, before entering upon their duties as Trustees, be appointed Trustees by the Circuit Court of Clinton County, Missouri, and give such bond as said Circuit Court may require.'

The principal asset coming to the trust was the lumber company stock. The only other assets were some shares in a Cameron bank and an interest in a vacant lot in Cameron. Marlowe received the following letter from the attorney for the trustees, dated April 10, 1943, concerning his rights under the trust:

'I have examined the copy of your father's will which we have in the office.

'It is my interpretation of the will that your father left your share of his estate to your two brothers and sister as Trustees for you.

'The will provides that the income from the property which your father left you in trust shall be paid to you annually.

'Therefore, if the corporation earns and the Board declares dividends on the stock, the dividends payable on your portion of the stock should be paid to you annually. Your share of the net income from property which your father owned at the date of his death not held by the corporation should be paid to you annually. I trust this answers clearly your questions asked me at Plattsburg.'

No dividends had ever been declared on the lumber company stock prior to the date of this letter. The trustees obtained an order from the Circuit Court of Clinton County appointing them trustees on January 16, 1946. They made annual settlements each year which were approved by the court 1947--1963. Marlowe died May 6, 1964, leaving no descendants. The trustees' reports to the court showed only the trust's investments and the annual income from each, all of which was paid to Marlowe. In 1964 the trust assets were the 24 shares of J. B. Russell, Inc., which had paid dividends of $720.00 in 1946 ($30.00 per share), $480, 1947--1960 ($20.00 per share), $600.00, 1961--1963 ($25.00 per share); 50 shares of Farmers State Bank of Cameron, dividends in 1963 being $48.00, and 18 shares of General Motors, dividends in 1963 being $72.00. The General Motors stock was purchased with proceeds of the sale of the town lot. These were the only assets the trust ever had. Marlowe received copies of all these reports but made no objections to any of them. No trustee's fees were authorized or paid. No dividends were declared by the lumber company prior to the death of James B. Russell, Sr., but in 1945, prior to the appointment of the trustees a dividend of $90.00 per share was declared. The company purchased another lumber yard at Atchison, Kansas, in 1947. The motion at the directors' meeting to make this purchase was seconded by Marlowe. He was the one who told his brothers this yard was for sale and went with them to look at it. Marlowe never made any objection to the accumulation of income as surplus of the corporation, the building up of its inventory or the way the corporation was being run. There was testimony that after he received the letter of April 10, 1943, from the trustees' attorney Marlowe said 'he guessed he couldn't do anything about it.' This evidence was offered to show his state of mind and the trustees claim it was incomptent hearsay. In any event, it seems reasonable to believe that the attorney's letter would cause such a state of mind.

Paul Russell was president of the corporation from its incorporation and was manager of its Lexington yard. Marlowe was vice president and manager of its Cameron yard. Each received the same salary which was increased through the years from $2400.00 in 1940 to $6774.00, 1961--1963. Marlowe attended all stockholders' and directors' meetings, held annually in Kansas City, except one when the weather kept him away. The vote on declaration of dividends was unanimous at all meetings and Marlowe made some of the motions declaring them. Marlowe received copies of the minutes of all stockholders' and directors' meetings and the annual reports of the company. He never proposed larger dividends. Marlowe was in a hospital several times during his last two years but continued to manage the Cameron yard and received his salary up to the month of his death. He died at the age of 64. His widow, the plaintiff, was about six years older than Marlowe. The trustees at no time had any discussion about his rights under his father's Will. The company was in debt throughout the 1950's but sold farms it owned, about 1962, for $40,000.00 which paid its debt. Marlowe and Paul had the management of the farms.

According to the testimony of plaintiff's accountant, the company's reports showed at the end of 1942 (the year of the death of James B. Russell, Sr.) the book value of the company (net worth--difference between assets and liabilities) was $121,584.08 and at the end of 1963 was $428,956.70. Thus the book value of one share at the end of 1942 was $1215.84 and at the end of 1963 was $4289.57. The book value of 24 shares at the end of 1963 was $102,949.68. In this calculation fixed assets were shown at their depreciated value (cost less depreciation taken annually); but plaintiff claims the actual value was greater. Dividends amounted to 14.2% of profits and the increase in the book value of the shares was primarily due to retaining earnings in surplus. From the end of 1942 to the end of 1963, the amount of profits before any dividends were paid was $341,992.22. The ratio of current assets to liabilities was 7 to 1 in 1960 and 11 to 1 in 1963. The accountant said this indicated a very good financial position and that the company was being managed properly. The trial court found the corporation had an earned surplus of $323,161.86 at the end of 1963; that the earned surplus at the end of 1945 was...