Spilka's Will, In re, 49682

• Decision Date: 23 July 1959
• Docket Number: No. 49682,49682
• Citation: 97 N.W.2d 625,250 Iowa 1021
• Parties: In the matter of the trust under the WILL OF Max SPILKA, Deceased. SIDNEY B. SMITH & CO., Appellee, v. Elvan Lowe SPILKA, Herbert Spilka, Seymour Spilka and Rita Hytone, and Elvan Lowe Spilka and Herbert J. Spilka, as trustees, Appellants.
• Court: Iowa Supreme Court

Page 625

97 N.W.2d 625

250 Iowa 1021

In the matter of the trust under the WILL OF Max SPILKA, Deceased.

SIDNEY B. SMITH & CO., Appellee, v. Elvan Lowe SPILKA, Herbert Spilka, Seymour Spilka and Rita Hytone, and Elvan Lowe Spilka and Herbert J. Spilka, as trustees, Appellants.

No. 49682.

Supreme Court of Iowa.

July 23, 1959.

Alan Loth, Fort Dodge, for appellants.

Rider, Bastian & Beisser, Fort Dodge, for appellee.

GARRETT, Justice.

This is an action in equity in which Sidney B. Smith and Company, hereafter referred to as Smith, claimed fees of $5,508.20 for services as an accountant and witness allegedly rendered to the Spilka trust in litigation involving the trust property.

For a clear understanding of the facts out of which this action arose a brief statement of the circumstances giving rise to the services on which the claim is based appears necessary.

Max Spilka's will was probated in April 1951. It set up four trusts, hereafter referred to as the trust, one for delivery to each of his children on his or her thirty-fifth birthday. The oldest son, Elvan Spilka, attained that age in May, 1957. He, together with Louis Rabiner and the Central National Bank and Trust Company of Des Moines, were the trustees.

Rabiner and Max Spilka had been equal partners in the Rabiner Realty Company. As surviving partner Rabiner kept control of all assets for several years, claiming ten per cent of the gross income for that service. These assets were valued at around $300,000.

In September 1955 the real estate constituting the greater part of the partnership property was divided in kind but Rabiner refused to make a final settlement and accounting or permit an examination of his books and records. He was in the peculiar position of being one of the executors of the Spilka estate, a trustee of the trust created by the will and surviving and managing partner of the realty company with duty to deliver half of the partnership assets to the trust. As is often the case in such situations serious controversies arose.

One of the conditions upon which the bank agreed to assume the duties of trustee was that Rabiner should make a complete settlement with the trust and that, thereafter, it should be the sole manager of the trust property.

The beneficiaries of the trust, upon the refusal of Rabiner to make final settlement, brought suit in equity to enforce such settlement. The court ordered the probate matters and suit in equity consolidated for trial of the issues then raised. The bank at first insisted on having nothing to do with the litigation but when the issues were made up and throughout the trial it appeared the bank was taking the side of Rabiner against the trust. Many days were devoted to the trial. The reports of Rabiner as to the partnership property and of the bank as trustee were vigorously attacked, the claim being the bank as trustee was making a settlement with Rabiner, liquidating partner, which was unfair to the trust.

The claimant had done accounting work for the various parties prior to the work giving rise to the instant claim. The beneficiaries urged that, so far as the matters here involved are concerned, claimant was employed by Rabiner for his own purposes and by the bank to aid it in making and explaining reports it was required to make and for which service it was paid and that claimant was not employed by the trust. It was their further claim that the services rendered were adverse and detrimental to the trust estate.

The court ordered that 'trial of the fee application will be in equity' but separate from other applications pending. On May 27, 1958 the court, after hearing the evidence, entered its order allowing Sidney B. Smith and Company fees of $750 and expenses of $40. From that order Elvan and Herbert Spilka as trustees and all four beneficiaries have appealed.

I. It is contended appellee had no contract with the trust because such contract required the unanimous action of all trustees; that Rabiner and the bank having employed Smith for their own benefit, were precluded from employing him for the trust; that there is no proof of an express or implied contract, and that appellee failed to prove any specific items of its service were of benefit to the trust and the amount and value thereof.

The will creating the trust provided: 'The trustees shall have the following rights and powers: * * * To * * * acquire or deal with all trust property, * * * in the sole discretion 'of the trustees,' without any application to, or order of, court * * *. To make any agreements which in their sole discretion are deemed advantageous to the trust; * * * To employ agents, attorneys, accountants and other necessary services for the benefit of the trust. * * *'

The trial court found Smith's services were worth $5,063.98 but were worth only $790 as regards the trust. No one has questioned the value of the services rendered. The question is, should the trust be held for any part thereof? The court order, as set forth in the record, states: 'Though in good faith, Central was so convinced of the rightness of Rabiner's position that it became embroiled on his side. To some extent it opposed its beneficiaries and prolonged the litigation, * * * The problem as to Smith's fees is more difficult. Smith performed valuable, expert services during the litigation, but largely on the Rabiner branch of the trial. The Bank's employees were perfectly competent to make the presentation concerning the Bank's opening inventory and accounting, with but little aid from accountants.'

From the record it is evident the accounting services were had at the instance and request of Rabiner and the bank to aid them in making and explaining their inventory and reports. It was their duty to make reports which were understandable or which they could explain without the aid of outside accountants. Rabiner, who owed the trust, although at that time also a trustee, stood in a position adverse to the trust. As trustee he and the bank stood in a fiduciary relationship to the beneficiaries and thus a higher standard of conduct was required of them. Restatement of the Law, Trusts, 2d Sec. 170(2). 'The trustee is under a duty to the beneficiary not to delegate to others the doing of acts which the trustee can reasonably be required personally to perform.' Restatement, Trusts, 2d Sec. 171.

Elvan Spilka, beneficiary and trustee, had no part in employing appellee, and, with the other beneficiaries, insists such employment required unanimous action of the trustees if the trust is to be bound. There is substantial authority for their position. The trust instrument authorizes the trustees to do certain things which, in their sole discretion, they deem advantageous to the trust. It confers no authority for their acting separately, saying, 'The trustees shall have the following rights and powers.' It does not say 'part of the trustees' or 'a majority shall have' certain powers.

'Where several trustees in a private trust have all accepted and are exercising the office, their powers, interest, and authority are equal and undivided, and they cannot act separately, but must act as a unit, except where the authority to act otherwise is given by statute or by the instrument creating the trust, or except in the case of an urgent emergency. * * * A disagreement between cotrustees of equal authority renders the act of each a nullity.' 90 C.J.S. Trusts § 258; Cooper v. Federal National Bank, 175 Okl. 610, 53 P.2d 678; Restatement, Trusts, Sec. 194; 2 Scott, Trusts, Sec. 194. If there was an emergency here it was created by the failure of Rabiner and the bank as trustee to have their reports in proper form, and they could hardly claim this situation arose suddenly.

Smith knew the parties with whom he dealt and was bound at his peril to know the extent of their powers. Zion Church, etc. v. Parker, 114 Iowa 1, 86 N.W. 60. 'A trustee has no authority to employ counsel at the expense of the estate to represent the interest of one beneficiary in hostility to that of another. To permit him to do so would be to allow the trustee to pay from the property of one litigant the counsel fees of his opponent.' Fleming v. Casady, 202 Iowa 1094, 1104, 211 N.W. 488, 493. The same principle applies to accounting service and where it was for the purposes of the litigation it was, no doubt, of special value to Rabiner in view of the fact Smith is also a lawyer. The court is required to interfere if an allowance has been made for something that is not for the benefit of the trust. In re Trusteeship of Clark, 174 Iowa 449, 457, 154 N.W. 759, 761, 156 N.W. 353.

In Young v. Potts, 6 Cir., 161 F.2d 597, 600, it is said: 'It has been repeatedly held by controlling authority that one who represents conflicting interests and so fails in the exercise of good faith is to be denied compensation or reimbursement for expenses.' Citing many cases.

It is not claimed Smith acted in bad faith but he went to great length to aid Rabiner and the bank in proceedings adverse to the trust. The court removed Rabiner as trustee which should make it unnecessary to say more. 'Where a claimant * * * was serving more then one master or was subject to conflicting interests, he should be denied compensation. It is no answer to say that fraud or unfairness were not shown to have resulted.' Woods v. City National Bank & Trust Co., 312 U.S. 262, 61 S.Ct. 493, 497, 85 L.Ed. 820. It is true courts...