St. Louis Union Trust Co. v. Ghio

• Decision Date: 21 June 1949
• Citation: 222 S.W.2d 556,240 Mo.App. 1033
• Parties: St. Louis Union Trust Company, a Corporation, as Trustee under the Will of Appolonio P. Ghio, Deceased, (Plaintiff) Respondent, v. George J. Ghio, et al., (Defendants) Respondents, Catherine Longinotti, Ida Longinotti, Florence Longinotti, and Adele Longinotti, (Defendants) Appellants
• Court: Missouri Court of Appeals

222 S.W.2d 556

240 Mo.App. 1033

St. Louis Union Trust Company, a Corporation, as Trustee under the Will of Appolonio P. Ghio, Deceased, (Plaintiff) Respondent, v. George J. Ghio, et al., (Defendants) Respondents, Catherine Longinotti, Ida Longinotti, Florence Longinotti, and Adele Longinotti, (Defendants) Appellants

Court of Appeals of Missouri, St. Louis District

June 21, 1949

Appellant's Motion for Rehearing or to Transfer Cause to Supreme Court Overruled September 16, 1949.

Appeal from the Circuit Court of St. Louis County; Hon. Joseph J Ward, Judge.

Affirmed.

Leahy & Leahy and Joseph L. Badaracco for appellants.

(1) These appellants have a substantial interest in this trust estate, which interest will in no way be benefited if the decree below is affirmed. (2) When the directions in a trust instrument are clear, the trustee has the duty of complying with such directions. Coleman v. Lill, 191 S.W. 2d 1018, 1020; Seigle v. First National Company, 90 S.W. 2d 776, 338 Mo. 417; Clear v. Moore, 14 S.W. 2d 669; Rapp v. St. Louis Union Trust Company, 229 S.W 1105; Rand v. McKittrick, 142 S.W. 2d 29, 346 Mo. 466; St. Louis Union Trust Company v. Toberman, 140 S.W. 2d 68, 235 Mo.App. 559. (3) When two standards are required by the terms of a trust and only the primary standard can be fulfilled, the trustee must comply with said primary standard. This is all the more so when compliance tends to protect the corpus of the trust, the object of a trust being primarily safety of the principal. Scott, Trusts, Vol. II, Sec. 166, p. 831, Sec. 227.3, p. 1203; In re Cohn's Estate, 158 Misc. 96, 285 N.Y.S. 279, 280; 54 Am. Jur., Trusts, Secs. 371, 416. (4) Construction of a trust instrument with respect to trust investments is governed by the principle of ascertaining the trustor's intent by examining the instrument and considering the circumstances under which it was drawn and the circumstances at the time of construction. 54 Am. Jur., Trusts, Sec. 382; Stein v. National Bank of Commerce, 181 S.W. 1072; Krause v. Jeannette Inv. Co., 62 S.W. 2d 890, 333 Mo. 509; St. Louis Union Trust Co. v. Clark, 178 S.W. 2d 359, 352 Mo. 518; Ervin v. Davis, 199 S.W. 2d 366. (5) Deviations from trust terms are allowed only rarely and then when such deviations are necessary for the preservation of the trust corpus. The fact that a deviation will be advantageous to the beneficiaries is an inadequate reason for departing from the trust terms. Restatement, I Trusts, Sec. 167 (1); 54 Am. Jur., Trusts, Sec. 388; In re Jones' Will, 22 N.W.2d 633, 221 Minn. 524; Title Guarantee & Trust Co. v. Bedford, 5 A.2d 852, 125 Conn. 349; Russell v. Russell, 109 Conn. 187, 145 A. 648, 63 A. L. R. 783, 791. (6) The fact that plaintiff-respondent could have invested the corpus of this trust in first mortgages bearing 3 1/2% interest and did not do so evidences want of ordinary skill on its part. Such breach of trust prevents the recovery of attorney fees and should also merit a penalty. 54 Am. Jur., Trusts, Sec. 382.

Thomas S. McPheeters, Jr., for respondent.

Bryan, Cave, McPheeters & McRoberts of counsel.

(1) The Trustee could not comply with the investment provisions of the Ghio will, and was entitled to seek the instructions of the court as to its investment powers and duties. Bogert, Trusts and Trustees, Vol. 3, Part I, Sec. 559, pages 472, 475; Scott on Trusts Vol. 2, Sec. 259. (2) Under the provisions of the will of A. P. Ghio, the trial court was authorized to direct the Trustee to invest funds in its hands in such property and securities as are proper investments for trustees under the laws of the State of Missouri. Bogert, Op. Cit., Vol. 3, pages 166, 491; Scott, Op. Cit., Vol. 2, Secs. 232, 837, 840; Restatement of the Law of Trusts, Sec. 232; Pennington v. Metropolitan, 55 A. 468, 65 N.J.Eq. 11, 22; Marsh v. Reed, 184 Ill. 263, 56 N.E. 306; In re Young's Will, 34 N.Y.S.2d 468; In re Norvell's Will, 35 N.Y.S.2d 496; In re Thomson's Will, 43 N.Y.S.2d 392; Simon v. Reilly, 126 N.J.Eq. 546, 10 A.2d 474; Citizens National Bank v. Morgan, 94 N.H. 284, 51 A.2d 841; St. Louis Union Trust Company v. Toberman, 235 Mo.App. 559, 140 S.W. 2d 68; Rand v. McKittrick, 346 Mo. 466, 142 S.W. 2d 29. (3) The decree of the trial court with respect to costs and fees was proper. 2 Scott on Trusts, Sec. 233,3, p. 1267; Bogert, Vol. 4, Sec. 805, p. 145.

OPINION

Bennick, C.

This is a suit by St. Louis Union Trust Company as a testamentary trustee for the construction of a certain provision of the will of Appolonio P. Ghio, deceased, respecting the investment of funds derived from the sale of real estate belonging to a trust estate created by such will.

Ghio died in 1920, leaving surviving him his widow, Mary; two daughters, Lizzie and Theresa; a son, George; and a granddaughter, Celestine, the daughter of a deceased son, Gus. The widow, Mary, died in 1927. As for the daughters, Lizzie died in 1944, and Theresa in 1932. The son, George, and the granddaughter, Celestine, are still living.

It appears that in executing his will Ghio actually created two trusts, the one of personalty, and the other consisting of his real property. The trust in the personalty has terminated, and its provisions are of no importance except insofar as being a part of the whole will, they may aid in throwing light on Ghio's intention as respects the matter now in controversy.

The clause for which plaintiff seeks the court's construction is in the portion of the will setting up the trust in the real property. Specifically it is the provision that upon the sale of any such real estate, the trustee shall invest the proceeds "in real estate, first mortgage notes or good bonds bearing interest at not less than four per cent per annum".

Plaintiff now has some $ 93,000 in its hands which has been derived from the sale of real estate; and the need for the construction of the particular provision arises from the fact that under present economic conditions the trustee finds it impossible to comply with the strict language of the provision in making investments as contemplated by the will. Plaintiff's real estate loan policy dictates that no loans of trust funds shall be made in excess of 60% of the normal value of real property; and for the most part available real estate loans meeting the necessary requirements for trust purposes now bear interest at only 3 to 3 I/2%. At the present time only a relatively few of the desirable real estate loans bear interest at the rate of 4%. Similarly good bonds for trust purposes are likewise unobtainable at a yield of 4%. On the contrary, the yield on good corporate first mortgage bonds has declined to the point where sound public utility and similar issues are selling on the average basis of 2.6%. Generally speaking, such corporate bonds yielding a return of 4% as are now currently available are not considered suitable for trust investments, taking into account the necessity for adequate diversification and the like.

In this situation, the question perplexing the plaintiff as trustee, and for which it seeks the direction of the court, is how it shall go about performing its duty of investing the funds now in its hands which have been derived from the sale of real estate. In other words, assuming the court should find (as it did) that present economic conditions make it impossible for plaintiff to comply with the strict language of the provision of the will, shall it merely procure investments of the precise character designated by Ghio bearing interest at the highest rate obtainable though less than 4%, or shall it be authorized to purchase such other investments as may be sound and legal under the laws of this state, which will reasonably bring a return of 4%, but which will be of a different character than those designated in the will?

The evidence shows that in the considered judgment of plaintiff's trust officers, common stocks are a sound investment for trust funds at a ratio of approximately 40% stocks to 60% bonds, and that such a proper diversification between stocks and bonds tends to provide the income beneficiaries with a more or less constant purchasing power, while at the same time preserving the safety of the corpus of the estate. Faced with the dilemma indicated, plaintiff's counsel have advised it that unless otherwise directed by the court it is without authority to deviate from the strict language of the will; and consequently, finding it impossible to comply with such provision, it has made no investment of the funds whatever.

By the terms of the trust the same was to continue for the lives of Ghio's widow, three children, and granddaughter. As we have already pointed out, the son, George, and the granddaughter, Celestine, alone survive. During the widow's lifetime the entire net income was to be paid to her, and at her death 1/16 was to be paid to Celestine, and 5/16 each to Lizzie, Theresa, and George. The will bestowed on the two daughters a power of appointment as to their respective shares in the income, and on each beneficiary a power of appointment as to his or her share in the corpus.

By a codicil to his will Ghio provided that the minimum amount payable annually for the sixth year after his death and thereafter should be $ 8,500 to George and $ 1,566 to Celestine. The two daughters being dead, the original provisions for them are now of unimportance; the present difficulty is in the lack of income to make the required payments to George and Celestine. In the event the net income should not be sufficient to pay such annual incomes to the beneficiaries, Ghio directed the trustee to encroach upon the corpus of the estate for such purpose, subject only to the limitation that no one of such income beneficiaries should be entitled to...