Stephan v. Equitable Sav. and Loan Ass'n

• Citation: 522 P.2d 478,99 Adv.Sh. 27,268 Or. 544
• Parties: In the Matter of the Testamentary Trust under the Will of Paul Stephan, Deceased. Anna STEPHAN et al., Appellants and Cross-Respondents, v. EQUITABLE SAVINGS AND LOAN ASSOCIATION, an Oregon corporation, Respondent andCross-Appellant.
• Decision Date: 16 May 1974
• Court: Supreme Court of Oregon

Page 478

522 P.2d 478

268 Or. 544

In the Matter of the Testamentary Trust under the Will of

Paul Stephan, Deceased.

Anna STEPHAN et al., Appellants and Cross-Respondents, v. EQUITABLE SAVINGS AND LOAN ASSOCIATION, an Oregon

corporation, Respondent andCross-Appellant.

Supreme Court of Oregon.

Argued and Submitted April 2, 1974.

Decided May 16, 1974.

Charles F. Hinkle, Portland, argued the cause for appellants. With him on the briefs were Jeffrey Michael Alden, Velma Jeremiah and Davies, Biggs, Strayer, Stoel & Boley, Portland.

John R. Faust, Jr., Portland, argued the cause for respondent. With him on the brief were Robert D. Rankin and Cake, Hardy, Buttler, McEwen & Weiss, Portland.

Before O'CONNELL, C.J., and DENECKE, HOLMAN, TONGUE, HOWELL and BRYSON, JJ.

TONGUE, Justice.

This is a suit by beneficiaries of an alleged testamentary trust to remove the trustee and for an accounting and damages. The trial court held that there was a trust and that defendant had breached the trust and removed the defendant as trustee, but did not order an accounting and limited its award of damages to $1,470.41. Plaintiffs appeal. Defendant cross-appeals.

Plaintiffs contend that: (1) beginning in 1941 the trust fund of $50,000 should have been invested in part in common stocks, which would have increased the corpus by over 400 per cent and the income by 150 per cent; (2) in the alternative, the court should have required defendant either to (a) account for profits earned in reinvesting the fund for its own benefit, or (b) pay interest at the legal rate of six per cent on the full amount of the corpus from 1941.

Defendant, in its cross-appeal, contends that: (1) no trust was created, (2) even if there was a trust defendant was obligated only to maintain the account in effect and had no obligation to invest in common stocks, and (3) plaintiffs' claim is also barred by their acquiescence in defendant's manner of handling the account.

The facts are important to a decision of the issues arising from these contentions. The facts.

Paul Stephan died in 1937 leaving a will under which a $50,000--four per cent 'coupon bond' issued by defendant was left in defendant's 'custody' in trust, with the income payable to his wife during her lifetime and the principal of the 'trust fund' payable to his children when each reached 30 years of age. ¹

An order was entered in 1938 approving a final accounting under which the wife, as executrix, was directed to 'turn over' to defendant the $50,000 'coupon certificate.' The order also stated that Mrs. Stephan was declared to be the owner of 'Coupon Certificate No. 4416 in the name of Paul Stephan * * *.' Defendant then undertook to pay four per cent interest semi-annually to Mrs. Stephan. The certificate 'terminated' in 1941.

Mr. Stephan had been a baker in Coos County. Mrs. Stephan, who left school at the age of 10 years, read the will after her husband's death and at that time talked with one of the attorneys who probated the estate. ²

The original coupon bond terminated or 'matured' on September 20, 1941. On May 27, 1941, Mrs. Stephan wrote the following personal letter to defendant:

'Would it be possable for me to get one Thousand dollors--and what percentage do you charge I would like to have it for one year--as all of our savings are invested in a Trust fund--it makes it difficult for me to live and send my boy to college also. I don't supose there is any possible chance for us to draw on the Trust fund--if I could do that then I would not have to borrow' (Emphasis added)

Defendant responded as follows:

'We have your letter of recent date asking if it is possible for you to secure the sum of.$1000.00 against your coupon certificate #4416, which under the Will of your late husband was placed in a Trust fund for your benefit.

'Under the terms of his last Will and Testament, there is no provision whatsoever for any loans against the account. It must rest as it is during your lifetime and the only funds that may be paid to you are the interest payments from this certificate or any reissue thereof.' (Emphasis added)

On October 20, 1941, after the coupon bond 'matured,' defendant mailed Mrs. Stephan an 'application for a new Bond' for $50,000 for a three year term, paying three per cent interest, instead of four per cent. Mrs. Stephan then apparently consulted J. A. Berg, an attorney in Coquille.

Mr. Berg then wrote to defendant as follows:

'* * * After going over this matter with my clients, it is deemed advisable at this time that this bond, or the greater portion thereof, should be converted into Government bonds, as this particular sum is practically the whole of the estate and it is deemed inadvisable to leave the whole of this amount in one security.

'It is my belief that upon application of your Company, or upon authority which Mr. Stephan may have left with you prior to his death, this bond could at this time be transferred into other securities and held in trust by you as provided in the Will. I assume that your Company would agree that as a matter of precaution and good business for these heirs, that in no event should the whole of an estate be left in one security, especially in a time of stress and insecurity, even though we do not question the stability of your organization.

'I believe Mrs. Stephan has received a request that she make a new application for a 3% Bond, and it is possible, therefore, that the interest on this bond has already been reduced twenty-five percent, with a possibility, of course, of further decreases in the income to the widow during her lifetime. We dislike very much making application for a new bond at this time, unless it is understood that there would be no discount on the bond at the time of its transfer into other securities, that is, that this bond would be taken up by your Company, in the event of a change, at its face value.' ³

Defendant apparently then sent a 'representative' to call on Mr. Berg. On October 31, 1941, Mr. Berg mailed to defendant a 'signed waiver authorizing you to transfer the maturity value of account No. 4416 to the new account subscribed for.' Defendant then mailed the five $10,000, three per cent, 'coupon certificates' to Mrs. Stephan.

When these bonds 'matured' three years later defendant, on September 14, 1944, mailed to Mr. Berg applications for the reissue of the 'bonds' for three more years, with interest reduced to two per cent, which was stated to be 'a very satisfactory rate consistent with the safety that is offered with this type of investment.' Mr. Berg then mailed to defendant the five 'old bonds' and defendant mailed to him 'five new $10,000 bonds in the name of Anna Stephan.'

One year later, in 1945, Elsie Stephan, the daughter, wrote to defendant to inquire what 'legal steps are necessary' to have the entire 'trust fund' turned over to her mother as it 'should rightfully have gone' at the beginning. Defendant's president responded as follows:

'* * * I have again examined the will and find that the $50,000 referred to in your letter is provided for in Paragraph No. 4. It is to be left in trust with the Equitable Savings and Loan Association during the life time of Anna Stephan, and all the income from Said trust fund is to be paid to her during her life. Upon her death $9,000 of said sum is to be paid to your brother, leaving $41,000 to be divided equally between your brother and yourself.

'Under these circumstances I do not see that you are gaining anything by transferring your interest to your mother, and it would mean that when it came back to you upon her death you would have to pay another tax. She now receives all of the income and the principal cannot be expended so I think everything has been done that can be done.' (Emphasis added)

Elsie Stephan did not pursue the matter further at that time and testified that she never consulted Mr. Berg about this matter and that she had no criticism of the manner in which defendant handled the 'trust fund' until she talked with her brother (who had been out of the country) in about 1969.

The bonds were again 'reissued' in 1947 and 1950 and on October 16, 1950, Mr. Berg mailed to defendant 'applications and transfer vouchers for the new re-issued bonds,' all 'signed by Anna Stephan as requested.'

When these bonds 'matured,' three years later, defendant ceased to issue and offer 'coupon bonds' or 'certificates,' but instead offered what was called 'matured passbook accounts,' under which interest could be paid to Mrs. Stephan semi-annually, as in the past.

On September 1, 1953, defendant wrote to Mrs. Stephan as follows:

'We are writing to confirm our conversation with you of last week, regarding the maturity of your Coupon Bonds #7223, #7224, #7225, #7226, and #7227. All of these bonds will mature October 9, 1953, at which time you may cash the last coupon on each, and at which time All of the bonds will go on the Preferred Basis.

'To continue to receive your earnings semi-annually on this investment, please sign the enclosed authorization after the word 'Owner', and return it to this Association. The first check will represent earnings from October 9, 1953 to December 31, 1953. Subsequent checks will be issued each June 30th and December 31st of each year. Your return on this investment will be increased to 2 1/2% Each year. In addition you will receive a special bonus of earnings each five years commencing October 9, 1960.' (Emphasis added)

Mrs. Stephan replied:

'Please continue sending my allowence--semi-annualy--by cheque--I have not signed as I am not the owner of the investment--'

There is nothing to indicate that during this period in 1953 Mrs. Stephan consulted with Mr. Berg or any other attorney.

From 1953 to 1969 defendant paid interest to Mrs. Stephan at its current rates for 'matured passbook accounts,' which gradually increased from two and one-half per cent in 1953 to five and one-quarter per cent in 1969. During this period...