Third Nat. Bank in Nashville v. Nashville Trust Co.

• Decision Date: 15 July 1950
• Citation: Third Nat. Bank in Nashville v. Nashville Trust Co., 27 Beeler 123, 191 Tenn. 123, 232 S.W.2d 7 (Tenn. 1950)
• Parties: , 191 Tenn. 123 THIRD NAT. BANK IN NASHVILLE et al. v. NASHVILLE TRUST CO. et al.
• Court: Tennessee Supreme Court

Page 7

232 S.W.2d 7

27 Beeler 123, 191 Tenn. 123

THIRD NAT. BANK IN NASHVILLE et al. v.NASHVILLE TRUST CO. et al.

Supreme Court of Tennessee.

July 15, 1950.

Charles L. Cornelius, W. Ovid Collins, Jr., K. Harlan Dodson, Jr., all of Nashville, for appellant.

Bass, Berry & Sims, F. A. Berry, Jr., all of Nashville, for appellees.

GAILOR, Justice.

The bill in this cause was filed by the Third National Bank in Nashville, as substitute trustee, against the Nashville Trust Company, on the charge that by investing trust funds in bonds of the International Match Company and the Missouri Pacific Railway, the defendant, during its term and tenure as trustee, had been guilty of a technical breach of trust by investment in ineligible securities.The defendant resigned as trustee and was formally discharged as such in the County Court in 1935, and the complainant was formally appointed substitute trustee at that time.By its answer, the defendant pleaded the Six-Year Statute of Limitations, Codesec. 8600, and the cause was heard below on bill and answer and a stipulation of facts which are undisputed.After hearing the cause the Chancellor delivered a well-considered opinion which has come up with the record, sustained the plea of the Six-Year Statute of Limitations and dismissed the bill.The complainant has perfected this appeal.

The only two questions presented are: (1) Is the Six-Year Statute of Limitations applicable, and (2) If we hold that it is not, was the defendant guilty of a technical breach of trust and the investment of trust funds in ineligible securities?

Shortly stated, the pertinent facts are these: In 1922, J. O. Cheek executed an express written trust naming the American Trust Company corporate predecessor of the defendant, as trustee.On the 26th day of September, 1928, in accordance with the terms of the trust instrument, the trust was terminated, except as to two children of J. O. Cheek, William F. Cheek and Joel O. Cheek, Jr.Thereafter, in accord with rights given by the instrument to these cestuis que trust, William F. Cheek and Joel O. Cheek, Jr. removed the defendant as trustee, and had the Third National Bank appointed as successor and substitute trustee.The proceeding was had in the County Court of Davidson County, and the order of resignation by the Nashville & American Trust Company, predecessor of defendant, its discharge and the appointment of the Third National Bank of Nashville as substitute and successor trustee, was entered on November 5, 1934.The order of the Court is an exhibit to the bill and a pertinent part of its provisions is as follows: 'Upon the entry of this decree and the delivery to the said Third National Bank of Nashville, Tennessee, as Trustee, of all property, effects and money belonging to said beneficiaries under said trust estate by the said Nashville & American Trust Company the said Nashville & American Trust Company will be discharged and exonerated of all future liability with respect to said trust estate, but the question of the liability, if any, of the Nashville & American Trust Company with respect to the management of said estate and the investment of trust funds, up to and until the entry of this decree and the delivery of said trust property to said Third National Bank, is expressly reserved to any proper tribunal having jurisdiction thereof.'

On the same day, November 5, defendant turned over the trust securities to the complainant and took complainant's receipt therefor, with certain exceptions, the pertinent one of which is as follows: 'Second--$15,000 par value, bonds of International Match Corporation, now bankrupt.Said Bonds are No. 15403, Nos. 16736 to 16744, both inclusive, Nos. 37509and37510, 15391, 15392, and15393, with coupons due May 1, 1932, and subsequent coupons attached.All of said bonds have been filed with Irving Trust Company, Trustee in Bankruptcy of International Match Corporation, and on request due assignment of the rights of the American Trust Company and/or Nashville and American Trust Company, as Trustee, will be delivered to Third National Bank, Substitute Trustee, or at the election of said Trustee any receipts on said claim will be delivered when, as and if received.'

It is clear from the language of this exception that on November 5, 1934, the complainant knew that the defendant could not deliver the International Match Corporation bonds; that they were in the hands of the trustee in bankruptcy, and by the exception the substitute trustee was given an election whether it would accept a receipt for the bonds, and so, perhaps, ratify the investment which had been made by the defendant, or whether the complainant would accept dividends on the bonds from the bankruptcy as and when the defendant received them.

With the election before it, there was apparently a delay for about a year and until July 25, 1935, when attorneys for the complainant wrote defendant with regard to the latter's investment of trust funds in the International Match and Missouri-Pacific bonds, as follows: 'It is the contention of the present trustee and the beneficiaries that the above investments were and are unauthorized and not in accordance with the law.Therefore, we hereby offer said bonds to you at the price you, as Trustee, paid for them, plus such interest as has not been collected.'

Though in terms, this letter applied to investments in the Joel Cheek trust, it applied equally to the William F. Cheek trust, since identical bonds and identical investments had been made in both.To this letter of July 25, 1935, the defendant through its attorney, replied by letter, 'which denied all liability in the premises.'Immediately after this letter, suit was filed in the Chancery Court of Davidson County in the Joel Cheek trust case.This suit was pending in the Chancery Court of Davidson County until 1948, when it was terminated by a voluntary settlement of the parties.No suit was ever filed in the William F. Cheek trust until the filing of the present bill after the compromise decree in the other case on November 1, 1948.

On October 26, 1937, because certain dividends had been paid by the trustee in bankruptcy on the International Match Corporation bonds to the defendant, what is termed in the briefs a 'non-prejudicing agreement' was entered into between complainant and defendant by which it was provided that the dividend checks paid to defendant should be turned over to the complainant, and '* * * that the acceptance of such check will not in any way prejudice the rights of the said Third National Bank in Nashville, Trustee, or the trust estate, or of W. F. Cheek, individually, to make any claim at a later date against the Nashville Trust Company, or any other parties, based upon the charge that the International Match Corporation bonds were purchased for such trust estate illegally, or without authority.'

On June 17, 1936, a formal agreement between the attorneys of the parties had been executed, which was styled a 'non-prejudicing agreement,' and provided: 'Now, therefore, in consideration of the premises, it is agreed by and between the parties that the Third National Bank, Trustee, shall forthwith cash said checks and hold the funds in trust to be accounted for hereafter in accordance with the decision of the courts in said case or cases, and may invest said funds in accordance with the terms of said trust instrument, but such investment shall be without responsibility on the part of the Nashville & American Trust Company and the American National Bank; and the receipt of said checks and the cashing of same by Third National Bank, Trustee, shall in no way prejudice or affect its rights as Trustee against the Nashville & American Trust Company and the American National Bank in said matters and shall likewise in no way prejudice or affect the rights and defenses of the Nashville & American Trust Company and American National Bank in said case or cases.'

In accord with these agreements dividend checks from time to time, were paid over by the defendant to the complaint until 1947 when, apparently, the liquidation of the bankrupt estate was completed and there was a statement at the time of the payment of the last dividend, that it 'completed the accounting.'

Complainant contends, and supports the contention with authority, that it has a double remedy,...