Trusteeship Under Agreement with Mayo, In re

• Decision Date: 17 August 1917
• Citation: 105 N.W.2d 900,259 Minn. 91
• Parties: In re TRUSTEESHIP UNDER AGREEMENT WITH Charles H. MAYO, dated
• Court: Minnesota Supreme Court

Page 900

105 N.W.2d 900

259 Minn. 91

In re TRUSTEESHIP UNDER AGREEMENT WITH Charles H. MAYO,

dated August 17, 1917.

Esther Mayo HARTZELL, petitioner, and Charles W. Mayo, et

al., beneficiaries, Appellants, v. G. Slade SCHUSTER, et al., trustees, Respondents, Roderick D. Peck, guardian ad litem, and William J. Mayo, II, Respondents.

In re TRUSTEESHIP UNDER AGREEMENT WITH Charles H. MAYO,

dated March 28, 1919,as amended for the benefit of

Esther Mayo Hartzell, et al.

Esther Mayo HARTZELL, petitioner, and John Mayo Hartzell, et

al.,beneficiaries, Appellants, v. G. Slade SCHUSTER, et al., trustees, Respondents, Roderick D. Peck, guardian ad litem, Respondent.

Nos. 37943, 37944.

Supreme Court of Minnesota.

Nov. 10, 1960.

Syllabus by the Court

1. In construing trust instruments the court must give effect to donor's dominant intention as expressed therein and may not disregard plain terms employed in trust instruments.

2. With respect to provisions in trust instruments restricting type of investments in which trustees may invest trust funds, courts are especially concerned to give full effect to donor's intention.

3. Where scope of investment permissible under trust instrument is restricted, court will permit trustees to deviate therefrom if accomplishment of the purposes of the trust are otherwise defeated or substantially impaired. Only in exceptional circumstances or emergencies will deviation from donor's intention evidenced in trust instrument be authorized. However, where the donor during his lifetime could not have foreseen the claimed exceptional circumstances or emergencies relied upon for deviation, deviation may properly be authorized.

4. Evidence here considered and held to compel order authorizing trustees to deviate from the restrictive investment provisions of trusts and to invest portion of trust assets in corporate stocks since such evidence clearly established a continuing, unforeseeable inflation which would further diminish value of trust assets and thereby circumvent or frustrate the dominant intention of the donor to preserve the value of the corpus of the trusts.

Best, Flanagan, Lewis, Simonet & Bellows, and Archibald Spencer, Minneapolis, for appellants.

Dorsey, Owen, Barber, Marquart & Windhorst, David R. Brink, Robert L. Crosby, Roderick D. Peck, and Richard Siegel, Minneapolis, for respondents in No. 37943.

Dorsey, Owen, Barber, Marquart & Windhorst, David R. Brink, Robert L. Crosby, and Roderick D. Peck, Minneapolis, for respondents in No. 37944.

DELL, Chief Justice.

Appeals from orders of the district court denying the petitions of Esther Mayo Hartzell, as beneficiary, for orders authorizing the trustees of two separate trusts created by the late Dr. Charles H. Mayo on August 17, 1917, and March 28, 1919, to deviate from identical investment restrictions in the trust instruments or to construe the term 'other forms of income bearing property' as used therein as authorizing investment of trust funds in corporate stock. The donor died May 26, 1939.

The petitions were opposed by the trustees. Roderick D. Peck was appointed guardian ad litem and appeared for all 'unknown, unascertained, minor and incompetent beneficiaries' with respect to both trusts. Appearances were also made on behalf of the petitioner, William J. Mayo II, one of the beneficiaries, and the trustees. The present appeals are taken by the petitioner and by a number of other beneficiaries of the trusts.

With reference to investments the provisions of both trusts are in substance as follows:

'* * * The TRUSTEES shall hold said property as a trust fund and collect the interest, income and profits therefrom as the same accrue; Manage, care for and protect said fund all in accordance with their best judgment and discretion, invest and re-invest the same in Real estate mortgages, municipal bonds or any other form of income bearing property (but not real estate nor corporate stock), * * *.' (Italics supplied.)

At the time of the hearing the value of the assets of the first trust was approximately $1,000,000, invested mostly in municipal bonds and in 1,944 shares of common stock of the Kahler Corporation, the latter coming into the trust at the time of its creation from the donor. The value of the assets of the second trust at the time of the hearing was approximately $186,000 invested mostly in municipal bonds. The first trust by its terms will continue until 21 years after the death of the petitioner, who was 51 years of age at the time of the hearing; while the second trust by its terms will partially terminate as each surviving child of petitioner attains the age of 30 years and will fully terminate when the last of such children attains such age; but in the event of certain alternatives it will not continue longer than 21 years after the death of all of donor's children.

In support of the petition, evidence was submitted that an inflationary period, which could not have been foreseen, had commenced shortly after the donor's death in 1939; that it had reduced the real value of the trust assets by more than 50 percent; that a further inflationary period or a permanent 'creeping inflation,' which the donor could not have foreseen, must be expected; that on December 30, 1940, when the trustees filed their first accounting, the value of the assets of the first trust was $957,711.60; that in October 1958, at the trustees' most recent accounting, the value of such assets was $968,893.08, which in terms of 1940 dollar values meant that in 1958 the assets of the first trust were worth only $456,139.67; that the same percentage of shrinkage was experienced in the second trust; that the provisions of the trust prohibiting investments in real estate and corporate stocks had caused such shrinkage; and that the market value of common stocks had almost doubled since 1939 while the actual value of bonds, in terms of purchasing power, had been cut almost in half since that time. Appellants state that even in the short period between March 1959 and November 1959 the Consumer Price Index of the Bureau of Labor Statistics has increased from 123.7 to 125.6, representing an increase of almost 2 percent in 8 months.

Petitioner urges that the donor's ultimate and dominant intention was to preserve the value of the trust corpus and that this will be circumvented unless the court authorizes the trustees to deviate from the investment provisions of the trusts and invest part of the funds in corporate stocks; that it is common practice of trustees of large trusts which have no restrictive investment provisions (including the First National Bank of Minneapolis, one of the trustees in both trusts here) to invest substantial proportions of trust assets in corporate stocks to protect such trusts against inflation, and she asserts that if no deviation is permitted and the next 20 years parallel the last 20 years the ultimate beneficiaries of these trusts will be presented with assets having less than one-fourth of the value which they had at the time of the donor's death.

In opposition to the petition, the trustees refer to the donor's clear intention, as expressed in the trust instruments, that no part of the trust funds should be invested in real estate or corporate stocks, and urge that, since no emergency or change of circumstances which could not have been foreseen or experienced by the donor during his lifetime has been shown, no deviation from the donor's clearly expressed intention would be justified. They urge that the rule is well established that where prospective changes of conditions are substantially known to or anticipated by the settlor of a trust the courts will not grant a deviation from its provisions. They point out that the donor here had servived some 20 years after the creation of the trusts during a period in which there had been both a great inflation and a severe depression; that after creating such trusts he had observed the inflation of the post-World-I period, the stock market fever of the pre-1929 era, the market crash of 1929, and the subsequent depression and lowering of bond interest rates during the late 1930's; that despite these economic changes he had never altered the investment restrictions in these trusts; and that he was always aware of his right to amend the trust instruments and, in fact, had consented to minor departures from the provisions of one of the trusts in 1932 and had once amended another trust to permit acquisition of common stocks, but had never requested any change in the investment provisions of the trusts now under consideration and apparently was satisfied with them exactly as they had been drawn and executed. Petitioner offered expert testimony favoring deviation and respondents' expert testimony was to the contrary. The lower court found in favor of respondents and these appeals followed.

1. The principles governing construction of trust instruments are well settled. One of the court's highest duties is to give effect to the donor's dominant intention as gathered from the instrument as a whole. ¹ Neither the court, a beneficiary, nor the legislature is competent to violate such intention. ² When the language of the instrument is clear, the intention of the donor must be ascertained therefrom. ³ In determining such intention the court is not at liberty to disregard plain terms employed in the trust instrument. ⁴

2. With respect to trust provisions restricting investments in which a trustee may invest trust funds, the courts are especially concerned in giving full effect to the donor's intention. Thus, in In re Trusteeship Under Will of Jones, 202 Minn. 187, 189, 277 N.W. 899, 900, it was held that trustees were not authorized to invest trust assets in corporate stock because of the absence of specific directions to do so and because of the trust provision that the trustees 'shall invest and reinvest all principal cash in the trust fund in first mortgages on improved real...