U.S. Nat. Bank of Portland v. Rawson

• Decision Date: 09 April 1935
• Parties: UNITED STATES NAT. BANK OF PORTLAND, OR., v. RAWSON et ux. [*]
• Court: Oregon Supreme Court

43 P.2d 184

150 Or. 358

UNITED STATES NAT. BANK OF PORTLAND, OR., v. RAWSON et ux. ^[*]

Supreme Court of Oregon

April 9, 1935

Department 1.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Action by the United States National Bank of Portland, Oregon trustee, against Frederick R. Rawson, cestui que trust, and his wife, upon a promissory note comprising a part of the trust estate. Defendants claim that under the terms of the declaration of trust, as amended, said trustee should have paid said note from the beneficial interest of the said cestui trust; and also interpose a defense of payment by the execution by defendants of an assignment or transfer of an interest in certain real property to plaintiff's trustor. From a judgment in favor of plaintiff against defendants and also an auxiliary judgment, based upon garnishment proceedings, in favor of plaintiff as trustee against plaintiff as executor de son tort of the estate of said trustor, now deceased, defendants appeal.

Reversed and remanded.

L. E. Schmitt, of Portland, for appellants.

John C Kendall, of Portland (Ridgway, Johnson & Kendall, of Portland, on the brief), for respondent.

KELLY Justice.

The title of this case set forth in plaintiff's complaint discloses that plaintiff sues in its capacity as trustee. The first further and separate defense alleges:

"That on or about January 21st, 1928, the said Edward H. Smyth made and executed a Declaration of Trust to the United States National Bank of Portland, Oregon, as Trustee, of certain real and personal property, and on the same day made, and executed an amendment to said Declaration of Trust, which contained the following provisions in words and figures as follows, to-wit:

"'The trustee shall transfer, assign and/or pay over to Frederick Rawson, if he survives trustor, that certain Republic of Peru 6% External Sinking Fund Gold Bond, First Series denomination One Thousand ($1,000.00) Dollars, due 12/1/60 No. TM36822 and/or the definitive bond to be issued in lieu thereof if exchange of bond No. TM36822 is hereafter effected.'

"That thereafter on or about July 5th, 1928, the said Edward H. Smyth, trustor as aforesaid, made and executed a further amendment to said Declaration of Trust, by revoking the above provision in said amendment to the Declaration of Trust, and added in lieu thereof, the following, to-wit:

"'Said Trustor has loaned to Frederick Rawson, one of the residuary beneficiaries mentioned in subdivision Sixth hereof the sum of One Thousand Eight Hundred ($1,800.00) Dollars represented by a promissory note of the said Frederick Rawson dated _____ due _____ bearing interest at the rate of _____ per cent. per annum according to its terms. It is trustor's express intention and the trustee is so directed to deduct from the beneficial interest or share of the said Frederick Rawson mentioned in subdivision Sixth hereof the indebtedness mentioned above (both principal and interest) in the event such indebtedness shall not have been paid in full during trustor's lifetime or on or before the expiration of sixty days from and after the date of death of trustor.'

"That on or about the 12th day of June, 1928, as near as defendants know Trustor under the right and authority reserved in said declaration of trust, advised the said trustee that he desired to make a loan of $1,800.00 to these defendants, but was advised by said trustee that he did not have the sum of $1,800.00 in cash on hand, and it would be necessary to sell a bond to raise the additional amount required, and said trustee thereupon sold that aforesaid certain Republic of Peru bond, and thereupon said Edward H. Smyth loaned $1,800.00 to these defendants, and said defendants as evidence of said loan, made, executed and delivered to said Edward H. Smyth their certain promissory note, due sixty days after date, being the same identical note set forth in the complaint and reference to which is hereby made and the same is made a part hereof."

Based upon the foregoing allegations, the admissions and allegations in plaintiff's reply and the evidence introduced herein defendants urge that plaintiff should have paid the note in suit from the beneficial interest or share of defendant Frederick Rawson in and to said trust.

In plaintiff's reply, the execution and delivery on January 21, 1928, of a trust agreement in writing is admitted between Edward H. Smyth, therein termed the "trustor," and plaintiff herein, therein termed "trustee," by the terms of which certain properties of said Smyth, including the Peru bond, hereinbefore mentioned, were transferred to plaintiff herein, but in trust only and as trustee for said Smyth for the uses and purposes in the agreement set forth.

The making of the two amendments to said trust agreement is admitted in said reply as set forth in defendants' answer; and in said reply it is alleged that on October 26, 1928, said Edward H. Smyth transferred to plaintiff as such trustee the said note of $1,800, and a mortgage purporting to secure payment of the same.

In defendants' case in chief, said declaration of trust and the amendments thereto were introduced in evidence. Plaintiff introduced no evidence in rebuttal.

This declaration of trust originally transferred to plaintiff, as trustee, certain stock certificates in six different corporations and three bonds together with two parcels of real property of the aggregate value of $4,170.02. By it, the plaintiff was directed to manage and care for the property, pay certain life insurance premiums, and pay to trustor's mother-in-law $10 each month during trustor's lifetime; the remainder of the net income to be paid to trustor.

This trust agreement also directed the payment by the trustee of trustor's funeral expenses and other valid claims, debts, and expenses owing by trustor at the time of his demise.

By it, the plaintiff, as trustee, was directed to convey to defendant Frederick Rawson, if he should survive trustor, the real estate for cemetery purposes mentioned in Exhibit A of said trust agreement; and from the rest, residue, and remainder of the trust estate to pay to trustor's mother-in-law, if she should survive trustor, the sum of $2,000.

By the sixth subdivision of paragraph XIV of said trust agreement, as originally executed, it was provided that: All the rest residue and remainder of the trust estate should be transferred, assigned, or paid over on the death of trustor to three sisters-in-law of trustor and defendant Frederick Rawson, who was a brother-in-law of trustee, share and share alike, with the further provision that if any such beneficiary be deceased, the share of which such deceased beneficiary would have been entitled to receive, if living, should be paid over to the heirs of such deceased beneficiary as determined by the laws of descent and distribution then in force in the state of Oregon, but in equal shares.

Further amendments were made by said trustor to said declaration of trust, but none of them revoked the provision constituting defendant Frederick Rawson one of the residuary beneficiaries thereunder.

It appears in evidence that the trustor, Mr. Smyth, died in December, 1930.

In this state of the record, we have an executory trust wherein the trustee is seeking to enforce a claim against a beneficiary or cestui que trust, who insists that in the proper administration of the trust such claim would be entirely discharged.

The burden is upon the trustee of proving that the trust has been properly administered and that the claim here asserted is still an existent and undischarged claim. From some phases of the oral argument, it would appear that the administration of the trust has not been closed. If such be the case, the proper forum in which to determine the issues herein is a court of equity. Beach on Trusts and Trustees, vol. 2, § 750, p. 1718.

If, on the other hand, the trust estate has been fully closed and there remains only a definite amount due from defendants to the trustee free from the necessity of any accounting by said trustee, an action at law is a remedy available to the trustee notwithstanding its fiduciary relation to one of the defendants. In order to support an action at law by a trustee against a beneficiary or cestui que trust, the burden is upon the trustee to prove that only a legal demand is involved. The present state of this record does not meet that requirement. It seems to indicate that plaintiff's remedy is in equity.

While it is true that there is no express direction in the amendment to the trust agreement dealing with the note in suit to the effect that, if Rawson's residuary share should not equal the amount otherwise due on said note, nevertheless the amount of such share should be applied pro tanto in discharge of said note, we think that such was the clear intention of the trustor and that in those circumstances such residuary share of the said Rawson should be so applied and a decree for the payment by defendants of the balance only should be entered.

For a second further and separate defense herein, defendants allege that on or about the 5th day of January, 1929, these defendants and said Edward H. Smyth made and entered into an agreement by the terms of which said defendants transferred and assigned to said Edward H. Smyth all defendants' right, title, and interest in and to a certain contract for a deed which defendants had purchased from one Pauley and wife, and the said assignment and transfer of said contract was in full payment and satisfaction of said $1,800 note and interest accrued thereon.

The preparation, signing, and acknowledgment of an instrument either in the nature of a deed or of an assignment of the Pauley contract, is shown...