Wachovia Bank & Trust Co. v. Johnston, 118

• Decision Date: 29 March 1967
• Docket Number: No. 118,118
• Citation: 153 S.E.2d 449,269 N.C. 701
• Parties: WACHOVIA BANK AND TRUST COMPANY, Trustee under the Last Will and Testament of Leila Johnston Waddell, v. Robert Bruce JOHNSTON et al.
• Court: North Carolina Supreme Court

Page 449

153 S.E.2d 449

269 N.C. 701

WACHOVIA BANK AND TRUST COMPANY, Trustee under the Last Will and Testament of Leila Johnston Waddell, v. Robert Bruce JOHNSTON et al.

No. 118.

Supreme Court of North Carolina.

March 29, 1967.

Van Winkle, Walton, Buck & Wall, Asheville, for plaintiff appellee.

Harold K. Bennett and Robert Bobo Long, Jr., Asheville, for defendant appellants.

BRANCH, Justice.

The appellants present these questions:

I. Did the trial court err in holding that there is sufficient evidence of the existence of an emergency, contingency or exigency which threatens to frustrate the purposes of the testamentary trust of Leila Johnston Waddell and which necessitates a sale of the trust Res?

II. Did the trial court err in finding that there is sufficient evidence that the proposed sale will materially enhance the interests of all possible beneficiaries of the trust?

III. Did the trial court err in holding that there is sufficient evidence that the testatrix would have provided for the sale of the trust Res had she foreseen the present circumstances and would have allowed reinvestment of proceeds in personal property?

IV. Did the trial court err in holding that there is sufficient evidence that no other prospects for sale of the trust property other than the sale for which this action was instituted now exists or is reasonably anticipated?

I.

The primary purpose of the trust was to provide income for certain life tenants and then to deliver the trust property in fee to children of certain of the life beneficiaries. To that end, the trust instrument gave the trustee power to borrow money and to mortgage the trust property. It was further provided that only a limited amount of the yearly income could be used to repay loans, which could have resulted in the property passing to the remaindermen encumbered with a long-term lien. Considering the fact that the life beneficiaries were known and loved by the testatrix, we conclude that the primary purpose of the trust was to provide income for the life beneficiaries. However, considering the rights of both the surviving life beneficiary and the apparent remaindermen, the minor children, we are confronted with the question whether such emergency, contingency or exigency exists which threatens to frustrate the purposes of the trust unless the trust Res is sold.

At the outset we recognize the distinction between this action and an action brought under § G.S. 41--11, which authorizes a sale for the purpose of reinvestment or improvement when instituted By holders of a vested interest in the land. The instant action is by a trustee seeking to invoke the inherent equitable jurisdiction of the court over a trust estate. First-Citizens Bank & Trust Co. v. Rasberry, 226 N.C. 586, 39 S.E.2d 601. Therefore, the same statutory rules and limitations do not necessarily apply here as in cases brought under G.S. § 41--11. Rather, in the exercise of its general, inherent, exclusive supervisory power over trusts, the court may authorize whatever is necessary to preserve and protect the trust estate, and in case of emergency the court may authorize and direct the trustee to do acts which under the terms of the trust agreement and under ordinary circumstances the trustee would have no power to do. The prime consideration is the necessity for the preservation of the estate. First-Citizens Bank & Trust Co. v. Rasberry, supra.

Carter v. Kempton, 233 N.C. 1, 62 S.E.2d 713, is a landmark case in North Carolina, wherein approval of a family settlement was sought to remove a proportionate part of the estate from the trust because dissension between distributee and trustees threatened to cause a family misunderstanding. The Court refused to approve the settlement and, speaking through Barnhill, J., (later C.J.), in part said:

'(2). * * * A court of equity looks with a jealous eye on a contract that materially affects the rights of infants. their welfare is the guiding star in determining its reasonableness and validity.

'(3). A court of equity will not modify or permit the modification of a trust on technical objections merely because its terms are objectionable to interested parties or their welfare will be served thereby. It must be made to appear that some exigency, contingency, or emergency has arisen which makes the action of the court indispensable to the preservation of the trust and the protection of infants.

'(4). To invoke the jurisdiction of a court of equity the condition or emergency asserted must be one not contemplated by the testator and which, had it been anticipated, would undoubtedly have been provided for; and in affording relief against such exigency or emergency, the court must, as far as possible, place itself in the position of the testator and do with the trust estate what the testator would have done had he anticipated the emergency. * * * It is not the province of the courts to substitute their judgment or the wishes of the beneficiaries for the judgment and wishes of the testator. The controlling objective is to preserve the trust and effectuate the primary purpose of the testator. * * *

'(5). The exigency, contingency, or emergency necessary to invite the intervention of the courts must relate to and grow out of the trust itself or directly affect the Corpus thereof or the income therefrom.'

The law as stated by this Court is generally recognized in other jurisdictions, as evidenced by statements contained in Bogert on Trusts, 4th Ed. § 146, p. 375, to wit:

'Sometimes a settlor gives instructions in the trust instrument with regard to the administration of the trust which turn out to be highly disadvantageous and obstruct the trustee in carrying out the purposes which the settlor expressed. These difficulties are usually due to a change in conditions regarding the trust property or parties which have occurred since the trust was established and were not anticipated by the trustor. * * *

'If the settlor or a trustee or beneficiary can prove to the court that such a situation exists, the court has power to allow the trustee to deviate from the administrative provisions laid down by the settlor, to ignor them, and to employ other methods in carrying out the trust. The clauses of the instrument relating to the benefits to be conferred on the beneficiaries are primary and fundamental and are the principal concern of the court. The terms regarding methods and means of achieving these results are of secondary importance and equity will not permit them to interfere with the efforts of the trustee to bring to the beneficiaries the intended benefits. * * *'

The power of the court to alter private trusts was considered by this Court in American Trust Co. v. Nicholson, 162 N.C. 257, 78 S.E. 152, where the Court held, inter alia:

"We think it is well settled that a court of equity, if it has jurisdiction in a given cause, cannot be deemed lacking in power to order the sale of real estate which is the subject of a trust, on the ground alone that the limitations of the instrument creating the trust expressly deny the power of alienation. It is true the exercise of that power can only be justified by some exigency which makes the action of the court, in a sense, indispensable to the preservation of the interests of the parties in the subject-matter of the trust, or, possibly, in case of some other necessity of the most urgent character. * * *"

The evidence is undisputed that (1) there was a 25% Decrease in gross rentals from 1965 to 1966, (2) the building on the property is 65 years old and in need of roof repairs, (3) the third floor is without electricity, water or heat, and is used only for storage by current tenants, (4) several of the tenants of long standing on the second floor moved to more modern quarters in 1965, (5) the lot is not adaptable for a modern building without additional land, (6) in the opinion of several of plaintiff's employees the rental income will gradually decrease, (7) the trust does not have sufficient income to adequately modernize the building, (8) modern office space is now available in the area, (9) the area in which the building is located has been certified a 'blighted' area and the building considered as 'dilapidated' by the Asheville-Buncombe Planning Board, and (10) the area in which the building is located has inadequate parking space.

These and other findings of fact by the court show changed conditions and the existence of an exigency or emergency, threatening to frustrate the purpose of the trust, and necessitating the sale of the trust Res.

II.

Whether there be sufficient evidence to find that the proposed sale will materially enhance the interest of all possible beneficiaries has been answered, in the main, by our discussion of appellants' first question. However, there is additional evidence that the price offered for the trust property exceeds the highest appraisal of the property by $83,000, and, under the terms of the proposed sale, the life tenant would receive income of at least $20,000 per year, and, at the end of the 15-year proposed payment period, the corpus would amount to $419,211.58 in principal, after taxes, plus any increase in the value of the equities. Considering this with the evidence of existing emergency or exigency discussed above, we hold that there was plenary evidence to support the trial court's finding that the proposed sale would materially enhance the interest of all possible beneficiaries of the trust.

III.

There is sufficient evidence to hold that the testatrix would have provided for the sale of the trust Res and would have allowed the reinvestment of the proceeds in personal property had she foreseen the present circumstances. We do not believe that the testatrix could have foreseen the development of suburban shopping centers that offer modern office building space, nor could she have imagined the tremendous use of and dependence on the automobile by modern people, which in...