Warmack v. Crawford

• Citation: 195 S.W.2d 919,239 Mo.App. 709
• Parties: Martha Sharp Warmack and Mississippi Valley Trust Company, a Corporation, as Trustees under the Will of Robert N. Warmack, Deceased, Appellants, v. Annie Laurie Warmack Crawford, Appellant, and Martha Sharp Crawford, a minor, by John L. Gilmore, guardian ad litem, Respondent
• Decision Date: 18 June 1946
• Court: Court of Appeal of Missouri (US)

195 S.W.2d 919

239 Mo.App. 709

Martha Sharp Warmack and Mississippi Valley Trust Company, a Corporation, as Trustees under the Will of Robert N. Warmack, Deceased, Appellants, v. Annie Laurie Warmack Crawford, Appellant, and Martha Sharp Crawford, a minor, by John L. Gilmore, guardian ad litem, Respondent

Court of Appeals of Missouri, St. Louis District

June 18, 1946

Respondent's Motion for Rehearing Overruled, Opinion Modified by the Court of Its Own Motion, and Respondent's Motion to Transfer Cause to the Supreme Court of Missouri Overruled September 6, 1946.

Appeal from the Circuit Court of the City of St. Louis; Hon. Robert L. Aronson, Judge.

Reversed and remanded with directions.

Forest P. Tralles, and Charles P. Williams, for Martha Sharp Warmack et al., (plaintiffs) appellants.

Fred J. Hoffmeister, for Annie Laurie Warmack Crawford (Defendant) appellant.

(1) There is no rule of law in this State, nor in the great majority of other jurisdictions, which requires the sale of securities received by trustees from a testator merely for the purpose of diversification. The rule is that trustees, in the absence of particular enabling powers, must exercise the degree of care of prudent men in handling their own property having primarily in view the preservation of the estate and the amount and regularity of the income to be derived. Fairleigh v. Fidelity National Bank & Trust Co., 335 Mo. 360, 73 S.W.2d 248; Rand v. McKittrick, 346 Mo. 466, 142 S.W.2d 29; Re Sheldon, 160 Misc. 194, 288 N.Y.S. 887; Re Elkins Estate, 20 Pa. D. & C. 483; Re Estate of Alfred G. Saeger, 340 Pa. 73, 16 A.2d 19. (2) The clear intention of the testator was to create a trust estate composed entirely of stock of the International Shoe Company and to vest his trustees with full power and discretion as to retention of all or any part of said securities. (3) Under the law, plaintiff trustees were under no legal duty to sell any of the International Shoe Company stock which came to them from testator, unless continuing to hold same constituted an abuse of discretion, and under all of the evidence adduced no such abuse of discretion has been shown. Boland v. Mercantile-Commerce Bank & Trust Co., 349 Mo. 731, 163 S.W.2d 597, 608; Restatement of the Law of Trusts, Section 259 (d); Fairleigh v. Fidelity National Bank & Trust Co., 335 Mo. 360, 73 S.W.2d 248. (4) The Court below had jurisdiction to determine only one question, whether or not trustees would be guilty of an abuse of discretion in continuing to hold all of the International Shoe Company stock; and the Court erred, therefore, in substituting its own judgment and discretion for that of the trustees. In re Wolfenden's Estate, 57 S.W.2d 697, 700; Dickey v. Volker, 321 Mo. 235, 11 S.W.2d 278, 291; Boland v. Mercantile-Commerce Bank & Trust Co., 349 Mo. 731, 163 S.W.2d 597; Sandusky v. Sandusky (Mo.) 177 S.W. 390, 394. (5) Allowance of $ 6500.00 made by the Court's decree to John L. Gilmore as guardian ad litem for the defendant, Martha Sharp Crawford, is excessive and unreasonable.

John L. Gilmore, guardian ad litem for Martha Sharp Crawford, a minor (defendant) respondent.

(1) Except as otherwise provided by the terms of the trust, a trustee is under a duty to the beneficiary to distribute the risk of loss by a reasonable diversification of investments, unless under the circumstances it is prudent not to do so. Rand v. McKittrick, 346 Mo. 446, 142 S.W.2d 29, 31; St. Louis Union Trust Co. v. Toberman, 235 Mo.App. 559, 140 S.W.2d 68, 74; In re Sander's Estate, 304 Ill.App. 57, 25 N.E.2d 923, 928; Indiana Tr. Co. v. Griffith, 176 Ind. 643, 95 N.E. 573, 576; People's State Bk. & Tr. Co. v. Wade, 269 Ky. 89, 106 S.W.2d 74, 76; Dickinson's Appeal, 152 Mass. 184, 25 N.E. 99; Davis's Appeal, 183 Mass. 499, 67 N.E. 604; Kimball v. Whitney, 233 Mass. 321, 123 N.E. 665; Warren v. Payolt, 203 Mass. 328, 89 N.E. 381; Nat. Bk. v. Truesdale Hospital, 288 Mass. 35, 192 N.E. 150; In re Ward's Estate, 121 N.J.Eq. 555, 192 A. 68, affirmed 121 N.J.Eq. 606, 191 A. 772; Chrisman v. Cornell Univ., 132 N.J.Eq. 178, 27 A.2d 627, 628; Cobb v. Gramatan Nat. Bk. & Tr. Co. of Bronxville, 261 A.D. 1086, 26 N.Y.S. (2d) 917, 918; In re Flint's Will, 240 A.D. 217, 269 N.Y.S. 470 (affirmed, 266 N.Y. 607, 195 N.E. 221); Durant v. Crowley, 197 A.D. 540, 189 N.Y.S. 385, 389; President and Director of Manhattan Co. v. Erlandsen, 36 N.Y.S. (2d) 136, 140 (affirmed, 43 N.Y.S. (2d) 639); In re Curtiss' Estate, 261 A.D. 964, 25 N.Y.S. (2d) 819, l. c. 820 (affirmed 286 N.Y. 719, 37 N.E.2d 453); In re Jacobs' Will, 152 Misc. 139, 273 N.Y.S. 279, 281; U.S. National Bank of Portland v. First Nat'l. Bank of Portland, 172 Ore. 683, 142 P.2d 785, 793; Knox County v. 4th & 1st Nat'l. Bk., 181 Tenn. 569, 182 S.W.2d 980, 987; Day v. First Trust & Savings Bk. of Pasadena, 47 Cal.App. (2d) 470, 118 P.2d 51, 56; 1 Restatement of the Law of Trusts, Secs. 228 and 230 (J); 2 Scott on Trusts, Sec. 228, p. 1229, and Sec. 230.3, p. 1244; 3 Bogert, Trusts and Trustees, Chap. 30, Sec. 61, p. 1943; 54 Am. Juris., Sec. 417, p. 331. (2) Under the will of testator, the trustees' duty to diversify has not been dispensed with, and the trustees therefore have no discretion to disregard the rule of diversification. Cornet v. Cornet, 269 Mo. 298, 190 S.W. 333; Loud v. St. Louis Union Trust Co., 313 Mo. 552, 281 S.W. 744, 754; Wild v. Brown, 120 N.J.Eq. 31, 183 A. 899, 900; Restatement of the Law of Trusts, Secs. 228 (f and g), 230 (j), 227 (u) and 187 (j); 1 Perry on Trusts, Sec. 460, p. 774. (3) Even if a discretion to dispense with the absolute duty of diversification can be found in the will, the reasonable exercise of that discretion would compel divertification and the court may interfere where an abuse of that discretion is present. No reasonable trust would retain 83 1/3% or more of a trust estate in the common stock of one company in one industry and to do so, under the circumstances shown, amounts to an abuse of discretion. Boland v. Mercantile-Commerce Bank & Trust Company, 349 Mo. 731, 163 S.W.2d 597; In re Wolfenden's Estate, 57 S.W.2d 697; Appeal of Dickinson, 152 Mass. 188, 25 N.E. 99; Appeal of Davis, 183 Mass. 499, 67 N.E. 604; Indiana Trust Co. v. Griffith, 176 Ind. 643, 95 N.E. 573; In re Ward's Estate, 121 N.J.Eq. 555, 192 A. 68; Story v. Palmer, 46 N.J.Eq. 1, 18 A. 363, 366; 1 Restatement of the Law of Trusts, Sec. 187 (h); 3 Bogert, Trusts and Trustees, Sec. 554, p. 1761; 2 Scott on Trusts, Sec. 187.3, p. 995. (4) The trustees are in dereliction of duty and the Court properly ordered a divestment of stock. The trust contains a duty to sell and reinvest in limited securities and also contains at most a mere discretion to retain. Any discretion must be exercised jointly by both trustees and since they are not in agreement on retention, they must resolve their disagreement in favor of the duty to sell. In re Hilton-Gibbs v. Hale-Hinton, 2 Ch. 548; Re Lever; Cordwell v. Lever, 76 L. T. 71; Re Roth-Goldberger v. Roth, 74 L. T. 50; Mayo v. Mayo (1943), Ch. 302; Bogert, 1 Univ. of Chicago Law Rev. (1933-34) 128; 2 Scott on Trusts, Sec. 194, p. 1054. (5) The allowance for services of the guardian ad litem was reasonable.

Anderson, J. Hughes, P. J., and McCullen, J., concur.

OPINION

ANDERSON

This is a suit filed by the Mississippi Valley Trust Company and Martha Sharp Warmack, as trustees of a trust estate created by the will of Robert N. Warmack, deceased, and praying that the court determine whether, under the provisions of the will, and under all the circumstances, they were required to sell and dispose of any portion of the stock of the International Shoe Company held by them as a part of the trust estate, and whether they would be guilty of any breach of legal duty or abuse of discretion in continuing to hold all of said stock. The defendants were Annie Laurie Warmack Crawford, testator's only child, and successor life beneficiary after the death of her mother Martha Sharp Warmack, life beneficiary and one of the trustees, and Martha Sharp Crawford, a minor child of said daughter, sole remainderman. John L. Gilmore, Esquire, was appointed by the court as guardian ad litem for the minor defendant.

The trial court, after a hearing, held that under the law a trustee is under a duty to distribute the risk of loss by making a reasonable diversification of investments, unless, under the circumstances it is not prudent to do so, or, by the terms of the instrument creating the trust the duty to diversify is dispensed with; that neither the circumstances in this case nor the terms of the trust instrument relieved the trustees of that duty, and that the trustees would be guilty of both a breach of legal duty and an abuse of discretion if they should continue to hold all of the said stock in its present proportion to the total corpus of the trust estate. The court then, by its decree, instructed the trustees that "within a reasonable time, and in such fashion as to avoid depression of the market and loss from too rapid liquidation, so far as practicable, they should sell for cash such number of shares of the common stock of the International Shoe Company now held by the trust estate as in their sound discretion they believed they should, and reinvest the proceeds of such sales, so as to bring about a sound diversification of the assets of the trust estate . . ."

Also by said decree, the court allowed Charles P. Williams and Forest P. Tralles, counsel for the trustees, the sum of $ 1,000 each as compensation for services rendered; allowed Fred J. Hoffmeister, attorney for defendant Annie Laurie Warmack Crawford, the sum of $ 150.00 as compensation for services rendered; and allowed John L. Gilmore, the guardian ad litem of the infant child Martha Sharp Crawford,...