Wootten v. Wootten

• Decision Date: 27 August 1945
• Docket Number: No. 3120,3121.,3120
• Citation: 151 F.2d 147
• Parties: WOOTTEN v. WOOTTEN et al. (two cases).
• Court: U.S. Court of Appeals — Tenth Circuit

151 F.2d 147 (1945)

WOOTTEN v. WOOTTEN et al. (two cases).

Nos. 3120, 3121.

Circuit Court of Appeals, Tenth Circuit.

August 27, 1945.

Harry Hammerly, of Chickasha, Okl. (Seth & Montgomery, of Santa Fe, N. M., on the brief), for appellants.

H. A. Kiker, of Santa Fe, N. M., for appellees.

Before PHILLIPS, HUXMAN, and MURRAH, Circuit Judges.

PHILLIPS, Circuit Judge.

These are actions to establish constructive trusts in certain shares of stock of the Red River Ranch, Inc. The court below held that the complaints failed to state claims upon which relief could be granted, and dismissed the actions.

The facts alleged in the complaints are these:

On or about July 30, 1936, R. K. Wootten was the owner of certain ranch properties located in Mora, Colfax, and Harding Counties, New Mexico, consisting of 10,000 acres of deeded land, 46,000 acres of leased land, 4,000 acres of land purchased under contract from the State of New Mexico, 1300 head of ranch cattle, and horses, milk cows, and ranch equipment. On that date, R. K. Wootten sold and conveyed to his brother, John B. Wootten, an undivided one-half interest in the real estate and other ranch properties, and thereafter, until the death of R. K. Wootten, he and John B. Wootten were partners in the ownership, management, and operation of the ranch.

On July 30, 1936, R. K. Wootten and John B. Wootten entered into a contract with W. R. Ferguson for the management and operation of the ranch properties for a term of six years. The contract recited that the ranch properties, other than cattle, had a value of $88,000, and that the cattle had a value of $57,587.50. It provided that Ferguson would manage and superintend the ranch and its operations for a period of six years from January 1, 1936; that the Woottens would pay him a salary of $100 per month and provide funds for the economical operation of the ranch; that the net profits or losses sustained in the conduct and operation of the ranch, excluding increases in the value of the lands, should be determined annually; that, in the event the net operating profit for the full term of six years should equal 100 per cent of the total investment during such period, including the fixed value of the lands and leases, Ferguson should be entitled to an undivided one-third interest in the ranch lands, leases, livestock, and equipment, and that such interest, at the end of six years, would be transferred to Ferguson; and that, in the event the net operating profit should not equal 100 per cent, an interest in the ranch properties on the basis of the net profits earned would be transferred to Ferguson at the end of the six-year period.

R. K. Wootten died testate, January 2, 1938. John B. Wootten was the executor named in the will and duly qualified as such and has continued to act as such executor. Under the will, one-tenth of the ranch properties were devised and bequeathed to Vendla E. Wootten, widow of R. K. Wootten, deceased, and one-tenth to each of the four children of R. K. Wootten, deceased. The will provided that each of the shares of the four children should vest in John B. Wootten, as trustee. The will gave the executor power and authority to manage, control, sell, transfer, and convey any and all property of the estate and to invest and reinvest any and all money coming into his possession in such securities and upon such terms and conditions as he might, in the exercise of his judgment and discretion, determine.

During the continuance of the Ferguson contract, it became necessary, from time to time, to purchase supplies, make advancements, purchase additional deeded land, and finance the operation of the ranch properties. The funds therefor were contributed equally by R. K. Wootten during his lifetime, and thereafter by the executor of his estate, and by John B. Wootten.

After the death of R. K. Wootten, John B. Wootten formulated a plan to create a corporation under the laws of New Mexico and to transfer all of the ranch properties to such corporation. In December, 1939, John B. Wootten, acting for himself individually and as executor of the estate of R. K. Wootten, deceased, and as trustee for the children, Vendla E. Wootten, and Ferguson entered into a contract whereby they agreed to create such corporation and to transfer the ranch properties to the corporation in exchange for 2500 shares of the corporate stock of the par value of $100 per share; to deliver two-thirds of such stock to John B. Wootten individually and as trustee for the children, and to Vendla E. Wootten, and to retain, as treasury stock for the protection of Ferguson, under the contract, one-third of the authorized capital stock, and at the end of the six-year period, to issue to Ferguson the one-third of the shares retained in the treasury or such portion thereof as he might be entitled to.

The corporation was duly created under the name of Red River Ranch, Inc. Six hundred and ten shares of the capital stock were issued to John B. Wootten individually, 122 shares to Vendla E. Wootten, and 488 shares to John B. Wootten, as trustee for the children. The remaining one-third of the stock, except one share issued to Ferguson, was held in the treasury. At the expiration of the six-year period, a controversy arose between John B. Wootten and Ferguson as to the interest in the ranch properties that Ferguson was entitled to receive under the contract. Ferguson brought an action in the District Court of the Eighth Judicial District of New Mexico against the Red River Ranch, Inc., and others. On December 4, 1942, a decree was entered in that case. It adjudged that Vendla E. Wootten was entitled to 126 shares of the corporate stock; that John B. Wootten, as trustee for the four children, was entitled to 504 shares of such stock; that John B. Wootten individually was entitled to 630 shares of such stock; and that Ferguson was entitled to 570 shares of such stock.

Following the entry of such decree, John B. Wootten discontinued the services and employment of Ferguson and took over the sole and exclusive operation and management of the corporation and its ranch properties.

In January, 1944, John B. Wootten began negotiations with Ferguson to purchase all of the latter's corporate stock. Ferguson had disposed of 34 shares of the stock issued to him. John B. Wootten consummated the purchase of the remaining 536 shares of stock held by Ferguson for $87.50 per share. At the time of such purchase, such stock had an actual value of $175 per share. John B. Wootten, as trustee of the trust estates, had sufficient funds in his hands to purchase two-fifths of such stock for the benefit of the children.

Carl Eklund Wootten, one of the children, brought an action in which he alleged the foregoing facts and sought a decree adjudging that John B. Wootten held 53.6 shares of the 536 shares purchased from Ferguson, as trustee for Carl Eklund Wootten. Each of the other children brought a like action.

Vendla E. Wootten brought an action against John B. Wootten in which she alleged the foregoing facts and further alleged that John B. Wootten, as executor of the estate of R. K. Wootten, deceased, and as president and sole manager, and in full control of the ranch properties, was acting in a fiduciary capacity with respect to Vendla E. Wootten when he purchased the Ferguson stock, and sought a decree adjudging that John B. Wootten held 53.6 shares of such stock as trustee for Vendla E. Wootten.

No. 3120 is an appeal from the judgment entered in the action brought by Carl Eklund Wootten. No. 3121 is an appeal from the judgment entered in the action brought by Vendla E. Wootten.

In this drama of real life, John B. Wootten was the principal actor. At its inception, he owned individually one-half of the ranch properties; the widow and children of his deceased brother owned the beneficial interest in the remaining one-half thereof; and Ferguson, under his contract, had a contingent interest which might ripen into an ownership of one-third of such properties. John B. Wootten, as executor under the will, occupied a fiduciary relationship to Vendla E. Wootten, and, as trustee under such will, a fiduciary relationship to the children. Ferguson was the active manager of the ranch properties. John B. Wootten, as an individual, had a voice equal to, but not greater than, that of the other parties to the joint adventure. John B. Wootten first brought about the formation of the corporation, the transfer of the ranch properties to it, and the issuance of two-thirds of the shares of stock in the corporation to himself individually and as trustee, and to Vendla E. Wootten, in proportion to their respective interests in the ranch properties. At that stage the stock held by John B. Wootten individually did not give him control of the corporation. He could only dominate the corporation by joining the voting power of his individual stock and the stock held by him as trustee. By acquiring the Ferguson stock, he passed from a position where his individual interest was equal to the interests of the widow and children to the dominating position of a majority stockholder. The plan under which he organized the corporation, conveyed the ranch properties to it, and ultimately acquired a controlling interest in the corporation was all carried out during the time when he occupied such fiduciary relationships.

Many forms of conduct regarded as permissible for those acting at arm's length are forbidden to those bound by fiduciary ties. The standards of conduct for a trustee rise far above the ordinary morals of the market place. Not honesty alone, but a punctilio of honor the most sensitive is the standard of behavior required of a trustee. He must completely efface self-interest. His loyalty and devotion to his trust must be unstinted. Its well-being must always be his first consideration. These principles are inveterate and unbending.¹

A trustee must not compete with his beneficiary in the...