Summary
holding that a trust beneficiary may bring claims where executor or trustee mismanaged the property he holds in a fiduciary capacity
Summary of this case from Shriners Hosps. for Children v. Paul F.M. Shaver, III, Profit Sharing PlanOpinion
No. 552PA87
Filed 7 September 1988
1. Trusts 11 — discretionary trust — action by beneficiary against executor or trustee for mismanagement A trust beneficiary may sue an executor or trustee for damages if the executor or trustee has mismanaged the property he holds in a fiduciary capacity even though the executor or trustee is under no duty to pay money immediately and unconditionally to the beneficiary.
2. Trust 11 — discretionary trust — beneficiary's action against executor-trustee for mismanagement — proof of damages with sufficient certainty Damages to the beneficiary of a family trust (testator's son) from mismanagement of the trust assets by defendant executor-trustee could be proved with sufficient certainty to permit the jury to reach a reasonable conclusion where the testator's will created a marital deduction trust with his wife as sole beneficiary and a family trust giving the trustee the absolute discretion to determine whether, and to what extent, to distribute trust income or corpus to the beneficiaries; at the wife's death, the corpus of the family trust was to go to the son or to his surviving issue; there was evidence that at least $290,000 could have been put in the family trust and substantially more in the marital deduction trust but that the assets were depleted by defendant and each trust was funded with only one dollar; the jury could reasonably find that if the trustee, in its discretion, determined to invade the principal of either trust for the benefit of the wife, it would first invade the marital deduction trust; the jury would be able to determine what would have been the need of the wife to have a part of the income from the family trust by taking into account her income from the marital deduction trust as well as other resources she may have; the jury could thus determine what the income to the son from the family trust would have been or what would have been accumulated for his eventual benefit; and the value of the son's remainder interest in the trust could be calculated by the use of the mortuary tables in N.C.G.S. 8-46 with the help of an expert witness if necessary.
3. Appeal and Error 62.2 — new trial on damage issue only A new trial will be awarded on the damage issue only in this action by a trust beneficiary against an executor-trustee for breach of fiduciary duty where the damage issue was not properly presented to the jury because of a mistake as to the beneficiary's interest in the trust, the negligence issue was distinct from the damage issue, and the error in assessing damages did not affect the entire verdict.
ON discretionary review pursuant to N.C.G.S. 7A-31 of a decision of the Court of Appeals, 87 N.C. App. 1, 359 S.E.2d 801 (1987), modifying a judgment of the superior court. Heard in the Supreme Court 10 May 1988.
McLeod, Senter Winesette, P.A., by Joe McLeod, for plaintiff appellees.
J. Frank Huskins, Francis C. Clark, Staff Attorney for First Union National Bank and Maupin, Taylor, Ellis Adams, P.A., by R. Stephen Camp and M. Elizabeth Davenport, for defendant appellant.
Justice MEYER dissenting.
Chief Justice EXUM and Justice WHICHARD join in this dissenting opinion.
This is an action against the executor and trustee under the will of Robert L. Fortune for breach of fiduciary duties. The plaintiff Betty Fortune brought the action individually and as guardian ad litem of her son Dale Fortune. Prior to the trial the court granted a motion for summary judgment against Betty Fortune on all her claims except her claim for an accounting. The individual claim of Betty Fortune is not involved in this appeal. There was evidence at trial which showed Robert L. Fortune created two trusts by his will. One was a marital deduction trust with his wife Betty Fortune as sole beneficiary. The other trust was denominated a family trust which provided the trustee in its "absolute discretion" could accumulate all or any part of trust income or distribute it to the testator's wife Betty Fortune or his son Dale Fortune. The trustee also in its "uncontrolled discretion," had the power to use the principal of the trust for either beneficiary as it "shall deem needful or desirable for the beneficiary's comfortable support and maintenance and education and for the medical, surgical, hospital, or other institutional care of such beneficiary." At the death of Betty Fortune the corpus of the trust was to go to Dale Fortune if he survived his mother. If Dale Fortune did not survive his mother the corpus of the trust was to be delivered to the surviving issue of Dale Fortune.
There was evidence that the defendant was negligent in the manner in which it managed the estate. The assets were depleted and each trust was funded with one dollar only. The court granted the defendant's motion to dismiss the claim for punitive damages and denied the motion to dismiss the claim based on negligence. The jury found that Dale Fortune had been damaged in the amount of $413,744.76 by the negligence of the defendant. The court entered a judgment for this amount in favor of Dale Fortune. The Court of Appeals found no error in the trial of the case but held that the damages to Dale Fortune were too speculative to be proved. The Court of Appeals ordered that the judgment of the superior court be amended to award the damages to the trust. The Court of Appeals held that the plaintiff had not properly brought forward his assignment of error to the dismissal of his claim for punitive damages.
This Court allowed the defendant's petition for discretionary review on 12 February 1988.
The defendant argues that the Court of Appeals erred in two respects. It contends first that the Court of Appeals was correct in holding Dale Fortune could not prove any damage but was in error in ordering the damages to be awarded to the trust. The defendant also argues that there was insufficient evidence to support the amount of damages awarded.
We do not pass on the defendant's argument that the damages may not be transferred to the trust because we hold that in this case Dale Fortune is entitled to bring the action in his individual capacity. Restatement (Second) of Trusts, 198 (1) (1979) says:
If the trustee is under a duty to pay money immediately and unconditionally to the beneficiary, the beneficiary can maintain an action at law against the trustee to enforce payment.
The defendant, relying on this section of the Restatement, contends that a beneficiary may not maintain an action for a breach of duty to the trust unless the trustee is under a duty to pay money immediately and unconditionally to the beneficiary. Illustration d. of Section 198 says that the beneficiary's remedy in such a case is a suit in equity to compel the trustee to restore the money. Our Court of Appeals in Ingle v. Allen, 69 N.C. App. 192, 317 S.E.2d 1 (1984), allowed an action for damages by a beneficiary of a trust against the executors and trustees under a will. Such actions have been allowed in other jurisdictions. See Work v. County National Bank and Trust Co. of Santa Barbara, 4 Cal.2d 532, 51 P.2d 90 (1935); Hoppe v. Hoppe, 370 So.2d 374 (Fla. Dist. Ct. App. 1978); First City Nat. Bank v. Haynes, 614 S.W.2d 605 (Tex.Civ.App. 1981); 76 Am. Jur.2d Trusts, 645 at 854 (1975). We see no reason why a beneficiary may not sue an executor or trustee for damages if the executor or trustee has mismanaged the property he holds in a fiduciary capacity. We believe that a beneficiary who has been damaged by the negligence of a fiduciary should have this remedy in addition to any other remedy he may have. We hold that such a claim may be maintained.
As we read the Court of Appeals' opinion, it does not hold that a claim for money damages may not be maintained by a beneficiary against a fiduciary. It holds that in this case Dale Fortune's interest in the trust, because it is a discretionary interest, is too speculative to be measured. For this reason, the Court of Appeals felt damages could not be proved with reasonable certainty. In proving damages, "absolute certainty is not required but evidence of damages must be sufficiently specific and complete to permit the jury to arrive at a reasonable conclusion." Service Co. v. Sales Co., 259 N.C. 400, 417, 131 S.E.2d 9, 22 (1963); Tillis v. Cotton Mills, 251 N.C. 359, 365, 111 S.E.2d 606, 612 (1959); Thrower v. Dairy Products, 249 N.C. 109, 112, 105 S.E.2d 428, 431 (1958). Damages may be recovered if a plaintiff proves the extent of the harm and the amount of money representing adequate compensation with as much certainty as the nature of the tort and the circumstances permit. Restatement (Second) of Torts, 912 (1977).
We hold that in this case Dale Fortune's damages may be proved with sufficient certainty that a jury may determine them. The value of the assets which would have been placed in the two trusts may be determined by the value of Robert Fortune's estate. There was evidence that at least $290,000 could have been put in the family trust and substantially more in the marital deduction trust. It is in this light that we must look at the discretionary power of the trustee to pay all the income and principal of the family trust to Betty Fortune. If the two trusts had been fully funded, Betty Fortune would have had the marital deduction trust of several hundred thousand dollars from which she would have received the income and been entitled to have the trustee invade the principal for her if necessary. The jury could reasonably find that if the trustee, in its discretion, determined to invade the principal of either trust for the benefit of Betty Fortune, it would invade first the marital deduction trust. In such a case the possibility of invading the corpus of the family trust would be remote. A jury should be able to determine what would have been the need of Betty Fortune to have a part of the income from the family trust, taking into account her income from the marital deduction trust as well as other resources she may have. A jury could thus determine with reasonable certainty what the income to Dale Fortune from the family trust would be or what would have been accumulated for his eventual benefit. The value of Dale Fortune's remainder interest in the trust may be calculated by use of the mortuary tables in N.C.G.S. 8-46 with the help of an expert witness if necessary. We hold that under the circumstances of this case the evidence may be made specific enough to allow the jury to reach a reasonable conclusion.
We agree with the defendant that the damage issue was not properly presented to the jury. The evidence as to Dale Fortune's interest in the trust and the charge of the court on this feature of the case was premised on the theory that Dale Fortune had a one-half interest in the family trust. This is not correct. Dale Fortune's interest in the trust must be calculated by what the jury could reasonably believe he would receive from the trust taking into account that he had a remainder interest and that he may have received a part, all, or none of the income and corpus as the circumstances may have developed.
We hold there must be a new trial because of error in submitting the damage issue. It is within the discretion of this Court whether to grant a new trial on one issue. A new trial as to damages only should be ordered if the damage issue is separate and distinct from the other issues and the new trial can be had without danger of complication with other matters in the case. It must be clear that the error in assessing damages did not affect the entire verdict. If it appears the damages awarded were from a compromise verdict, a new trial on damages alone should not be ordered. Weyerhaeuser Co. v. Supply Co., 292 N.C. 557, 234 S.E.2d 605 (1977); Robertson v. Stanley, 285 N.C. 561, 206 S.E.2d 190 (1974). In this case it does not appear that there was a compromise verdict. The plaintiff was awarded substantially that for which he asked. We do not believe the error in assessing damages affected the entire verdict. The negligence issue in this case was distinct from the damage issue. We hold that this is a proper case for remand for a trial on the damage issue only.
In its assignment of error as to the evidence to support the award of damages, the defendant does not contend there was no evidence to support the award, but that the evidence was not sufficient to support an award of the size which was granted. Because we have ordered a new trial for damages, we do not consider this argument. The evidence will be different at a new trial.
The appellee has asked us to consider in our discretion the question of punitive damages which the Court of Appeals held had not been brought forward for review. This we decline to do.
We reverse the Court of Appeals and remand for a further remand for proceedings consistent with this opinion.
Reversed and remanded.