Opinion
No. 36465.
May 19, 1947.
1. BANKS AND BANKING.
Where stockholder who, on demand of trustees in reorganization of bank, had paid over the full amount of her stock under double liability statute, traded her beneficial interest in the stock to the trustees for a farm, payment thereafter to her by trustees of dividends on stock by way of partial repayment of assessment under statute, was at least prima facie unauthorized (Code 1942, sec. 5280).
2. APPEAL AND ERROR.
Where it is not apparent from the record, in the light of an appellant's brief, that judgment is in fact correct, judgment must be reversed without prejudice, despite presumption that a judgment is correct.
3. APPEAL AND ERROR.
Where chancellor in suit by stockholders, who had been compelled to pay over full amount of their bank stock under double liability statute, for an accounting by trustees in reorganization of bank, did not specifically find against stockholders' exceptions, and on appeal by stockholders, there was no definite challenge by trustees of matters asserted in the stockholders' brief, and most of such matters were prima facie supported by the record, cause was reversed and remanded without prejudice (Code 1942, sec. 5280).
APPEAL from the chancery court of Lafayette county. HON. V.D. ROWE, Chancellor.
Canale, Glankler, Loch Little, of Memphis, Tenn., for appellants.
A trustee owes his cestui a duty to render at suitable intervals and at the end of the trust a formal and detailed account of his receipts, disbursements, and property on hand, from which the beneficiary can learn whether the trustee has performed his trust and what the present status of the trust property then is. The trustee can be compelled by the court of chancery to perform this duty by presenting an account in that court, where it can be subject to the scrutiny of the court and its officers, as well as to criticism by the cestui and other interested parties.
Bogert, Trusts and Trustees, Sec. 963, and notes; A.L.I., Trusts, Sec. 172, comment c; 65 C.J. 878, 899; Pomeroy's Equity Jurisprudence (4 Ed.) Sec. 1063; 54 Am. Jur., Trusts, Sec. 402.
It is the duty of the trustee to keep full, accurate and orderly records of the status of the trust administration and of all acts thereunder. He cannot comply with his duty to furnish informal information to the cestui, or with his duty to give a formal statement of trust affairs on an accounting proceeding, without laying a foundation therefor by setting up a bookkeeping system and preserving receipts or vouchers and other similar documents.
Burton et al. v. Clere et al., 271 Ky. 411, 112 S.W.2d 57; Bogert, Trusts and Trustees, Sec. 962; A.L.I., Trusts, Sec. 172; 65 C.J. 878; Perry, Trusts and Trustees (7 Ed.), Sec. 821; 54 Am. Jur., Trusts, Secs. 497, 498.
The general rule of law applicable to a trustee burdens him with the duty of showing that the account which he renders and the expenditures which he claims to have made were correct, just and necessary, where there has been a negligent failure to keep true accounts, all presumptions will be against the trustee upon a settlement, obscurities and doubts being resolved adversely to him. The burden of proving all affirmative defenses is likewise on the trustee.
Burton et al. v. Clere et al., supra; Bogert, Trusts and Trustees, pp. 2784, 2785, Sec. 962; Perry, Trusts and Trustees (7 Ed.) Sec. 821; 65 C.J. 937, Sec. 854; 54 Am. Jur., Trusts, Sec. 499.
The burden is on a trustee to show the disposition of trust property received by him, and where he cannot show its payment out for the benefit of the beneficiaries, all doubts will be resolved against him and he will be charged with the sum.
See generally authorities cited above, and also: Johnson v. Murphy's Admr., 293 Ky. 294, 168 S.W.2d 1022; Atlantic Trust Co. v. Nat'l. Bondholders Corp., 188 Ga. 761, 4 S.E.2d 644; Chopelas v. Chopelas, 294 Mass. 327, 1 N.E.2d 374; Knowlton v. Fourth-Atlantic Nat. Bank, etc., 271 Mass. 343, 171 N.E. 721, and cases there cited; In re Titworth's Estate, 288 Mich. 652, 286 N.W. 97; Long et al. v. Earle et al., 277 Mich. 505, 269 N.W. 577; Dillman v. Hastings, 144 U.S. 136, 36 L.Ed. 378; Talbot v. Auto Idem. Underwriters, 163 Tenn. 256, 43 S.W.2d 220; Perry, Trusts and Trustees (7 Ed.), Sec. 821; Bogert, Trusts and Trustees, Sec. 971(9).
The trustee is under a duty to the beneficiary in administering the trust to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property; and if the trustee has greater skill than that of a man of ordinary prudence, he is under a duty to exercise such skill as he has.
Exchange Trust Co. v. Doudera, 270 Mass. 227, 170 N.E. 73; 54 Am. Jur., Trusts, Secs. 321, 322, 323, 327; A.L.I., Trusts, Sec. 174; 65 C.J. 694; 3 Pomeroy's Equity Jurisprudence (3 Ed.), Sec. 1066; Bogert, Trusts and Trustees, Sec. 541, Part 1, pp. 356, 364.
The trustee can properly exercise such powers and only such powers as (a) are conferred upon him in specific words by the terms of the trust, or (b) are necessary or appropriate to carry out the purposes of the trust and are not forbidden by the terms of the trust. Unless expressly authorized by the terms of the trust, the trustee has no power to carry on a business, and unless it is otherwise provided by the terms of the trust, it is not proper to employ trust property in the carrying on of business or the purchase of land or other things.
West v. Robertson, 67 Miss. 213, 7 So. 224; Wieters v. Hart, 67 N.J. Eq. 507, 63 A. 241, affirmed 68 N.J. Errors Appeals 796, 64 A. 1135; A.L.I., Trusts, Sec. 227, comment f; Bogert, Trusts and Trustees, Part 2, Sec. 678, note 58; 54 Am. Jur., Trusts, Secs. 293, 294, 306, 307.
The following are proper credits to a trustee on accounting: (1) All sums paid from trust funds, or sums advanced by him from his own funds, when said payments were in the exercise of powers expressly or impliedly granted to him by the trust instrument or reasonably incidental to the exercise of said powers; (2) compensation when he has not forfeited his right thereto because of breaches of his duty as trustee, such as failure to account, making improper investments of trust property, failure to exercise due care and diligence, and other breaches of trust; (3) costs and expenses of the accounting, which are usually awarded to the trustee out of the trust estate if he has been guilty of no bad faith or misconduct; (4) reasonable counsel fees where it appears that it was reasonably necessary to employ counsel in and about the performance of the trustee's duties, the nature and character of the employment and of the services rendered and the reasonable value thereof is shown, and the expenditures are supported by proper vouchers. It is to be borne in mind always that the burden is on the accounting trustee to prove to the satisfaction of the court the merit of all claims for credit which he makes, and that local statutes, court rules and customs have an important influence on the form of proof which the court requires. Vouchers, receipts, or other written evidence to substantiate payments or transfers, should be presented by the trustee if possible, and may be absolutely necessary as a basis for credit.
Rothermel's Estate, 47 Pa. D. . C. 478, referred to in note on p. 204 of pocket supplement to Vol. 4 of Bogert; In re Lewis' Estate, 349 Pa. 455, 37 A.2d 559; Bogert, Trusts and Trustees, Sec. 971, notes.
The power granted to the trustees to dispose of the trust property as they should deem best did not confer upon them an absolute, unlimited power in the handling of the trust property as if they were the absolute, unconditional owners thereof. Their discretion was limited by the purposes of the trust and by the duty which they owed the beneficiaries thereof to reduce the trust property to cash in a prudent manner with all reasonable dispatch and distribute the net proceeds thereof to the beneficiaries of the trust; and, therefore, their powers were limited to those things which were reasonably calculated to promote the interests of the beneficiaries. The trustees were not authorized to engage in the business of farming, which is hazardous, nor to invest in lands and chattels, which is speculative and likewise hazardous.
54 Am. Jur., Trusts, Secs. 293, 294, 306, 307, 342, 416; Perry, Trusts and Trustees (7 Ed.), Sec. 511(a); Bogert on Trusts and Trustees, Sec. 678, part 2.
Generally, a trustee who is without fault or is not guilty of a breach of his trust is entitled to be reimbursed out of the trust property for reasonable, ordinary and necessary expenses properly incurred in the administration of the trust; but where litigation is the result of misconduct of the trustee, as where the trustee has failed to keep accurate accounts, or has made improper charges in his accounts, or has failed to render proper accounts, then the trustee may be charged personally with the entire costs.
Lape's Admr. v. Taylor's Trustee (Ky.), 23 S.W. 960; In re Lewis' Estate, 349 Pa. 455, 37 A.2d 559; In re Manegold's Will, 234 Wis. 525, 291 N.W. 753; Perry, Trusts and Trustees (7 Ed.), Secs. 900-903; Bogert, Trusts and Trustees, Sec. 971 (7).
C.A. Bratton and James Stone Sons, all of Oxford, for appellees.
The record shows, not by a mere preponderance of evidence but beyond any reasonable doubt, that the trustees were given full power to use their own judgment, that they were honest and did use their own judgment and that the results were entirely satisfactory to every living stockholder and to every stockholder who was living at the time of most of the transactions concerning which appellants now complain. We submit that the only conclusion possible from the record is that the actions of these trustees were satisfactory even to those two stockholders from whom appellants derive their claim.
This case really involves, and involves only, the decision of the chancellor on a disputed question of fact. The chancellor heard all the evidence and saw the witnesses and his finding is conclusive. We deem it unnecessary to cite any authorities to support the established proposition that the decision of the chancellor is entitled to the same weight as a verdict of a jury. In Mississippi this proposition is too firmly established to need citation of authority.
Argued orally by John W. Loch, for appellants.
Appellants filed their bill against appellees for an accounting, and appeal from a decree dismissing the action. Appellants were stockholders in the Bank of Oxford prior to its reorganization after failure in 1931. Certain assets of the old bank were culled and charged out upon reorganization, and placed in the hands of three trustees, one of whom is deceased, and the remaining two are appellees here. The stockholders complied with a demand to pay over the full amount of their stock under our Double Liability Statute, Code 1942, Sec. 5280. Against these payments the trustees were charged by action of the stockholders with the duty and authority, "to manage and collect the same (the transferred accounts) and whereas it has been and become necessary in carrying out the purposes of the old stockholders to incur certain litigation and incidental expenses thereto it is now agreed that said trustees shall be clothed with fully authority to employ council (sic) and incur whatever other expenses which in their judgment may be necessary."
The answer admitted the propriety of an accounting, and a master was appointed to state the account. A hearing was had upon exceptions to the master's report, upon which hearing the report was approved, and the bill dismissed with costs.
We content ourselves with summarizing the general nature of the administration of the trust estate. The trustees proceeded to liquidate the assets by collection of accounts and bills receivable, operation of real properties, and the purchase and sale of realty. From such collections and net profits dividends by way of repayment were made to the stockholders, as cestuis que trustent, which were listed as credits against their double liability payments. Such refunds totaled about fifty percent.
Brief for appellants assails the account rendered by the special master, the following contentions being supported by citation from the record and the report of the master:
The sum of $35,957.86 was collected by the trustees. Disbursement credits were as follows: By liquidating dividends paid to stockholders, $23,253.07; by expenses, $250.31; which together with $694.73 cash on hand, totals $24,198.11. A dispartity of $11,759.75 is disclosed upon such computation. It must be added that expenses actually incurred totaled $3,831.70, but the absence of supporting vouchers was made the basis for a challenge thereto, and a claimed reduction of the expense credit to $250.31.
We select a few other items to whose challenge there is no adequate reply. Mrs. D.T. Carter paid in as a stockholder the sum of $4,500. After two dividends were paid her by the trustees she traded her beneficial interest to the trustees for the Yarbrough farm. Thereafter the trustees continued to pay her dividends as a beneficiary, totaling $1,665. In view of the ownership by the trustees of the participating shares such payment is at least prima facie unauthorized.
S.M. Sneed account. Sneed paid as a stockholder $800. Certain property was conveyed to him by the trustees totaling $517.30 in exchange for his beneficial interest in future dividends. The master's report shows dividends paid or credited to him in the sum of $400. Whether such sum was paid or merely credited against the purchase price is not clear, and the contention of appellants is not answered that neither payment to, nor credit of, such dividends to the purchaser were proper since the beneficial interest therein was owned by the trustees.
Mrs. M.D. Price account. Mrs. Price, now deceased, had paid in $7,000 as a stockholder. From the third dividended of $840 payable to her estate the trustees paid $276.31 to her executor, and the remainder, $563.69, to the Bank of Oxford. The contention that the entire amount should have been paid to her executor is without answer.
The trustees' account claims credit for payment of dividends paid to stockholders ratably upon their respective interests. The record discloses that there were five duplications in date and amount indicating an excess credit in the amount of $2,008.21.
There were other exceptions alleging irregularities and inefficient management and failure to collect. The absence of supporting vouchers seems to have been waived by appellants. No charge of wilful delinquency is made, nor is the integrity or good faith of the trustees impugned.
We do not here find that the above exceptions are to be adjudged well taken. Their prima facie quality, however, is found sufficient to bring into play certain well established rules of decision, which we shall cite in view of the failure of the learned Chancellor to find any specific facts and the absence of any definite challenge by appellee of the matters asserted in the brief for appellants, most of which are prima facie supported by the record.
In W.T. Raleigh Co. v. Armstrong, 165 Miss. 380, 140 So. 527, we stated: "No brief has been filed by appellees in this case, nor was there any oral argument. Appellant has filed a brief which in all respects complies with the rules, and which, upon the statement of the facts and the application of the principles of law to the facts, is fairly convincing, in the absence of any reply thereto, that there is error in the judgment. We have examined the record, and, although the presumption is that the judgment is correct, it is not apparent to us from the record, in the light of appellant's brief, that the judgment is in fact correct. In this situation, the judgment must be reversed without prejudice." See, also, Ramsay v. Milner, 192 Miss. 120, 4 So.2d 889. Compare Gulf, M. . O.R. Co. v. Webster County, 194 Miss. 660, 13 So.2d 644.
In Frederic v. Board of Supervisors of Jackson County, 197 Miss. 293, 20 So.2d 92, 671, it was said: "As set forth in paragraph 2 of rule 7 of this Court, `those briefs are of most assistance to the Court in which there precedes the argument of counsel; first, a concise statement of the case so far as essential to an understanding of the questions presented for determination, . . .' When counsel for the appellant complies with this request and counsel for the appellee neither challenges his statement of facts of the case nor sets forth in his brief a different statement of the facts, he has no just cause of complaint if this Court accepts the appellant's statement of facts as being true."
In the instant case appellees did file a brief. We would not minimize the sincerity nor belittle the merit of counsel by our assertion that they were, by a reliance upon the decree of the chancellor, lulled into a confident repose which accepted the trial court's finding of honest intent and substantial rewards of diligence as a sufficient defense against technical charges. In fact, the brief on behalf of appellees did not answer, explain or give any definite aid to us on the several items heretofore mentioned, or any of the exceptions, and rested merely upon the generality that the finding of facts by the chancellor was enough for their reliance. As stated, the opinion of the chancellor made part of the record, did not specifically find against the several exceptions, but found that the refund by the trustees of fifty percent of their paid double liability was a sufficiently gratifying salvage by the stockholders, betokened diligence, and merited commendation.
The accounts above referred to require further explanation, nor do we limit further review to those mentioned. They are sufficient to justify re-examination in the light of the legal duty of the trustees under the authorities set forth in appellant's brief, which appellees concede to be applicable. The cause is reversed and remanded without prejudice. Reversed and remanded.
L.A. Smith, Sr., J., took no part in this decision.