Opinion
14528
September 8, 1937.
Before STOLL, J., Sumter, February, 1937. Reversed.
Suit by the State of South Carolina, on the relation of John M. Daniel, Attorney General, against J.H. Strong and others, as executors of and trustees under the will of John K. Crosswell, deceased, and others. Decree for complaint, and defendants appeal.
The report of the master (H.C. Haynsworth) is as follows:
This case was referred to me by order of his Honor, Judge P.H. Stoll, to take the testimony and report the same together with my conclusions both of law and of fact.
The late John K. Crosswell, of this city and county, died May 30, 1929, leaving of force his last will and testament dated October 15, 1915, to which was appended a codicil dated February 18, 1928, both of which were admitted to probate June 4, 1929, in common form.
In the will, C.B. Yeadon, J.H. Strong, and the Sumter Trust Company were named as executors and trustees. When the trust company closed its doors, the codicil was added substituting R.R. Bruner in its stead. In no other wise was the will changed.
These three duly qualified under the will and entered upon the performance of their duties as directed therein.
The will makes certain bequests, which are small in comparison with size of the estate. Since these are not in dispute, they have no bearing on the issue herein and are not before the Court, except as reference may be made to them for light on the meaning of the words "executor" or "trustee."
The bulk of this handsome estate was given to establish an orphanage, as set out in Paragraph X of the will.
This cause arises from an inquiry by the State of South Carolina, through the Attorney General, into the acts and doings of these executors and trustees in view of the provisions of Paragraphs VIII, X, and XI of the will. The authority for this inquiry was duly certified on the complaint by the honorable, the Attorney General of this State, as its legal representative.
In pursuance of the directions in said will, the executors and trustees selected J.H. Strong to represent the Crosswell estate at stockholders' meeting in Columbia on the . . . . day of . . . . . . . ., 1929. The result of this meeting was the election of Mrs. Lumpkin as president, Mr. Strong as vice-president and treasurer, and Mr. Bruner as secretary and general manager. The salaries were fixed at $9,000.00 for Mrs. Lumpkin; $7,800.00 for Mr. Bruner. No salary was provided for Mr. Strong.
It seems from Mr. Bruner's testimony (page 415) that the matter of reduction of salaries had been discussed with Mrs. Lumpkin. "She intimated to me that she was not going to allow her salary to be reduced" (page 417). "I gave the executors this information."
On August 9, 1929, the executors petitioned and obtained an order from the Probate Court authorizing them to sell the personal property of the estate, including some of the stocks, at not less than the appraised value. The petition stated their intention to sell some of the stocks and to retain others, but there were no specifications of the particular stocks to be sold.
Meantime, the Probate Court had appointed as appraisers of the assets of the estate, Messrs. J.J. Riley, S.L. Roddey, and Earle Rowland. It is admitted, and I so find, that no better appraisers could have been selected.
These three gentlemen testified in detail to the pains they took in arriving at the values shown in their appraisal. They were especially careful to set out in a written memorandum, which is an exhibit in this case, their method of determining the value of the twenty-five shares in the corporation of H.D. and J.K. Crosswell. Letters were written; a trip was made to Columbia to examine the books and records of the company; other business men were consulted. Several methods of arriving at a proper value were discussed. Altogether, this board gave about three months to this important task. The appraisers all stated that they had tried to determine the actual value on a conservative basis and had not attempted to find as low a value as possible for inheritance tax purposes.
They took the figures from the books for five years, 1924 to 1928, inclusive, and averaged them. From the total income they deducted the operating expenses. Then, in view of the request in the will that the salaries be reduced, they next deducted $2,500.00 for the salary account instead of the $20,500.00 which had been paid up to Mr. Crosswell's death. This appears to have been arrived at by taking the difference between the salary of Mr. Crosswell, who was in active charge of the business, and that of Mrs. Lumpkin, who took her profits in the form of salary to the extent that the Internal Revenue Bureau would allow. This made a difference of $18,000.00 between the net income as shown by the books and the net income considered by the appraisers; that is to say, the net book income was increased by $18,000.00 for purposes of appraisal. The average net income arrived at by this method was $35,824.00. They then decided that a stock of this character was entitled to a 7 per cent. income, and that the total value of all the stock would on this basis be $511,770.00 Dividing this by two, they fixed the value of the Crosswell interest at $255,885.00.
While this board of appraisers was still in the discharge of its duties, the great panic occurred; its effect being world-wide.
Mr. Strong came back from the meeting in Columbia convinced that this stock should be sold. The evidence shows that Mr. Yeadon at first demurred, being reluctant to appear to disregard the expressed wish of the testator. Mr. Bruner seems to have adopted a rather neutral attitude, taking little part in the discussions, except to communicate Mrs. Lumpkin's position on the salary question, namely, that she declined to consider any reduction.
These three met very frequently during this period. Finally, Mr. Yeadon was brought over to Mr. Strong's view and Mr. Bruner made it unanimous. Having reached this conclusion, the executors and trustees set about making the best sale possible. They felt themselves bound by the order of the Probate Court and the return of the appraisers. At the suggestion of Mr. Bruner, the board got into communication with Mr. Crawford Johnson, of Birmingham, Ala., one of the largest operators of Coca-Cola plants in the South. Mr. Johnson states that he was especially interested in this contract because he holds the subbottling contract thereunder for Spartanburg, Laurens, Darlington, and Hartsville, though most of his plants are in the Mississippi Valley.
In December, 1929, Mr. Johnson came to Sumter, and discussed the matter with the representatives of the Crosswell estate. When Mr. Johnson learned that no price less than the value fixed by the appraisers would or could be considered, he declined to do more than say that he would buy at $200,000.00 for half interest in the first-line bottling contract and $25,000.00 for certain subbottling contracts which are still held by the estate as sole owners, Mrs. Lumpkin having no interest in these. They are therefore not in issue in this cause. At the request of one or more of the board, he put this decision into writing in the form of a letter.
Upon the receipt of this letter, the Crosswell estate then made a formal offer of this one-half interest to Mrs. Lumpkin at the appraised price, which was accepted and the sale was closed under the supervision of George D. Levy, Esq., one of the attorneys for the executors and trustees.
In making this assignment only the title "executors" was written after the names of the three signers. The attorneys for the State made the issue by amendment that the power of sale was given to the trustees and not to the executors under the will, whereupon counsel for the respondents had Messrs. Yeadon, Strong, and Bruner add the word "trustees" to said assignment on each certificate of stock. This was done at the last reference just before the arguments began. The three signers stated that the title "trustees" was omitted through inadvertence, and that they desired to correct this when called to their attention.
The executors and trustees then invested the proceeds of this sale, as well as other funds coming into their hands, in securities, principally long-term bonds which have been giving an average yield of 4 1/4 per cent. They state that they have now increased the corpus of the estate by $84,000.00.
They further show that a convenient tract of land was bought on the northern edge of the City of Sumter; that they named two discreet persons to act with them as trustees, namely, C.G. Rowland and J.J. Riley; that two units of the orphanage were built according to the most approved plans which they decided upon after a thorough investigation of such plants in North and South Carolina; that the same were approved by the Duke Endowment Foundation; that they secured an expert superintendent in the person of Dr. T.A. Quattlebaum, and that children are being given an excellent home and proper training in the institution; that they have given a great deal of time and thought to this sacred trust, with a high sense of their responsibility and are conscious of no delict in the performance of their duties.
At the first reference, it was agreed that Mr. C.T. Hagen, of the auditing firm of Respass Respass, be allowed time to examine the books of the corporations. He submitted a full resume of the financial history of the enterprise, which is in evidence available for reference.
FINDINGS OF FACTIt is impractical to separate entirely the facts and law of this case, but I shall attempt to do so far as possible.
Since the chancellor hearing this case may take a different view from that reached by the Master, it is my purpose to submit all of the facts, including those that had little weight with me.
Of course, (1) the plea in bar, and (2) the right to sell, come at the beginning of the case, since if the first is sustained, there is nothing further to be said; if the second is denied, the sale must be set aside, and all other matters in the voluminous transcript of the testimony are of no moment. But these are matters of law, and my findings thereon will be deferred to the latter part of the report.
I. In the first place, I can discover no facts in the testimony to sustain the charge of gross negligence, save in the one matter of securing an offer for the half interest in question.
The State contends that the sale was not advertised; that no offer was received; that the conference with Mr. Crawford Johnson resulted, not in an offer, but in the refusal to make an offer.
To this the executors and trustees reply that they considered a Coca-Cola dealer as the only likely purchaser of so valuable an enterprise; that they consulted with Mr. Rainwater, of the parent company in Atlanta, and by his advice opened negotiations with the most likely purchaser in the South, a man who might have a special interest in purchasing because he held the Spartanburg, Darlington, Hartsville and Laurens subbottling contracts; that discussions with him convinced them that no outside purchaser would better his tenative offer of $200,000.00 in view of the fact that only a half interest was for sale. To sustain this contention, several men representing large Coca-Cola plants in North and South Carolina were put upon the stand; each testified that he would not have bettered Mr. Johnson's figures, and that the price obtained was not only adequate, but was higher than they would have thought of giving.
On the other hand, the State produced no one who would have been willing to better these figures, relying on the auditor's report to show that the franchise was actually worth more than the price paid and, in addition, was a growing business, which should have been retained in view of the provisions of the will. The question as to disregarding the will comes under another head.
If there was any other instance of negligence, it has not been called to my attention.
I therefore find that, if there was any negligence at all, it was not so gross as to amount to fraud; and that the three trustees honestly and sincerely believed that no one other than Mrs. Lumpkin would give as much as the appraised price. Mr. Bruner was asked why, if the price was so high, he, as Mrs. Lumpkin's adviser in business matters, allowed her to pay so much. His reply was that he advised her against the purchase, but that she was anxious to buy this half interest anyway; that she did not like to have to deal with five trustees.
II. REASONS FOR SELLINGTo show that the sale was not an arbitrary exercise of the power to sell, but that the point had been reached where, in their judgment, it was to the manifest advantage of the estate to sell the stock in question. These may be summarized under eight heads — for the benefit of the hard-pressed Judge, who cannot possibly give the time to any case that the Master must give, I make a finding on each reason:
1. That there were no physical assets — only a scrap of paper. This, in my judgment, is not a sound reason. A franchise such as this has a value not realized or appreciated in this section of the country. There are multitudes of instances — so numerous that the Court can take judicial notice of them — where valuable franchises have been given away, or sold for a song. Physical assets tie up a large proportion of the capital. Their purpose is to make money. If the undertaking fails, the physical assets bring very little as a rule. An enterprise that can bring in money without physical assets does not have to make repairs, pay property taxes, set aside a depreciation reserve, or lose interest on the money tied up in a costly plant. This reason affected Messrs. Strong and Yeadon only; Mr. Bruner did consider this "scrap of paper" valuable (page 369).
2. That the franchise might be lost. This reason appears to be based on an unfounded fear, the Courts having already declared this franchise to be a permanent and vested right in the Crosswell Corporation.
3. That there was a growing clamor for the sale of beer, and that Coca-Cola might lose its popularity. Such a fear in 1930 was absolutely speculative. The long history of this drink shows an ever-increasing popularity. The sale of beer was not made legal until more than three years had elapsed; and then, instead of losing ground, Coca-Cola gained.
4. That additional taxes might be imposed. Mr. Ellis of Asheville was specially emphatic in his opinion on this point. He stated that he had found it necessary to spend several months in Raleigh fighting such a tax for North Carolina. My finding on this fear is that it is not well founded. The one-cent tax had been on for several years. The purpose of such a tax being to produce revenue, the Legislature would be very unlikely to impose a prohibitive tax, which would defeat the primary purpose of the levy. A person who has had typhoid fever might have a second attack, but it is improbable. Since there is no such tax in North Carolina, holders of such a contract have good grounds to fear, and that no doubt, in all sincerity, colored Mr. Ellis's testimony on this point.
5. That asset was speculative and too large a part of the estate was invested therein. "There were too many eggs in one basket." The half interest in this corporation, twenty-five shares, constituted almost half the value of the whole estate. That they had a sacred trust to perform and that, if they held this asset, and it began losing money, they would be blamed. It is necessary only to read the will to answer this. Mr. Crosswell, himself, assumed responsibility for such a result.
6. That the trustees could not give their time to it; there was no one to put in Mr. Crosswell's place. I must speak with some diffidence on this point. My own inference from the codicil to the will is that Mr. Bruner was in Mr. Crosswell's mind as the manager of this business since he had been in more or less complete charge of it for some time; the business had been carried on from Mrs. Lumpkin's plant in Columbia. To a disinterested onlooker, this plan would seem not only feasible, but natural and reasonable. How seriously the trustees regarded this problem, I hesitate to say, since it would depend very largely on Mr. Bruner's attitude and statements to them on this point, and there is no testimony on which to base such an opinion.
7. That there was a world-wide depression in October, 1929. That Coca-Cola, being a luxury, would be among the first commodities to suffer. I find that there is much merit in this reason. Whether it was the controlling reason is open to question. The best comment on this reason is found in the testimony of Mr. H.D. Osteen (page 168). In drawing the distinction between speculation and investment on the stock exchange, he said he would be inclined to sell quickly on a declining market if he were speculating; "but if I had an investment in a stock and I had the earning statement before me and saw it was making money and paying dividends, I would not be apt to throw it over."
Question by Mr. Herbert: "You don't think if you were charged with the holding of that stock in an important trust, that whether or not you should sell it or hold it might be influenced by what happened to the other stocks?" Answer: "Well, if you are going that far with it, figuring you were supposed to get a return from that money, you should consider what you would do with the money after you turn that stock loose. Everything else was going down; why sell that and go into something else?"
Since this is one of the hinges of the door to this problem, I shall discuss it more fully in the second part of this report.
8. That Mrs. Lumpkin's salary could not be cut, since the estate owned only a half interest in the corporation.
The question of salary allowance bulked larger than any other in the testimony presented at the hearings in this cause. The refusal of Mrs. Lumpkin to allow her salary to be cut appears to my mind to have been the moving cause of the sale. Mr. Strong came back from Columbia completely discouraged as to the chances of operating the corporation on the economical basis suggested in the will. He reached the conclusion then and there that the business ought to be sold.
He broached the subject to Mr. Yeadon, who was much disturbed, but was reluctant to go over the provision of the will as to retaining this stock. Unquestionably the salaries fixed at that meeting reduced the income of the orphanage as a brief calculation clearly shows. The return of the appraisers shows the average net income for the preceding five years to have been $38,324.00, from which $2,500.00 was deducted for salary account, leaving $35,824.00, which is 7 per cent. on $511,770.00. Half of this is $255,885.00.
If, however, instead of deducting the proposed $2,500.00 for salaries, there was actually deducted $16,800.00, as fixed at the board meeting, the net income for distribution as dividends would be $21,524.00. On a 7 per cent. basis the whole stock would be worth $307,483.00; and half of it would, of course, be $153,741.50.
Another calculation shows that the estate's half of the net income, $10,762.00, would be a little less than 4 1/4 per cent. on the sale price, to wit, $10,875.11. Mr. Yeadon gradually came to the same conclusion that Mr. Strong had earlier reached. Mr. Bruner seems to have taken very little part in these discussions, but he concurred in the result. The other seven reasons were simply cumulative and served to confirm them in the view that the point had been reached where it was to the manifest advantage of the estate to sell.
III. WHAT WOULD BE A REASONABLE SALARY?As was stated above, so much testimony was directed to this question that I feel it my duty to make a finding thereon.
The defendants brought as witnesses five men of great prominence and experience in dealing with Coca-Cola, all of whom testified that a salary account of $20,500.00 was very reasonable; that their businesses had a larger salary account; that they would not consider handling the business for such a salary. It developed, however, that these men were managing subbottling plants in addition to their first-line bottling contracts; that these bottling plants required much more detailed work and credit risk than the first-line bottling contract; that they controlled the stock of their corporations, and as a consequence, fixed their own salaries. It is only human that this pleasant task would be approached in a spirit of generosity and high consideration for the value of their own services.
The State produced an expert accountant, Mr. Hagen, who had made a thorough investigation of the business, Mr. Chandler, a man of large experience in the Coca-Cola business, and three other citizens of this city, more or less familiar with the handling of brokerage concerns. They all testified that $2,500.00 would be a reasonable amount for salaries. That since each subbottling plant sent in, as a rule, only two orders a month, there were usually something over fifty and less than a hundred items a month; that there was practically no credit risk involved, for no subbottler would be likely to jeopardize his franchise by failing to pay his bills; that the goods were shipped direct to the plants from Atlanta, and only the orders and drafts were handled in the Columbia office, which was almost entirely a matter of bookkeeping. Under cross examination some admitted that four or five thousand a year might not be unreasonable, if there were much responsibility involved, but for the actual management $2,500.00 would be good pay.
The board of appraisers, which, as I said above, could not be improved upon, fixed $2,500.00 as the proper amount for salaries. It is to be noted that one of the present trustees, Mr. Riley, was on that board, and agreed to this proposition.
Finally, Mr. Crosswell, himself, must have had some such amount in mind. When he was in active charge, he drew $2,500.00 more than Mrs. Lumpkin. For some years before his death, Mr. Bruner did the actual work beginning at a salary of about $100.00 per month, which was gradually increased to $150.00 per month. The testimony of Mr. Hagen is of especial weight, not only on account of his character and intelligence, but because he has audited the accounts of a great number of concerns in this section, no one is better qualified to speak.
All the pioneering constructive work of building up the enterprise had long since been done. Every available bottling area had been brought in and put to work. If any one plant had failed, it could readily have been disposed of. There was nothing more to do along this line. There seems to have been little difficulty in holding the plants up to the proper standard, for they would not dare take the risk of losing their contracts. A series of questions evidently based on an affidavit hereinafter referred to was submitted to each witness, tending to show the grave responsibilities resting on the management of such an enterprise. The principal duty was inspection of the bottling plants. It is pleasant to note that Mr. Bruner frankly stated that the parent company maintained a strict watch on such matters, sent out trained inspectors from Atlanta, and had in fact relieved the first-line bottlers of this responsibility. He spoke with candor and showed no desire to evade. The danger of forfeiting the franchise had been reduced to a minimum.
It is, therefore, very difficult for the Master to find any justification for large salaries for the management of a perfectly adjusted machine, which runs as smoothly as a Waltham watch.
I am mindful, however, that Mrs. Lumpkin is even now paying Mr. Bruner a salary of $6,000.00. The purchase of this half interest against Mr. Bruner's advice makes it easy to believe that she has a better business head than the Master. Nevertheless, I am unable to see how the work or responsibility involved can justify a salary account of $16,800.00, which was the amount that faced the trustees.
The trustees were asked why they did not find some means to reduce these salaries to an economical basis. Counsel insisted that resort should have been had to the Court to obtain this result. This brings us to the affidavit made by Mr. Crosswell, himself, to the Internal Revenue Bureau to justify the large salary account referred to in the will. When this document was presented. I could see no reason to admit it into evidence, since there is no possible construction thereof that could bind this Court in its inquiry into the sale. Furthermore. I did not even consider it any sort of evidence as to proper salaries, for the testator strongly intimated that these had been made large for a special reason, which could have been nothing other than to reduce the income tax — a plan that he was using even as far back as 1915, when the will was drawn. The affidavit was prepared for the particular purpose of impressing the bureau. No criticism can come from citizens of this State, who unanimously misrepresent the value of their property in tax returns and think nothing of it.
But a copy of this affidavit was shown to the trustees. The State is seeking to discover why they sold. This affidavit made a serious impression on them. They felt that if they took this question to Court, they would immediately be confronted with the testator's own affidavit that such salaries were reasonable and proper. I, therefore, hold that this affidavit is relevant to this inquiry so far as it affected the minds of the trustees. I do not feel that I could allow it to influence in the slightest degree my own judgment on this question.
Mr. Strong was asked why he, as a director of the corporation, did not demand an equal salary appropriation for the estate, the bulk of which could have been turned over to the orphanage after paying a reasonable salary to the manager. It will have to be admitted that such a plan depended on Mr. Bruner's attitude in the matter. Mr. Bruner did not see it in that light. As a result, Messrs. Strong and Yeadon frankly admitted that they did not feel able to cope with the situation. They therefore, decided that they could not get the economical management suggested by the will, and that the best way out was to sell out.
The auditor's report shows that there was actually a decline in the receipts during the succeeding four years; the average, however, including the fifth year, being approximately the same as the five years on which the appraisers based their report. For a few years, their fears seemed justified. But the long view gives a different aspect. After the depression, the income has increased surprisingly. Even during the depression, these shares held their own better than almost any other kind of property.
Unquestionably, the orphanage is the loser by the sale. It is likely that the loss will be increasingly apparent.
But this was a mistake in judgment. It was not due to negligence or to any intention to abuse the trust committed to them by the testator.
CONCLUSIONS OF LAW I. Plea in BarAs was said above, should this plea be sustained, it would immediately end the inquiry.
I cannot regard an order on an ex parte proceeding in the Probate Court as final and binding on the beneficiaries of a trust, particularly if there are minors, unless they were brought before the Court. To preclude any inquiry into the bona fides of a transaction, the parties must all have been before the Court in the original hearing.
If the method prescribed by statute has been followed, any inquiry that raises a question of good judgment only should be barred.
If, as contended by the State, the three trustees undertook to do something that was reserved for the board of five to be appointed when the orphanage was established, no order of the Probate Court could give them the power not conferred by the will. If the acts of the three trustees were ultra vires, no order of the Probate Court could effectively and finally confirm them. This is a question arising on the face of the record.
Likewise, if wrongdoing were charged, it is difficult to see how the State could be prevented from inquiring into it. Just as nature abhors a vacuum, so equity abhors a wrong without a remedy. Constructive fraud has the same legal effect as actual fraud.
When the prescribed method has been followed, the transaction is prima facie good, and must not lightly be disturbed. For this reason, a certificate by the executive law officer of the State is properly a requisite. Only the most substantial grounds should justify any attempt to set aside the acts of executors or trustees who have pursued the orderly method set out by statute. Mere dissatisfaction with the result, or ill-founded suspicion, would not justify the Attorney General in approving a proceeding. This is based on reasonable inferences from the case of Hood v. Cannon, 178 S.C. 94, 182 S.E., 306, and the cases therein cited.
I conclude, as a matter of law, that the Attorney General was justified in authorizing this inquiry, whatever may be its final outcome. This plea should be dismissed.
II. Were Five Trustees Necessary?The State contends that this stock was a special gift to the orphanage with a solemn injunction to hold it for that purpose; that this was a particular bequest in Paragraph VIII of the will and was not included in the general power of sale given to the three trustees in Paragraph XI.
The principle that, "if two provisions of a will conflict, the latter governs," does not apply here. These two provisions may both stand under two different theories which lead to opposite conclusions.
The theory of the counsel for the State seems reasonable and logical. If Mr. Crosswell intended this stock as a particular bequest to the five trustees of the orphanage, Paragraph VIII could perfectly well stand, leaving Paragraph XI to apply to all property not so particularly bequeathed. This was the view to which the Master was first inclined. The Master still recognizes that this interpretation does not do violence to the terms of the will or to the laws governing the interpretation of wills.
But such an interpretation is not exclusive. The possibility of another interpretation that likewise does not involve the revoking of Paragraph VIII by Paragraph XI convinced me that a more thorough study of the whole will was necessary in order to gather the true intention of the testator.
The two additional trustees were to be named by the original three when in their discretion the proper time to establish the orphanage had arrived. There was to be a period of accumulation. The testator evidently had in mind that this should not exceed seven years. During the period of accumulation the three beyond any question had complete dominion over all the assets of the estate, subject, so far as the Coca-Cola stock was concerned, to the solemn admonition not to sell until a point had been reached where it would be to the manifest interest of his estate to sell. (He does not use the word "orphanage" in this connection.) A possibility that it might be for the best interest of the estate to sell was in the testator's mind. That much is beyond question. Either the three or the five certainly had that right. Neither in 1915 when the will was drawn, nor in 1928 when the codicil was appended, could the testator foresee what circumstances might arise that would make it manifestly advantageous to sell. There is nothing to sustain the theory that "it should not be sold at any early time after his death, but if a point should be reached in the long course of time," etc. Mr. Crosswell fixed no time in this will. The time for sale, if sold at all, was to be determined by circumstances and conditions. It is so evident that such conditions might develop during the period of accumulation before the board of five was to be established that I cannot believe the testator intended to postpone this right until the full orphanage board was organized. I am forced to this conclusion in spite of the fact that I disagree with the trustees as to the wisdom of the sale.
Another feature of the will that affected my mind convincingly was the iterated and reiterated expression of confidence in his executors throughout the will. Of course, when the will was drawn in 1915, this referred only to Messrs. Yeadon and Strong, since Mr. Bruner started working for him in 1923. They had helped him to build the great wholesale enterprise which he regarded so highly that he refers to it as "a living monument to the name it bears." They were not only faithful and efficient assistants, but they had become his most highly esteemed friends. He knew them thoroughly — even their limitations which they themselves so candidly admit (for instance, that they were inexperienced in dealing in stocks or in the details of the Coca-Cola business). He begins his will by giving to them the dominion over all his property of whatsoever kind. In 1928, when the codicil was added, Mr. Bruner had been working for him about five years — long enough to learn to know him well. Mr. Bruner was added to this select group.
The testator not only selected these three as agents to carry out his noble purpose, but he intrusted to them the selecting of two other discreet men to fill out the orphanage board when the proper time should arrive. If these three had entertained any improper plans to profit personally from this trust, they might have selected "dummies"; they most certainly would not have selected C.G. Rowland and John J. Riley.
I find, however, that the approval of the transaction by these two as testified to by them at the trial could not now ratify an attempted sale made before they took office. If the sale by the three was void, there is nothing for them to ratify. The separate answer in this cause precludes such position. I conclude, therefore, that during the period of accumulation the three trustees had the power of sale.
III. Precatory or Mandatory?As a corollary to the above conclusions, I find that the desire expressed in the will that the stock be retained can not be construed as an absolute mandate not to sell. The words: "I do not desire my trustees to sell the stock unless it shall be manifestly to the benefit of my estate to part with it" are followed immediately by the words, "in the event that a point is reached," etc., indicated beyond any question that the stock could be sold. The testator recognized that he was no prophet — that no man knows what the future holds. He did not specify the conditions precedent to such a sale. I can not see any possibility of construing the words as mandatory.
It is true that the word "manifest" is a very strong word. The testator leaves no doubt that he wished this stock to be held. He knew its value. He realized that Coca-Cola is a commodity ever growing in popularity. He could think of nothing better into which the money could be put. In the Master's opinion, he was right. But, he did leave an opening for a sale, "when a point is reached where it shall be to the manifest benefit of my estate to sell the stock."
IV. Manifest to Whom?In the case of Jennings v. Teague, 14 S.C. 229, one of the greatest of South Carolina Judges, Chief Justice McIver, declared the law which seems to be the answer to this question:
"So that the real question in this case is, whether the contingency upon which the power to sell was given had happened at the time the sale was made, and as subsidiary to this, who was to determine whether the contingency had happened. To solve these questions it will be necessary to inquire what was the nature of the condition. Was it the happening of a distinct and independent fact, or was it a condition, which, in its very nature, involved the exercise of judgment or discretion for the determination of whether it had happened, and about which, therefore, there might well be, as there was in this very case, honest difference of opinion. It certainly was not a distinct and independent fact, as if the testator had provided that the executor should sell when a certain person should attain to a certain age, but it was a condition, the happening of which could only be determined by an exercise of judgment. When the value of property should recover from a depression caused by a war, or by any other special circumstance, must necessarily be a question to be determined by the exercise of judgment — one about which persons might and probably would honestly differ.
"What was to be the extent of the recovery which would authorize a sale? Somebody must judge of this, and if the executor is not permitted to do so, then it is difficult to suggest who could. If the executor commits an error of judgment in determining such a question, that, certainly, ought not to invalidate a sale made by him in the honest exercise of his judgment. If it did, then it would be impossible to tell, until after it was tested by a judicial proceeding, whether any sale made under such a power was valid, and if such a rule be established it would destroy all chances of making such a sale, for, certainly, no one would buy with the prospect of having his title inquired into and assailed years after upon the ground that the executor had committed an error of judgment in determining a question which was left to his discretion.
"It is perfectly manifest that the testator in this case intended to invest his executor with power to sell in a certain contingency, the happening of which must necessarily be determined by an exercise of judgment, and unless his executor — the person whom he has selected as possessing more of his confidence than anyone else — is authorized to determine this question, then the purpose of conferring upon the executor the power to sell would be practically defeated. * * *
"When, therefore, as in this case, a power of sale is given to an executor, upon the happening of a contingency which can only be ascertained by the exercise of judgment and discretion, and the executor, in the honest exercise of his judgment, determines that such contingency has happened and accordingly makes the sale, such sale cannot be invalidated, even though it should be made to appear, in the light of subsequent events, that the executor had committed an error of judgment in determining whether the contingency had happened upon which he was authorized to sell. If, however, it should appear that the executor erred wilfully, or from such gross negligence as would imply wilfullness, then it would be different, and the question whether the sale should be allowed to stand, would depend largely upon whether the purchaser had notice of such misconduct upon the part of the executor. In this case, as we have seen, there is no foundation for a suspicion even that the executor acted otherwise than honestly in determining whether the contingency had happened upon which he was authorized to sell, and, therefore, upon the principles above stated there is no ground for invalidating the sale."
The Master made several attempts to analyze and shorten this citation but gave up the attempt as hopeless — nothing can be taken from it, nothing added. It is a perfect statement of the law governing such matter.
The gift of the power to his trustees by Mr. Crosswell is as effectual and binding on the Court as the gift of the corpus to the orphanage. The will speaks only to the donees of the power; there is not even a suggestion that they should take their problems to anyone else.
CAN THE ASSIGNMENT BY THE EXECUTORS STAND?The will provides that the sale be made by the trustees. The signatures on the assignment of the stock were followed by the word "executors." On the face of the record the natural answer would be "no." That may be the correct answer. The will gave the power of sale to the trustees — not to the executors.
Equity owes its birth to the desire to look beneath the rigid rules of the law — to seek substantial justice. In the spirit of this purpose we must examine the transaction more closely. This will was artificially drawn by a scrivener learned in the law, no one knew better than he the distinction between an executor and a trustee. Yet these words are used interchangeably many times in the will. Duties are assigned to trustees that are incontestably within the province of executors. Why was this? The most reasonable explanation is that the same three being both executors and trustees, it was immaterial which term was used.
Let us look into the sale itself. Strong, Yeadon, and Bruner met, as they had frequently done. It is unlikely that they would say at one time, "We are meeting as executors"; at another, "We are now meeting as trustees." Such a procedure would strike us as foolish. They consider this sale without any question as to whether the same three were acting as executors or as trustees. The name under which they were acting could not conceivably have affected their decision one way or the other. A trade was entered into with Mrs. Lumpkin. The minds of the contracting parties met. The price and terms were agreed upon. The sale was made. The assignment on the back of the certificates of stock was a mere detail in the formality of closing the sale. If the three did not have the power of sale, it is void no matter what title they wrote after their names. If they had such power, and entered into a valid agreement with an innocent purchaser and had then refused to sign at all, such purchaser could have asked the Court to make them comply. The Court would certainly not have heard them if they offered as a defense that they were meeting as executors, not as trustees, when they made their agreement. The Courts permit a deed, the most solemn instrument known to the law, to be corrected. If the omission of the word "trustees" was an inadvertence occurring after every feature of the contract had been agreed upon by the identical three who were also executors, it is difficult to find any substance in this objection.
I hold that it was an irregularity — not a defect. If it is a defect, adding the word "trustee" at the hearing cannot cure this. Since, as has been said, the Master does not agree with the trustees as to the wisdom of the sale, there naturally came the temptation to use this mistake as a peg upon which to hang a recommendation to set aside the sale. But such a procedure would assuredly violate the spirit of equity.
In the California case, Goad v. Montgomery, 119 Cal., 552, 51 P., 681, 63 Am. St. Rep., 145, the same three were executors and trustees as in this case, but the language of the Court shows that they held those offices "successively"; that they undertook as trustees to exercise a power given only to the executors after they had been discharged from that office. In the instant case, they held both offices simultaneously. The sale actually took place during the administration year before they could possibly have been discharged as executors. The California case differs from this therefore in a very essential particular.
When parties in good faith enter into a solemn contract, the Court cannot interfere except for substantial reasons. In the instant case no sufficient reasons have been presented to me to avoid this sale. I must therefore recommend that the sale be confirmed.
Messrs. Thomas, Lumpkin Cain, Herbert Dial and McLeod Shore, for appellant, Mrs. S.W.C. Lumpkin, cite: Amendment of pleadings: Sec. 494, Code 1932, 30 S.C. 564; 9 S.E., 684; 31 S.C. 199; 9 S.E., 814; 143 S.C. 806; 146 S.E., 203; 81 S.C. 574; 62 S.E., 113. Acts of trustees: 178 S.C. 94; 65 C.J., 679; 27 F.2d 193; 15 F.2d 719; 154 N.W., 759; 68 S.C. 440; 47 S.E., 916; 82 Sou., 795; 85 A., 509; 36 N.E., 795; 51 P., 681; 63 A.S.R., 145. Where power of sale vested in trustees under terms of will: 31 S.C. 183; 9 S.E., 797; Rich Equity, 156; 14 S.C. 229; 87 S.C. 349; 12 Rich Equity, 255. Admissibility of statements made in tax returns: 22 C.J., 237; 96 S.E., 154; 96 S.E., 714; 59 S.E., 266; 92 S.E., 92. Rights of purchaser for value without notice: 8 C.J., 1147; 71 N.E., 1065; 4 N.E., 257; 94 Ill., 400. Proper parties: 39 S.C. 44; 17 S.E., 258; 104 U.S. 450; 48 S.C. 80; 26 S.E., 1; 53 S.C. 528; 31 S.E., 498; 60 S.C. 183; 38 S.E., 437; 66 S.C. 106; 44 S.E., 566.
Messrs. Epps Epps and George D. Levy, for trustees-appellants, cite: Pleadings amended: 19 S.C. 560; 49 S.C. 513; 27 S.E., 485; 51 S.C. 164; 28 S.E., 312; 82 S.C. 405; 64 S.E., 426; 107 S.C. 308; 92 S.E., 1032; 111 S.C. 376; 98 S.E., 137; 80 S.C. 213; 61 S.E., 397; 79 S.C. 270; 60 S.E., 689; 54 S.C. 110; 32 S.E., 73; 146 S.C. 203; 143 S.E., 806; 81 S.C. 574; 62 S.E., 1113; 30 S.C. 564; 9 S.E., 684. As to execution of a power: 18 S.C. 528; 89 S.C. 198; 80 S.C. 460; 16 S.C. 557; 11 S.C.L., 588; 24 S.C.L., 54; 24 S.C. Eq., 132; 234 Mass. 288; 9 S.C. Eq., 38; 24 S.C. 204; 2 Hill. Eq., 22; 2 Bail., 595; 51 S.C. 164; 36 N.E., 795; 69 N.E., 418; 129 N.E., 529; 63 A.S.R., 145; 82 Sou., 794; 71 N.E., 1058. Rights of trustees: 176 S.C. 133; 3 Rich. Eq., 132; 14 S.C. 229; 12 Rich. Eq., 254; 31 S.C. 183; 87 S.C. 342. Trustees acting in good faith not responsible for errors in judgment: 65 C.J., 761; 40 N.E., 232; 103 N.E., 148; 62 N.E., 956; 20 S.C. Eq., 170; 4 Rich. Eq., 408; 103 S.C. 120; 75 Fed., 781.
Messrs. L.D. Jennings, L.D. Lide and Raymon Schwartz, for respondent, cite: Intention of testator to govern: 189 S.C. 1054; 101 S.C. 1; 85 S.E., 61. Power of sale: 65 C.J., 753; 63 A.S.R., 145; 82 So., 794. Conditional power of sale: 9 Rich. Eq., 270; 4 Wheat, 477; 4 L.Ed., 518. Duties of trustees: 103 S.C. 120; 87 S.E., 644; 101 S.C. 1; 85 S.E., 60; 23 S.C. 515; 109 S.C. 436; 95 S.E., 188; 106 S.C. 245; 91 S.E., 97. Right of agent to represent vendor and vendee: 156 S.C. 238; 153 S.E., 141; 86 S.C. 182; 68 S.E., 466; 19 Cyc., 207; 7 R.C.L., 749; 14 S.C. 229; 178 S.C. 9; 12 Rich. Eq., 254. Constructive fraud defined: 26 C.J., 1061; 47 Ga. 99; 181 Fed., 866; 231 Fed., 284; 105 N.E., 1033; 149 P., 662; 85 Sou., 243. Negligence: 76 S.C. 193; 56 S.E., 954; 49 C.J., 1296; 1 McC. Eq., 390. As to abuse of discretion: 161 S.C. 170; 63 S.C. 290; 41 S.E., 464; 112 S.C. 71; 99 S.E., 111; 39 Cyc., 348-352. Notice: 65 C.J., 779; 115 S.C. 1; 104 S.E., 180; 137 S.C. 11; 134 S.E., 589; 57 S.C. 280; 35 S.E., 529; 126 S.C. 180; 119 S.E., 186; 138 S.C. 481; 138 S.E., 297; 8 Rich Eq., 155; 6 S.C. 23; 168 S.E., 157; 156 S.C. 181. Amendment to pleadings: Sec. 494, Code 1932; 74 S.C. 336; 54 S.E., 375; 26 S.C. 415; 2 S.E., 314; 47 S.C. 190; 25 S.E., 60; 128 S.C. 710; 121 S.E., 787; 109 S.C. 352; 96 S.E., 150; 107 S.C. 81; 91 S.E., 987; 101 S.C. 150; 86 S.E., 26; 49 C.J., 474; 30 S.C. 564; 9 S.E., 684; 93 S.C. 76; 76 S.E., 32. As to attorneys' fees: 9 L.R.A., 748; 17 S.C. 278; 13 S.C. 447; 24 S.C. 239; 57 S.C. 305; 35 S.E., 546; 21 S.C. 179; 45 S.C. 319; 23 S.E., 53; 81 S.C. 495; 62 S.E., 859; 117 S.C. 8; 108 S.E., 179; 105 U.S. 527; 113 U.S. 116; 151 U.S. 333.
September 8, 1937. The opinion of the Court was delivered by
John K. Crosswell, late of Sumter County, died testate on May 30, 1929, leaving an estate which was appraised at over $600,000.00. The major asset of the estate was a one-half interest in the stock of H.D. and J.K. Crosswell, Incorporated, a South Carolina corporation; the other one-half interest being owned by Mrs. S.W.C. Lumpkin, subject to certain limitations under the will of her former husband. H.D. Crosswell. This corporation holds what is termed a "franchise" from the Coca-Cola Bottling Company of Atlanta, Ga., for the bottling of Coca-Cola, in a considerable portion of the State of South Carolina; it does no bottling business itself, but as the holder of what is called in the testimony a "first-line contract," it enters into subcontracts with subbottlers in various counties, and receives from the subbottlers a commission or royalty on all sales of the Coca-Cola syrup sold to them, amounting to approximately fifteen cents per gallon.
By the terms of his will, John K. Crosswell devised and bequeathed his property in trust to Messrs. J.H. Strong, C.B. Yeadon, and R.R. Bruner, as trustees, and likewise appointed them as executors of his will. He directed in his will that his trustees should build and maintain an orphanage for orphan children, near Sumter, when his estate had reached such proportions as would warrant it, and that they should select two other persons to act as trustees with them.
Pursuant to this direction, they have erected and established this institution, which is now in operation, and which is known as the "John K. Crosswell Home." It is undisputed that this institution is now the beneficiary under Mr. Crosswell's will.
The issues arising on this appeal largely depend upon the correct construction of Paragraph 8 of the will, which relates to the disposition of the stock in question, which paragraph reads as follows:
"I own half of the capital stock of H.D. and J.K. Crosswell, Incorporated, of Columbia. Our assets consist mainly of a contract with the parent Coca-Cola Bottling Company, of Atlanta, Georgia, and subbottler contracts which we have made. The estate of H.D. Crosswell owns the other half of the stock. I desire my trustees to retain the stock in this corporation, and take part in carrying on the business as economically as possible after allowing a fair salary for the management of the business. For good reasons, there being only two interests, we have preferred to take the major proportion in the way of salary instead of dividends. My trustees will understand that there will be no reason for this to continue after my death, feeling that my estate should have its rightful share in the profits, and this should be a source of having a constant supply of money for my estate, and I do not desire my trustees to sell the stock unless it should be manifestly to the interest of my estate to part with it, and in the event that a point is reached where it shall be to the manifest benefit of my estate to sell the stock, then I direct that it shall be first offered to those representing the other half of the stock, giving such owner of the other part of the stock the preference of purchasing it at such price as my trustees may be able to obtain from another source."
The one-half interest in the stock of H.D. J.K. Crosswell, Incorporated, owned by the estate of John K. Crosswell, was sold to the defendant Mrs. S.W.C. Lumpkin by Messrs. Strong, Yeadon and Bruner, who, in so doing, allegedly acted under the power and authority conferred upon them by the will. This sale was consummated in January, 1930, and six years thereafter this suit was instituted in equity by the State of South Carolina, ex relatione John M. Daniel, Attorney General, for the purpose of setting aside this sale as in violation of the terms of the will, and especially the provisions of Paragraph 8, above quoted; the suit being instituted on behalf of the public charity above mentioned.
The defendants the executors and trustees, and the defendant Mrs. Lumpkin, filed answers denying the material allegations of the complaint, and alleging that the sale was valid and should be confirmed. Thereafter, the cause was referred to H.C. Haynsworth, Esq., Master of Sumter County. Pursuant to the order of reference, the Master took the testimony, which comprises a most voluminous record, and filed his report, recommending that the sale be declared valid and confirmed. Exceptions were taken to the report, and the cause was thereafter heard by the Circuit Court, which rendered a decree adverse to the contentions of the defendants, set aside the sale of the stock to Mrs. Lumpkin, and declared such sale null and void. This appeal is prosecuted by the defendants upon exceptions to the decree of the Circuit Court.
After a careful study and consideration of the record and the very able and exhaustive briefs of counsel, we have reached the conclusion that the exceptions should be sustained, and the Circuit decree reversed. In our opinion, the sale of the stock to Mrs. Lumpkin was valid, and did no violence to the will of the testator.
We have not undertaken a more detailed statement of the facts, or the citation of applicable authorities. These fully appear in the Master's report, which will be reported, and which we adopt as the judgment of this Court.
Judgment reversed.
MR. CHIEF JUSTICE STABLER and MESSRS. JUSTICES BONHAM and BAKER concur.
MR. JUSTICE CARTER did not participate on account of illness.