Opinion
March 1, 1954 —
April 6, 1954.
APPEAL from an order of the county court of Barron county: ALBERT C. BARRETT, Judge, Presiding. Affirmed.
For the appellant there were briefs by Wood, Warner, Tyrrell Bruce, and oral argument by Jackson M. Bruce and William J. Mantyh, all of Milwaukee.
For the respondents there was a brief by Coe Coe of Rice Lake, and oral argument by Laurence S. Coe.
An order entered July 21, 1953, dismissed the petition by which Robert A. Pettee sought to terminate the trust established for his benefit by his mother's will, and also sought to compel the trustees to place certain property in the trust estate. The appeal is from the order dismissing the petition.
Before the death of Josie B. Pettee, she and her son, Roger Pettee, owned and operated in partnership a laundry and dry-cleaning business in the city of Rice Lake. Mrs. Pettee had a 75 per cent interest and Roger a 25 per cent interest in the partnership. Mrs. Pettee's other son, Robert, occasionally worked in the dry-cleaning part of the business but he was a rover who had left high school in his third year and there were long periods when he worked at his trade in other parts of the country. He got jobs easily, never stayed very long on one, and always quit voluntarily. At times Robert drank a good deal and was frequently in trouble with the law and with his wife. Roger behaved himself, finished college, and thereafter worked steadily in the Rice Lake Laundry. In October, 1942, when Robert was about thirty-three years old and Roger twenty-nine, both men enlisted in the navy.
Mrs. Pettee died February 1, 1945. Both men came home on leave at that time and took part in the start of probate proceedings. Mrs. Pettee's will left 30 per cent of the laundry business to Roger, — who already owned 25 per cent, — and 45 per cent in trust for the benefit of Robert. Roger and a family friend, Mr. Stebbins, were named executors of the will and trustees of the trust. The trust provisions of the will are:
"Fourth: As executors and trustees hereunder I do hereby appoint A. P. Stebbins and my said son, Roger Pettee, the latter to serve only in the event that he shall be active in said business at the time of my death, and shall so continue throughout the duration of the trust, and I do hereby grant to them full power to mortgage, sell, and distribute, in their discretion, any, either or all of the assets of my estate, and to invest the proceeds of the disposition of any property willed by me in trust, to continue the operation of the said business or to dispose of the same as they deem wise, and to pay over to my said son, Robert Pettee, part or all of the net earnings or the principal, or both, of the trust estate, as they deem wise, the purpose of such trust being to preserve the share of the said Robert Pettee until such time as he can properly care for it himself, and in the meantime to afford him such income as he may need, and in the event that by the exercise of any discretion herein vested in the said executors and trustees any loss or damage shall accrue to the trust estate, such loss or damage shall not be charged or imputed to my executors and trustees excepting only for bad faith shown in the exercise of their discretion."
Robert did not want to live in Rice Lake and he thought he would have to do so if he had an interest in the laundry. He wanted Roger to buy him out and there was some discussion of this while the brothers were home. Roger employed his father, who had been divorced from Mrs. Pettee, to manage the laundry while Roger was in naval service and, after seeing that the probate proceedings were begun, Roger returned to his station and Robert went absent over leave. His misbehavior had continued all through his navy career, he was frequently court-martialed and on this occasion, after a period of imprisonment, he was given a bad-conduct discharge in May, 1945. He came back to Rice Lake and worked in the laundry for a while and was still there in July. During this time he was having difficulty with his wife and was despondent and attempted suicide by drinking Lysol.
In July, 1945, Mrs. Pettee's estate was ready for settlement. Roger came home on leave and they resumed the conversations concerning his purchase of the share of the laundry bequeathed in trust for Robert. On July 9, 1945, the brothers, their father, Mr. Coe, who was attorney for the executors, and Mr. Stebbins went to county court with a petition for the sale of the estate's interest in the laundry at a price corresponding to its appraisal in the estate. Robert signed the petition in the courtroom and also signed a separate consent to the sale and an approval of the plan of distribution of the proceeds. Robert now testifies that he did not know the contents of the documents which he signed and they were not explained to him. He also testifies that he was very despondent at that time but was not under the influence of liquor and was not misinformed. The attorney and the executors took the papers into chambers where the judge signed the order directing the sale. A final account and order for distribution was then presented to the judge with the written consent of interested parties, including Robert, to immediate hearing and allowance. It was so allowed and the order of distribution was signed, as well as an order appointing Roger and Mr. Stebbins trustees as nominated by the will. Roger paid the purchase price to the executors who turned Robert's share over to the trustees (themselves) and they received their discharge as executors October 1, 1945.
Soon after the sale Robert went to work in Mankato, Minnesota, and after a short time moved to St. Paul, where he worked for a number of dry-cleaning firms. Roger received a navy commission and in February, 1946, was relieved from active duty, and returned to manage the laundry. In October, 1947, at Roger's request, Robert returned to Rice Lake and worked there till July, 1949, and then went to Florida where he lives now. During all this time he frequently asked for and received money from the trust. He continued to drink heavily for a time but he has not drunk intoxicants since 1949. He testified that it was sometime in 1947, probably in August, when he first discovered the sale price of the trust's interest in the laundry. On March 20, 1952, he commenced these proceedings by service of the petition first referred to. Judge BARRETT of Washburn county was called in and a hearing was had beginning on July 11, 1952. Decision dismissing the petition was rendered July 21, 1953.
Other material facts will be stated in the opinion.
We must affirm the order of the trial court denying Robert's demand that the trust be terminated. Paragraph Fourth of the will, supra, gives to the trustees discretion in paying to or withholding from Robert the corpus of the trust estate. The trustees testified that in their judgment Robert, as of the time of hearing, was still incapable of properly caring for the trust fund. Robert testified that he had had no experience in business management. The trial court found that the trustees' recommendation was within the bounds of their discretion and was made in good faith. Its finding, and its determination that the trust continue, are supported by the evidence and do not constitute an abuse of the court's discretion. We must sustain it.
Robert's proceeding to compel the delivery of the laundry to the trust estate is more complicated. In the first place, counsel for the trustees submit that the county court lost jurisdiction of this matter when time expired within which an appeal could be taken from the final judgment in the matter of Mrs. Pettee's estate, which final judgment directed the delivery by the executors to the trustees of Robert's share of the proceeds of the sale of the laundry. The trustees contend that relief, if any is available, must be sought in a court of general jurisdiction. Sec. 253.03(2), Stats., determines this latter issue in favor of the county court's jurisdiction.
"The county court shall have concurrent jurisdiction to hear, try, and determine all matters and controversies which may arise between any personal representative, guardian, or trustee appointed by such court and any other person relating to title to or interest in real and personal property so far as such matter or controversy is incidental to and necessary for the complete administration of the estate, guardianship, or trust, and regardless of who has possession of the property or in whose name it may be, to the same extent and with like effect as such matters and controversies may be heard, tried, and determined in courts of general jurisdiction."
We have frequently held that probate courts have full equity jurisdiction to vacate orders and judgments made and rendered in the administration of estates when they were induced by fraud though time to appeal had expired when relief was sought. Many of such instances involve frauds practiced on the court itself, as in Guardianship of Reeve (1922), 176 Wis. 579, 186 N.W. 736, where a child introduced as that of the testator was not so in fact, or Estate of Staab (1918), 166 Wis. 587, 166 N.W. 326, where the court was not informed that the will presented as that of a competent person was actually the will of an inmate of an insane asylum. To like effect is Estate of Bailey (1931), 205 Wis. 648, 238 N.W. 845. We consider that the county court had jurisdiction of this subject matter.
Throughout the proceedings in the trial court Roger Pettee and Mr. Stebbins objected to the court's jurisdiction because Robert's petition and the order of the court commanding them to appear cited them only in their capacity as trustees. They point out correctly that the executors were the sellers and Roger as an individual was the buyer. The trustees did nothing except to receive funds paid them by the executors under order of the court and thereafter they administered the funds in trust in a manner of which no complaint is made. They submit that until the parties are before the court in the capacities in which they are alleged to have wronged the petitioner the court lacks jurisdiction to determine if wrong has been done or to grant relief.
If we agreed with respondents in this jurisdictional question no doubt the petitioner would begin again against the same individuals in additional roles and what has been tried out now would be repeated with, possibly, some further defensive evidence pertinent to the new characters in which the individuals might be charged. If the merits of the case warrant it, we consider it our duty to avoid an unnecessary second trial and therefore we leave this jurisdictional question temporarily undetermined and proceed immediately to the merits upon the assumption that all parties, in all their capacities, are properly before the court.
The right to relief by a modification of the original order or decree in cases like this is founded in equity and therefore it may be lost to the injured party by his neglect to assert his rights or even by mere lapse of time if the delay impairs the equity of his claim. Estate of Bailey, supra, pp. 657, 658, citing DIXON, C. J. in Archer v. Meadows (1873), 33 Wis. 166, 173.
The trial court was fully informed of all material facts at the time it signed the order directing the sale, as well as at the time of the final judgment and order of distribution. We are not dealing here with an order or decree induced by a fraud upon the court. Neither are we confronted by a situation such as that in the leading case of Ludington v. Patton (1901), 111 Wis. 208, 86 N.W. 571, relied on by appellant, where the beneficiary entered into an improvident contract in the erroneous belief, induced by the fiduciaries, that her only legal right was to take the provision made for her by the will. The testimony here develops no fact which was misstated or concealed from Robert and the only matter of which he now complains is the price paid to the estate for the property. The trial court, which heard the testimony, found and concluded that the price was the fair value of the laundry at the time of the sale, and we cannot say that this is contrary to the great weight and clear preponderance of the evidence. The property appears to have been much run-down during the war years when it was operated by Mrs. Pettee and one helper. Laundries in surrounding towns were able to compete by sending their trucks to Rice Lake. Appellant's evidence of substantial income in recent years in relation to the sale price is not so impressive when the fact is considered that no salaries for Roger who worked full time and his wife who worked part time in the business were charged against that income, and the income was largely spent in replacing machines and repairing the building and thus increasing the capital investment.
The fraud on which appellant relies most strongly is that inherent by law in every sale of trust assets by a fiduciary to himself.
"The policy of the law is to regard all transactions of a contract nature, between a trustee and his cestui que trust, whereby the former obtains the interest of the latter, or some part thereof, in the subject of the trust, as presumptively fraudulent and void at the election of the latter. If such a transaction be permitted to stand it is upon condition that the trustee satisfies the court, fully and completely, that the cestui que trust received a full equivalent for that which he parted with, and that the transaction was to his advantage rather than to his disadvantage." Ludington v. Patton, supra, page 239.
Robert consented to this sale and joined in the petition for it but as Restatement, 1 Trusts, p. 609, sec. 216 (2), points out:
"The consent of the beneficiary does not preclude him from holding the trustee liable for a breach of trust, if
"(a) the beneficiary was under an incapacity at the time of such consent or of such act or omission; or
"(b) the beneficiary, when he gave his consent, did not know of his rights and of the material facts which the trustee knew or should have known and which the trustee did not reasonably believe that the beneficiary knew; or
"(c) the consent of the beneficiary was induced by improper conduct of the trustee; or
"(d) the beneficiary was not of competent age and understanding; or
"(e) the trustee had an adverse interest in the transaction, and the transaction to which the beneficiary consented involved a bargain which was not fair and reasonable."
Robert was not incompetent at the time of the sale. He was not a model citizen but his misbehavior and resulting troubles were not due to a lack of understanding. He had previously considered a sale of his interest in the laundry to Roger and for two months before the sale he was out of the navy and at home where at least he had the opportunity to be more familiar with the condition of the property than Roger, who was still in service. The inventory and the appraisal had been on file since April 11, 1945. Robert, however, submits that on July 9, 1945, he was mentally depressed and indifferent and did only what he was told.
Putting aside our doubts of the efficacy of the testimony on this subject to nullify Robert's consent to the sale, we note that for nearly seven years after the sale was consummated he accepted the benefits of the transaction. He moved about the country at will, writing home for money from his trust fund and at one time employing a lawyer to procure some of it for him. At least by August, 1947, he knew, — actually as well as constructively, — what the trust estate received in return for the laundry, and in the fall of that year, at a time he was working in the laundry at Rice Lake, he took $2,000 from the trust estate for a down payment on a house. Robert was not under the influence of Roger or Mr. Stebbins in the long time which passed before he repudiated the sale and all facts during his long silence were readily available to him. Meanwhile, in reliance upon Robert's consent and the order of the court, Roger continued to put money into the improvement of the property.
"The beneficiary cannot hold the trustee liable for a breach of trust if he fails to sue the trustee for the breach of trust for so long a time and under such circumstances that it would be inequitable to permit him to hold the trustee liable." Restatement, 1 Trusts, p. 627, sec. 219 (1).
The record here persuades us, as it did the learned trial court, that the price of the laundry was fair at the time the sale was made; that no actual fraud was practiced by any of the parties upon any other; that the sale was made upon the beneficiary's own petition and consent and that later, when he knew or should have known every material fact and was not subject to any influence by others, he affirmed the sale by accepting its benefits; and, finally, that if he ever had a right to a revocation of the sale and the court orders connected therewith, that right is now barred by his laches.
With this determination of the controversy on the merits, the question of the sufficiency of appellant's petition, which called for relief against trustees alone, becomes immaterial and is not decided.
By the Court. — Order affirmed.