Opinion
No. 28489
Decided July 16, 1941.
Trusts — Settlor of living trust pledged assets as security for loan from trustee bank — Note provided surplus from sale to be returned to settlor — Bank directed to deposit with loan department, receipt for stock in trust — Settlor died indebted to bank and trust beneficiaries paid indebtedness — Stock treated as part of trust corpus and not of insolvent estate — Assessment of double liability on shares of bank stock — Section 710-75, General Code — Settlor's vendor entitled to reimbursement for assessment paid on shares, when.
APPEAL from the Court of Appeals of Cuyahoga county.
Under favor of Sections 10509-216 and 10509-217, General Code, this action was instituted in the Court of Common Pleas by the plaintiff, The Woodside Company of Nevada, to recover the sum of $2,773.17 which it was compelled to pay to the Superintendent of Banks of the state of Ohio on August 23, 1937, under the provisions of Section 710-75, General Code, as an assessment of the added or double liability on 105 shares of the capital stock of The Union Trust Company of Cleveland, which shares were sold by the plaintiff to Christian Narten within sixty days before the failure of the latter company.
Five of the defendants are the surviving children of Christian Narten, now deceased. The defendant, the Central National Bank, was a creditor of Christian Narten at the time of his death. It likewise was the trustee of a living trust under an agreement with Mr. Narten as the settlor.
From the pleadings, the evidence and the agreed statement of facts it appears that the original trust agreement was dated June 4, 1924, and that the principal asset of the trust was 1,200 shares of the capital stock of The Weideman Company of Cleveland. At various times during the period of the agreement various sums of money were advanced or loaned to Mr. Narten by the trustee bank, and trust assets were used for collateral security. On January 15, 1932, he negotiated a loan for $50,000 which remained unpaid at his death on August 20, 1933. He executed therefor a note reciting that for security for the loan he pledged the 1,200 shares of The Weideman Company stock mentioned above. The note provided further that in case of the sale of the pledged stock and the payment of the note thereby, the "bank may apply the residue of the proceeds * * * to the payment of any, either or all of the liabilities of the undersigned * * * returning the surplus, if any, to the undersigned." Also as a part of the transaction Mr. Narten signed a letter likewise dated January 15, 1932, reading in part as follows:
"I am about to negotiate a loan from your bank and to execute and deliver my note therefor in the sum of fifty thousand dollars ($50,000).
"As collateral security for the payment of this note or any renewal thereof, or renewal of part thereof, I hereby direct you to deposit with your loan department the receipt * * * for 1,200 shares of common stock of The Weideman Company, which receipt you are holding in trust for me under a trust agreement dated June 4, 1924.
"You are also authorized and directed to execute and deliver any and all powers of attorney or other instruments and to make all indorsements necessary to give effect to this pledge."
In conformity with this instruction the bank transferred the stock certificate from its trust department to its collateral loan department. It remained there until after the death of Mr. Narten. Following the decease of their father the children paid the note. They then asked the bank to treat the stock as a part of the corpus of the trust instead of an asset of the father's estate. This the bank did. The estate was thereby left insolvent. The children then requested the bank to distribute the stock to themselves under the provisions of the trust. This likewise was done and constitutes the gravamen of one of the plaintiff's two complaints in this action.
The Court of Common Pleas held that the trust was valid and that the bank was correct in treating the 1,200 shares of stock as a part of the corpus of the trust instead of an asset of the father's estate. Judgment was rendered for the defendants.
Upon an appeal to the Court of Appeals on questions of law the judgment of the Court of Common Pleas was affirmed by a majority of the court with one judge dissenting.
The case is in this court for review by reason of the allowance of the plaintiff's motion to certify the record.
Messrs. Boyd, Brooks Wickham, for appellant.
Messrs. Hollington Macdonald, for appellees, Perry F. Narten and others.
Messrs. Laylin Smith, for appellee, Central National Bank of Cleveland.
The first contention of the plaintiff is that the powers of control reserved by the settlor, Mr. Narten, over the trust corpus were so great as to constitute the creation of a mere agency instead of a valid trust. Reliance.is placed upon the fourth paragraph of the syllabus in the case of Cleveland Trust Co., Trustee, v. White, 134 Ohio St. 1, 15 N.E.2d 627, which reads as follows:
"No valid trust is established when the settlor reserves powers which in their cumulative effect amount to ownership of the trust estate with such control over the administrative functions of the trustee as to make of him simply the settlor's agent or representative."
After a study of the facts in the instant case the members of this court find a difference of opinion among themselves as to whether a valid trust was created, and since the ultimate judgment herein will not be affected thereby, this question will not be discussed further.
The second contention of the plaintiff is that even if a valid trust were created, Mr. Narten withdrew therefrom the 1,200 shares of stock on January 15, 1932, and instructed the bank to return "the surplus, if any, to the undersigned" ( himself). To this the response of the defendants is that this instruction was of no effect because the loan department of the bank issued a receipt to the trust department agreeing to return the stock certificate to it when the loan was paid. But it seems hardly necessary to observe that any arrangement made by the two departments of the bank between themselves could not have the effect of nullifying the agreement between the bank and Mr. Narten requiring the return of the surplus stock to him after payment of the loan.
Then, too, it is important to note that the trust agreement did not authorize either the bank or Mr. Narten to pledge trust assets as security for a loan to him while they still were part of the trust corpus; and there is nothing in the record to indicate that a violation of the agreement was intended. But in the agreement Mr. Narten did expressly reserve to himself the right to withdraw trust assets by either a partial or total revocation. That he exercised this right with reference to the 1,200 shares of stock must be presumed in the absence of evidence of conduct inconsistent with the provisions of the agreement. The defendants insist that even if an illegal transaction arose by reason of the procedure followed by the bank and Mr. Narten, a revocation by the latter should not be declared in order to give validity thereto. This is of course true, but, as previously observed, the record discloses no evidence of such illegality.
The judgments below must be reversed, and final judgment must be here rendered for the plaintiff in conformity with the prayer of its petition.
Judgment reversed.
WEYGANDT, C.J., TURNER, WILLIAMS, HART, ZIMMERMAN and BETTMAN, JJ., concur.
MATTHIAS, J., not participating.