Title: Jennings v. Jennings
Citation: 211 Kan. 515, 507 P.2d 241
Docket Number: 46,771
State: Kansas
Issuer: Kansas Supreme Court
Date: March 3, 1973

211 Kan. 515 (1973)
507 P.2d 241
JOHN P. JENNINGS, LUCILE JENNINGS GILLE, and LAURA JENNINGS HOUSEWORTH, Individually and as Trustees, and LUCILE POLLOCK JENNINGS, Appellees,
v.
MAE N. JENNINGS, Appellant, and THE NATIONAL INVESTMENT COMPANY, INC., Defendant.
No. 46,771

Supreme Court of Kansas.
Opinion filed March 3, 1973.
J.D. Lysaught, of Weeks, Thomas, Lysaught, Bingham &amp; Johnston, Chartered, of Kansas City, argued the cause, and David K. Fromme, of the same firm, was with him on the brief for the appellant.
John F. Steineger, of Steineger &amp; Reid, of Kansas City, and Howard A. Crawford, of Lathrop, Koontz, Righter, Clagett, Parker &amp; Norquist, of Kansas City, Missouri, argued the cause, and William K. Waugh, III, of Lathrop, Koontz, Righter, Clagett, Parker &amp; Norquist, of Kansas City, Missouri, was with them on the brief for the appellees.
The opinion of the court was delivered by
OWSLEY, J.:
This is an appeal from summary judgment in favor of plaintiffs. The trial court found an agreement dated July 7, 1943, created a valid and enforceable trust on all the issued and outstanding stock of the National Investment Company and required the defendant, Mae N. Jennings, to transfer and deliver to to the plaintiffs, John P. Jennings, Lucille Jennings Gille, and Laura Jennings Houseworth, as trustees, all shares of stock in said corporation in her name individually and as joint tenant with A.H. Jennings, Jr., her deceased husband who had in his lifetime as trustee assigned to her said stock in violation of the terms of the trust. The appeal questions the trial court's construction of the 1943 agreement and the failure of the trial court to find the action was barred by the statute of limitations.
*517 Each member of the family is a party to this action except those shown as deceased in the following diagram of the family tree of the Jennings family:
On July 7, 1943, A.H. Jennings, Jr., Frank H. Jennings and Lucile Pollock Jennings executed an agreement which in part provided:
..............
..............
"Frank H. Jennings 467 shares;
"Lucile Pollock Jennings 33 shares.
*518 "It is therefore, agreed by the parties as follows:
..............
..............
After execution of the agreement the following events transpired:
June 13, 1946  A.H. Jennings, Jr., married Mae N. Jennings, defendant and appellant herein. Both had substantial property, but there was no antenuptial or postnuptial agreement between them.
Sept. 24, 1949  Frank H. Jennings executed a will which made no reference to the agreement.
Feb. 19, 1953  Frank H. Jennings died. Following his death, A.H. Jennings, Jr., continued to manage the affairs of National Investment Company without any interference from heirs of the deceased, and income from the deceased's National Investment stock was paid to his widow.
Oct. 19, 1953  Accountants for executrix requested legal opinion as to the effect of the agreement upon the Frank H. Jennings estate. The opinion stated the agreement was valid and could be enforced by any interested party. It also answered several questions as to tax benefits in alternative situations and recommended that Lucile Pollock Jennings petition the probate court to impress a trust upon all the stock to carry out the terms of the agreement.
May 29, 1957  A.H. Jennings, Jr., issued a certificate of stock transferring 220 shares of stock to Mae N. Jennings.
Aug. 8, 1957  A.H. Jennings, Jr., wrote to plaintiffs, disavowing the validity of the 1943 agreement. After consultation with his nephew, John P. Jennings, and Thomas Van Cleave, Sr., author of the agreement, A.H. Jennings, Jr., was convinced he could not disavow the agreement.
Aug. 19, 1957  A.H. Jennings, Jr., wrote a letter retracting his statements and recognizing the validity of the 1943 agreement.
Feb. 10, 1964  The 1963 annual report of National Investment Company was filed with the secretary of state showing Mae N. Jennings as owner of 220 shares of stock.
Aug. or Sept., 1964  A.H. Jennings, Jr., talked to Lucile Jennings Gille and suggested the assets of the company be distributed. He wanted one building for himself and the others could divide the rest any way they wanted. The other children of Frank H. and Lucille Pollock Jennings did not respond.
Oct. 10, 1964  A.H. Jennings, Jr., transferred 280 shares to himself *520 and his wife, Mae, as joint tenants with right of survivorship.
June 12, 1969  A.H. Jennings, Jr., died. No claim upon his estate was made by plaintiffs.
Oct. 13, 1969  Plaintiffs filed action asking court to enjoin defendant from transferring or alienating shares of National Investment Company stock in her possession to impress upon all stock a trust, declaring plaintiffs trustees with equal life estates in the income from all stock, and ownership of all stock in plaintiffs upon the death of Lucile Pollock Jennings and Mae N. Jennings.
Other facts will be referred to in connection with development of the issues in this action.
This case was submitted to the trial court on the pleadings, depositions, and other written and documentary evidence. The parties agreed there was no genuine issue as to any material fact. In these circumstances we may decide the established facts as we would in an original action. (Northern Natural Gas Co. v. Dwyer, 208 Kan. 337, 492 P.2d 147.)
Defendant first contends the agreement of 1943 did not create an express trust or a trust implied in fact. We identify a trust arising out of a written agreement as an express trust even though the language of a written agreement is sometimes construed as creating a trust by implication. In Sears v. First Fed. Sav. and Loan Assoc., 1 Ill. App.3d 621, 275 N.E.2d 300, the court stated:
In seeking principles and guidelines to which we can subject the 1943 agreement we find no better authority than the opinion of this court in Shumway v. Shumway, 141 Kan. 835, 44 P.2d 247. It was stated therein that from the standpoint of parties, an express trust implies a cooperation of three persons: (1) A settlor, or a person who creates or establishes a trust; (2) a trustee, or person who takes and holds legal title to the trust property for the benefit of another; and (3) a cestui que trust, or the person for whose benefit a trust is created.
Applied to the facts in this case the three persons are easily defined. It follows that A.H. Jennings, Jr., Frank H. Jennings, and Lucile Pollock Jennings, having signed the written document of *521 1943, became the settlors of the trust. The trustees were Frank H. Jennings and A.H. Jennings, Jr., or their survivor. The cestui que trust are the widows of Frank H. Jennings and A.H. Jennings, Jr., and Frank's three children, John P. Jennings, Lucile Jennings Gille, and Laura Jennings Houseworth.
Shumway established three requisite features necessary to create a trust: (1) An explicit declaration and intention to create a trust; (2) the transfer of lawful and definite property made by a person capable of making a transfer thereof; and (3) a requirement to hold as trustee for benefit of a cestui que trust with directions as to the manner in which the trust funds are to be applied.
In applying the three necessary features of a trust to this trust agreement we find the three owners of all the stock in the National Investment Company, for the purpose of retaining the stock of said corporation in the members of the Jennings family, assigned all of said stock to Frank H. Jennings and A.H. Jennings, Jr., as trustees, with specific directions to hold said stock for the benefit of themselves, their widows, and their children. We are satisfied that each of the requisite features of a trust as set forth in Shumway has been fulfilled in the 1943 agreement and we hold that an express trust was firmly established.
Defendant questions that a trust was created because the instrument did not contain the words "trustee", "trust", "beneficiary", or any equivalent thereof. In Springer v. Litsey, 185 Kan. 531, 345 P.2d 669, the court construed an agreement to be a trust which failed to use the words usually employed in a trust instrument and stated:
To the same effect is the following from Bogert, Trusts and Trustees, § 45, (2nd ed. 1964), pp. 312-316, where it was said:
*522 Defendant also contends there was no actual transfer of definite property to a trustee, since Lucile Pollock Jennings transferred her shares to her husband, Frank H. Jennings; and that Frank H. Jennings and A.H. Jennings, Jr., did not transfer their shares of stock to anyone, but merely endorsed them in blank and placed them in a safety deposit box under the control of both Frank H. Jennings and A.H. Jennings, Jr. We do not agree that the failure to transfer property to a named trustee prevents a trust relationship. It is sufficient if the transfer places the property under the control of named persons who are determined to be trustees by a reasonable construction of the agreement.
Defendant argues the 1943 agreement contemplated the stock in the National Investment Company was to be held individually by the respective owners. We recognize that for the purpose of distributing the income of the investment company the ownership was determinative. This is not inconsistent with the status of the stock as trust assets. Each of the trustees (Frank H. Jennings and A.H. Jennings, Jr.) remained charged in accord with directions and instructions set forth in the agreement. Defendant further states since the agreement provided only the stock of the brother first to die would pass in a certain manner, the remaining brother would merely keep the stock he previously owned without interference of a trust. This argument is not effective in that it overlooks the fact the shares of stock of each of the brothers were part of the trust assets charged with trust directions.
Defendant further argues plaintiffs are estopped to contend the 1943 agreement created a trust; that the trust, if any, terminated prior to transfer to her because there was a merger or the trust was passive; that the agreement constituted an invalid attempted testamentary disposition of property; that the agreement did not divest the parties of power to dispose of their stock prior to their respective deaths; and that the agreement constituted an unreasonable restraint on alienation. Our conclusion that a valid and binding trust was created by the 1943 agreement is a basic answer to each of defendant's contentions.
Defendant contends plaintiffs' cause of action was barred by the statute of limitations. She argues the breach of contract rule should be applied to the facts in this case; i.e., the cause of action accrues on breach, irrespective of knowledge of plaintiffs that the breach occurred. Since the breach occurred when A.H. Jennings, Jr., *523 transferred the two blocks of stock to Mae N. Jennings, the five-year statute of limitations on agreements in writing (K.S.A. 60-511), has expired. Recognizing we might construe the 1943 agreement to be a trust, defendant claims the transfer of the stock resulted in a repudiation of the trust. She then argues a cause of action accrues on repudiation of a trust agreement and is likewise barred by K.S.A. 60-513. Defendant further contends plaintiffs are not entitled to the advantages of K.S.A. 60-513 (two-year limitation after discovery of fraud) in that the basis of the action is repudiation of a trust, not fraud. Even though the amended petition used the word "fraudulently" in describing the acts of A.H. Jennings, Jr., she argues plaintiffs should not be permitted to insert fraud into this action when the basis of their cause of action is repudiation of a trust agreement, citing State, ex rel., v. McKay, 140 Kan. 276, 36 P.2d 327.
Since we have firmly concluded the 1943 agreement created a trust and the relationship between A.H. Jennings, Jr., and the plaintiffs was that of trustee and beneficiaries, we must apply the statute of limitations in that context. Defendant argues there is a distinction between breach of a trust and repudiation of a trust. While this contention might be true, it has no significance in this action as it affects the statute of limitations. The cause of action is based on the acts of A.H. Jennings, Jr., in transferring the stock to Mae N. Jennings. Whether such an act constituted a breach or a repudiation of the trust agreement is immaterial in determining when a cause of action accrued.
It is plaintiffs' position that their cause of action did not accrue until they had knowledge of the repudiation of the trust agreement and this did not occur until after the death of A.H. Jennings, Jr. Plaintiffs' petition was filed about four months after his death. We find support for plaintiffs' position in the following cases:
Cooley v. Gilliam., 80 Kan. 278, 102 Pac. 1091:
Flitch v. Boyle, 147 Kan. 600, 78 P.2d 9:
Staab v. Staab, 158 Kan. 69, 145 P.2d 447:
We are not impressed by the argument of defendant that this cause of action does not sound in fraud. True, the plaintiffs did not use the word "fraudulent" until the amended petition was filed; however, a trustee who breaches or repudiates a trust agreement commits an act which necessarily encompasses fraud. To determine whether the plaintiffs discovered or should have discovered the fraudulent acts of A.H. Jennings, Jr., more than two years prior to the filing of this action requires an examination of the record.
Defendant contends plaintiffs cannot avoid the running of the statute by claiming ignorance of the facts when on reasonable diligent investigation the facts were discoverable. We believe defendant's contention should be tempered to the extent that a beneficiary of a trust is not charged with the duty to investigate the action of the trustee until such facts as would prompt a normally alert person to make further inquiry are known to him. Defendant points out facts known to plaintiffs and argues therefrom that plaintiffs were obligated to inquire and investigate acts of the trustee. We have considered the able argument of defendant, but we believe the whole of the record justifies a conclusion that plaintiffs did not have knowledge or information which would arouse suspicion or alert them to wrongdoing on the part of the trustee. The plaintiff, Lucile Pollock Jennings, was to receive from the corporation benefits her husband would have received during his lifetime. She received these benefits and the fact they were paid by corporation check rather than a check from the trustee could not alert her to believe the trust was not being properly administered. *525 The other plaintiffs, also beneficiaries under the trust, had no benefits accruing to them until after the death of their mother, Lucile Pollock Jennings.
We should also note that as far as plaintiffs knew, A.H. Jennings, Jr., after the death of his brother, Frank, continued to manage and control the National Investment Company pursuant to terms and conditions of the agreement. In fact, under date of August 19, 1957, he wrote a letter to all the plaintiffs wherein he stated: "... I have and do recognize the existence and validity of the contract referred to of July 7, 1943...." It is interesting to note this letter was written after A.H. Jennings, Jr., had transferred 220 shares of stock to Mae N. Jennings under date of May 29, 1957. The payment of all of the deceased's benefits to Lucile Pollock Jennings could only be made pursuant to the agreement; hence, it was a recognition of the agreement. It should also be pointed out that the other plaintiffs had no right to possession of the stock until the death of A.H. Jennings, Jr. In addition, Lucile Jennings Gille testified that she had been told by her uncle:
Significance can also be given to the fact that in 1964 when he suggested the company's assets be distributed, A.H. Jennings, Jr., admitted he had only a life interest. The transfer of the stock by A.H. Jennings, Jr., to his wife, Mae N. Jennings, was not discovered until his death. We must conclude that by reason of the terms of the trust agreement and action of the trustee, A.H. Jennings, Jr., prior to his death, the plaintiffs had no reason to believe the trust was not being administered according to its terms. Accordingly, plaintiffs' cause of action accrued after the death of A.H. Jennings, Jr., when they learned of the stock transfers to Mae N. Jennings.
In Manka v. Martin Metal Mfg. Co., 153 Kan. 811, 113 P.2d 1041, the court said the filing of annual reports of corporations, showing a list of stockholders, provides notice of the ownership of stock to all interested persons. Defendant seeks to charge plaintiffs with knowledge of the transfer of the stock to Mae N. Jennings on May 29, 1957, by the fact she was listed as owner of 220 shares in the annual report filed with the secretary of state on February 10, 1964. If the Manka case stands for the proposition that in every *526 instance the filing of the annual report of a corporation charges all interested persons with knowledge of its contents, we cannot approve such a rule of law. Our position is that constructive notice of the contents of an annual report of a corporation is not chargeable to interested persons unless and until those interested persons have some reason to believe the trustee of the corporate stock is acting contrary to the trust agreement. In the absence of such a showing we must hold the corporate annual report is not ipso facto notice of its contents and we disapprove the language in Manka v. Martin Metal Mfg. Co., supra, to that extent.
Defendant further contends the ten-year statute of limitations contained in K.S.A. 60-513 is a defense to plaintiffs' cause of action based on the assignment of stock made on May 29, 1957 (220 shares). K.S.A. 60-513 provides:
"(5) An action for wrongful death.
We have not considered or decided this issue although we recognized its existence in City of Ulysses v. Neidert, 196 Kan. 169, 409 P.2d 800. It is the duty of courts to reconcile various provisions of a statute in order to make them consistent, harmonious and sensible if that can be done without doing violence to plain provisions therein contained. (Phillips v. Vieux, 210 Kan. 612, 504 P.2d 196.)
There appears to be some conflict between the provision that a cause of action for fraud has a limitation period of two years after discovery and the provision for an overall limitation period of ten years from the act giving rise to the cause of action. If the ten-year limitation provision applies to actions based on fraud, an action based on the assignment of stock made May 29, 1957, is barred.
*527 K.S.A. 60-513 provides for a two-year limitation in five separate types of actions. Provisions covering accrual of causes of action under the statute is limited in section 3, involving an action based on fraud. The provision for the ten-year limitation period does not mention fraud or the discovery of fraud, but refers to those cases where the fact of injury may become ascertainable sometime following the act causing the injury. In an action based upon fraud, its discovery is simultaneous with the discovery of the injury resulting therefrom. In order to harmonize the statute and give effect to each of its provisions we must conclude the legislature did not intend that an action based on fraud was subject to the ten-year limitation. This position conforms with comments in Gard, Kansas Code of Civil Procedure Annotated, § 60-513, p. 535, and 5 Vernon's Kansas Statutes Annotated, Code of Civil Procedure, § 60-513, p. 32.
Defendant attempts to apply the rule of laches to bar the plaintiffs' cause of action, claiming they should not be allowed to pursue this action by reason of their long delay in asserting their rights. To the contrary is Yeager v. National Cooperative Refinery Ass'n, 205 Kan. 504, 470 P.2d 797. It was held therein that when a statute fixes a limitation period for a claim asserted in a court of law, a court of equity will by analogy follow statutory limits when the claim is raised in an equitable proceeding rather than applying the doctrine of laches.
We hold that the 1943 agreement is a valid and binding express trust and that plaintiffs' cause of action for transfer of trust assets in violation of the terms of the trust is not barred by limitations.
Affirmed.
FROMME, J., not participating.