Opinion ID: 2617289
Heading Depth: 1
Heading Rank: 5

Heading: Power of Trustee to Compromise a Claim.

Text: The main arguments of counsel herein have been devoted to the point as to whether or not a trustee may compromise a claim, including the litigation in the main case. Because of that, and since the question is new in this state it would seem advisable to make more than a cursory examination thereof. We think that a distinction should be made between an active trust and a passive or naked one. Counsel for the defendant maintain that the trust involved herein is an active one. Counsel for plaintiff do not distinguish between these. They cite 2 Perry on Trusts and Trustees, § 520, in which the author states that a release or dismissal of an action without the consent of the beneficiaries cannot be made by a trustee. However, the author there treats of naked or passive trusts and the authority is not in point unless it can be said that the trust involved in this case is one like that. The fact that the suit herein was brought in the name of the trustee seemingly does not, according to the same citation make the trust an active one. Mrs. Spencer was mortgagee and bought the property at a mortgage sale. No other duty seems to have devolved on her. And we are in some doubt as to whether or not that made her an active trustee, authorizing her to dismiss an action and compromise it when that action involved the conversion of some of the property of the trust. The point has not been sufficiently investigated by counsel and has not been sufficiently argued and we shall not decide it. See 1A Bogert, Trusts and Trustees, § 206. So we shall pass to the question as to the power of a trustee under an active trust. We are cited by plaintiff to 65 C.J. 689, wherein it is said that: As a general rule a trustee has no general authority to compromise a claim due the trust estate. But that does not mean that he may not do so under proper circumstances. 2 Beach on Trusts and Trustees, § 455, refers to the same matter, and states: The power to compromise a debt due to the trust estate is not a part of the general powers of a trustee, but if he makes a compromise of such a character that it plainly promotes the interest of the cestui que trust, and would have received the sanction of the court, if application had been made, it will be upheld in equity. Counsel for plaintiff further cites us to the case of In Re Bremer's Will, 156 Misc. 160, 281, N.Y.S. 264, 269, in which it is stated that: A trustee has no power to change or compromise the trust property committed to his charge without authority expressed in the instrument establishing the trust. While the result in the case cannot be said to be wrong, the broad language employed seems too broad when attempted to be applied to a case such as that before us, in which no instrument fixing the powers of the trustee exists. Moreover, the case cites Colorado & Southern Ry. Co. v. Blair, 214 N.Y. 497, 108 N.E. 840, in which the trust was in the main passive or naked. The first case which dealt directly with the point before us seems to be the case of Blue v. Marshall, 3 P. Wms. 380, 24 English Reprint 1110, decided in 1735, in which the syllabus reads: Though, generally speaking, an executor or trustee compounding or releasing a debt, must answer for the same; yet if this appears to have been for the benefit of the trust estate, it is an excuse. Courts have not since that time greatly deviated from this general statement, although some of the courts have been more cautious in their statements than others, and some have applied the rule, perhaps more strictly than others. The Restatement of the Law on Trusts, § 192, states the rule as follows: The trustee can properly compromise, submit to arbitration or abandon claims affecting the trust property, provided that in so doing he exercises reasonable prudence. So in 2 Scott on Trusts, § 192, it is stated: Where however, it is reasonably prudent to compromise a claim, the trustee has power to do so. It is only where he acts in bad faith or imprudently in making such a compromise that he thereby commits a breach of trust. See also to the same effect 3 Bogert on Trusts and Trustees, § 592, and 2 Perry on Trusts and Trustees (7th Ed.), § 482. And a number of comparatively recent cases follow the same rule. Redmond v. Commerce Trust Co., 144 F. (2d) 140, 155; Purcell v. Robertson, 122 W. Va. 287, 8 S.E. (2d) 881, 884; Jones v. Jones, 297 Mass, 198, 7 N.E. (2d) 1015, 1020; Kinion v. Riley, 310 Mass. 338, 37 N.E. (2d) 984, 985; Sheridan v. Riley, 133 N.J. Eq. 288, 32 A. (2d) 93, 95; Butler v. Butler, 180 Minn, 134, 230 N.W. 575, 579; Mann v. Day, 199 Mich. 88, 165 N.W. 643, 646; Broeker v. Ware, 27 Del. Ch. 8, 29 A. (2d) 591; Suffolk County National Bank v. Licht, 256 App. Div. 1080, 11 N.Y.S. (2d) 124; Matter of Ledyard, 21 N.Y.S. (2d) 860, 259 App. Div. 892, 1029. We might incidentally mention the fact that under § 6-1908, W.C.S. 1945, executors or administrators (who, of course, are in fact trustees) may compromise a claim due to the estate with the approval of the court. And in a number of states, authority to compromise is given by statute, even without the approval of the court. See 3 Bogert, Trusts and Trustees, notes to § 592. Testing the facts in this case by the foregoing rule, we think that the so-called compromise herein must be condemned for two reasons. In the first place, a trustee who, according to her own testimony, knew comparatively little about the poperty in controversy here, can hardly be said to have acted prudently when she attempted to settle the lawsuit herein in the absence of her attorney and co-cestui when she knew as the testimony shows that the compromise would displease him and would not be confirmed. We feel reasonably certain that if the compromise had been presented to the court for approval in the first instance, at the time when it was made, it would not have been approved in the absence and against the wishes of Miller, and that has been said to be one of the criteria as to whether or not it should be approved later. Bacot v. Heyward, 5 S.C. 441. In the second place, the lawsuit attempted to be settled called for damages of $20,700. The defendant gave $5,000 and received in return property valued at $8,450 to $8,950 as the undisputed testimony shows, so that the lawsuit was attempted to be settled without any consideration whatever. The transaction was, in fact, no compromise at all. It was a gift. That such a transaction cannot stand is obvious and is hereby annulled. The judgment of the trial court is reversed with direction to proceed to the hearing of the main case, giving the right to the plaintiff to file an additional cause of action for the recovery of the property given defendant under the so-called compromise, or the value thereof. RINER, J., and JLSLEY, J., concur.