Opinion ID: 877549
Heading Depth: 1
Heading Rank: 2

Heading: issues

Text: The District Court concluded that plaintiff Jeanne had established her right to rescind her part of the transaction which created the corporation, as follows: 1. Plaintiffs have established their right to have the transaction whereby Plaintiff, Jeanne Skierka, and Defendant, John Skierka, transferred asserts to Skierka Brothers, incorporated, [sic] in exchange for stock rescinded on the basis that the acts and failures to act of the Defendant, John Skierka, who was then a trustee in each of his capacities as executor of his deceased brother's estate and as surviving partner, resulted in placing him in control of said corporation and are, as a consequence, fraudulent pursuant to Section 72-20-207 of the Montana Code. That conclusion is based upon the trial court's findings that the two brothers had been equal partners in the ranch business; that defendant John was executor of his brother's estate; that at the time the incorporation took place, all parties believed control would be and was divided equally; but that, as a result of the accountant's valuation of the two houses, defendants John and Bernice ended up in control of the corporation. Past Montana cases have assumed, without explicitly stating, that an executor of a decedent's estate occupied a position of trusteeship over the assets and in favor of the devisees. See In re Jennings' Estate (1925), 74 Mont. 449, 461-462, 241 P. 648, 652; In re Eakins' Estate (1922), 64 Mont. 84, 93, 208 P. 956, 960. (The Montana Probate Code now specifically places all the duties of a trustee upon personal representatives. Section 72-3-610, MCA.) The trustee statutes, sections 86-301 et seq., R.C.M., 1947, now sections 72-20-201 et seq., MCA, provide as follows:  Trustee's obligation of good faith. In all matters connected with his trust, a trustee is bound to act in the highest good faith toward his beneficiary and may not obtain any advantage therein over the latter by the slightest misrepresentation, concealment, threat, or adverse pressure of any kind. (XX-XX-XXX, MCA.)  Trustee's influence not to be used for his advantage. A trustee may not use the influence which his position gives to him to obtain any advantage from his beneficiary. (XX-XX-XXX, MCA.) ...  Duty to disclose adverse interest. If a trustee acquires any interest or becomes charged with any duty adverse to the interest of his beneficiary in the subject of the trust, he must immediately inform the latter thereof and may be at once removed. (XX-XX-XXX, MCA.)  Violation of obligations as fraud. Every violation of the provisions of the preceding sections of this chapter is a fraud against the beneficiary of the trust. (XX-XX-XXX, MCA.)  Presumption against trustees. All transactions between a trustee and his beneficiary during the existence of the trust or while the influence acquired by the trustee remains by which he obtains any advantage from his beneficiary are presumed to be entered into by the latter without sufficient consideration and under undue influence. (XX-XX-XXX, MCA.) In its Memorandum on Order Denying Post-trial Motions, the District Court gives its reasons for finding fraud: ... At the time the corporation was created and the assets of the parties were transferred to it, John Skierka stood in a trust relationship to Jeanne Skierka, both as the surviving partner and as executor. More than that, he stood in a relationship of trust and confidence to Jeanne as one to whom she could look and did look for guidance and advice on business affairs. The evidence further shows that at this time Jeanne was still distraught over her husband's death and was not paying close attention to business details, although desirous of carrying out her late husband's desire to convert the partnership to a corporation. In the view of this Court, John Skierka had an affirmative duty to see that he and Jeanne retained positions of equality upon creation of the corporation, and it was a breach of his duty to permit a result which placed him in a superior position, in control of the corporation and the disposition of the stock. Although defendants argue that the transaction occurred in the presence of an independent attorney and accountant who explained the significance of the transaction to Jeanne Skierka, the attorney and accountant admit that they told Jeanne that the unequal stock ownership was not really important and they failed to discuss with her the by-law provision which restricts the sale of stock or to advise her what effect this could have on her as a minority stockholder. So it is clear that the full significance of the transaction was not explained to Jeanne. In the Court's view this situation comes within the definition of constructive fraud: `Any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under him by misleading another to his prejudice ...' Section 28-2-406, MCA. Because the result of the incorporation is to give defendants John and Bernice control over the assets which plaintiff Jeanne acquired by will from her late husband, the trustee statutes have clearly been violated, regardless of John's good intentions. Defendants cite the case of Boatman v. Berg (1978), 176 Mont. 208, 577 P.2d 382, as support for their argument that some wrongful act must be shown before a trustee can be found to have committed fraud upon his beneficiary. In Boatman, this Court found no wrongful act, because it was clear there that the trustee had given good and adequate consideration for all of the property which the plaintiff had transferred to him; the trustee did not benefit at the expense of the beneficiary. Here, defendant John personally benefited at the expense of plaintiff Jeanne when he gained the power to value Jeanne's stock and to control corporate operations. That condition was not present in Boatman. The evidence does show that Jeanne, since the date of incorporation, has been able to withdraw all the money she has needed and that John has managed the corporation competently and efficiently. However, competent management does not correct the initial wrong: defendant John obtained an advantage over plaintiff Jeanne without having fully disclosed the consequences.