Opinion ID: 1246501
Heading Depth: 1
Heading Rank: 4

Heading: Continued investment in bonds.

Text: Defendant next contends that if a trust was created its obligations as trustee were limited by the terms of the will to investments in bonds and that it was prohibited from investing any portion of the trust fund in common stocks. Plaintiffs contend, on the contrary, that defendant, as trustee, was under a duty to invest the trust funds as a reasonable prudent trustee would have done; that investments by such a trustee would have included common stocks, and that by failing to do so defendant breached its duty as trustee and should be held liable in damages for the amount by which the income and corpus of the trust would have been increased by such an investment program. In support of that contention plaintiffs say that the use of the words negotiable instrument in Paragraph IV of the will was sufficient to demonstrate an intent by Mr. Stephan to authorize the trustee to invest in common stocks, as well as in bonds, when the existing coupon bond matured. Plaintiffs also say that an intent to authorize investment of the trust fund in stocks must be presumed as a result of the adoption in 1935 by the Oregon legislature of the Uniform Stock Transfer Act (Oregon Laws 1935, ch. 239), under which it has been held that a trustee may invest in common and preferred stocks. From an examination of the provisions of the will, and considering the state of the law at that time relating to the investment of trust funds, we do not believe that Paul Stephan had such an intent. On the contrary, we are inclined to the belief that Mr. Stephan intended that the entire trust fund of $50,000 be invested in bonds, rather than in stocks, and agree with the holding by the trial court to that effect. Section 22-1214, Oregon Code 1935 Supp., as in effect at that time, was a legal list for Funds held in trust by any trust company, and it was exclusive. It permitted investment in United States government bonds, certain state and municipal bonds, bonds other than foreign bonds listed on the New York, Boston, Chicago or San Francisco stock or bond exchange and certain curb bonds and bonds of other approved exchanges meeting certain rating requirements, Canadian and British bonds payable in dollars, notes and bonds secured by first mortgages, and investments agreed upon between the trustee and trustor or approved by the court. This court held in Marshall v. Frazier, 159 Or. 491, 533-534, 80 P.2d 42, 58, 81 P. 2d 132 (1938), that in the absence of express authority from the trustor:    Neither in the original act nor in the amendments thereof is any trust company given authority by the legislature to invest    While those statutes do not apply to trustees of private trusts, they may be understood as indicative generally of the kinds of investments regarded by the legislature as safe and suitable for trust funds not specifically directed by the trust instrument to be otherwise invested.    In Kinney v. Uglow, 163 Or. 539, 98 P.2d 1006 (1940), construing a trust instrument which allowed reinvestment in some safe, interest-bearing security, approved by the court having jurisdiction hereof, the court held (163 Or. at 578, 98 P.2d at 1020) that Shares of stock in a corporation are not interest-bearing securities. It was held that the trustee was in breach of trust even though he had obtained court approval for an investment in stocks because he had failed to apply to the court for a construction of the will, under which no authority was given to invest in stocks. For these reasons we hold that defendant was not authorized to invest in stock, at lease in the absence of either express authority from the court or express approval by all beneficiaries of the trust. This brings us to plaintiffs' further contention that defendant had a duty to apply to the court for instructions. According to 1 Restatement of Trusts 2d § 259 (1959): The trustee is entitled to apply to the court for instructions as to the administration of the trust if there is reasonable doubt as to his duties or powers as trustee. While it may have been appropriate for defendant to do so, we do not believe that under the facts and circumstances of this case defendant was required to do so. It appears that when the original $50,000 coupon bond matured in 1941 Mrs. Stephan consulted an attorney who wrote to defendant that he not only represented her, but her son and daughter as well, and suggested that this bond, or the greater portion thereof, should be converted into Government bonds and did not suggest that any part of the proceeds be invested in stocks. It also appears that Mrs. Stephan then, while apparently acting under the advice of counsel, expressly consented to the reinvestment of the entire fund in three per cent coupon bonds issued by defendant and that every three years thereafter she also expressly consented to the reinvestment of the entire fund in other coupon bonds bearing interest rates as low as two per cent per annum until 1953, when the last of these bonds matured and defendant ceased the issuance of such bonds. At all times prior to 1953 the reissuance of these coupon bonds was handled through an attorney representing Mrs. Stephan. It is true that consent by a beneficiary does not preclude him from holding a trustee liable for breach of trust if such consent was induced by improper conduct of the trustee or if the trustee has an adverse interest and the transaction is not fair and reasonable. 1 Restatement 2d, supra, § 216(2)(c), and Comments k, l, m and n. In this case, however, while it may be true that Mrs. Stephan was a person of limited understanding and experience and that defendant did not inform her of all of the rights which she may have had, it appears that during this entire period from 1941 to 1953 she was acting under the advice of an attorney. Under these facts, we hold that defendant was under no duty to make application to the court for a construction of the will on the question whether or not it was authorized to reinvest any portion of the trust fund in stocks, rather than in bonds. Under these same facts, it is clear that there was no consent by the beneficiaries of the trust to invest any portion of the trust fund in stocks, rather than in bonds. It follows that defendant did not breach its duty as trustee by failing to reinvest any portion of the trust fund in common stocks, contrary to the present contentions by plaintiffs.