Opinion ID: 1849893
Heading Depth: 1
Heading Rank: 1

Heading: The bank acted in good faith.

Text: The trial judge determined that the bank acted in good faith. There is substantial evidence to support this finding, and I believe that this finding of no disloyalty is very important to a decision in this case. Nobody can quarrel with the fundamental rule of law, stated in the majority opinion, that a trustee must act in good faith and give undivided loyalty to his trust. First National Bank of Birmingham v. Basham, 238 Ala. 500, 191 So. 873 (1939). Unquestionably, if a trustee has engaged in self-dealing, as a matter of public policy, and because of the temptation of wrongdoing, the cestui que trust (the attorney general represented them in this case) may elect to affirm or disaffirm, unless countervailing equities have intervened. Whether the trust estate sustained a loss or profited is of no consequence. The Basham case also says that the primary consideration is the good faith of the trustee. In Basham , the trial court had surcharged the trustee. This Court reversed and remanded the case, saying at one point: Banks, authorized by law to engage in a trust business, owe the same fidelity, and are subject to the same rules governing individual trustees, when applicable on principle. A distinction must be drawn between transactions wherein the interest of the bank and the trusts in its keeping are in common, as where the acts of the bank are in aid of such trusts, and transactions wherein their interests are antagonistic. Statutes conferring upon State or National Banks the power to engage in a trust business are designed to make available to investors the facilities and the experiences of Bankers in making investments, safeguarding the trusts by setting up trust departments, directly engaged in the handling of trusts, and keeping complete records of trust transactions relating to each trust, subject to examination by the supervising agencies of government. A close reading of the Basham case indicates to me that this Court recognized in that case that even if a conflict of interest may seem to exist, the good faith of the trustee is the critical question. The majority also cites Barker v. First National Bank of Birmingham, 20 F.Supp. 185 (D.C.Ala.1937), in support of their position that BTNB was disloyal. I believe the majority has failed to read what this Court said about the Barker case in Basham , as follows: Such dealings are challenged as violation of the rule of undivided loyalty to each trust. If the trustee has no personal interest to serve, there is nothing inherent in such transaction inconsistent with full loyalty to both; may do both a good service. We do not concur with the views expressed in Barker v. First Nat. Bank of Birmingham, D.C., 20 F.Supp. 185, 190, to the effect that loyalty to the selling trust in such case demands a sale at the highest obtainable price, and loyalty to the buyer demands a purchase at the lowest price. One of the criticisms of participations is that the market therefor is limited to the family of trusts. It would be a severe rule to charge a trustee with a breach of trust toward the seller where he has obtained the full amount he would have received if he had collected the loan at the time, or a breach of trust toward the buyer who gets a good loan on like terms he would have gotten on a new mortgage, and without the expense of negotiating and closing a new loan. We concur in the Restatement, supra, to the effect that when challenged as unfair, resulting in loss to the buyer, the burden is on the trustee to show the transaction was in good faith, and in the exercise of sound discretion and prudence in making this, as any other investment. (Emphasis added.) In Barker , the federal district court had criticized the bank on an inter-trust sale of a mortage participation, but did not surcharge the trustee which acted in good faith. I believe that Alabama follows the rule, advocated by many legal writers, that when conflicts of interest cases involving corporate trustees arise, they should be approached in light of the remoteness of the conflict and the presence or absence of good faith. see, Prochnow, Conflict of Interest and the Corporate Trustee, 22 Bus. Law, 929 (1967); Comments, Corporate Trustee's Conflict of Interest, 25 U.Chi.L.Rev. 382 (1958). The writer of the University of Chicago Comment thinks both Basham and Barker suggest the use of good faith as a defense in a conflicts of interest case. It has also been suggested that almost every trustee is subject to some degree of divided loyalty. Niles, The Divided Loyalty Rule, 91 Trusts and Estates, 734 (1952). Niles states the most common disloyalty is for a trustee to conduct himself so that he can be safe from any criticism. The problem I have with the majority opinion is that I do not think the opinion recognizes the use of good faith as a defense in a conflict of interest case. Even if I did not think that this Court had recognized good faith as a defense in a conflict of interest case, I believe the settlor of this particular trust recognized that, on occasion, one or both of the trustees might have an adverse interest. The only limitation he made was that each trustee should not exercise any power or discretion for the personal advantage of the trustees. The specific trust clause provides: In the management and control of the trust estate, the Trustees may (irrespective of the adverse interest of any Trustee) do and have done with respect to the trust estate and every part thereof all things which in the sole judgment and discretion of the Trustees may seem necessary, desirable or proper to promote, protect or conserve the interests thereof and of the beneficiaries thereof, in like manner as if the Trustees were entitled to said property beneficially, and every determination of the Trustees in the construction of powers or in any matter with respect to which the Trustees may be empowered to act or exercise discretion hereunder, whether made upon a question formally or actually raised or implied in any act or proceeding of the Trustees in relation to the premises, shall be binding upon all persons interested in the trust estate and shall not be objected to or questioned on any grounds whatsoever. Powers and discretion, however, are vested in the Trustees as fiduciaries in the interest of the trust estate and its beneficiaries and not for the personal advantage of the Trustees. (Emphasis added.) As I read this clause, the trustees could act, irrespective of the adverse interest of either of them, but they must act in good faith for the best interest of the trust. Now, there was a difference of opinion between the co-trustees about whether the merger was in the best interest of the trust. If both trustees acted in good faith, thinking their independent judgments were in the best interest of the trust, why is that a breach of trust? Is it not possible that the bank's business judgment concerning what was good for the bank would also be good for the trust, especially since a substantial asset in the trust was the bank stock? In Basham , this Court seems to approve of transactions where the interests of a trustee coincides with those of the trust, assuming, of course, the presence of good faith: Since the trustee has the clear right to deposit such funds in a good and solvent bank, there is no reason, nor legislative policy, to require deposit in a bank other than that selected by the settler to handle trust funds althought the trustee bank, like any other bank, would hold them as available assets for loans on its own account. See, also, Robinson v. Williams, Superintendent, 229 Ala. 692, 159 So. 239. National Banks are required to deposit securities for the protection of such funds. 12 U.S.C.A. § 248(k). As a business proposition, such deposits may enable the trustee to do a good service to the trust estates at less expense. All this is to demonstrate the policy of our laws in disapproving transactions by such trustees where the personal interest of the trustee is at variance with the interest of those whom he represents in trust relations; and to uphold transactions in the common interest of the trustee and trust estates in his keeping. Equity rules are to be applied in recognition of this policy, and deal with realities, not matters of form merely. (Emphasis added.) Since the trial court found the bank was not disloyal, I believe that this finding, under Alabama law and under the terms of the trust instrument, was a defense against the conflict of interest charge.