Court Opinion

ID: 9639288
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:11:13.71858+00
Date Added: 2024-06-11T18:10:15.344882
License: Public Domain

HUXMAN, Circuit Judge
(dissenting).
The only question in these cases is whether the facts well pleaded in the complaints which stand admitted by the motion to dismiss make a case against the appellee. There is no allegation that appellee acted fraudulently or in bad faith. The allegation that he was legally and equitably bound to purchase a ratable portion of this stock for the widow or for the trusts does not support a charge of fraud or bad faith. One might in the best of faith fail to do something which as a matter of law or equity he was bound to do.
What, then, are the facts from which this question must be answered? Briefly, they are these: The widow and the trusts owned and held one-third, plus twenty, of the shares of the stock of the Red River Ranch Corporation. The executor and the trustee owned and held individually a like amount, and Ferguson owned and held 570 shares. Ferguson thereafter sold 34 of his shares to *151outsiders. Thereafter the balance of his stock was for sale, and he sold this to John B. Wootten individually for $87.50 per share. The complaints allege that this stock was worth $175.00 per share. In addition to these facts, the complaints allege that John B. Wootten was legally, equitably and morally bound to buy a ratable portion of this stock for the widow and for the trusts. This allegation must be disregarded in seeking the correct answer, because it is a mere conclusion of law and not a statement of fact. Whether he was legally and equitably bound to do this is a question we must answer, and the answer depends upon the facts which are well pleaded.
I think the situation must be viewed as of the time of the formation of the corporation. What the situation was prior to that goes out of the picture. While by innuendo the complaints seek to ascribe some sinister motives to John B. Wootten in the formation of the corporation, there is no justification for this. Prior to the death of R. K. Wootten, the enterprise was a partnership in the nature of a joint adventure between R. K. Wootten, John B. Wootten, and Ferguson. The death of R. K. Wootten ended this arrangement and made it necessary to perfect some other organization to carry on the common enterprise. The corporation was not only a proper, but also a natural medium for continuing the enterprise. After the stock was issued to the respective parties, they owned it separate and distinct from each other. There was no common, undivided ownership of the property or fiduciary relationship between the respective owners of this stock. The ranch properties no longer belonged to them. They belonged to the corporation. The only community of interest that they had was in the prosperity of the corporation which would be reflected in substantial dividends on the stock which each owned.
Number 3121
I fail to see where John B. Wootten as executor of the estate was under any duty to the widow to purchase any of this stock for her. The theory upon which she seeks to maintain her action is that as executor of the will, it was the appellee’s duty to purchase some of this stock for her, and that as president and sole manager of the corporation he was duty bound to advise her of the value of the stock and of the price at which he had purchased Ferguson’s stock and afford her an opportunity to purchase some of it ratably with him.
The ordinary duties of an executor are to marshal the assets of the estate, pay the debts, and make distribution of the balance pursuant to the provisions of the will. Ordinarily he has neither the duty nor the power to make investments during the period of the administration. The will in question contained a provision which authorized the executor to invest “all money” coming into his possession under such terms and conditions as he might determine “in the exercise of his judgment and discretion.” It also provided a period of five years for the administration of the estate and at the end thereof directed the executor to distribute the assets to the beneficiaries either in cash or in kind.
The will did not direct the executor to make any investments of cash. Whether any investments of cash were made during the period of the administration was left entirely to the discretion of the executor. He was not bound to make any investment. Certainly the will gave the widow no power to direct him in the management of the estate or the investment of money on hand in the estate during the period of administration.
But, in any event, he could have made no investments after it became his duty to distribute the assets to the beneficiaries. At that time they had the right to demand the estate in cash or in property in kind. The opportunity to purchase this stock arose more than six years after the death of the testator. It seems obvious that the executor was not free to make any investments at that time. Furthermore, the widow’s complaint fails to allege that there was any money in the estate belonging to her which could have been invested. Apparently there was none, because she tendered into court her personal funds to give her the stock which she now seeks. Certainly the executor could not be liable for failure to make an investment if there was no money to invest. He was under no duty to invest her personal funds. A complaint which fails to allege that there was money on hand which could have been invested is wholly insufficient on its face to state a cause of action seeking to hold the executor liable for failure to make such investments.
The second ground upon which she seeks to recover is that appellee as sole manager and president of the corporation was duty *152bound to advise other stockholders of the prospective sale of the stock, of its true value, of the price at which it could be bought, and required him to afford them an opportunity to participate with him in the purchase thereof.
No case is cited to support this novel contention, and my search has failed to reveal any. A director or managing officer of a corporation is a trustee only in regard to his activities in respect to the business or property of a corporation.1 There is a line of cases which holds that in some instances a managing officer stands in a trust relationship to a stockholder with whom he is dealing for the purchase of his stock and owes him a duty to make a full disclosure of all relevant facts.2 But this is not such a case. Ferguson is the only one who could complain about the sale of his stock to John B. Wootten on this ground. Appellee owed no duty to the other stockholders, because of his position as sole managing officer of the corporation, to inform them of the opportunity to purchase this stock or offer them an opportunity to participate in the purchase thereof.
Number 3120
In this case the beneficiaries of the trusts charge the appellee with failure to live up to that high degree of accountability required of a trustee in the management of a trust estate. Again it is not claimed that he was guilty of fraud or bad faith, neither is it charged that he misused or mismanaged trust funds to the detriment of the trust. The only charge is that he failed to make an investment of trust funds in the Ferguson stock when it was for sale at $87.50 and had an alleged value of $175.00 per share. It is charged that he was legally and equitably bound to purchase a ratable portion of this stock for the trusts.
I am in full record with the statement of the legal principles in the opinion of the majority by which the conduct of the trustee must be gauged. Of course a trustee may not compete with a beneficiary in the acquisition of property. I agree that this principle is not limited to cases where a fiduciary acquires property entrusted to him, nor to cases of competition with regard to property which the trustee has undertaken to purchase for the beneficiary. It applies, as it should, to all purchases of property by the fiduciary which is so connected with the scope of the trust as to make it improper for him to own it individually. The only question is whether the facts well pleaded, which stand admitted by the motion to dismiss, bring this case within any of the above principles.
The cases upon which the majority rely are not persuasive because they are distinguishable upon the facts. In the Pine case, the trust estate owned an undivided one-half interest in a house and lot. The trustee purchased the other half interest in the property for his sister at $450, when its assessed valuation was $1,800 and its real value, as found by the court, was $1,400. The court points out the obvious advantages of acquiring the entire ownership of property when it could be done at such an advantageous price. The trial court accepted the trustee’s explanation and found he had acted in good faith. On appeal, the judgment was affirmed. The appellate court pointed out that ordinarily a trustee is not compelled to make a particular investment. All the appellate court held was that had the trial court held him liable “we should have been disinclined to disturb the finding.” 3
In Johnston v. Loose, the guardian of minor wards purchased in his own name and for his own benefit the widow’s unadmeasured outstanding dower interest in lands to which his wards held the fee. In In re Robbins’ Estate, the attorney for the administrator of an estate purchased the life estate from the husband of the deceased. He acted in good faith and apparently after consultation with the probate court and after being advised by the court that it would be proper for him to purchase the interest. The court, however, held that he stood in a fiduciary relationship to the estate and therefore could not purchase an interest in the property belonging to the estate. In all of the above cases the fiduciary purchased an interest in the specific property belonging to the trust estate. In our case the trust property consisted of a block of 630 shares of stock of a corporation. The trustee did not deal with this property in any way. He bought a separate and distinct block of 536 shares of stock, in no wise *153connected with the trust other than that it was issued by the same corporation.
The only point made which could in the least challenge the transaction is that the purchase of this stock gave John B. Wootten personal control of the corporation through ownership of a majority of the stock. But without the purchase of this stock he had such control throughout the entire period of the trusts. If he was legally bound to maintain a balance of ownership between himself and the trust estates or prevent them from becoming minority stockholders, he could not have sold his own stock to Ferguson because that would have given him control of the corporation. His management or control of the corporation, whether he was a majority or a minority stockholder, if he used either to the detriment of the corporation and thus caused loss to the stockholders, would charge him with liability. If he did not so use his office or control he would not be liable merely because he held a majority of the stock. His duties as trustee do not require him to so manage the trusts as to give the beneficiaries the legal power to control the corporation or an equal voice with him in the management of the corporation. Failure on his part to secure control of the corporation for the trusts or to maintain for them an equal voice with him in its management would in itself not result in loss to the estates.
Control of the corporation may be a factor to be considered by the trustee in the management of the trust and in deciding whether he should purchase this stock, but it is only one of the many factors. But failure to secure to them control of the corporation by the purchase of this stock or taking control himself by buying it individually is in itself insufficient to make a prima facie case against the trustee. In the end, his primary duty is to so manage the trust property that the greatest possible returns may be earned and so that the corpus will not be impaired by mismanagement.
The administration of a trust of necessity involves the exercise of sound discretion and judgment. These responsibilities rest with the trustee. Neither the beneficiaries nor the courts may exercise these functions or direct the trustee in the exercise thereof. Ordinarily courts will not require the trustee to explain why he did not make a particular investment. His responsibility for acting is much greater than when he fails to act.
The mere fact that the trustee purchased for himself a block of stock in a corporation in no way connected with stock of such corporation in the trust for $87.50 which is worth $175.00 is insufficient to make a prima facie case of fraud, mismanagement, or bad faith on his part in the operation of the trust. Neither is the fact that such purchase gives him a greater voting power than that possessed by the trust or that it gives him a majority of the stock sufficient to require him to justify his management of the trust estate and give an explanation of his refusal for making the particular investment.
For the above reasons, I respectfully dissent.

 O’Neile v. Ternes, 32 Wash. 528, 73 P. 692; Haverland v. Lane, 89 Wash. 557, 154 P. 1118.

 Stewart v. Harris, 69 Kan. 498, 77 P. 277, 66 L.R.A. 261, 105 Am.St.Rep. 178; Oliver v. Oliver, 118 Ga. 362, 45 S.E. 232; Bettendorf v. Bettendorf, 190 Iowa 83, 179 N.W. 444.

 Emphasis supplied.