Court Opinion

ID: 9666325
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:11:00.28576+00
Date Added: 2024-06-11T18:13:02.321040
License: Public Domain

ON MOTION FOR REHEARING
WALLACE, Justice,
dissenting.
I join in the dissenting opinion of Justice Ray. I write separately to emphasize my disagreement with another aspect of the majority opinion.
The court holds that when trust property has failed to produce a net income of at least 1% of its value for more than one year, the trustee is under a mandatory duty to sell it. Thus, with respect to such underproductive property, the trustee is not given any discretion whatsoever to retain that property. Cf. TEX.TRUST CODE ANN. § 113.056 (Vernon 1984). Under the court’s construction of the Trust Code, a trustee is duty-bound to change the form of such an investment, notwithstanding the terms of the trust instrument or the fact that a reasonably prudent investor, considering not only the probable income from the investment but also the probable increase in value and the safety of the capital, might elect to retain the underproduc-tive property. Id. The court errs in so holding.
Section 113.110 of the Trust Code merely provides a formula for allocating, between principal and income, the proceeds of a conversion of underproductive property, and does not even purport to determine when that conversion should be made. Cf. TEX.REV.CIV.STAT.ANN. art. 7425b-35 (Vernon 1960) (repealed 1984), codified as TEX.TRUST CODE § 113.110. This section is applicable if and only if each of the following preceding conditions exist:
(1) a sale of underproductive property has occurred producing net proceeds in excess of inventory value;
(2) the property has been underproduc-tive for more than one year;
(3) the trustee was under a duty to change the investment to make the property productive; and
(4) the change was delayed but made before the principal was finally distributed.
TEX.TRUST CODE ANN. § 113.110(a).
This section defines what is meant by the term underproductive property, see § 113.-110(b), and establishes a presumption as to the date upon which the beneficiary’s right to a portion of net proceeds accrued, see § 113.110(c). However, nothing in this section resolves the question as to whether a duty to change the form of a particular investment exists. This section explicitly states that it “does not require a trustee to change the form of an investment.” Id., § 113.110(e) (emphasis added). Moreover, the predecessor to this provision of the Trust Code, applicable at the time this alleged trust was created, provided that “the provisions in this section shall not be construed to require a trustee to change the form of an investment.” TEX.REV. CIV.STAT.ANN. art. 7425b-35(f) (Vernon 1960) (repealed 1984), codified as TEX. TRUST CODE § 113.110(e). In short, the Legislature did not intend that this section should give rise to a duty to sell underpro-ductive property. See Bank v. Bank Lumber Co., 543 P.2d 588, 591 (Okla.Ct.App.1975) (under similarly worded statute, trustee not required by the terms of the statute to sell unproductive property).
Whether Moursund was under a duty to sell the property at issue in this case must be determined by reference to § 113.056(a) of the Trust Code, which sets forth the standards for trust management and investment. The application of the standard set forth in this section to the conduct of *224Moursund m this case would necessarily require the resolution of many fact questions. Thus, the only permissible disposition of this case is to remand to the trial court to determine whether Moursund complied with the applicable standard in retaining the property at issue. If Moursund’s decision to retain the property was justifiable in light of § 113.056(a), then he was under no duty to sell and the income beneficiary has no rights under § 113.110. If Moursund’s conduct does not comply with the applicable standards, then the trial court would be justified in ordering a sale and an allocation of proceeds pursuant to § 113.110. The majority errs in failing to require the trial court to conduct the appropriate inquiry, before it orders a sale and allocation.