First Trust & Savings Bank v. Henderson (101 Fla. 1437, 1931)

Ellis, J.

The First Trust & Savings Bank is a banking-corporation doing business in the City of Miami. The First National Bank of Miami is also a banking corporation of that city. Though the two are separate and distinct entities they are owned and controlled largely by the same stockholders and directors. Mr. Edward C. Romfh, who is the president of the First National Bank, is one of the principal stockholders of the First Trust & Savings Bank. ITe is on the Board of Directors of both corporations and in cooperation with four others controls the affairs of both.

Parker A. Henderson was a stockholder in the First National Bank, a member of its Board of Directors, and a member of its Finance Committee. He and Romfh were close business and political friends. In the year 1925 Parker A. Henderson, who was engaged in a lumber business and an experienced man in that vocation, also dealt heavily in real estaté and during the period of extraordinary real estate activity and exaggerated values existing about that time was considered to be a man of considerable-wealth. He died on the 26th day of July, 1925, leaving surviving him his widow Julia Henderson and two sons, Parker A. Henderson and A. J. Henderson, the latter a minor.

Mr. Henderson left a will, which, omitting the signature and attestation clause, is in the following words:

“I, Parker A. Henderson, residing in the City of Miami, County of Dade and State of Florida, being of sound and disposing' mind and memory, do hereby make, publish and declare this as and for my Last Will and Testament, hereby revoking all other and former wills or codicils thereto by me made:

“Item One: I will and direct that all my just debts, including the obligations created by my last illness and the expenses of my funeral be first paid out of my Estate;

“Item Two: Unto my wife, Julia Henderson, I give, will, devise and bequeath all of the corporate stock owned by me at the time of my death, or to which I may be entitled, in The First National Bank of Miami, Florida, to be her own absolutely. I do also give, will, devise and bequeath unto my said wife, all the household furniture and equipment of every kind and character contained in that certain property which shall be my home at the time of my death.

“Item Three: With a view to the carrying out of my further wishes concerning the disposition of my Estate after my death, I do hereby name, constitute and appoint the First Trust & Savings Bank of Miami, Florida, a banking corporation duly organized and existing under and by virtue of the laws of the State of Florida, and qualified, as Executor under this Biy Last Will and Testament, and also, as Trustee of- all Trust Funds herein specifically created and all other items hereunder contemplated as item in Trust, and I do hereby clothe my said Executor and my said Trustee, in their respective capacities, with full power and authority to make sales of any of my property when in the judgment of my said Executor or Trustee it shall appear ‘for the best interests of my Estate, and to execute all papers, instruments and documents of every kind and character, necessary and incident to any and all such sales, including deeds, satisfactions, releases, receipts, assignments, bills of sale, mortgages, which said authority shall extend to the matter of investing the funds of my Estate from time to time as such funds become available, all without first obtaining authority from the Probate Court or Judge or other Judicial Tribunal having jurisdiction in the premises, and without thereafter procuring the ratification of any such acts by any Probate Court or Judge or other Judicial Tribunal having jurisdiction in the premises, and all persons paying money or delivering any thing or things of value unto my said Executor or my said Trustee, as the case may be, are hereby relieved of all concern and responsibility as to the application or distribution of any such funds or things of value so paid or delivered.

“Item Four: Expecting my said Executor to carry out the provisions of this My Last Will and Testament in so far as it shall be proper under the law, and until my Estate shall have been settled according to Law, and bearing in mind the provisions of ‘Item Two’ of this Will, ‘Item One,’ also I give, will, devise and bequeath the entire balance, remainder and residue of my Estate unto the Trustee named in ‘Item Three’ hereof, but in Trust, however, to be handled as follows :

“My said Trustee shall invest and re-invest the funds of my Estate from time to time according to its judgment and with a view to the best interests of my Estate: Fifteen (15) per cent of the entire income shall be retained and added to the principal until ultimately disposed of as herein provided; from time to time, to-wit, monthly, quarterly or semi-annually, as may appear most advantageous One-Third (1/3) of the remaining eighty-five per cent of the income from my Estate shall be" delivered to my wife, Julia Henderson; One-Third (1/3) to. my son, Parker Henderson, Jr., and the other One-third (1/3) to my other son, A. J. Henderson, provided that should any one or more of the three Legatees just named not survive me, or should one or the other of my two sons die before final distribution to them, the survivor shall receive the full benefit of the share so left ' by sucli death, except, that in the event there shall be children of such son, then the share so left shall go to the child or children, and in the event such deceased son shall leave no child or children, then the surviving son shall receive such share, but the income therefrom shall, during the lifetime of my wife, Julia Henderson, be divided equally, one half to go to my said wife, and one half to such surviving son. At the death of my said wife, should she survive the time when my younger son shall have arrived at the age of Forty-Five Years, the portion of my Estate from which her income during life shall have been produced, shall be equally divided between my said sons, children taking such share if said sons or either be dead.

“Item Five: I direct my said Trustee to maintain my Estate as provided in ‘Item Four’ of this Will, until the happening of the following events: When my said son Parker Henderson, Jr., shall have arrived at the age of Forty Years (40) he shall be given One-Half of the principal from which his One-Third, or otherwise in the event of the death of my wife, had. theretofore have produced, and the other One-Half or entire balance coming to him, except my wife be then living, to be paid to him when he shall have arrived at the age of Forty-Five (45) Years, and when my son A. J. Henderson shall have arrived at the age of Forty (40) years, he too, shall receive one-half of the principal from which his said One-Third income had theretofore been produced, the other One-Half of the said principal, as it may then stand by reason of the survival or death of my said wife, to be paid to him when he shall have arrived at the age of Forty-Five (45) Years. Should either son die before final distribution, leaving children, such deceased son’s share shall be deemed a unit for distribution between such children, as to income, and retained by my said Trustee as to principal, for equal distribution when each such child shall' arrive. at his or her majority.

“Item Six: I direct that my retail lumber business shall be maintained and operated by my Executor and when my Estate shall have been closed according to Law, by my said Trustee, so long as it shall show a profit consistent with the amount involved and conditions generally, and when said business shall not show such satisfactory profit, it shall be disposed of in the manner most'advantageous to my Estate. And I direct the same course in connection with the Novelty Works of which I am, at this time, the majority stockholder. Provided, that no such operation shall continue or be deemed to continue so as to interfere with the final distribution of my Estate.

‘ ‘ Item Seven: Ny said Executor and my said Trustee shall be entitled to a fair remuneration for services rendered, and any distribution of income or principal shall bear the burden, from time to time, of this incidental expense.

“In Witness Whereof, I have hereunto subscribed my name and set my seal this Twenty First day of June, A. D. One Thousand Nine Hundred and Twenty Four.”

Letters testamentary . were issued to the Executor on August 1, 1925. In a petition for an allowance for Executor’s fee, filed with the County Judge and sworn to by the Treasurer of the Executor Corporation on December 10, 1926, it appears that the value of the personal property of the estate as inventoried was $831,002, and the value of the real estate was estimated to be about $388,-000.; that the amount of moneys received by the Executor since the Executor qualified up to and including December 7, 1926, exclusive of receipts from the lumber business, amounted to $306,854.42 and the disbursements during that period were $284,892.90, leaving a balance on hand of $21,961.52. Nearly a year later, another petition was sworn to by the president of the Executor Corporation in which the receipts of moneys from the estate other than the lumber business to August 1, 1927, were given at $363,076.17 and disbursements $363,022.04, leaving a balance of $53.53 on hand. The gross sales of the lumber business, given in a separate item, showed that they amounted to $930,638.59. The amount prayed by the two petitions to be allowed the Executor to be applied on account of compensation was thirty thousand dollars. During the second period the receipts other than from the lumber business amounted to $56,221.75 and the disbursements amounted to $78,129.74 or $21,907.99 more than the receipts for that period.

On July 9, 1928, Mrs. Julia Henderson and her two sons exhibited their bill of complaint in the Circuit Court for Dade County against the First Trust & Savings Bank, not as Executor or as Trustee but alleging that it had acted as Executor of the will and as trustee of the property devised to it as such trustee. The bill prays that the court grant an injunction restraining the defendant from selling or incumbering any property belonging to” the estate and particularly the Victoria Hospital property; for an accounting of all property and effects which it has received, or should have received but for its default or neglect belonging to the estate; that the defendant be required to pay'over to the complainants the undistributed income that should have been paid to them monthly, quarterly or semi-annually but which was not paid; that the defendant be required to pay over to complainants the sum which defendant appears to have lost in the operation of the lumber business; that it be required to pay back monies which it wrongfully and without authority of law paid out from funds belonging to the estate; that it be required to restore monies of the estate which the defendant advanced to the lumber business and which that business has not returned to the estate; that a receiver be appointed to take charge of the property of the estate and that the defendant be removed as Trustee and some other person be appointed in its place, and for general relief.

To support the prayer the bill alleges many acts of misconduct, bad faith, and incompetent management of the properties of the estate by the defendant. It charges that the defendant as Executor and as Trustee took charge of the entire property of the estate except the homestead; that it failed to pay over to the complainants monthly, quarterly or semi-annually one-third of eighty-five per cent of the income from the estate but withheld large sums of money that should have been distributed to them under the terms of the will; that during thirty months of administration the amount that should have been paid to them from the income was $143,240.73 but they received only $51,126.37, and that since July, 1927, the defendant had paid to the widow nothing whatsoever, to Parker A. Henderson only $1,000. and paid “income tax and premium” for A. J. Henderson sums aggregating $821.06. It is alleged that the retail lumber business was mismanaged by the defendant in that at the time of the death of the testator the business was inventoried and appraised at $150,686.38, that the business was taken over and managed by the defendant until the year 1928 when the assets of the business except accounts and bills receivable were sold, that during the first six months of management the business earned a large income, but the defendant disregarding the wishes of complainant widow imprudently and without due caution of good business judgment “purchased lumber in much larger quantities than ordinary prudence and caution or good business judgment would justify” so that when the general depreciation of values occurred shortly after the summer of 1925 great losses to the business were sustained, which the exercise of good judgment would have avoided.

It is charged that salaries were unnecessarily increased and bonuses paid without authority and the business was continued by the defendant after it failed to show a profit consistent with the amount 'involved, which it is alleged violated the instructions contained in the will. It is alleged that in managing the estate the defendant paid unnecessary and unwarranted bills for attorneys’ fees, claimed and was allowed excessive fees for itself; that it sacrificed by selling 150 shares of stock in the First National Company owned, by the estate and dealt fraudulently with the Stembler Insurance Agency, in which the estate owned 35 shares, to the advantage of the Fort Dallas Investment Company, an insurance agency of which Calvin Oak was President and who was at the same time President of the defendant Company; that the estate owned a first mortgage on the Victoria Hospital, that the mortgage was foreclosed in July, 1928, and the defendant purchased the property for the estate at $100,000.00, that although the property yielded a good return by way of rentals the defendant has announced its intention to sell it for the sum of $100,000.00 although such sale is unnecessary; that the defendant has mismanaged other properties of the estate to the great loss of income to it; that the defendant advanced approximately $20,000. of the estate’s funds to the lumber business which was never returned to the estate proper and that in February, 1928, the defendant sold the lumber business for approximately $25,000. which was not “in the manner most advantageous to the estate” in that it was sold in bulk and for cash and “could have been sold for a greater sum by extending proper credits or in some other manner.”

It is alleged that the complainant widow has been unable to obtain from the defendant full and complete information concerning the details of the defendant’s management of the estate and that she has lost faith in the defendant and its officers and is fully persuaded that the estate is being grossly mismanaged to the detriment of the beneficiaries.

The bill alleges that during the life of the testator he was closely associated in a business and social way with certain officials of the defendant Company and had great confidence and trust in them, that the complainant widow felt that such officials would take a deep and unselfish interest in the affairs of the complainants and she in turn reposed great confidence in the defendant, but that its continued flagrant violations of the trust to complainants’ injury has greatly shaken her confidence; that the freedom of intercourse and degree of confidence which should exist between trustee and cestui que trust cannot be restored and that the continuance in office of the defendant will be detrimental to the trust. The equities of the bill are summed up in the seventh paragraph, which is as follows:

“Your oratrix and orators further represent that while the said Parker A. Henderson was alive your oratrix and orators enjoyed comforts and luxuries commensurate with his wealth and after his death, believing that they would receive a large income from his estate they were perhaps not as conservative in handling and spending their money as otherwise they would have been, that your oratrix is possessed of some property but the income therefrom is not more than enough to pay for the necessities of life; that your orator, Parker A. Henderson, is now without means of support and is looking for a job; that your orator, A. J. Henderson, is a minor of the age of seventeen years, and during the past year was kept in a preparatory school by money furnished for the purpose by his mother; that it is unfair, unjust and inequitable that the defendant should be allowed in its management of the said estate to run the lumber business for a long period of time and contrary to the directions of the said Will at a great loss, that it should sacrifice for its own convenience or other reason the property of the estate without being held accountable for its acts and required to make good the losses; that the defendant should not be permitted by this Court to take from the receipts of said estate the large fees allowed it for its mismanagement, and it should be required to make good the same upon an accounting.”

After an answer which comprises with all exhibits about fifty-six pages of the printed record, the complainants were allowed to amend their bill over defendant’s objection. The amendment alleges that the defendant paid claims against the estate aggregating many thousands of dollars, which were not legally chargeable thereto when paid because such claims were not sworn to nor presented to and filed with the County Judge within twelve months from the time of the first publication of the notice required by Section 1 Chapter 10199 Acts of 1925; that such claims consisted of notes of the testator aggregating about $70,000, and accounts payable aggregating about $150,000.

Prior to the answer of the defendant coming in the Chancellor made an order restraining the defendant from disposing of, transferring, contracting to sell or assigning tbe bid for tbe property known as tbe Victoria Hospital,. or its equipment or any part thereof, and such other .property as may belong to the estate until the further order of the court.

The answer admitted the existence and probate of the will and the issuing of letters testamentary to the defendant and that it took charge of and entered upon the administration of the estate as Executor. The answer avers however that while the defendant qualified as Executor its purpose was to discharge all duties imposed upon it as Trustee but that its duties in the latter capacity will not properly be imposed upon it until its duties as Executor have been fully completed and all debts of the estate fully paid, and inferentially denies that its duties as Executor have been completed. It admits that the defendant did not pay to complainants monthly, quarterly or semi-annually one third of eighty-five per cent of the income of the estate and denies that the will directs it to be done before the debts due by the estate have been paid or the estate otherwise protected front the effect thereof and denies that it has withheld from the complainants large sums from the income received by it which should have been distributed. It denies that during the first thirty months of its administration the distributive share of the net income to each complainant was as it is alleged in the bill and denies that it has been unfaithful in trust reposed in it under the will.

The answer avers that the will directed the payment of all just debts of the testator including obligations created by his last illness and the expenses of his funeral out of his estate without distinguishing between the principal and income derived therefrom; that the estate was heavily indebted and large burial expenses were incurred to satisfy the complainants who desired a very elaborate funeral and the cost of such expenses amounted to the sum of $46,865.15; that the undertaker’s account was incurred before the probating of the will and the remainder was not incurred until the complainants approved and directed the expense to be incurred; that the testator was indebted to the United States Government for income taxes in the sum of $90,983.64 but that the defendant succeeded in obtaining a reduction of the claim of more than $30,800. and most of the claim has been paid; that there was an inheritance tax assessed against the estate of $39,580.79; that the claim bears interest at 6% and the claim is secured by government liens of prior dignity to all other claims and would have been enforced by sale of the entire estate if the defendant had not taken steps to satisfy the government demand.

The answer avers that the defendant as Executor has received in cash, not including receipts of Victoria Hospital and Lumber Yard the. sum of $440,258.58 and has ■expended the sum of $387,555.38 in the payment of debts and the cost of administration and in addition has advanced to complainants the sum of $52,461.27, leaving a balance in its hands of only $241.93 as of April, 1928. That there were not enough funds 'belonging to the estate to pay city taxes for the year 1927 and defendant advanced the money sufficient to purchase the property belonging to the estate at tax sale for the protection of the estate and had by resolution remitted 17% of the 25% interest allowed by statute for the first year; that the claims of the United States Government and all claims for unpaid taxes and valid indebtedness due by the testator and all claims for funeral expenses would have priority over all claims of the complainants under the will, and that if the defendant had advanced to complainants 85% of all income derived from the estate it would have been necessary to have sold assets which were producing income in order to have paid the indebtedness.

As to the lumber business, which seems to have been handled separately because it was a going business and require special attention, it is averred that the inventoried and appraised value of the business exceeded its true value by more than $25,340. because many of the assets were inventoried at a highly inflated value. It admits that the first five months and four days of the defendant’s administration of the business showed a profit of $46,-409.45, but it denies that defendant purchased lumber in larger supplies than was prudent and denies that complainants made any objection to purchases that were made..

The answer then proceeds to give in detail the transactions involving the purchase of supplies for the business, the economic disturbances that began shortly afterwards during the latter part of the year 1925, the increase of the manager’s salary and the necessity therefor as well as other items of which complaint was made in the bill but avers that nevertheless a profit was earned during the year 1926 of $6,230.75 and that the business did not begin to operate at a loss until the beginning of the year 1927 and denies that its management of the business has been insufficient or incompetent in the circumstances and offers to restore out of its own compensation the item of $500. paid to an employee, if such payment may be deemed to have been improper. It denies that any unnecessary and unwarranted bills against.the estate were paid. It avers that certain payments of money to counsel'were reasonable and just in the circumstances; that the allowance by the County Judge of $30,-000. to the defendant was reasonable considering the large estate, the great sums of money handled and the duties entailed upon the defendant and the service it has rendered; that it has only drawn $19,000. of the sum allowed and has used the balance to pay debts of the estate. It avers that the management and sale of the lumber business Avas skillful and not wasteful and Avas in the estate’s interest. Details of many of the transactions are given. The transaction in relation to the one hundred and fifty shares of stock in the First National Company is explained and shows that the sale was for the full value of the stock, that it was offered to Mrs. Henderson, the complainant, to purchase if she desired but she declined to purchase. A full detailed account of the insurance matter and the interests of the Stembler Insurance Agency was given in explanation of the complaint made on that score.

As to the Victoria Hospital transaction it is explained that the testator held a purchase money mortgage upon the property, that the mortgage was foreclosed and the property sold to defendant for the estate for the sum of one hundred thousand dollars; that it has been rented to a prospective purchaser at $1,250. per month but annual taxes and insurance upon the property amount to $3,746.38 to which must be added the expense of up-keep and other expenses; that the tenant has offered one hundred thousand dollars for the property on terms, that no better offers have been obtained although effort has been made to secure them; that the estate owns only tAvo pieces of improved property, the other being two-story concrete buildings and warehouses in the city, which the defendant thinks is the more valuable and more likely to be in demand if and when the city recovers from its financial ■depression; that there are due government inheritance taxes amounting to forty-three thousand dollars; that the .aggregate indebtedness of the estate is now approximately one hundred and forty thousand dollars; that the Executor has paid to the heirs of Henderson a sum in excess of fifty-two thousand dollars and delivered to Mrs. Henderson First National Bank Stock of the par value of twenty thousand eight hundred dollars but of the market value of eighty-three thousand two hundred dollars and if the Hospital property cannot be. sold it may become necessary to call upon the heirs to repay the money which they have received from the Executor as the Bank Stock is subject to the payment of .the debts due by the estate. The defendant admits that it was its intention to sell the Hospital property on the terms set out in the answer. It sets forth in detail its management of the apartments over the lumber yard office to show that its management was efficient, not wasteful, and was in the interest of the estate.

As to the payment of certain indebtedness against the estate, it is averred that it was its duty under the will to pay the estate’s indebtedness which w