City National Bank & Trust Co. v. American National Bank

*307 Shake, J. The appellant is trustee under a declaration of trust executed in 1928. As such trustee it holds the legal title to the Oliver Hotel in South Bend, Indiana, and the real estate upon which it is situated. The beneficial interests in said trust properties are represented by certificates held by some 130 owners and representing an original investment of $600,000. Contemporaneous with the creation of the trust, the trustee leased the above property to the Oliver Hotel Corporation on a long-term lease containing an option to purchase. For a number of years the trust was operated profitably, the trustee collecting the rentals, making necessary repairs, maintaining the insurance, and making periodical reports and disbursements to the cestuis. In 1933 the lessee defaulted in the payment of its rental, and in an effort to conserve the interests of the trust, the trustee brought about the creation of a new corporation to operate the property as a tenant. This arrangement proved unsatisfactory, and in 1935 the St. Joseph Valley Bank of Elkhart, holder of a part of the beneficial certificates, demanded of the appellant that it surcharge itself with some $60,000, for moneys unlawfully disbursed or lost by reason of its negligence or misconduct. Thereafter, the appellant began this action in St. Joseph Superior Court, No. 2, naming as defendants said St. Joseph Valley Bank, the South Bend Medical Laboratory, Inc., and the Sibley Machine & Tool Company. Each defendant was the holder of beneficial certificates, and the complaint was for a declaratory judgment adjudicating the regularity of the appellant’s conduct as such trustee. While this action was pending, the said South Bend Medical Laboratory instituted an independent action against the appellant in the circuit court of said county. These actions were subsequently consolidated in the circuit *308 court. Issues were formed by which it was sought to remove the trustee and to charge it with $100,000 for mismanagement of the trust. On the trial of the cause the appellant was absolved of every specific charge of misconduct made against it in the pleadings. It developed from the evidence, however, that during the administration of the trust the trustee had purchased some of its own certificates, from which it had made a profit of $701.66, and when this was shown the trustee charged itself with that item. During the pendency of the action efforts were made by different parties to find tenants for the property. One proposition to rent the property was made by the Albert Pick Company, upon such terms that if the same had been accepted the trust would have become liable for payment of commissions amounting to some $23,000. This proposal was vigorously resisted by appellees’ attorneys. There was evidence that they represented another interest that made a competitive offer, but appellees say that this was done for the purpose of bringing about the rejection of the proposed lease of the Pick Company. After a hearing, the court refused to authorize the acceptance of the Pick proposal in the form submitted, and the liability for said commission was deleted from the contract as finally approved. Subsequently, the appellant, as trustee, filed a claim for its services and the services of its attorneys. The appellant’s claim was reduced $9,591.64 and that of the attorneys $6,235.10 by the court. After the above matters had been concluded, the appellees herein filed a petition with the court by which they sought an allowance of $3,500 for the services rendered by their attorneys in said litigation. The petition was based upon the theory that the services of said attorneys were rendered for the protection and preser *309 vation of the trust, that said services were reasonably necessary and beneficial to said trust, and that they were for the common benefit of all the holders of said trust certificates. The specific services which said attorneys are alleged to have performed were the successful resistance of the stipulation in the Pick proposal for the payment of $23,000 in commissions; the reduction of the allowances in favor of the appellant and its counsel; and the surcharging of the trustee with the item of $701.66, growing out of the certificate purchase transaction. The trial court allowed the appellees $3,000, to be paid out of the trust assets. The appellant asked for a new trial, which was denied, and it is here asserted that the decision of the trial court is. contrary to law. In support of the judgment, the appellees call attention to the fact that after the charges of negligence and misconduct had been made against the appellant in a cross-complaint of the St. Joseph Valley Bank, said bank sought to dismiss its cause of action, and that through the efforts of the appellees’ attorneys the First National Bank of Orlando, Florida, was substituted as such cross-complainant; that if such substitution had not been made, the charges against the trustee would have been abandoned; that said attorneys carried the burden of the litigation and that they were the only attorneys who pressed the rejection of the Pick proposal and opposed the allowances sought by the appellant and its attorneys. It has been pointed out, however, that as to the issues presented by the cross-complaint with respect to the misconduct of the trustee, the finding and judgment was in favor of the appellant. *310 *309 An analysis of the facts discloses that no assets were brought into the trust through the efforts of the appel *310 lees or their attorneys by opposing the Pick contract and the allowances. If the judgment of the trial court can be sustained as it relates to these services, it must be on account of the fact that through the appellees’ efforts funds already in the hands of the trustee were not dissipated or lost to the trust by reason of the successful opposition asserted against the approval of the Pick contract, and the fact that the trial court allowed the appellant and its attorneys lesser sums for their services than they asked. It has been asserted that a trust estate may not be charged with attorneys’ fees for services rendered by counsel who do not represent it unless such services create assets for the trust. This statement of the rule is perhaps too narrow. It may become proper to charge a trust for the reasonable value of services rendered to preserve its assets, as, for example, when the trustee neglects or abandons his responsibility and the assets are in imminent danger of being lost. In such cases liability is sometimes based upon the theory that those rendering the necessary services are subrogated to the claims of the derelict trustee. The facts of the instant case do not bring it within these rules. The substantial question presented for our determination may be stated in the following manner: When a court, charged with the responsibility of supervising the administration of a trust estate, has been asked to lend its approval to an imprudent contract or to make excessive allowances, may the estate subsequently be charged for the value of services voluntarily rendered by counsel representing less than all the interested parties who successfully resisted the approval of such contract or the allowance of such excessive fees? We think the question must be answered in the negative. There can be no presumption that the *311 St. Joseph Circuit Court would have approved the arrangement for commissions contained in the Pick proposal or have allowed appellant and its attorneys excessive fees in the absence of the intervention of the appellees’ counsel. It will always be presumed that courts will act circumspectly and in accordance with the law until the contrary is made to appear. To hold> otherwise would provide a convenient means of dissipating trust assets under legal sanction. If an excessive allowance was sought some interested party might intervene on his own account and, after the claim was defeated, charge the trust for his services, notwithstanding the court would not have allowed the claim in the absence of such intervention; and it 'is not inconceivable that unscrupulous claimants and interested parties might collude to that end to their mutual profit. There is no intimation that such was the situation in the case at bar, but we. are unwilling to open the dooi; to such possibilities. In re Ziegler’s Will (1939), 170 Misc. 748, 11 N. Y. S. (2d) 212; 79 A. L. R. 521, annotation. There may be some basis for an allowance in favor of the appellees for the services of their attorneys in recouping the sum of $701.66, realized by the appellant from the purchase of trust certificates and for which it did not charge itself until the facts were brought out in the hearing. If the judgment rested solely upon that circumstance, we would be disposed to sustain it as a proper exercise of the trial court’s discretion, since it might be said that the assets of the trust were augmented to' that extent through the services of said attorneys. Such considerations cannot in any view, however, sustain an allowance for $3,000. What we have said makes it unnecessary to notice other alleged errors. *312 The judgment is reversed, with directions to sustain the appellant’s motion for a new; trial and for further proceedings in accordance with this opinion. Tremain, J., dissenting. Note. — Reported in 24 N. E. (2d) 558.