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Fulton National Bank v. Mrs. Lucille M. Tate, Individually, and as Administratrix of the Estate of Steve C. Tate, Deceased
363 F.2d 562
5th Cir.
1966
Check Treatment

*3 COLEMAN, Cir- Bеfore BROWN Judge. GARZA, Judges, District cuit Judge: BROWN, Circuit R. JOHN charge of an estate Beneficiaries duty of breach executor with They loyalty. prove undivided negotiating same was executor party for both same third time personal property and the of his the sale | property; “sub that after lease estate agreement as to reached was stantial” executor’s sale of the of the the terms party re property, personal the third unless deal fused to consummate agreement also be reached could property; of the estate lease and both was reached such day. Have on the same deals were closed such a demonstrated the beneficiaries on of interests substantial conflict as, under part such of the Georgia law, him burden to shift to f proving trust the lease | n respects or that fair in all profit from the he received Sne-directed to transactions? law, affirmative. we answer in the holding that even Court erred in District the burden such a demonstration after re We the beneficiaries. remained with and remand. verse by Bank, Essentially, presented exoneratе did Steve we are assuming proceeding to burden of by C. beneficiaries S. effort contrary. con- Estate, represented For once the the Ful- now Tate established, inquiries impress Bank, flict these con- ton National prove that 6,100 he of land be- irrelevant. Steve must acres trust structive or, profit the extent longing in made no him Tate received to Steve 6,100 relinquishing capacity acres he the entire his individual while received, serving Estate.1 . On account whatever as executor of the beneficiaries, Bank made. behalf of the land in tended that Steve received the Bank’s resolution of with, consequence of,

'connection and as District claim committed fiduciary duty of his of un- breach empowered Special Court to a loyalty as of the Estate. executor divided findings fact conclusions make alleged particular, In the Bank hearing evidence, law. extensive After simultaneously leased Estate Steve had Original Report with the Master filed findings *4 land to the land and sold own of of fact and these conclusions agreed Company which had Marble law: convey 6,100 acres of land Steve its * * there was no that “[1] individually if, only if, and as Steve by C. breach of trust committed Steve agree would of executor to the lease fiduciary capacity ex- Tate as in agree, Estate land. did and thus Steve Tate; of ecutor of the estate S. C. 6,100 by of, himself received acres virtue * * * serving for, as partially in that while and agreement consideration “[2] estate, C. Tate as of the S. executor to Marble’s lease executor According property. the of submitted to sustain Estate the evidence was claiming Bank, position Tate re- Marble’s that Steve insistence on act Steve’s precedent anything ca- as in his individual executor as a condition ceived conveying 6,100 pacity for the exe- its individually placed the a consideration acres to Steve by long-term position by him of a lease cution Steve substantially which his the Georgia of C. Tate with the interest estate S. Company; conflicted interest of the Marble bene- ficiaries, proceeding and Steve’s Fulton Na- that the “[3] the transactions once this conflict arose of executor tional Bank as sucсessor constituted a breach of his of un- failed to of C. Tate had estate S. the loyalty. divided impres- prove it is entitled to the that upon far, Bank asserted sion of a constructive trust this that Once land, proving proceeding of of its of was said 6100 acres burden Tate, deceased, C. It did estate of Steve an end. not have show disloyal, and trust should in fact that he harmed that no constructive Steve was beneficiaries, impressed of be benefit transaction according Nor, unfair. estate C. Tate].” was in fact [S. against Actually, began parties case as a suit defend- missed from the case as granted District Director intervene States and a ant and leave to the United were against Mrs. Lucille M. claims of Internal Revenue to assert their tax order Tate, Appellant, Na- administratrix of the estate her Fulton the estate. The husband, Tate, alleging Bank, was allowed to intervene deceased Steve tional jeopardy tax and establish- that upon assessments liens order to assert its claim for the 6,100 pray- void and estate ment of a constructive trust appointment special belonging and of a acres of land to the estate powers a receiver to de- Geor- master with Steve O. Tate ap- taxes, gia Company. Marble, and termine the amount of validity along priority pellee and and of liens claims with Mrs. Tate here appoint- against Government, party made for the the estate. After special master, answering allegations purpose of a the United ment Director Bank. States and District were dis- the intervenor objected Original Report property. Appellees own in defense This ground Bank, particularly on the contend the Bank erroneously placed had the made no such demonstration of a sub- it, interest, proof upon and the District stantial conflict of that even if burden did, enough “questions specified four under Court then thirty-four “questions repre- law to shift of fact” burden to Steve’s law” and sentative, finally, is, if it and resubmitted the case the Master that even Master, and the Master and for his answers. The District Court erred ruling proof, hearing, Supplemen further then filed a their on the burden of Report we affirm tal in which he must since both Master and found proceeded of Court to hear all Bank had the burden to breach the evidence fiduciary duty facts, and found on Steve’s and that it had without re- gard carry proof, had failed to its District who burden of burden.3 The findings that duty. Court affirmed the not breached his Master’s conclusions, denying contention, To this latter Bank thus the relief sought by prin- counters the Bank. with the well-established ciple that if the trier of facts labored question in this involved sole legal misapprehen- under such a serious proof. appeal legal one of burden is the party sion as to which bore the burden demon The Bank contends that it has proof, findings its ultimate fact strated not clothed with the insulation of Rule substantially interest which his individual 52(a) may disregarded by conflicted with the bene Appellate Court. *5 Estate, and that once it ficiaries gone far, counter-con burden shifts to the We deal with this has fiduciary so the first, Appel by prove for if he Bank that tention the that in his in their assertion lees correct simultaneous District Court decided of Estate and sale of his the Master and lease by plain- Though (as the District Court’s of Estate contended resubmission the tiff) by of specific the case to the Master use of ? interrogatories Special unusual finds “Answer: Master passing Exceptions correctly proof method for on to a that the burden of Report, (b) subparagraph Master’s it turns out to have been in above. stated advantage ques- way “(Stated It excellent. has the distinct two another these informing Court, became:) of the District and now tions Court, precisely this of what the Mas- only “a. Must the Bank show together found, precise legal ter with might tempted Steve Tate have been holdings on such facts. in order to execute a lease renewal agreement of to obtain the questions by posed 3. The relevant of law Company trans- Marble by the and in Court answered the Master (as by Bank), the or action contended Supplemental Report are: go “b. Must the Bank further and “A. Questions of Law: some show that Steve Tate obtained following para- “1. Which of the negotiation in of his concession the graphs correctly of states burden exchange individual contract in for a proof placed upon Intervenor Bank: by him in concession made behalf of negotiating “a. To in show that contemporaneous the Estate agreements simultaneously with negotiation (as of new lease contract its Company Marble both a and by plaintiff) contended ? placed capacity, Steve Tate Special Master finds position “Answer: where his proof the burden of is correct- sonal conflict with ly subparagraph (b) stated above. duty (as by contended In- proof Bank), “2. burden of tervenor Whatever Special To finds Inter- “b. show that ob- which the some benefit ques- tained venor Bank must bear under Steve Tate under his 1, dividual contract tion number has the Bank borne constituted considera- entering tion for his this burden? act as executor into the new lease on behalf “Answer: No.” judg- findings, upon regard which the Thus, the this burden ease without. based, against Bank was proof, of immaterial ment then it would be Upon party trier’s conclusion from the which had the burden. sulted proof. If Original analysis burden Master’s and the Bank taint Supplemental erroneous, Report conclusion would and order of fact, findings affirming we the District Court ports, those re the crucial “findings by or held, apparеnt induced it is to us that Master have often .the from, misapprehension of express resulting and District ly assumed and principles lose the trolling proof held substantive burden 52(a) and a Throughout proceedings of F.R.Civ.P. Bank. insulation stand.” judgment proof cannot below the burden of most based thereon was the Cir., Co., 5 warmly Parkhill-Goodloe The conclusions Davis v. issue. contested Report Original 491.6 F.2d Master in his Fulton National Bank tioned burden of supra), sion of the conduct National Bank the Bank had do Report, in which he (see p. proof: submitted to on the Bank’s of this case that The * * proof “[2] said, Special supra) * * “It has * * sustain the [Bank’s] Master all burden In his [3] expressly having * * * had failed it was * been the implicitly condi [N]o * * Supplemental assumed (see required the burden during burden of held that evidence impres note * Fulton proof the fairness transactions, basis facts, firmed necessity plex Rather, District Court’s view Our conclusion that actually was erroneous of, and thus as found asserted conflict we Prior conflicting breached dispose discussing or unfairness Judge, question of whether of this case discuss, dispenses evidence becoming еxecutor much of which of interest. Master and Master’s and of Steve’s burden give going loyalty. on the those com- rise af- Estate, proposed to Marble proof on the Bank has remained plaintiff personally ex not shifted to the rights. Special *6 proceedings change properties Mas and the ter,” before certain accept pro findings upon Marble, however, which his his of fact did and rely 1950, Appellees premised April 4, posal. his became Steve were On for burden.4 Dis view of who bore the of the Estate the executor findings.5 many years extensive lands affirmed these had leased trict 4. individual asked Appellees in a Georgia Marble that Steve temporaneous on behalf estate contract? Steve (Emphasis “8. “Answer: No.” “10. Hs “Answer: No.” t( proof exchange execution negotiation Is Tate obtained there Is on the Bank. capacity Tate received there for added.) on behalf negotiation any new lease form Judge, Company? of his individual concessions to show that evidence as a consideration Estate as to any were These evidenсe to show of its anything in put the S. G. contract concessions made proposed the burden questions, new contract lease Tate with him for Accord 6. 5. ton 15 L.Ed.2d 154. F.2d 5 Riddell, 1966, cert. 5 5 findings Ct. findings Gowan v. United trust, such statements showed circumstances states as Executor was Though Cir., 1958, Cir., Williamson, Cir., Oil 348, 252, 254; Henderson v. denied, 1959, affirmatively 1960, ***_*** Co. 1963, of “evidence of “no evidence of Fromberg, his 3 L.Ed.2d v. 257 283 383 U.S. brief ‍‌‌​‌​​​​‌‌‌​​​​​‌‌‌‌​‌​‌‌‌‌​‌​‌‌‌​​‌​‌‌‌​​​​‌‌‌‌‍5 tending contrary,” 315 Spencer Cir., F.2d States, F.2d guilty convert F.2d that “there order 349; 1958, Inc. 162; to show that Tate 882; 569, Kellogg U.S. 5 of no breach of we do 407, Cir., of affirmance United 255 breach.” v. see Camilla the evidence breach” 941, S.Ct. Flemming, 409; Thornhill, 1961, F.2d not think Malat v. Master’s & States 79 1030, Sons, many Cot 512, Mc 296 S. long-term pacify, agree- under a to Marble mineral reached substantial verbal becoming expiring calling in 1959. After lease ment with on Marble terms executor, persisted proposal outright exchange in his Steve own Steve’s exchange. 6,100 At same for a marble lands acres of Marble’s executor, time, capacity However, he was in his as mountainous timber lands.7 negotiating unwilling sign agree- Marble exten- with over the Marble this Though individually Estate lease. sion ment with Steve until a deal 1959, expire Mar- not to until lease could on be worked out the renewal capital up agreement in min- ble had extensive tied the estate lease.8 Such an property ing operations on the leasehold renewal of the lease9 was reached estate February 1955, February 9, for se- 1956 as the deadline and had set and on curing agreement 1955, Steve of the lease. While renewal both the between Steve negotiating individually exchange dual Marble in the with on and Marble executor, capacity agreement and of individual and between as exec- Steve keep fastidiously estate endeavored to utor and Marble the lease renewal signed.10 However, showing business own business change separate, had to conscious that he be far oblivious to the delicate many- conflicting position in, Jacob’s rather than wear coats he was during Nevertheless, coat. colored insisted him in- with dividually friction period was considerable be back-dated to October animosity and Marble between Steve he and Mar- the time when felt words, litigation, agree- harsh manifested ble had substantial verbal reached shootings. Finally, in October even of his individual ment over the terms acting Steve, ea- in his individual All Estate deal.11 the beneficiaries exchange Actually community [by included various 7. virtue of the ex- rights piration And on both sides. other of the lease].” controversy the Mas- before much Again, with Steve’s in- as was the case exchanged over the values ter was agreement (note 7, supra), the the dividual Appellees emphasize finding rights, Marble the evidence and quo, exchange quid pro considered advantages findings of this Master’s lease, on the substantial de- receded from that mands one, compared with the old proposal, that in his 1950 made again, disposition our But the estate. the case makes this consideration greatly land desired Steve’s ir- competitor who of a threat eliminate the relevant. area, But into the etc. to move desired Supplemental case, Re- From the Master’s these we take of this in the view port: Master’s resolu- controversies “1. Tate enter into When did Steve are immaterial. We thus tion them agreements form, Mar- omit- the two in skeletal facts sketch the Company, unnecessary ting many one in ble capacity res- details *7 appeal. and one as executor? of this olution agreement “Answer: The individual Original Report sum- 8. The Master’s 26, 1954, apparently was dated October signed testimony which he credited marizes the day on or the same as the about revealing its of position: Marble several officials agreement reached as executor which February 9, dated 1955.” was * * * Mar- the “It was they Supplemental didn’t to ble want 11. From Master’s Re- the things port: without the one settle other, get they to the whole wanted “2. At insistence whose was his fighting agreement war over with. Steve was sonal back-dated? individually * agreement and them as executor. “Answer: The with Steve Company Tate, individually, [T]he Marble was was reached sometime willing sign agreement with in the fall of not whereas the other agreement individually they unless could also was not Steve renew the lease with the S. tate. reached until Jan- uary February, 1955, Tate C. es- but Steve * * * They himself, would wanted the contract dividually, [Marble] with signed agreement approximate not have with dated as of the property] agreement if [over Steve his individual time when the reached. they having apd lawyer, thought to move out leave Steve’s also it should signed Steve and the lease renewal subsequently negotiated substan “8. “ Had no lease renewal been be- therefrom, Georgia parties, tial but Master fore the Marble benefits would personal Company executed the have found at least one beneficiaries agreement in 1955? unaware the existence Steve’s Apparently not.” personal agreement.12 “Answer: words, Marble reach- In other Steve following brings pivotal us to the This exchange agreement personal on the ed findings by fact Master: sign first, unless but Marble refused Georgia Com- Marble “4. Would lease.13 Steve would renew estate agree- pany have executed question is whether here securing Tate ment with Steve without this circum once the Bank has shown agreement to a lease Steve Tate’s stance, shifts to the the burden satisfactory Georgia Marble newal made Steve Company? property. use Estate’s Company Georgia Marble “Answer: question simple for a number This agreement general First, sign rules with on the did an not want reasons. loyalty fiduciary’s duty of undivided going individually, Steve, if he was necessarily general offer limited keep fighting as Executor. them resolving problem help a concrete “5. Was Steve Tate aware general na area. and elusive question answer to 4? of the rules demonstrated ture Appel- fact that the Bank and “Answer: Yes both prior agreement to execution at the un- soual be dated time substantial derstanding tbe renewal? was reached. lease light No.” “3. What does the Record “Answer: Though why circumstances in some throw on the reason was back- might ratify their trustee’s beneficiaries dated? go- loyalty, Negotiations the law “Answer: had breach of quite been elsewhere, Georgia period years clear, in on for a of several 1954,. finally, no ratification unless summer of there can be of the facts are informed indicated that wanted beneficiaries giving Tate agreement the trustee’s conflict rise to reach date of 333; agreement Steve, individually, § Trusts interest. 54 Am.Jur. See with Annot., approximately And if AX.R.2d even October negotiations timе, of the bene- had found that all At the same for the ficiaries Steve’s knew the existence renewal of the lease S. C. Tate personal deal, they going agreement also would Estate were on and an conditioning approximately be informed of Marble’s agreement was reached on Feb- ruary 9, thereto renewal of as to the lease with Estate, estate lease before there could S. 0. Tate of which Tate effective ratification. was the Executor. Both the ap- and the lease was executed at findings, affirming that Master’s 13. In proximately same time. said, appears that he “It District Company Marble did to set- desire par- not have closed could [Steve] tle one of these issues the oth- without the estate in behalf of ticular renewal recognized er. Steve Tate his dual settling an in- same time capacity, is, his individual interest controversy dividual Executor, and his duties as and these involving Company *8 kept separate. Steve wanted the proposed of land.” of 6100 acres sale kept on dates the two instruments nor the Master’s the evidence But neither sеparate. He felt that the deal with findings renewal lease indicate himself, individually, arranged had been exchange, personal bn the was conditioned that in advance of the lease and he wanted agree not to the lease would agreements to reflect fact.” agreeing renewal without Steve’s Supplemental 12. Report: Instead, ex- individual deal. change Tate, beneficiary, “24. Was Sam re- on the lease was conditioned informed of the existence of the not newal and vice versa. 570 bring as to his conduct in- consider the eases of Arthur v. Geor verse interest

lees ” Dabney gia 1918, 431, question.’ Co., Ga.App. 22 96 v. Nat. Chase Cotton 1952, 668, Bank, Cir., 232, 196 2 F.2d and Phelan v. Middle States S.E. 593, Corp., Cir., 1955, 220 F.2d cert. Oil 2 mind, problems in we deem With these 929, denied, Glass, 75 v. 349 U.S. Cohen general appropriate to discuss it controlling 1260, 99 L.Ed. S.Ct. duty fiduciary’s principles governing the question. perhaps Second, and man loyalty. general generality ifested op rules, general there are two is the fact “the rule is that posing policy beneficiary area duty considerations trustee is under weighed solely in the individual must be in the in administer the trust /to benefiсiary.” concrete situation. istic scales each Restatement terest hand, first com (Second), (1959). On the one there is the vio Trusts He § pur thou duty relations: mandment he where lates “not his beneficiary thy shalt exalt above property for himself indi trust chases expounded oft-quoted vidually, others. As in the he has a but also where Judge purchase words of Cardozo: such a sub his affect “Many permissible stantial nature that forms of conduct making sale,” acting judgment com workaday id. for those world “also, added), (emphasis length, ment c those at are forbidden to arm’s property for his by fiduciary trust where he bound ties. A trustee uses something purposes,” Further id. comment own l. than the held stricter ** duty more, place. violates hon- “the trustee morals of the market Not accepts esty from a third alone, punctilio if he for himself of an but any any person for sensitive, or commission bonus honor most is then the by connection him in standard of As to this there act done behavior. Id. com developed trust." administration is un- has a tradition that (Emphasis added.) If trus bending Uncompro- ment o. and inveterate. loyalty, mising rigidity of undivided has been the аttitude tee violates any for equity petitioned he liable to the courts of when Thus, loy- profit thereby “if the trus made. the rule of undivided undermine * * * alty for by ‘disintegrating uses trust erosion’ of tee * Only particular exceptions. profit there purposes makes a own profit fi- has of conduct so thus the level by, for the accountable he is higher kept j, duciaries been level if he made,” 206 comment id. § than trodden crowd.” per third from a for himself “receives Salmon, 1928, other any or Meinhard 249 N.Y. commission or son bonus 545, 546, him compensation 164 N.E. 1. On for acts done A.L.R. Hand, hand, other and from the administration connection ought trust, is the accountable caveat that “the law he is k trusteeship received,” comment id. make so hazardous so amount * though shy added). he sponsible (emphasis And individuals will even trust, away trustee from it. “the ‘the courts does not breach impractical obligations him impose profit made should not accountable Merely vague arising the adminis through aon trustee. or remote out or (emphasis advantages possible selfish to a trustee trust. Id. § tration of ,14 However, enters (added) “if trustee are not sufficient such an ad- if he enters into transac administration “Even nection with the therefor, intending trust, even tion to make a is accountable of trust a breach for himself and commits breach of not commit if he does doing, receiving bonus.” trust in so commission nevertheless permitted (Second), profit. § Trusts to retain Restatement *9 Thus, (1959). a if the com trustee receives a comment mission or for in bonus acts done con

571 connected with the of the interests is that of the not involved into a transaction apt trust, personally, is trustee selfishness is to administration give advantage. may profit a lead him to an accountable for permitted antagonistic merely represent If to because the trust sult thereby.” indirectly placed Id. com- is affected interests the trustee under is added.) (Emphasis temptation apt many in e. ment is cases yield prompting to to the natural to Although a duties of trus “the give doubts, himself the benefit duties of than the tee are more intensive or to make decisions which favor the 2, fiduciaries,” comment some other id. § person competing third who is 6,15 general applicable rules are thе same beneficiary.” to fiduciaries.16 other Bogert, 543, Trusts and Trustees at § This is where the law draws (2d 1960) added). (Emphasis 475-76 ed. psychology, where the on behavioral Scott, (2d See also 2 Trusts 170 ed. § dealing by equity required of fair rules 1956); 502, 3235-36; 4 id. Am. at § experience. The human coincide with (1945). Jur. Trusts 311-315 And in § loyalty developed rules undivided rationale, accord with this the benefici- responses of the common- defensive ary fiduciary need show that system impulses of law nervous to self- placed position allowed himself interest. The rationale of these well- where his con- principles loyalty is settled undivided beneficiary. flict with the interest of the clear: unnecessary It is that the fiduci- show ary temptation, succumbed to this generally, always, hu- if not “[I]t is gained faith, he acted in bad manly impossible person for the same advantage, unfair, fair or bene- fairly capacities to act in two and on ficiary Indeed, was harmed. the law in behalf two interests the same fiduciary presumes dis- acted Consciously transaction. or uncon- loyally, inquiry sciously matters is into such he will favor one side as against other, The rule not intended where is is foreclosed. may beneficiary be a conflict of interest. If one compensate loss for 16. Restatement 15. 2 Accord, Lowery comment fit where it would be for ness to the tions whether or not trust. ciaries.” it is permitted duty any unexpected lation of or because erwise he has acted with receives “ est of the beneficiaries. He is not administer “In some element is more intense than Scott, 45 S.E. to violate peculiarly to account includes It Trusts principal, something (1958): duty. Thus, is the the trust of, relationships principal knowledge place principal [T]he (Second), Agency .his a transaction conducted intense § Idelson, 1903, and incidental accre- 170, duty himself in a duty has a in connection solely agent’s even at 1193: .and of a trustee to accounting the case of a duty perfect though violates no agent who, the benefi- own principal, * * * fiduciary others; in vio- § inter- bene- with, fair- oth- pay Ga. Restatement, beneficiaries.” nection tains a bonus or where constructive trust “a. Section the minds “e. “Comment: Section received duty “Where duty received received expense profit, rests (t dutiеs as [It] $ is not based on * * * * * * to the act conflict of he holds what he receives something loyalty $ for an is a fiduciary. solely applicable a broad applicable him in Restitution beneficiary fiduciaries, The rule act the rule stated for the benefit of beneficiary. receiving opposing commission principle particular good performance of his done although in violation given harm * * * receives faith, § by him in whose stated the amount.” to him and done interests beneficiary. case, if was or other prevent- (1937): in this upon it or re- of his their also but (cid:127) ) *10 572 position in conflict with the ‍‌‌​‌​​​​‌‌‌​​​​​‌‌‌‌​‌​‌‌‌‌​‌​‌‌‌​​‌​‌‌‌​​​​‌‌‌‌‍deprive may or to sustained

(cid:127)he have discharge as execu- proper of her duties any unjust fiduciary Its enrichment. Court went 124. The prophylactic: trix.” 106 S.E. at purpose and effect sole allowing punished on to note: placed in a Haley be Mrs. assert do not “We discourage flicting in order interests faith. acted bad [the executrix] eq- Though n Underthe such in the future. conduct authorities, question of * gen- uity protects a with good immaterial. faith wand, a polices with tle big it purchase may Mrs. It Haley that the be bеing trustee must avoid stick. The advantageous inwas fact placed position, and if he can- in such a argument often been This has estate. advanced, fully it, may resign, or in- not avoid rejected. often and as conflict, or, form the beneficiaries of the equity, applicable alike broad rule informing court, request ap- upon so guardians, agents, partners, execu- ** Otherwise, pro- proval of his actions. duty tors, it is the that accept peril. at his any position ceeds not to of a trustee any do relation or to or into to enter Georgia cases brief A review any the interest with act inconsistent gen- Georgia follows these reveals that beneficiary.” Idelson, Lowery principles.17 eral v. eloquent Perhaps, state- 1903, 778, 51, the most Ibid. involves Ga. 45 S.E. 117 from Clark ment of law property comes a an adminis- sale estate Clark, 1928, public 167 Ga. S.E. v. tratrix a auc- to her husband at approved Though paid the removal where the Court a fair tion. the husband purchase a officer of who had become an price from a trustee free corporation aside, held collusiоn, shares were whose fraud or set it the Court saying: trust: a trus- fundamental rule that is a “An “It administrator or executor is profit out make no for himself tee can trust with a solemn invested trustee principle is manage This- of the trust estate. estate under his con- proper honest advantage so essential to the management trol of those to the best property it; trust if interested in he undertakes encouraged take trustee is never it is to sell the- estate aggrandize- everything with for his own risks bounden to do of Geor- bring large The current power ment. gia as to make it judicial, legislative policy, price possible. Nothing both can tol- as steadily and to in one direction runs erated which conflict or into comes is, point no trustee competition one with the interests and wel- —that opportunity or be led shall fare those interested in the estate.” temptation Haley to make into the S.E. at 52. In Atlantic Nat’l Co., 1921, 158, 106 of the business of beneficiaries

Fire out Ins. 151 Ga. bargaining care, by entrusted to his S.E. the executrix of estate indirectly, himself, directly judg- dividually or purchased foreclosure *** respect sought against business. mеnts land and estate to de- Though can be allowed never from imbursement the estate. Trustees advantage showing rive a that the estate ** property. purchase use of the trust with which funds They personal profit judgments though cannot make it had no enforce- * dealing property. right with trust redemption, de- able Court act, testamentary must ground A trustee nied reimbursement estate, put for the benefit of trust “she herself as profits provides: such liable to account 17. Ga.Code Ann. 108-429 § made.” use the trust “The trustee shall profit. He shall be funds to Ms own way gam not to tions on their in such a face have suf- but also been indirectly, directly any advantage, suspicions ficient arouse the of certain *11 *** to “placed heirs and he owes an undivided the estate.” Had Steve beneficiary, position duty personal not in to the and must himself a his in- that * ** place position may in a where his himself in terest come conflict personal Again will conflict with the with his duties as interest trustee”? the * * * beneficiary. Judge of District interest the noted: “There could have been, course, undivided of trustee owes an a [T]he conflict interests »* -» * trust, simple under the is fact that once place position agree and Marble cannot refused to to Steve’s conflicting subject him which would to sonal deal and unless until Steve as exec- temptation agreed expose renewal, or him the utor duties to to the Estate’s lease acting contrary personal to the best interests had a considerable inter- * * * que upon cestui in trustent. est renewal the lease and acceptable a to Beneficiaries of trust entitled such are terms as would to be by Perhaps have it entire- administered trustees Marble. inwas the Estate’s ly and at service the trust above best interest have to the lease renewed. * * * Perhaps suspicion. purpose got anyone that could gotten require stage. rule is to to a trustee for the Estate every position things simply pertinent maintain a These where are * * Georgia suspicion inquiry stops act *. is above When- under law: “the * * * * placed he ever has himself when such of inter- [conflict personal Clark, supra. that his inter- est] disclosed.” Clark v. may or est has come in conflict with Georgia Appellees To this viеw of law trustee, his duties as a court pose objections. two equity never hesitates remove they First, argue that if Steve In him. such circumstances the court personal deal, did make a on his stop inquire does not whether the this transaction was not connected with complained transactions of were fair only trust administration unfair; inquiry stops or when indirectly property. affected the trust such relation is disclosed.” (Second), Restatement Trusts § added.) (Emphasis 144 S.E. at 789. e, gen supra.18 sure, comment To Accord, Saul, 1936, Fine 183 Ga. principles above, *12 no but the introduced objection un- Appellees’ is that second Georgia Appeals of for it. Court The Georgia Bank der law before the the of set out the first affirmed. general principles Court them, proof can to shift the burden with, the in accord not that Steve must show cases: above conflicting interests, the but “substantial,” agent duty dif- and that a is that of flict was first of an “The loyalty substantiality applies ferent standard of He must to trust. his put an- cases where the trustee contem- are himself in relations which poraneously negotiating tagonistic principal. a His a his to that of party trust contract with third vis-a- must not allowed and interest dealing vis cases where the deal in the trustee to conflict. cannot He directly agency scope in his his estate business within the * * capacity. They assert that all the Geor- for nor is his own benefit gia by permitted compromise cases discussed above are of the lat- to Georgia type, ter attempting and that Arthur v. two masters hav- to serve * * only Georgia Co., being supra, contrary Cotton *. It interest variety, points case of the former in such a case that is immaterial Although actually agent different direction. are we fraud intended, was not willing accept requirement injury to of a was in fact or that principal. “substantial” as enunciated These conflict to the occasioned (Second), merely Restatement Trusts com- 170§ law remedial rules of are c, supra, wrongs ment Middle and in Phelan v. for which have been actual Corp., supra, consummated, States Oil we fail to to be but are intended applying preventative ceive that the cases as well. requirement question pay- draw the distinction is not whethеr such!'a Appellees for which contend. And even to the con- ment [secret commission] requires something agent if Arthur more harm fidential resulted in actual principal, situation than the other dis- cases to it was the or whether above, brought cussed we hold that “some- actual inducement which thing present ques- more” parties agreement; here. into but brings tion whether or not such secret This tous Arthur. The Geor- gia payment Company a consider- could be Cotton for taken sued Arthur any agent’s part failing perform ation act to his contract deliver for agency— scope within the his bales of cotton. Arthur confessed promise payment nonperformance up whether such a payment set avoidance make it the that the contract of cording Arthur, Ac- sale was void. agree.” agent agent Champion, so to his During purchase O’s 19. Tate land. Brief Mrs. Lucille M. on be- thorized Tate, p. negotiations half of 15. B lifetime learns adjoining pending land sale This is made clear illustration objectionable nature. for uses e: following comment this, prevent own funds B To family B “2. A devises residence $10,- adjoining рurchases land O, permit in trust to reside years holding it for five after during her lifetime and at therein her $25,000. is not ac- it for B convey he sells D. death profit.” By countable B au- the terms of the trust is not (Emphasis added.) jury (2) 232-233. ton21 and found that S.E. at Then, indicating by Georgia this case is sole consideration received governed by rule, y% paid Champion to be a different for the Cotton cents guaranty princi- Court holds: was the latter’s pal’s contract. jury “In this case the found under undisputed evidence that the sole Superimposing prom- consideration of the undisclosed language Appeals’ Court of on the facts buyer agent ise of the case, inquiry of this here is “wheth guaranty seller was the the latter of anything er or not principal’s contract. such Since Marble which could a consid be taken as lay wholly beyond part eration for act on his connected scope agency, it cannot be said with his administration of the Estate?”' as a matter law that interest of First, per it cannot be said that Steve’s agent negotiating the terms of sonal transaction with Marble whol thereby.” could sale have been affectеd ly unconnected with his administration (Emphasis added.) 96 S.E. of the Estate. As individual and execu *13 Though appli- some assert that tor, fought Marble; Steve,, with principles cation of these to of the facts executor, negotiated, as individual and the case should have led the with the same officials of Marble at. Appeals result, opposite of to the Court the same time over the kind of same there can be no doubt as to what the property; executor,, as individual and conceived, stated, Court and law to the Steve closed both deals at the same time. First, expressly be. the did Court rights; And Marble wanted Steve’s marble impliedly indicate that the standard of mining if it could retain facili its substantiality conflicting of interests ties on the Estate lease. It was tit fiduciary’s different in the case of the Second, tat down to the wire.22 it can negotiation contemporaneous of contracts nothing be said that Steve received party with a third ap- from that to be Marble his renewal of the Es plied fiduciary dealing when the di- acqui tate lease. He received Marble’s rectly with the trust. The Court under- personal exchange, escence the to for it apply general took Second, to rule. reasons; is clear that at least one of the inquiry Court stated the relevant as agreed convey 6,100 to acres to> being [any “whether or not agreeing was Steve’s as executor benefit party] received from the third to renew the lease.23 could be taken as a consideration for agent’s part viewing act on Thus, light scope within the Arthur’s agency,” of (1) panorama Supreme and concluded that Court guaranty agreement wholly (Lowery decisions —both be- before v. Idel yond scope agency son, supra) (Clark Clark, and sell after cot- (Second), Agency 391, fiduciary supra. Restatement § But it is true 6, provides agent special agent comment that “an can Arthur with lim- properly party scope authority deal with the other to a and that it would ited dealing transaction if such is not incon- to find that his not be too difficult principal. ‍‌‌​‌​​​​‌‌‌​​​​​‌‌‌‌​‌​‌‌‌‌​‌​‌‌‌​​‌​‌‌‌​​​​‌‌‌‌‍guaranty scope sistent with his duties to the of' sonal was outside Thus, agent employed presented, agency. to sell can A different case is properly money buyer fiduciary here, lend to com- with our an executor with * * plete purchase powers See 12 broad of transaction. 87, 4, Am.Jur.2d Brokers § 841 n. important 23. It note the- eases there cited. inquiry Arthur is whether attempt distinguish anything We do not be talcen “which could ground case from Arthur on the consideration rather- agent anything the Georgia, there was an than he received whether general rule, Again accord with the was the consideration. em- higher holds phasis possibility executor-trustee to a stand- is on the rather than loyalty ar<j agents. 15, actuality disloyalty. than See note duty supra) bright Erie-horizon,24 to them. —on conflicted using Moreover, it for illumination of the facts in that it would not event case, find this help Appellees. we that it beacon him the burden relieve even prove, putative supports could, Rather it if he that his holding. him, our not in fact influence Bank’s terest did attempt weigh will not the law get Likewise, Appellees do not may far such an interest how mileage much Middle from Phelan v. result, played part once Corp., Cir., 1955, States F.2d Oil * * * Nev- shown to have existed. ertheless, 593, denied, cert. 349 U.S. 75 S.Ct. proof burden of befоre the 99 L.Ed. 1260.25 Hand’s shifts, must opinion merely accepted gen states the there was such a conflict necessity eral rule and illustrates the for a careful evaluation each case added.) (Emphasis 220 F.2d at 600. giving the facts rise con asserted Court then examined asserted corporate flict. The case was a receiver hoped was that Glass conflicts. first ship proceeding in ob reorganized which bondholders president to corporation. Previously, become jected final to the receivers’ account inter the Court ground receiver., alia on the held that if this were true it would be Glass, loyalty fol violated such a conflict as to shift the burden lowing conflicting The Court Glass, supra, interests. see note but re recognized general first rule: Court found that Glass mand trial

“However, aside, although put president. as had The Court we no desire to be *14 charge finding. do, Appeals An a of that Glass was affirmed we party any conspiracy, we other conflict that Glass to fraud or asserted agree hoped counsel of the new with the ‘Bondholders’ that the to be chosen corporation. however, upon Court, be held burden would nevertheless prove they personal had in him had that the interest Glass to that suffered by any being of no of acts as counsel the new actionable loss retained enough26 company or could have was not decisions in which substantial he trigger personal conflict-of-interest rule.27 been actuated a interest to it not understand that Our Frie-commission is to these realized. We do refract rigidly, rays applied wide-angle lens, or so focus to so to with a then be spectro- composite picture, Restatement into a literal an extreme. The a not (c) only graph. states ] [§ thus to meld. of Trusts Comment We refine it in the ‘trustee violates these words: prior appeal in 25. For a this extended only beneficiary not litigation, Oil Phelan v. Middle States see property purchases trust where he Corp., Cir., 1946, 154 F.2d 978. individually, he also where but purchase personal in a interest has Hand asked: might nature that it a substantial such that a conflict invokes the such as “Was making judgment in the sale.’ affect his doctrine? It enables the incorporated any profits has been fiduсiary And this liable for hold the ipsissimis on Trusts. into Scott may cause, verbis may make, he he or losses accept, That statement we any deprive him inducement order to question ex- bar Glass’s is whether and disin- that will affect his absolute being pectation inter- counsel loyalty; no doubt terested ** it that est so ‘substantial expectation hope or of future that an promoting might much advantage may though affect’ his as so, do even it done, the sale he have existing should him as an le- not secured to place of includ- the Eureka shares gally protected Therefore, if interest. reorganization inexorably applied them be the doctrine know cannot It is true we regard ‘M.S.O.’ circum- particular employment could every that the chance situation, trans- stances any had influence have be will condemned once it action be conduct; true course and it is of a that had such shown that, had shown unlikely if the ‘Bondholders’ hope expectation, however be, may realized it and however be be, trifling if it is an inducement it will holding implication.” here harmonizes with elusion has a Our “hazardous possibility Aсcording substantial Appellees, Phelan. The “the inexorable significant that received conces- consequence any in- would that personal ex- from Marble on his sions stance in which bank [as trustee] change although part did with some he purchased any through — security or sold personal property28 a conse- —as any the same broker for the account of quence of his to renew the es- contemporaneously trust therewith danger tate too lease. This is neither negotiated purchase any or sale of trifling. nor too remote security through the broker same argue resort, Appellees personal portfolio, a last As its the bank would standpoint policy thereby open surcharge our con- that itself to any, personal 6,100 property it have he would that fact did of Steve’s disgorge any only profits belonging have to acres Marble. See note got, supra. thought but what he had One executive of Marble discharge impeccable good 6,100 he did was his full that anything acres was not good any duty, goat pasture, though or to make loss but dealing anyone рlacing that it caused. But we are not never knew of dollar occasion; with such an we have to de- value on it. Another Marble official scope implementary termine the had no idea whether it was worth $1 dispenses $100,000. rule that with the need of or knowing Marble also disclaimed proving any rights that his had interest what the marble determining fiduciary’s part in personally worth, from Steve since conduct; indeed, only mining with a rule that alto- after could the gether any inquiry rights finding forbids whether it be valued. Other than part. personal exchange had such We have found Marble considered the applied quid pro quo, decisions have this rule a tempt the Master made no at- flexibly every conflicting occasion in which the to resolve these esti- Although requires been shown to has mates of value. in fact more than we naivete have to believe loyalty. have conflicted with his On Marble was so ill-informed as to matters so vital to its contrary business, number situations nevertheless, uncertainty courts have held the rule does not this changed rights as to the value of the ex- apply, putative *15 when the least from the —at terest, though enough strong vantage point in itself of those not marble inducement, remote, business, including be was too the beneficiaries—is remote, when, though tangible ‍‌‌​‌​​​​‌‌‌​​​​​‌‌‌‌​‌​‌‌‌‌​‌​‌‌‌​​‌​‌‌‌​​​​‌‌‌‌‍proof but also practical not too it of the wisdom surcharges fiduciary was too an inducement to be a feeble of the rule which determining personal profit motive.” for whatever he makes (Emphasis 220 F.2d at 602-603. add- connection his administration of ed.) regardless the estate fair of whether it is a profit. greater The the uncertain- holding 27. based on This several ty values, greater then the the dif- (1) although : siderations Glass rea- ficulty many years later —often so—-for sonably retained, sure to he had prove any the beneficiaries to unfairness employment depended contract and his disloyalty, accordingly, or actual greater what the administration of the new com- temptation fiduciary pany might decide; (2) hope for ad- personal advantage to secure some expense places at the vantage only by means obtainable justly of the estate. The law quid pro quo, of a dered, services to be ren- problem par- this valuation on the inducement; which diminished its ty it, fiduciary. who caused (3) policy that it is “most undesira- Dabney Bank, 29. See Nat’l Chase purchaser ble to forbid a Cir., 1952, 196 F.2d 675: property fiduciary from a to continue every possibility, “It is not however management” him in its and the interest remote, of a conflict of interest between purchaser keep a trustee and his which will possibility great- this will entering forbid his into a transaction ly property. enhance the value of the person. with a third F.2d at 604. ought trusteeship law not make so controversy 28. responsible Much of the before hazardous that individuals respective corporations shy away Master was over the values will from it.” simply profit determined that on The Master as it realized of such amount fair, did not personal This fear transaction was Steve transaction.”30 its any on his simply obtain concessions unless unfounded —unfounded exchange for fiduci- concessions contract between there is a connection Estate, one, ary personal him on behalf and made transaction anything in con- connection, that he did not receive there is and if is a being brought for his renewal of Estate sideration fear of should be the inquiries lease. But all these book.31 things principal remain irrelevant. clear that It should now be light to be determined on remand case the burden on remand principles are: have announced we Appellees. proceeding Fur is on the any profit (1) whether Steve realized prov thermore, they have the burden exchange, so, personal (2) if how on his profit on his made no Steve realize,33 (3) profit much did he failing exchange, personal in this granted case, to be what relief effort, they for whatever must account for first the Bank. Since we regard profit made. Even litigation appro- time in declared the misconception had the burden of who priate legal standards, par- on remand all simply proof, never reach opportunity pre- the Master ties should have the any, profit, per- if much ed the issue of how information is sent whatever factual See, g., personal Hill deal.32 tinent as to these issues.34 e. on his Steve realized question is covered in M. Tate on behalf “Answer: This of Mrs. Lucille 30. Brief pp. Tate, number 6 above.” 14-15. the answer to of Steve (Emphasis added.) example, Suppose, the Bank holds 31. By “profit” own meant the extent stock its unlisted over-the-counter portfolio value, unsteady, at the weak market which the reasonable which has buyers (bids). exchange, willing time of the market with no fiduciary, individually time, from Marble as a Steve At the same value, reasonable market stock exceeded the holds unlisted over-the-counter exchange, (bids). If time of the a brisk demand at the which there is conveyed selling rights Bank, to Marble. the at- as a condition to sonal 32, supra. account Steve must stock demands See note tractive broker) buy irrespective prospective purchaser (or of wheth- difference surely given stock, a concession unattractive duplicitous entailing its conduct er it was by equity’s bur- fidu- in consideration words, ciary if Steve action. In other dens. market more than the reasonable ceived Sup- Master’s clear from the Report: This is rights, Steve can- of his value plemental accounting for this not avoid finding In order to sustain “6. pecu- showing that it was attributable *16 that Stevе Tate realized than his liar factors other contract, must on his renewal. the estate lease showing re- that as be evidence there gards example, appears on remand mar- if it that contract the reasonable 34. For beneficiaries, other which he ket value of the consideration that some or all (see 12, supra, gave than reasonable mar- Tate note was less than Sam text), signed accompanying the lease ket value of the consideration which flowing accepted newal and the benefits received? question knowledge not con- of Marble’s This therefrom with full conditioning “Answer: acceptance Special of Steve’s mak- its sidered acquiescence ing Report sonal deal on Steve’s as the decision Special renewal, below will have then the Court Master was to the effect to consider whether those beneficiaries the Bank had not carried the burden of proof objecting pleadings. to the trans- are foreclosed as set forth obligation question Steve’s number actions and whether If the answer to “7. prоfit, yes, if made to show account 6 is is there evidence pres- correspondingly any, limited. The consideration the market value of the clearly conveyed on these record is insufficient ent Tate which Steve Company under matters. the terms contract? this individual Cir., 1964, FPC, 355. The v. 335 F.2d

trial Court considerable discre- will have to handle

tion the method it chooses including, questions, these resolve

among things, further other whether

hearings be held before the Mas- ter, Court, quite For or both. obvious advantage should

reasons full use and pro- present

be made of the record of the

ceedings Special Master. before

Reversed and remanded. COLEMAN, Judge (specially Circuit

concurring): argu-

As indicated at the time of oral

ment, given the decision of case has

me much concern. We have been forced legal highways

to travel over some clearly I feel mapped have not been Courts of last resort. In any event, agree doI that further hear- order, opin- is in and I concur ion, hope but I would that the Court or Master, may be, as the case will be ex-

traordinarily thoroughly careful un-

derstand the standards herein discussed given

and the directions herein before undertaking any exploration further

the facts. Christovich, Jr., Orleans, A. R. New

La., appellants. Schonekas, Orleans, Russell J. New La., appellee. WISDOM, Before JONES and Circuit Judges, BREWSTER, District Judge. Inc., MARINE COMPANY, DRILLING Fidelity Casualty Com- Judge: WISDOM, Circuit pany York, Appellants, of New case under This is still another ‍‌‌​‌​​​​‌‌‌​​​​​‌‌‌‌​‌​‌‌‌‌​‌​‌‌‌​​‌​‌‌‌​​​​‌‌‌‌‍turning on an oil the Jones Act field AUTIN, Appellee. Richard J. marine, worker’s status as a seaman on a No. 21908. barge. drilling is. in this case The twist Appeals United States Court of appellаnt’s dis contention that Fifth Circuit. charge judge’s jury trict amounted *17 July 25, 1966. directing plaintiff. verdict charge not in the We hold that that nature of a directed verdict. con We sider, however, law that the state applicable to maritime oil has workers developed point proper where appropriate district case judge to direct a verdict on status. eral notes outlined see 188 S.E. 439. supra, 14-16, accompanying test, Georgia directly sup- only brought These play decisions into if there some port position. the Bank’s In the words connection between transaction case, of the Clark personally engaged Steve’s actions which the suspicion” “above In? his order affirm- or administration of trust ing reports, scope the Master’s agency. the District Appel But here Judge recognized admit, they transac- must, the “two lees “a be- nexus Appellees rely personal dealing,and on the statement trustee’s his admin- Special big District that “the istration of trust estate. This the connection between emphasizes was property find authorized to trust “if” was in fact [at most transaction trustee’s only] ‘indirеctly present trust, affected’ the administration [personal] transaction of Tate with effect fact transaction which the has Georgia Company property. We the trust If there ais agree conflict, Bank the Master connection and a then effect finding, good, bad, indifferent, direct, made no such and that even if in- fact — direct, did, r it would be immaterial. The re neutral —is For irrelevant. once lied on section of the Restatement allows shown, conflict the fidu- profits ciary any profit trustee retain made made him liable only “through arising transactions which indirect or out of the adminis- ly if, affect trust estate tration of Id. § the trust.” if, is no connection between the broker, agreed arising a cotton to sell the out of the contracts tween pound more, fiduciary’s cotton for 12 assent cents fact only get 12 negotiated representative formed him cents, he could in his contract capacity preced- sold Cotton then a condition constituted go- cents, being negotiated cents the undisclosed ent the contract 12% % Champion in consideration ca- guarantee performance e, is his pacity,” comment and thus § by Arthur. At trial Cotton inapplicable.20 jury proof, found

Case Details

Case Name: Fulton National Bank v. Mrs. Lucille M. Tate, Individually, and as Administratrix of the Estate of Steve C. Tate, Deceased
Court Name: Court of Appeals for the Fifth Circuit
Date Published: Jul 14, 1966
Citation: 363 F.2d 562
Docket Number: 22467
Court Abbreviation: 5th Cir.
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