225 Minn. 229 | Minn. | 1948
The trustees of the trust created under the will of Bert J. Enger, deceased, appeal from an order vacating, to the extent necessary to permit the beneficiaries to litigate against the trustees’ claims based on their self-dealing with assets of the trust free from any defense that the vacated orders preclude the assertion of the claims, five prior orders of the court, viz., two orders authorizing the sale of securities, two orders allowing annual accounts, and an order authorizing the trustees to consent to the sale of its physical properties by a corporation in which they held stock as such.
These questions arise in connection with the final accounting. In proceedings under M. S. A. 501.33, the district court confirmed the appointment of the trustees and acquired jurisdiction of the trust as a proceeding in rem. The trustees having filed their final account and noticed it for hearing, the beneficiaries filed objections thereto charging the trustees with self-dealing, waste, and failure to account for trust funds, and sought to hold them liable by reason thereof. To the objections, the trustees filed an answer. So far as concerns any liability for alleged self-dealing, the trustees contended that the vacated orders were res judicata of all matters in controversy and precluded the beneficiaries from litigating their claims. Thereupon the beneficiaries moved to vacate the orders to the extent necessary to enable them to litigate, free from any bar arising by reason of res judicata or otherwise, the questions of self-dealing and resulting liability by reason thereof. On the motion to vacate, the court heard oral testimony and other evidence, from
Because of the generality of the claims and the defenses thereto set forth in the objections and the answer thereto, we are not sure whether we understand precisely what relief the objectors seek or what defenses the trustees interpose to the claims asserted against them. These may properly be left for determination in the course of the trial upon the merits. For present purposes, enough appears to show that the objectors claim that the trustees were guilty of self-dealing in connection with four separate transactions and of waste and failure to account for trust funds. No point has been made here with respect to the claims for waste and failure to account, and for that reason those matters need not be further considered.
The four transactions with respect to which objectors contend the trustees are liable by reason of self-dealing and the grounds of such liability may be briefly stated as follows:
(1) That in the sale, pursuant to court order of December 16, 1936, of 1,279 shares of common stock of Enger & Olson, Inc., trustee Leraan was personally interested as a purchaser and that the stock was sold at much less than its real value, with resulting loss to the trust of $69,500 according to one valuation and $44,765 according to another; (2) that the trustees by an ex parte order of February 27, 1940, were authorized to consent as trustees to the sale by Marine Iron & Shipbuilding Company of Delaware, herein referred to as Old Marine, to a corporation having the same name, organized under the laws of Minnesota, herein referred to as New Marine, of Old Marine’s physical properties in exchange for one-third of the common stock of New Marine, which authorization trustee Leraan, who then was president and a director of Old Marine by reason of the trustees’ ownership of stock therein, used in connection with others to promote and organize New Marine, part of the plan for which
It appears (1) that the order of December 16, 1936, authorizing the sale of the 1,279 shares of common stock of Enger & Olson, Inc. was granted after notice and hearing and that the beneficiaries at
The beneficiaries contend that the fact is, and that the evidence taken upon the motion to vacate shows, that .Leraan’s individual interest and self-dealing in the transactions mentioned were concealed by the trustees from the beneficiaries and from the court. It appears without dispute that there is no mention of it in any of the proceedings in connection with the orders mentioned. The beneficiaries contend that, because of the concealment by the trustees of their self-dealing in connection with the transactions covered by the vacated orders and the failure of the trustees in the proceedings in which the orders were obtained to tender any issue with respect to self-dealing, the vacated orders, even if they had remained unvacated, were not res judicata of any issue raised by the
The trustees contend that all the vacated orders are in effect judgments; that they can be vacated, if at all, only for extrinsic fraud; that there was no showing of extrinsic fraud to support the order of vacation; that under § 548.14 a judgment or an order having the attributes of a judgment cannot be vacated except within three years after the party has notice of the fraud; that under § 544.32 a judgment cannot be opened except within one year after such notice; that in the case of every order the beneficiaries had notice within the times mentioned of all the facts on which they base their claims against the trustees; and that consequently they are not entitled to any relief.
The beneficiaries, as respondents, move to dismiss the appeal upon the ground that the vacating order is nonappealable. This question will be discussed after we have indicated the rules applicable to the different orders, of which we have at least two kinds here, viz., those having the determinative effect of final judgments and those which do not.
An order made in proceedings under § 501.35 allowing the annual account of a trustee has the legal effect of a final judgment. The statute, so far as here material, provides that a trustee may file and petition the court for the settlement and allowance of any account, whereupon the court shall set the matter for hearing and give notice thereof as therein provided; and that “Upon such hearing the court shall make such order as it deems appropriate, which
Prior to the enactment of § 501.35, the language of the statute was used to express the same thought with respect to the finality and conclusiveness of orders allowing both final and intermediate accounts of trustees. In re Trusteeship Under Will of Melgaard, 200 Minn. 493, 274 N. W. 641.
The proceedings for procuring an order allowing an account and for the determination of questions concerning the matter at a hearing show clearly that the order should have determinative effect.
The further provision for an appeal from such an order is indicative of an intention that it shall be final and conclusive as we have defined it. Ordinarily, an appeal is not allowed except from an order which is final as to the matter which it determines. Where an appeal is allowed, it is done generally upon the assumption that the order is final and conclusive and that an appeal from it is necessary to review and correct any error in it. See, In re Guardianship of Overpeck, 211 Minn. 576, 2 N. W. (2d) 140, 138 A. L. R. 1375.
The effect of making an order allowing an annual account final and conclusive as to matters thereby determined is, in the language of Barrett v. Smith, 183 Minn. 431, 438, 237 N. W. 15, 18, to attribute to each order the finality of a judgment, and so, instead of one final and formal adjudication of the whole matter as in ordinary actions, we have a succession of judgments in the same case settling it piecemeal.
The provision to the effect that such order shall be made after “hearing” upon notice and that the finality and conclusiveness of such order shall extend “to all matters thereby determined” not only defines the extent to which such an order shall be final and conclusive, but also limits it. A requirement of “hearing” in judicial proceedings, aside from any constitutional requirement of due process, by common consent presupposes a proceeding before a competent tribunal for the trial of issues between adversary parties,
The matters determined in an action or judicial proceeding are the questions decided in determining the issues raised by the conflicting claims of the parties. Wolfson v. Northern States Management Co. 221 Minn. 474, 22 N. W. (2d) 545; Maryland Cas. Co. v. Baune, 184 Minn. 550, 239 N. W. 598; Gustafson v. Gustafson, 178 Minn. 1, 226 N. W. 412; 3 Dunnell, Dig. & Supp. §§ 5162, 5163. The word “matter” is used in such connections as “matters in controversy,” “matters in dispute,” and “matters in issue” as referring to the cause of action asserted in the complaint and the issue joined thereon. Smith v. Adams, 130 U. S. 167, 9 S. Ct. 566, 32 L. ed. 895; 26 Wd. & Phr. (Perm. ed.) “Matters” to “Matters in Issue,” pp. 730-743.
In a trustee’s accounting, the “matters” involved include the transactions set forth in the trustee’s account and the petition for
Self-dealing by a trustee is not a matter involved in an accounting proceeding by a trustee where the account and the petition for the allowance thereof do not apprise the beneficiaries of the fact. Matter of Lewisohn, 294 N. Y. 596, 63 N. E. (2d) 589; Matter of Ryan, 291 N. Y. 376, 52 N. E. (2d) 909; Matter of L. I. L. & T. Co. (In re Garretson) 92 App. Div. 1, 87 N. Y. S. 65 (affirmed, 179 N. Y. 520, 71 N. E. 1133); Matter of Denbosky, 245 App. Div. 93, 280 N. Y. S. 859; In re Weinberg’s Will, 63 N. Y. S. (2d) 472; Matter of Weir, 182 Misc. 845, 46 N. Y. S. (2d) 551; Matter of Adler, 164 Misc. 544, 299 N. Y. S. 542; Matter of Peck, 152 Misc. 315, 273 N. Y. S. 552; 65 C. J., Trusts, § 861.
It is the trustee’s duty to disclose to the beneficiary fully, frankly, and without reservation all facts pertaining to the trust. In re Trusteeship Under Will of Rosenfeldt, 185 Minn. 425, 430, 241 N. W. 573, 575. In the cited case, our decision related to the trustee’s duty of disclosure in extrajudicial transactions. The duty of disclosure does not end at the commencement of a legal proceeding, but continues to be just as obligatory therein as it was prior thereto. That being true, the duty rests on the trustee in accounting proceedings to make the fullest measure of disclosure. Laun v. Kipp, 155 Wis. 347, 145 N. W. 183, 5 A. L. R. 655, and Annotation; 3 Freeman, Judgments (5 ed.) § 1235. In the Laun case, which is
“Here the respondent [trustee], as before suggested, owed to appellants [beneficiaries] the active duty, independently of any litigation, to make a full disclosure of his transactions as trustee. That duty he owed, in a high degree, in the litigation, and also he owed the duty of making such disclosure to the court and to its referee. According to the complaint he not only failed in this respect, preventing thereby appellants from having the benefit thereof in the litigation, but palmed off on all parties a spurious deceptive paper as a disclosure and thus secured the judgment complained of. If those facts can be established, they will make a case fairly within the Throckmorton rule * *
Because a beneficiary may rely upon the disclosures in the trustee’s account and the petition for its allowance, a proceeding for the allowance of the account does not impose upon the beneficiary as an ordinary adversary the burden of making his own inquiry to ascertain the truth of the trustee’s disclosures. The beneficiary may accept them as true. In this respect the rule is different from what it is in ordinary litigation, where the parties are not only adversary, but where there is no fiduciary relationship. In Hass v. Billings, 42 Minn. 63, 67, 43 N. W. 797, 798, we held that “When an issue is squarely made in a case, so that each party knows what the other will attempt to prove, and neither has a right, or is under any necessity, to depend on the other proving the fact to be as he himself claims it,” a party is not excused in relying upon his adversary’s allegations as to what the facts are. But in pointing out that the rule is different in accounting proceedings the Wisconsin court said in the Laun case (155 Wis. 373, 145 N. W. 192):
“* * * It is not a case where one may by mere silence permit a judgment to go in his favor, which is unjust. In ordinary sitúa-*241 tions one may, legally if not morally, keep silent and profit by Ms adversary’s ignorance. That is neither fraud, intrinsic, as in case of perjury, nor fraud, extrinsic, within the Throckmorton rule. But where there is a solemn duty to speak, independently of coercion, and in judicial controversy as well, whether asked to speak or not, and there is a failure to speak, resulting in the enrichment of the wrongdoer and the impoverishment of the one to whom that duty is owing, there is a fraud of most serious nature and, in a sense, both intrinsic and extrinsic.”
Here, there is not one word in any of the petitions and accounts or in the proceedings for the allowance of the annual accounts apprising the beneficiaries of any self-dealing on the part of the trustees. On the contrary, all information with respect to the matter was concealed. Hence no issue was tendered by the trustees in any of the prior proceedings concerning any self-dealing. The self-dealing was not, therefore, a matter determined by any of the orders relied on as having that effect.
From what has been said it must be apparent that the orders allowing the trustees’ annual accounts are not res judicata as to self-dealing by the trustees. Section 501.85, as the controlling statute, determines the extent to which such orders are res judicata. 4 Bogert, Trusts and Trustees, § 973. The statute in express terms provides that such orders shall be final and conclusive as to all matters thereby determined. The effect of this provision is that if the matter was determined by the order the order is res judicata, and if the matter was not so determined the order is not res judicata. This is the rule independent of statute. In re Trusteeship Under Will of Melgaard, 200 Minn. 493, 274 N. W. 641; Earll v. Picken, 72 App. D. C. 91, 113 F. (2d) 150; 65 C. J., Trusts, § 861. It has been held that where an investment is listed in the account, but the facts showing its illegality are not, the order is not res judicata as to the question of the illegality of the investment, because the mere listing of it fails to apprise the beneficiaries of the fact of illegality. Brown v. Fidelity Union Trust Co. 135 N. J. Eq. 404, 39 A. (2d)
In New York, it has been held in numerous cases that where self-dealing is concealed, as where the facts with respect thereto are not stated in the trustee’s account or the petition for the allowance thereof, self-dealing is not a matter “embraced” in the accounting proceedings within the meaning of the statute providing that surrogate decrees shall be final and conclusive “as to all matters embraced therein” (7 Wait, New York Practice Simplified [4 ed.] p. 145); that in such cases no issue as to self-dealing is tendered; and that consequently the order is not res judicata, as to the question of self-dealing. Matter of Ryan, 291 N. Y. 376, 52 N. E. (2d) 909; In re Weinberg’s Will, 63 N. Y. S. (2d) 472; In re Lawyers Title & Guaranty Co. 184 Misc. 241, 51 N. Y. S. (2d) 122, and other New York cases cited supra. As said in Matter of Denbosky, 245 App. Div. 93, 96, 280 N. Y. S. 859, 862:
“It follows that the decree, limited in operation to matters actually embraced therein * * * does not bind the petitioner to accept payment of the legacy in mortgage certificates which were never disclosed in the accounting proceedings nor approved as am, investment.” (Italics supplied.)
In Matter of Adler, 164 Misc. 544, 552, 299 N. Y. S. 542, 553, in holding that an order allowing a prior account was not res judicata the court said: “The question being wholly open and the decree not operating as a bar the court must determine what petitioners’ rights are on the facts conceded.” While the language of the New York statute differs from ours, the content and the meaning of both is the same. By limiting the res judicata of such orders to matters thereby determined, the statute in effect adopts the well-settled rule (Alexander v. Thompson, 101 Minn. 5, 111 N. W. 385; 3 Dunnell, Dig. § 5162, note 95) that a judgment is not res judicata as to matters not in issue.
A further reason why the orders allowing the annual accounts are not res judicata as to self-dealing by the trustees is that the
The case of In re Trusteeship Under Will of Melgaard, 200 Minn. 493, 274 N. W. 641, is not authority for the proposition that an order allowing a trustee’s intermediate account is res judicata as to matters not included in the accounting proceedings. Decision there proceeded upon the theory that the matters as to which the orders were held to be res judicata had been included in the accounting proceedings and there submitted for decision. We there said (200 Minn. 502, 274 N. W. 646):
“A judgment has been well defined as The final consideration and determination of a court of competent jurisdiction upon the matters submitted to it, in an action or proceeding.’ 15 R. C. L. 569. Why should not the so-called preliminary orders, all of them, be considered judgments rendering their subject matter res judicata? There was jurisdiction of subject matter and of the parties; there was submission of matter for decision, and decision on the merits.*244 There was no contest or trial, but what of it? There was opportunity for contest and trial. That is sufficient. 15 R. C. L. 953.”
Here, because the annual accounts and petitions for their allowance contained no allegation or statement apprising the beneficiaries of the fact of self-dealing and hence tendered no issue with respect to the matter, there was neither opportunity nor occasion for contest and trial of the question. While, perhaps, if they had known the facts, the beneficiaries might have asserted in the annual accounting proceedings, as they are doing here, claims in the nature of counterclaims based on self-dealing, they were not required to do so; and, as has been pointed out, the orders are not res judicata as to such claims.
Since the orders allowing the annual accounts of the trustees are not res judicata of the question whether the trustees are liable for self-dealing, it can make no possible difference whether they were vacated to permit litigation of the question. That is what was done here. The effect of the vacating order is to permit the beneficiaries to do what they had a right to do anyway. Matter of L. I. L. & T. Co. (In re Garretson) 92 App. Div. 1, 87 N. Y. S. 65 (affirmed, 179 N. Y. 520, 71 N. E. 1133); Matter of Ryan, 181 Misc. 566, 576, 48 N. Y. S. (2d) 522, 533. That being true, it is immaterial whether the evidence sustains all the findings of fact implicit in the decision granting vacatur, because under the circumstances no prejudice could result. In many cases, amendment of a judgment without changing the legal effect thereof has been held to cause no prejudice. Sells v. Grand Trunk Western Ry. Co. 206 Ill. App. 58; Knotts v. Crossly, 1 Neb. (Unof.) 730, 95 N. W. 848; Brizse v. Lisman, 231 N. Y. 205, 131 N. E. 891. Here, the limited vacation of the orders did not change their legal effect. Vacatur corresponded with non res judicata. Hence there was no prejudice.
That being true, it is entirely immaterial whether an order allowing a trustee’s account under the statute can be vacated only in some particular way, as by an action in equity or by proceedings
The vacating order is appealable so far as it relates to the orders allowing the trustees’ annual accounts. Since the vacated orders have the legal effect of judgments, the rules applicable to vacating a judgment apply. An order vacating a judgment is appealable. Vasatka v. Matsch, 216 Minn. 530, 13 N. W. (2d) 483; Morehart v. Furley, 152 Minn. 388, 188 N. W. 1001. But the vacating order is not appealable as to the other orders which it vacates. Under the doctrine of Barrett v. Smith, 183 Minn. 431, 237 N. W. 15, these orders remained under the control of the court and were subject to be vacated at any time without right of appeal from the vacating order. The ex. parte order was not appealable. Sheehan v. Hall, 187 Minn. 582, 246 N. W. 353. An order vacating a nonappealable order is not appealable. Brown v. Minnesota Thresher Mfg. Co. 44 Minn. 322, 46 N. W. 560; 1 Dunnell, Dig. & Supp. § 304.
Where an appeal is taken from an order which is in part appeal-able and in part not so, the appeal brings up for review only the part of the order which is appealable. Marty v. Nordby, 201 Minn. 469, 276 N. W. 739. The fact that the appeal is from an entire order, part of which is appealable and part of which is not, is no ground for dismissal of the appeal. An appeal from separate orders, some of which are appealable and some not, is good so far as it relates to the appealable orders. Sundberg v. Goar, 92 Minn. 143, 99 N. W. 638. So it is here as to the parts of the vacating order which are appealable. In re Estate of Williams, 217 Minn. 634, 13 N. W. (2d) 736; Julius v. Lenz, 212 Minn. 201, 3 N. W. (2d) 10.
Our conclusion is that the vacating order is appealable so far as it relates to the orders allowing the trustees’ annual accounts; that the vacating order is without prejudice, since it permits the beneficiaries to litigate claims against the trustees for breach of trust only in respects as to which the orders allowing annual accounts are not res judicata; and that, since the other orders vacated are nonappealable, the vacating order is nonappealable as to them. We
Affirmed so far as order relates to orders allowing trustees’ annual accounts and appeal dismissed as to other parts of the order.
Upon Petition For Clarification Of Original Opinion.
On January 30,1948, the following opinion was filed:
Appellants suggest that under § 501.35 a trustee whose appointment has been confirmed may petition the court not only for the allowance of any account, but also for instructions and for the construction of the trust instrument, and that our decision, holding that an order allowing an account granted under the statute upon notice and hearing has the same finality as a final judgment in an ordinary action and that the orders here involved, other than those which allowed accounts, had only the finality of ordinary orders, would seem to indicate that an order instructing a trustee or construing .a trust instrument granted under the statute upon notice and hearing lacked the same finality as an order allowing an account so granted.
We did not mean to so indicate or intimate. The orders, other than those which allowed accounts, were not granted in proceedings under the statute upon notice and hearing. Because that is true, the statute does not apply to the orders other than those which allowed accounts. The statute prescribes a rule of finality only as to orders coming under its coverage. Other orders are ordinary ones and are governed by ordinary rules. Here, the orders, other than those which allowed accounts, were ordinary orders and were governed by ordinary rules, for the reason that they were not granted under the statute. It makes no difference that one of such orders approved in advance action which the trustees proposed to take. While we appreciate appellants’ suggestions, it will be time enough to decide the questions suggested when cases arise involving orders instructing trustees and construing trust instruments granted in