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First Nat. Bank of Colorado Springs v. .

October 20, 1950


Author: Kerner

Before MAJOR, Chief Judge, and KERNER and DUFFY, Circuit Judges.

KERNER, Circuit Judge.

Plaintiffs, citizens of Colorado, as executors of the estate of Edna M. Frantz, deceased, brought suit in equity to compel defendant to restore money which plaintiffs claimed defendant acquired from Edna M. Frantz through a breach of trust by means of an unfair and unconscionable contract, and by false reports in the estate of Elwood W. McGuire, deceased. The suit also sought to compel defendant to pay to plaintiffs certain income from a trust estate which was due Edna at her death. The case was tried by the court without a jury. The trial judge made special findings of fact, rendered his conclusions thereon, and entered a judgment against defendant for $236,629.67 of which $81,641.74 represented interest.Later, upon motion of defendant to amend the judgment, the District Court eliminated therefrom the interest. To reverse the judgment, defendant appeals, and plaintiffs cross-appeal from the action of the District Court in eliminating the interest.

During his lifetime Elwood W. McGuire was a resident of Richmond, Indiana. His family consisted of Esther, his wife, his son Charles, and two daughters - Mary, who predeceased her parents, and Edna, plaintiffs' testatrix. The foundation of Elwood's fortune was a lawn mower manufacturing business known as Dille & McGuire Manufacturing Co. In 1916 he desired to turn over the active management of this business and of his personal affairs to his son Charles. Accordingly, on March 17, 1916, Elwood and his wife executed a revocable deed of trust to Charles by which a substantial part of the stock of the company was put into what was denominated the "Business Trust," and several parcels of real estate and some investment securities of the approximate value of $800,000 were put into what was denominated the "General Estate Trust." All of the assets of these trusts were turned over to Charles, as trustee, with directions to pay the income to Elwood for his life. Elwood then retired, and with his wife and two daughters moved to Colorado Springs, Colorado.Charles and his family remained at Richmond where he managed the lawn mower business and the trusts. On January 23, 1931, a supplemental trust instrument was executed making the general trust irrevocable. At that time Elwood had two living children, Charles, 56 years old, and Edna, 52 years old.Mary had died some time previously, unmarried and childless.

Under the provisions of the supplemental trust agreement, Charles, the trustee, was directed to pay the net income to Elwood during his lifetime, and upon his death, to Esther during her lifetime. Upon the death of both Elwood and Esther, the trustee was directed to pay the net income to Edna and Charles during their lives, each to receive one-half of the income. Upon the death of Edna, after the death of Elwood and Esther, this trust estate was to terminate and all of the corpus was to go to Charles, or if deceased, to his heirs.

In order that his heirs might be relieved of the payment of death taxes accruing at his death, Elwood, in the supplemental trust agreement, reserved the right to have the death taxes and debts of his estate paid with the funds of the general estate trust, and in his last will he again directed that the taxes and debts of his estate be paid with funds of the general trust estate.

Both Esther and Elwood McGuire died at Colorado Springs; Esther, on February 24, 1938, and Elwood, on March 1, 1938. At the time of Elwood's death, Charles was in Florida. When notified of his father's death he went to Richmond and obtained a copy of his father's will, and from there to Colorado Springs. While at Colorado Springs, on the day of the funeral, he discussed with his sister the provisions of his father's will and the requirements of the amendatory trust agreement, and the matter of the payment of his father's debts and taxes. He told her that the estate under the will would be about $600,000, that the taxes might run anywhere from $300,000 to $500,000, and that trust assets would have to be sold to pay them. The Indiana inheritance taxes were not due until a year from the date of Elwood's death, and the federal estate taxes were not due until fifteen months later. After the funeral Charles returned to Richmond and instructed his attorney to draft an instrument to protect him in the use of funds of his father's estate. This agreement, dated March 14, 1938, was sent to Edna, and she signed it and returned it to Charles on March 16, 1938. It stated that the trust estate was invested in securities which could not be sold without loss to the estate, and could not be replaced on the market without loss; that it was agreed that Charles should pay the debts and taxes out of the father's estate instead of out of the trust.

Elwood's will was filed for probate in an Indiana court on May 13, 1938, and Charles qualified as executor. The estate was finally settled on November 16, 1940. Under the provisions of the will $1,000 was specifically bequeathed to Edna, and the residue of the estate was divided equally between Edna and Charles.

The total amount of the residue of Elwood's estate available for distribution to Edna and Charles was $601,311.17 - Edna's distributive share amounted to $301,155.59. However, of that sum she received from Charles, as executor, only $157,784.04. On September 25, 1940, Charles sent to Edna for her signature his verified final report as executor of his father's estate. In the report he stated that he had paid Edna the sum of $301,155.59. He clipped together the first five pages of the report and told her to sign on page 5. On one of the pages clipped together he stated "that in accordance with the terms of said will all inheritance taxes and all federal estate taxes have been paid out of the assets of said trust estate and were not charged against the assets of this estate, * * *." But she received only $157,784.04 on account of her distributive share, and Charles, on the death of Edna on July 11, 1941, personally gained the sum of $143,371.55 when he became the sole owner of the corpus of the trust estate.

Contained in the court's findings are these facts:

1. That since March 17, 1916, Charles had handled all the business affairs of the McGuire family and had acted as trustee of the irrevocable trust and as executor of his father's estate; that Edna was not an experienced investor nor a businesswoman, and did not understand the handling of business affairs; that Charles directed her business affairs; that at the time the purported contract of March 14, 1938 was executed, Charles was acting in a fiduciary relationship with Edna, and she relied upon him and did as he told her.

2. That although it appears that Charles discussed the purported contract with Edna, there was no definite proof that anyone explained to her that by that instrument she was giving up the sum of $143,371,55, or that she understood the effect of such a contract.

3. That the purported contract was not to Edna's advantage but only to her loss, and was wholly to the benefit of Charles who became enriched in the sum of $143,371.55 when he became the sole owner of the corpus of the trust estate on the death of Edna.

4. That by virtue of the fiduciary relationship existing between Charles and Edna, her ignorance of business affairs, the loss to her and the advantage and benefit to Charles, the contract was and is unfair, invalid, and of no force and ...

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