since 1972. Several of the plaintiffs were given a tour of the
Harrington and King Company by Patrick Filter in 1972. The
plaintiffs were aware that Patrick Filter was the Chairman of the
Board and were also aware that he had been Judson E. Fuller's
personal attorney. It was not until the 1978 IMF matter arose
that the plaintiffs became aware of Filter's triple role relative
to the trust, the corporation and his position as a partner in
the law firm of Carey, Filter and White.
Based upon these facts, the court will first discuss the merits
of the defendants' affirmative defenses. The defendants Filter
and the law firm assert that the plaintiffs are barred from
proceeding with this action on the equitable grounds of laches
and because of the applicable limitations period. The court finds
that the defendants have failed to satisfy their burden of
establishing either of these affirmative defenses.
The plaintiffs cannot be found guilty of laches. The doctrine
of laches is founded upon the maxim that equity aids the vigilant
and not those who "knowingly slept upon their rights". Pyle v.
Ferrell, 12 Ill.2d 547, 552, 147 N.E.2d 341, 344 (1958). It is
not the passage of time that will constitute laches but rather it
must be clear that the plaintiffs were aware of their rights for
such a period as to now make it inequitable and prejudicial to
charge the defendants with any liability. Harper v. City Mutual
Insurance Company, 67 Ill.App.3d 694, 24 Ill.Dec. 308,
385 N.E.2d 75 (1978); DeMacro v. University of Health Sciences,
40 Ill. App.3d 474, 352 N.E.2d 356 (1976).
If the plaintiffs had been aware of the role of Patrick S.
Filter as Chairman of the Board of the company and of the trustee
Bank, it is possible that the plaintiffs could be barred by
laches from proceeding with this claim. Had the plaintiffs been
aware of the facts in 1972, the defendants would be seriously
prejudiced by the conduct of the plaintiffs in allowing the
situation to go unchecked for six years. See, Whitaker v. City of
Carbondale, 55 F. Supp. 72 (E.D.Ill. 1944). However, the court has
found that the plaintiffs only became aware of the factual
situation in 1978 and took prompt action by filing this lawsuit
less than seven months thereafter. The defense of laches is
unavailable to the defendants.
The determination that the factual situation became known to
the plaintiffs in 1978 also defeats the defendants' claim that
the plaintiffs are barred by a five-year statute of limitations.
Furthermore, in Illinois the passage of time cannot bar a claim
arising from an express active trust. Dunas v. Metropolitan Trust
Company, 41 Ill.App.2d 167, 190 N.E.2d 144 (1963). It is only
when a trustee repudiates the trust or disavows it that any
limitation period begins. Holyoke v. Continental National Bank,
346 Ill.App. 284, 104 N.E.2d 838 (1952). No such repudiation has
occurred and the court finds that this action has been timely
brought. The plaintiffs are neither barred nor equitably estopped
from proceeding with this action.
In determining whether or not the plaintiffs have established
their right to recovery in this case, the court is guided by
several well-established principles of equity applicable to the
law of trusts. Equity imposes upon a fiduciary and trustee a
liability that goes beyond the mere equitable rights of the
beneficiaries and such a fiduciary may not obtain any profit or
advantage from his dealings with the trust property. Winger v.
Chicago City Bank and Trust Company, 325 Ill.App. 459,
60 N.E.2d 560, reversed on other grounds, 394 Ill. 94, 67 N.E.2d 265
(1945). Equity will divest the fiduciary of any profit so
obtained. United States ex rel. Willoughby v. Howard, 96 F.2d 893
(7th Cir. 1938). It does not matter that the trust did not suffer
a loss or that the beneficiaries were injured in any way. In re
Gleeson's Will, 5 Ill.App.2d 61, 124 N.E.2d 624 (1955); Winger v.
Chicago City Bank, supra.
Just as a fiduciary may not profit from self-dealing with the
trust property, a fiduciary may not place himself in a position
wherein his personal interests conflict with those of the trust's
Campell v. Albers, 313 Ill.App. 152, 39 N.E.2d 672 (1942).
Conflicts of interest are generally prohibited. Humpa v.
Hedstrom, 341 Ill.App. 605, 94 N.E.2d 614 (1950); Olson v.
Rossetter, 330 Ill.App. 304, 71 N.E.2d 556 (1947). A conflict of
interest arises when the trustee is placed in a position where it
would be difficult for him to be faithful and honest with the
trust beneficiaries. Humpa v. Hedstrom, supra; Campbell v.
The situation presented by the circumstances of this case
convinces the court that a conflict of interest does exist as to
the role of Patrick S. Filter as a Chairman of the Board of the
National Bank of Austin as well as the Harrington and King
Perforating Company. The court doubts that the defendants can
deny that a conflict of interest exists in this case. One need
only examine the by-laws of the corporation. In the event that
the stock of the corporation is to be sold, Article IV, Section
2 provides that the stock must first be offered to the
corporation. In that regard, Patrick Filter, as Chairman of the
Board of the corporation, would attempt to secure the lowest
possible selling price for the benefit of the corporation. In his
capacity as a Board member of the trustee Bank, however, Filter
would be obligated to obtain the highest possible selling price
for the benefit of the trust's beneficiaries. Such a conflict of
interest is neither remote nor speculative and the fact that
Filter is only the agent of the trustee Bank is not material.
People ex rel. Barrett v. Central Republic Trust Company,
300 Ill. App.? 297, 20 N.E.2d 999 (1939).
However, as the defendants correctly assert, the mere existence
of a conflict of interest does not ipso facto require the removal
of the trustee or result in any liability. When the conflict of
interest is contemplated, created and sanctioned by the trust
instrument, the conflict of interest is allowed to exist.
Tankersley v. Albright, 374 F. Supp. 538 (N.D.Ill. 1974); Conant
v. Lansden, 341 Ill.App 488, 94 N.E.2d 594, reversed in part on
unrelated grounds, 409 Ill. 149, 98 N.E.2d 773 (1951). This
recognized exception to the general rule is founded upon the
common situation where a testator, who owns what he considers to
be a thriving business, appoints as trustee an individual who is
familiar with the business and who is to continue to take an
active role in the daily operation of the business. The reasons
for such action by the settlor are "too patent to require
comment". Conant v. Lansden, supra at 502, 94 N.E.2d 594.
Accordingly, the court must determine whether the trust
instrument at issue in this case falls within the exception to
the general rule.
In determining whether the exception applies here, the court
must examine the intent of the settlor when the trust was
created. In so doing, the court is obligated to examine extrinsic
evidence of the circumstances as they existed at the time the
trust was created. Northern Trust Company v. Winston,
32 Ill. App.3d 199, 336 N.E.2d 543 (1975); Plast v. Metropolitan
Trust Company, 401 Ill. 302, 82 N.E.2d 155 (1948); Harris Trust
and Savings Bank v. Wanner, 393 Ill. 593, 66 N.E.2d 867 (1946).
Upon such a review, the court concludes that the circumstances
surrounding the trust at issue herein requires a finding that the
exception does apply.
The trust instrument provides that the co-trustees are to be
Judson E. Fuller and the National Bank of Austin. The evidence
establishes that Judson E. Fuller was empowered with the sole
voting authority over the stock in the trust and did so vote the
stock during his lifetime. At the time the trust was created, at
the death of Judson M. Fuller in 1963, Judson E. Fuller was the
president and chief executive officer of the Harrington and King
Perforating Company. Judson E. Fuller was also a beneficiary
under the terms of the trust as well as one of the trustees.
Judson M. Fuller, who operated the corporation for many years
prior to his retirement, was well aware of these circumstances
when he created the trust in his will. Judson M. Fuller also had
extensive dealings with the National Bank of Austin for several
years prior to his death.
The trust instrument did not provide for a successor trustee to
Judson E. Fuller. However, Paragraph 4(e) of the will of Judson
M. Fuller provides that the surviving trustee be empowered with
the same authority to vote the stock as was given to Judson E.
Fuller. Even in the absence of such explicit provisions, it has
been held that the power and authority of a deceased trustee
devolves to the surviving trustee. LaForge v. Binns, 125 Ill. App. 527
The court must conclude that it was the intent of Judson M.
Fuller that the trustee take an active role in the management of
the corporation. No other intent can be derived from the
circumstances of naming the current president and chief executive
officer of the Harrington and King corporation to serve as the
trustee of the trust which was funded with the controlling
interest of the corporation's stock. The corporation had been
operated as a family concern for many years. To appoint an
individual as trustee who was familiar with the operation of the
business was reasonable. Accordingly, the court concludes that
the present trust instrument contemplates and sanctions the
existence of a conflict of interest. The trustee Bank, and by
analogy, its agent, Patrick Filter, is permitted to take an
active part in the operation of the Harrington and King
Perforating Company. There can be no breach of fiduciary duty
where the conflict of interest is permissible. Tankersley v.
Albright, supra; Stone v. Baldwin, 348 Ill.App. 225,
109 N.E.2d 244 (1952); Conant v. Lansden, supra.
The court's finding that Patrick Filter may properly serve as
Chairman of the Board of the Harrington and King corporation does
not automatically absolve him of the liability to repay to the
beneficiaries that which he has received as Chairman of the
Board. The plaintiffs rely upon the decision of Stone v. Baldwin,
supra, for the proposition that Filter is liable to the trust
beneficiaries for any amounts he received as wages or as
director's fees from the corporation. That case holds that a
testamentary trustee, with actual or implied authority to manage
or participate in the management of the corporation, may vote
himself or be voted an officer of the corporation. That holding
is consistent with the decisions of Tankersley and Conant.
However, that case further holds that:
If such a position is obtained through his own act as
trustee and he receives compensation therefor, he
must account for same to the trust. His fiduciary
duties come first for which he may rightfully be
paid, but he cannot profit otherwise.
Stone v. Baldwin, supra at 243,