APPEAL from the Circuit Court of Cook County; the Hon. FRANCIS
T. DELANEY, Judge, presiding.
MR. PRESIDING JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:
Rehearing denied April 27, 1981.
This complicated appeal involving the sale of corporate stock by a testamentary trust has been made more difficult by the voluminous record and the lengthy briefs. The action was initiated by the First National Bank of Chicago, a trustee (Bank), by filing a complaint for instructions. The principal contesting parties are beneficiaries of the trust and descendants of the original settlor, Michael J. Edgeworth, who died in 1933. One branch of the Edgeworth family and Victor Oolitic Stone Company, a corporation (Oolitic), will be referred to as "defendants." Another branch of family beneficiaries, including Patricia E. Letsinger, a granddaughter of the settlor, will be referred to as "counterclaimants." They filed a counterclaim seeking to set aside the sale by the trust to Oolitic of stock in Victor Buff Stone Company (Buff).
On June 2, 1978, the trial court entered summary judgment in favor of the Letsinger branch for rescission of the sale. The trial court acted upon the theory that the transaction was consummated by two trustees: the Bank and Nancy Edgeworth Barr, a granddaughter of the settlor, now deceased; whereas the trust instrument required concurrence of three trustees in the transfer of trust property. After additional lengthy hearings, the trial court, on August 17, 1979, entered a judgment entitled "Corrected Final Decree of Rescission and Award of Attorneys Fees" requiring various arrangements and transfers to be made to place the trust in status quo. This judgment also allowed various fees to counsel and surcharged the Bank and John R. Edgeworth equally for payment thereof. The defendants have appealed. The Bank has filed a separate appeal.
A factual statement is essential.
The three corporations involved in this litigation are Victor Buff Stone Company, Victor Oolitic Stone Company, and Indian Creek Land Company. These companies own Indiana land which is in close proximity in some areas. Buff and Indian Creek are simply landowners. Oolitic is engaged in the actual quarrying and marketing of limestone products from the Buff property. Indian Creek has never been quarried because its limestone is too far beneath the surface for economic removal.
Buff has always leased its land to Oolitic. Long-term leases were executed because many years of preparation are necessary to develop the land and remove or strip the earth covering the limestone. In addition, a substantial investment on behalf of the operating company is required. The leasing arrangement began prior to 1926. The 1926 lease was to extend for 25 years, but that lease was replaced in 1927 by a lease for a 10-year term. In 1936 the companies entered into a new lease which would run for 20 years, including two 5-year options granted to Oolitic. The 1936 lease was amended in 1948 to extend to January 1, 1968. It was later extended to December 31, 1977.
The settlor created the trust "for the benefit of his wife and issue." He named his three children — John, Sr., Harriette, and Myron, Sr., — as individual trustees. The Bank was named as corporate trustee, with provisions for successor trustees in event of death, resignation, or disability. The trust instrument named the settlor's wife, their children, and all issue as income beneficiaries. The trust was to continue for 21 years after the death of the last survivor of the settlor, his wife and children, and six designated grandchildren.
The corpus consisted of the settlor's shareholdings in the three limestone companies "which have come under the control of the grantor over a period of many years." The trust res contained 77.66 percent of the outstanding stock of Buff, 22.14 percent of the outstanding stock of Oolitic, and 71.40 percent of the outstanding stock of Indian Creek. The trust instrument expressed the settlor's desire that "the properties [be] retained as a unit [rather] than * * * sold and the proceeds invested in other securities." The instrument stated, "it is the grantor's opinion that the said lands will have a constantly increasing value * * *," but because of unforeseen, changing conditions, disposition could be "advisable."
The Family and the Corporations
The record reflects a history of complex family involvement in all three corporations. Around 1900, the settlor was the majority shareholder of Oolitic and in 1924 he became its president. He acquired control of Buff and became a director and its president. In 1928 his son John, Sr., succeeded him as president of Oolitic. In 1932 the settlor and his sons formed Indian Creek and became its directors. The settlor transferred a large number of shares in Oolitic to his two sons. Both sons owned stock in Buff.
The trust instrument was executed on June 3, 1932. The settlor died in 1933. The instrument took effect with John, Sr., Harriette, and Myron, Sr., as the individual trustees and the Bank as the corporate trustee. In 1941 Myron, Sr., died. His wife succeeded him as trustee until 1960 when their daughter Nancy E. Barr succeeded her as trustee. Myron, Sr., had two other children, Myron, Jr., and Michael. John, Sr., Harriette, and Nancy continued as the individual trustees until 1967 when John, Sr., appointed his son John R. Edgeworth to serve as trustee in his place. The trust instrument provided for appointment of successors to individual trustees by deed.
By 1967, John, Sr., had acquired a controlling interest in Oolitic. John, Sr., had two other children, Terrence Edgeworth and Patricia E. Letsinger. John R., Harriette, and Nancy served as the individual trustees until 1971 when Harriette died without issue. The trust agreement provided that when one of the original trustees died without issue, no one could be appointed to succeed that trustee and only two individual trustees, and also the corporate trustee, were thereafter needed. John R. and Nancy then served as the individual trustees.
On May 29, 1972, John, Sr., died. Pursuant to the trust agreement, an original trustee could also appoint a successor trustee by will or deed to serve after the death of the original trustee. John, Sr., made no testamentary or other provision either for John R. to continue as trustee or for another trustee to be appointed. Thus, John R.'s trusteeship automatically expired on the date of his father's death. This left the trust with only one individual trustee, Nancy. However, the parties themselves, including John R., were unaware that his trusteeship had expired.
The possible exchange or sale of the trust's Buff stock to Oolitic was discussed as early as 1944. About 1960, the discussions not only continued but also became more frequent. At that time John, Sr., was still a trustee and wished to buy the trust's Buff stock from the trust for Oolitic. He made several unsuccessful attempts to purchase the stock.
The record reflects several plausible reasons which might logically impel the trustees to sell the stock. The limestone industry was characterized as having reached a tapering-off point. In 1960, the Bank favored the sale of the trust assets and stated the settlor's hopes for the land "had failed to materialize to any substantial degree." The Bank did not foresee improvement which would justify retention of the securities. Furthermore, the three children of Myron, Sr., had been making demands for more income. The demands were not satisfied because the trust res consisted of only the stock of the family corporations and it had no other assets such as readily marketable securities or available cash.
In 1972, the shareholders of Buff included the trust (owning 77 percent), Annette Edgeworth, Terrence, John R., and Patricia. John R. was the vice president. The directors included Nancy, who was then a trustee, and also John R. The shareholders of Oolitic were Annette Edgeworth, the trust (owning 22 percent), Terrence (owning 33.35 percent), John R. (owning 32.55 percent), Patricia, and others. John R. was the president and Terrence was vice president. Directors included various family members. The shareholders of Indian Creek were the trust (owning 71 percent), Michael Edgeworth, Terrence, John R., and Oolitic (owning 28.52 percent). John R. was an officer and various family members were on the board of directors.
These discussions culminated in the sale of 1738 shares of Buff stock from the trust to Oolitic for $298,838.55. This took place at a composite meeting of shareholders and directors for the three corporations and the trustees held on July 26, 1972, two weeks after John, Sr., had died. Among those attending the meeting were Nancy, John R., David T. Vass (on behalf of the Bank), Myron, Jr., D.F. Parrish (secretary of Buff), and Robert Joynt (Bank trust administration officer). John R. presented the offer of purchase in behalf of Oolitic. The minutes of the meeting reflect a "unanimous" decision to sell the Buff stock for this consideration equivalent to $171.95 per share.
Robert Joynt described the transaction more fully in his deposition:
"John * * * asked that while the discussion was entertained by the trustees relative to the price of the stock he leave the room, which he did. [I]t was unanimously agreed that if John Edgeworth would submit a revised purchase intent at a per acre figure of $300 which would be a per share figure of $171.95 that the directors and trustees would consider this as a good offer and would accept it therewith.
John Edgeworth came back into the room * * * and indicated he would be willing to pay $300. * * *. John R. Edgeworth * * * was out of the room [and] did not vote * * *."
Patricia E. Letsinger allegedly learned of the sale in February 1973. On May 15, 1973, Terrence was elected president of Buff and John R. vice president. In June 1973, Patricia demanded voted themselves salaries of $200 per month as officers of Buff. On December 20, 1973, the lease from Buff to Oolitic was extended for an additional 20 years from January 1, 1978, to January 1, 1998. The 20-year term of the existing lease expired in 1978.
On May 31, 1974, the Bank filed a complaint requesting the court to decide whether the trusteeship of John R. continued after his father's death and whether the trust instrument requires three trustees to execute the trust. The complaint prayed appointment of a third trustee if required.
On September 10, 1974, Patricia filed a counterclaim and third-party complaint. Count I alleged John R. was not a trustee after his father's death and, because no third trustee was appointed, the operation of the trust by Nancy and the Bank constituted a breach of trust. John R. acted in dual capacities in negotiating the sale, thereby breaching his duty of loyalty. After termination of his trusteeship, other co-trustees continued to deal with John R. as a trustee. The sale was "consummated solely by action of said Bank" in breach of trust provisions requiring three trustees, and only one trustee signed the stock purchase agreement on behalf of the trust.
Count II alleged the value of the Buff stock at the time of the sale was substantially in excess of the amount it sold for. By selling at that price, Nancy and the Bank breached the trust and thus damaged the corpus and income.
Count III alleged John R., even after the sale, acted as a trustee and also as a representative of Oolitic. The sale of the Buff stock to Oolitic was self-dealing by John R. as a trustee and a breach of his duty of loyalty and breach of the trust.
On January 7, 1976, Patricia moved for summary judgment. She alleged John R.'s trusteeship terminated at the death of his father, but all believed he was a trustee and he continued to act as a trustee. She alleged two alternative conclusions of law. One was if John R.'s trusteeship terminated on the death of his father, two trustees had no authority and the sale was void. The second was ...