1 Reported in 133 P.2d 952. These consolidated actions were commenced by the beneficiaries of a trust created by the will of William Chappell, now deceased, against the trustees therein named and others, the principal relief sought being the removal of the trustees and the appointment of another or others; that an accounting be made by the trustees; and for general relief.
[1] The court entered a decree removing the trustees and granting other relief, which, so far as necessary, will be referred to later in this opinion. The trustees have taken an appeal from the decree. The appeal of one of the trustees, Margaret E. Winn, formerly the wife of the decedent, cannot be considered for the reason that she has not filed any brief in this court in support of her appeal, and the motion for the dismissal of her appeal must be granted.
In his lifetime, William Chappell, a resident of Seattle, incorporated the Rainier Heat and Power Company as a domestic corporation. The corporation owned and operated a public utility plant and furnished heat, light, and power to a small area in Seattle. The legal title to the real estate involved here was vested in the corporation, and, for some time prior to the death of Mr. Chappell, the property was operated by the corporation. The capital stock of the corporation consisted of 15,000 shares, of which Mr. Chappell owned as his separate property 14,896 shares, Mrs. Chappell owned 100 shares, Arthur E. Griffin owned two shares, and another party owned the other two shares.
On December 22, 1920, William Chappell made a *Page 500 will, by which he made a nominal bequest to a brother and a bequest to a son. The remainder of his property, he devised and bequeathed to his wife, Margaret E. Chappell, and Jesse F. Russell, and Arthur E. Griffin, and to the successor and successors of them, in trust for a period of sixty years from and after his death, with all the power and authority in the management of his estate of an absolute owner of the property in so far as the same should not be inconsistent with the directions contained in the will. The trustees were named as executrix and executors of the will, and it was in all respects a nonintervention will.
The pertinent parts of the will, so far as need be considered in this opinion, are as follows:
"FIRST: My said trustees shall manage my estate, collect and receive the income thereof, pay all taxes and assessments, insurance charges and all other charges and expenses incident to and arising out of the use, holding, control and management thereof, and out of repairs and renewals thereon and thereof.
"SECOND: Every month during the continuance of the trust period herein created, and whenever the net profits from my estate shall be sufficient to justify such payments after making estimates of and allowing for taxes, assessments, repairs and expenses to be paid and provided for in future, my said trustees shall pay to my mother, Angeline C. Chappell, a sum of money not less than Two Hundred ($200) Dollars per month; to my wife, Margaret E. Chappell, a sum not less than Eight Hundred ($800) Dollars per month; and to my sisters, Annie Chappell Monroe, Dora Chappell Robinson, Vietta Chappell Robinson and Lillie Chappell Wetherall, and to my brothers James B. Chappell, Charles Chappell and Marion J. Chappell a sum not less than Two Hundred ($200) Dollars each per month, provided that if at any time the net profits from my said estate shall not be sufficient to pay the amounts hereinbefore specified, then my said trustees shall pay to my said wife, mother, brothers and sisters named in this paragraph the amount of such net profits in the *Page 501 same proportion to each as above specified. . . . and upon the death of my mother the payments hereby directed to be paid to her shall be divided equally between my living sisters and brothers named in paragraph Sub-division Two, and the legitimate issues of his, her or their bodies, each taking by representation. . . .
"THIRD: Whenever my trustees, herein named, or hereafter selected as herein provided, shall deem it to the best interests of my estate they are hereby authorized to set aside funds for buildings and permanent improvements and to build and permanently improve property belonging to my said estate, provided, however, that no funds shall be set aside for permanent improvements, or buildings when to do so would reduce the amount to be paid to my wife, my mother and my brothers and sisters herein named, as hereinbefore provided in the amounts specified.
"FOURTH: Whenever my trustees shall have a net income from my estate after providing for all taxes, assessments, repairs and expenses, which is more than sufficient to pay the amounts specified monthly to my beneficiaries herein named, or their descendants, and whenever they shall decide that it will not be to the best interests of my estate to improve the same or further improvements, then at such time or times they shall pay to my beneficiaries named in paragraph Two in the proportion to each therein provided, and in the event of the death of one or more of them, to the legal blood relations of my wife and the legal descendants of my mother, sisters or brothers as hereinbefore provided the full amount of such net income after making proper deductions for taxes, assessments, repairs and expenses.
"FIFTH: The trust hereby created shall continue and my said trustees herein named and their successors hereafter to be selected shall hold, manage, and control my property and the rents, issues, profits and renewals thereof as herein provided for a period of sixty years from and after the time of my death,. . .
"SIXTH: And it is my wish, will and desire that the said lots and blocks owned by the said Rainier *Page 502 Heat and Power Company of which I am the owner of all but one hundred and four (104) shares of the capital stock, shall not be sold during the trust period, and I hereby direct that my trustees shall do everything in their power to prevent the sale or disposal of all of the said property now owned by the said corporation in said blocks above named, to the end that the said property in said blocks may be preserved by my said estate and improved as the net profits of my estate just justify and permit after the payment from the net income of my said estate as herein provided, and whenever it shall be deemed best and advisable for the best interests of my estate that said property in said blocks or any portion thereof should be permanently improved.
"SEVENTH: In the management of my estate my trustees shall have all the power and authority of an absolute owner of the property so far as the same shall not be inconsistent with the directions herein contained, and whenever it shall be deemed by them to be advisable or expedient, they may sell at public or private sale, for cash or on credit, and may mortgage, pledge and convey any and all portions of my estate except that they shall not sell or convey or authorize to be sold or conveyed any of the property now owned by me in said blocks Thirty-three (33), Thirty-four (34), Thirty-five (35), Forty-one (41), or Forty-seven (47), of Maynard's Plat of the Town (now City) of Seattle. And any moneys derived from any such sale they may use to pay any expenses or charges against my estate or which may be incurred in the management thereof, or in the erection of permanent improvements or buildings upon any of the portions of the property owned by me upon said blocks in Maynard's Plat, hereinbefore described."
In the selection of the trustees for a period of time which would cover more than their normal expectancy of life, Mr. Chappell chose those whom he had good reason to believe would be most interested in carrying out his wishes and the most competent to meet and work out the difficult economic, business, and legal *Page 503 problems he evidently foresaw would arise. He chose his wife first. Next, he chose Jesse F. Russell. The acquaintance between Mr. Chappell and Mr. Russell commenced about 1911. A year later, Mr. Russell was employed by Mr. Chappell, managed properties for him, particularly those involved in this case, and was frequently consulted about general business affairs and policies. It is apparent that not only a very close friendship grew up between them over the years, but also a feeling of great confidence on the part of Mr. Chappell that Mr. Russell, in view of his mature age, ripened judgment, and intimate knowledge of all of the properties owned by the corporation, was one wholly competent to perform the duties the trust would impose. Then he chose Arthur E. Griffin, a former member of the superior court of this state and a lawyer of high standing. Mr. Chappell had been well acquainted with Judge Griffin for many years. Judge Griffin had been his attorney for a long period of time. There was a close personal relationship between them, and Mr. Chappell knew well the business and professional ability of Judge Griffin.
On May 31, 1921, Mr. Chappell died. The will was admitted to probate, and, in due time, the executors filed their final report and petition for distribution. On June 1, 1923, the court entered a decree allowing and approving the final report of the executors, and distributed the property of the estate to the trustees in trust for the uses and purposes as specified in the will of the decedent. Upon the entry of the decree of distribution, the trustees entered upon the execution of the trust. Although the property involved apparently belonged to the corporation, and the decedent's interest therein was represented by 14,896 shares of its capital total stock of 15,000 shares, all parties seemed to have regarded it as the property of the decedent, and none of the holders of the remaining *Page 504 104 shares have asserted or claimed anything to the contrary. The trustees became directors of the corporation, and, to a great extent, if not entirely, operated and managed the property as though it belonged to the corporation but in accordance with the trust created by Mr. Chappell. However, for all practical purposes, this is immaterial.
In September, 1925, Mrs. Chappell remarried, and has ever since resided out of the state, and has not performed any substantial service in the execution of the trust. On a few intermittent occasions, she attended meetings of the directors of the corporation.
In this opinion, we shall hereinafter refer to the trustees Jesse F. Russell and Arthur E. Griffin as the appellants, to Mr. Chappell as the testator, to his former wife as Mrs. Winn, and to the plaintiffs as respondents.
When the appellants entered upon the performance of their duties, first as executors and later as trustees, the property, other than the power and heating plant, consisted of a number of buildings located in the southerly, and what might be termed the older, part of Seattle. The buildings had been rented to tenants and had been used for hotel and lodging house purposes, stores, and other income paying uses. Many of the buildings were old and in a run-down condition. The growth of business activity in Seattle was moving northward. The type and character of the tenants was changing, all with the corresponding diminution of rental values and income.
It at once became apparent to the appellants that, if the income from the property was going to be sufficient to pay the beneficiaries the amounts allotted to them, a farsighted program of improvements, repairs, and replacements would have to be inaugurated, and this they proceeded to do. It will serve no useful purpose to detail here all that the appellants did in carrying *Page 505 out the program during the next eighteen years and until this action was brought, but they found it necessary to, and did, construct some new buildings to replace those that had served their usefulness. Some had to be removed because they had become fire hazards. Some of the property became so depreciated in value and so burdened with taxes that the appellants could no longer maintain it, and the property was sold for taxes. The appellants repurchased some of the property from King county for a substantially less amount than the taxes against it, but they did not consider the repurchase of any of the other property advisable from a business standpoint. In some areas, the tenants furnished a fruitful field of endeavor on the part of those charged with the enforcement of prohibition laws. The economic depression further complicated the situation. Throughout all this time, the appellants used their best efforts, and exercised what they deemed was their best and considered judgment, in carrying out the trust.
The value of the property when it came into the hands of the appellants was approximately $682,000, and some of it was burdened with encumbrances to the extent of more than $260,000. The appellants found it necessary to, and did, secure loans in order to repair and improve the property so as to keep it on an income basis, and gave mortgages to secure the indebtedness. When unable to secure necessary loans, one or more of them lent the appellants money and took mortgage security. In so far as the appellants encumbered any of the property to make improvements instead of using income or selling other property, it seems very clear this was an exercise of good business judgment so that there would be income for the beneficiaries and no sacrifice sales made. The value of the improvements made approximated the sum of $499,000. Between 1921 and 1940, the appellants made payments to the *Page 506 beneficiaries in the sum of $458,415.30, the substantial amount of this being paid up to and including the year 1932. In subsequent years, the appellants derived a sufficient revenue from the property to pay but $7,814.92 to the beneficiaries. The total amount of cash from all sources handled by the appellants from June 1, 1921, to June 30, 1941, was $5,068,844.30.
When the appellants entered upon the execution of the trust, they found that the testator had made no express provision in his will for the payment of compensation to the trustees. A petition was filed in court praying that the court adjudge and determine that it was the intention of the testator that the trustees be paid reasonable compensation for their services, and that the same be fixed by the court. The court did not require any notice to be given of a hearing on this petition, but, by ex parte order, found that the testator intended that the trustees should be paid reasonable compensation each month and that such would be four hundred dollars for Mrs. Winn, four hundred dollars for Mr. Russell, and three hundred dollars for Judge Griffin. During the years 1923 to and including the first eleven months of 1940, Mrs. Winn received $59,500, Mr. Russell, $65,900, and Judge Griffin, $37,550. During this time, the record shows that Judge Griffin necessarily performed a large amount of legal services for the appellants separate from, and in addition to, his services as trustee, and received for legal services the total sum of $32,625.
The trial court entered a decree in the consolidated cases removing the trustees, awarding personal judgments against them, making the judgments against the appellants joint and several, and setting the same off against the mortgage indebtedness owing to them, appointing new trustees and an attorney to represent them, and allowing attorney's fees to the respondents, and costs and other minor relief. *Page 507
At the close of the trial, the judge stated that, as to any intent on the part of appellants to secure funds or to misappropriate or embezzle them, there was no such thing shown in the case; that it was "as clean as a hound's tooth as to any deliberate intent to mulct the estate"; and that it was clean and free of even "the slightest intimation of extracting illegally." However, in subsequent memorandum decisions and by the decree, the trial judge concluded that the trustees, and each of them,
". . . have not given to the trust that care, diligence, prudence and sound discretion which should apply to all transactions in connection with the said trust and have been guilty of mismanagement as more particularly outlined in the memorandum opinion of the court. . . ."
In his written opinions, he expressed the belief that the trustees should be removed because (a) they mismanaged the trust, in that they determined important questions of policy involving the expenditure of large sums of money and paid to themselves compensation and attorney's fees to Judge Griffin without an order of court; (b) they did not file accounts at regular intervals; (c) they never asked a court of equity to interpret the "trust agreement"; (d) they borrowed money and gave mortgages on the real estate, particularly in Maynard's plat, which, by the terms of the trust, they were not permitted to sell or convey; (e) they failed to pay taxes on certain of the real estate, and this property was lost by foreclosure proceedings; (f) that two of the trustees loaned money to the trust estate or to the corporation, and received mortgages to secure their loans; (g) that, instead of paying the mortgage indebtedness owing to the trustees promptly, they paid to the holders of them interest over a period of years; (h) they paid compensation to Mrs. Winn when she was absent from the state and not performing any *Page 508 trust duties; and (i) they encumbered the corpus of the trust to make improvements which the will directed should be made out of the net income and from the sales of property.
[2] The respondents have moved to dismiss the appeal of the appellants, but we think, in view of the nature of the trust and the kinds of duties required of the trustees, they have such an interest in the subject matter of the litigation as entitles them to appeal from the decree entered. The motion is denied.
[3-5] When a trustee is chosen by a testator in his will, he has such powers as are conferred upon him by the terms of the trust and such powers as are necessary or appropriate to carry out the purpose of the trust and are not forbidden, it being assumed that the testator intended to grant to the trustee the authority to act in such a manner as the testator knew or anticipated would be necessary or appropriate to carry out the terms of the trust. The powers intended to be conferred must be gathered from the language of the instrument creating the trust and the nature and purpose of the trust. Where discretion is conferred upon a trustee with respect to carrying out the trust, the exercise thereof is not subject to control by the court except to prevent an abuse of such discretion. In administering the trust, the trustee must exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property and, in meeting this standard, the circumstances as they reasonably appear to him at the time of doing an act, and not at some subsequent time when his conduct is called in question, should be considered. The trustee owes to the beneficiaries of the trust the highest degree of good faith, diligence, fidelity, loyalty, and integrity, and the duty to deal fairly and justly with them and solely in their interests. The text books and the cases are so replete *Page 509 with declarations of the foregoing rules that we deem citation of authority unnecessary.
[6] We agree with the trial judge that the order of the court fixing the amount of compensation to be paid to the appellants was entered without jurisdiction. The fact that the testator made no express provision in his will for compensation for appellants does not take away their right to have paid to them a reasonable sum from time to time for their services. We do not think from the nature of the trust that the testator intended the services should be gratis. The appellants were interested parties. Their action in fixing their own fees and the fees for one of their number as attorney put them in a position adverse to the beneficiaries, and we think it was their duty to apply to the court to have the compensation fixed upon due notice to the beneficiaries.
[7] We think the court erred in entering personal judgments against the appellants for excess compensation and attorney's fees. When consideration is given to the length of time over which the services were rendered and their nature and character, the excess beyond which the court found was reasonable is comparatively small. In the case of Judge Griffin, such excess would be about $2.75 a month. The appellants were also in error in paying any compensation to Mrs. Winn after she had left the state and ceased to take any active part in the administration of the trust. But this has been cured by the offsetting of the same against the indebtedness owing by the trust estate to her.
[8, 9] We disagree with the trial judge in his belief that the appellants should have invoked the jurisdiction of the court and secured its permission to make repairs to, improvements upon, and replacements of, the property of the trust estate and to have the court decide upon questions of policy or to interpret the terms *Page 510 of the trust, which are plain and unambiguous. The powers conferred upon the appellants by the testator in his will creating the trust are very broad and comprehensive, and a wide discretion was given. The trust was a part of the nonintervention will, and it is apparent that the testator desired the exercise of the discretion and sound judgment of the experienced trustees in the management and operation of the trust property rather than the judgment of the court. A beneficiary of a trust has the right to appeal to the court and call in question actions of trustees which he may feel are not in his best interests, and the court has the power to intervene. But this jurisdiction must be exercised sparingly with reference to a trust of the kind we are now considering.
[10] It is our judgment, after examining the record in this case, the briefs of counsel and hearing their arguments, that the appellants, other than in the particulars referred to above, have administered the trust in accordance with its terms and have fully and faithfully performed their duties with respect thereto. There is no showing that any funds have been misappropriated or that the appellants have at any time acted in bad faith or with any dishonest motive. Although they have erred in some respects, yet their errors are not such as to have justified the court in ordering their removal from the further execution of the trust.
The decree as to Margaret E. Winn and the parts thereof allowing attorneys' fees for the attorneys for the respondents and for the accountant employed by them, is affirmed. That part of the decree removing appellants as trustees and appointing other trustees and an attorney for them is reversed. The respondents will recover their costs and disbursements in the lower court. Neither party will recover costs or disbursements in this court. The costs and disbursements, attorneys' *Page 511 fees, and fees of accountant shall be paid by the trustees out of the funds of the trust estate.
The case is remanded with directions to vacate the personal judgments against the appellants and for the entry of a decree in accordance with this opinion.
BEALS, STEINERT, BLAKE, ROBINSON, and MALLERY, JJ., concur.