McCollum v. McCollum

946 S.W.2d 181, 328 Ark. 607
CourtSupreme Court of Arkansas
DecidedMay 27, 1997
Docket96-1301
StatusPublished
Cited by6 cases

This text of 946 S.W.2d 181 (McCollum v. McCollum) is published on Counsel Stack Legal Research, covering Supreme Court of Arkansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
McCollum v. McCollum, 946 S.W.2d 181, 328 Ark. 607 (Ark. 1997).

Opinion

Tom Glaze, Justice.

This case involves the interpretation of a testamentary trust. On January 29, 1985, Lester McCollum died testate with his wife, Gertie, a son, appellant Berchie McCollum, and a daughter, appellee Earnestine Owen, named as co-executors of his will. In addition to Gertie, Berchie, and Earnestine, Lester was survived by two other children, Charles McCollum and appellee Calvin McCollum.

In his will, Lester established the Lester Marion McCollum Marital Trust, and its main asset was a 400-acre farm located in Arkansas County. Lester’s widow, Gertie, was named both the trustee and the sole beneficiary of the Marital Trust. In addition to receiving all the statutory powers of a trustee under Act 153 of 1961, now Ark. Code Ann. §§ 28-69-301 — 304 (1987 and Supp. 1995), Gertie was given title to the farm with the right to distribute to herself all of the net income of the trust and the absolute right to determine whether the farm should be sold. Gertie was also given the authority to appoint by her own will the entire remaining principal, free of the Marital Trust or any other trust.

Lester’s will further provided that if Gertie failed to survive him or failed to appoint the balance of the trust property or if any of her appointments failed, the balance of the property from the Marital Trust would become property of the Lester Marion McCollum Family Trust with Earnestine and Berchie named as co-trustees. Under the Family Trust, Lester’s surviving children or their children or unmarried spouse became contingent remaindermen. 1

The dispute in this case arises from events beginning on July 3, 1989, when Gertie executed and delivered a trustee’s deed, conveying the farm to Calvin and Earnestine as tenants in common for $400,000. Calvin and Earnestine gave Gertie four $100,000 promissory notes, two of which were executed by Calvin and two by Earnestine. On the same date, Calvin and his wife together and Earnestine executed and delivered to Gertie mortgages to secure payment of their respective notes with installment payments to begin on July 3, 1990. Earnestine’s mortgage and the trustee’s deed were subsequently amended to replace Earnestine with the Allen Robert Owen, Jr. Family Trust.

On April 29, 1993, Gertie executed her will in which she memorialized the fact that she had previously forgiven Calvin and the Owen trust one $100,000 note each. Further, she executed on the same date an assignment of mortgage and note to transfer to herself, individually, the remaining notes from Calvin and the Owen trust with accompanying mortgages. Additionally, Gertie executed release deeds to each Calvin and the Owen trust by which Gertie forgave any and all remaining indebtedness created by their respective promissory notes and mortgages. These documents were filed of record on May 4, 1993.

Gertie died on August 18, 1994, and in her will, Gertie appointed any remaining notes and indebtedness owed to the Marital Trust to Calvin and the Owen trust, should the four notes be determined still in existence and enforceable. Berchie filed a petition to contest Gertie’s will in probate court, but he later dismissed it with prejudice on November 2, 1995.

On February 7, 1996, Berchie filed the present action in chancery court against appellees Calvin, Calvin’s wife, Earnestine and Karolyn Owen as trustees of the Owen trust, and the Owen trust. In his complaint, Berchie alleged Gertie breached her fiduciary duty as trustee when she sold the farm and forgave Calvin’s and the Owen trust’s notes. Berchie requested an accounting, and imposition of a constructive trust for an undivided interest in the farm and a share of its rents and profits since the sale. The complaint was subsequently amended to join Lester’s great-grandson, Charles Miles McCollum, as a plaintiff. Following a hearing on the matter and without comment, the trial court entered an order in favor of Calvin, his wife, Earnestine, and the Owen trust. From that order comes this appeal. Because great-grandson Charles Miles makes no claim or argument separate from that of Berchie, we refer to the appellants as Berchie only for easier reading.

On appeal, Berchie argues that Gertie’s action in divesting the Martial Trust of its primary asset was fraud per se, and constituted self-dealing and a repudiation of the trust. Berchie criticizes Gertie’s sale of the farm for $400,000, which he contends was an inadequate price. He asserts Gertie sold the farm to Earnestine because Gertie lived with Earnestine and Earnestine exercised undue influence over Gertie. Further, Berchie argues that because the appellees knew of Gertie’s breach, Earnestine, as executor of Gertie’s will, attempted to conceal the fact that their notes and mortgages had been forgiven by filing a delayed inventory of Ger-tie’s property. Berchie’s arguments are without merit.

As the appellees note, Berchie was aware of every transaction concerning the trust and farm as it occurred either by actual knowledge in his position as co-executor of Lester’s estate or by constructive knowledge because each deed and mortgage had been duly recorded. Of particular note, Berchie testified that he was present when Gertie sold the farm for $400,000 to Calvin and Earnestine on July 3, 1989, and he offered no objection. Berchie also was aware on July 3, 1989 that Gertie was forgiving his 1987 loan of $100,000 and that she intended to forgive two of the $100,000 notes signed by Calvin and Earnestine. 2 Berchie now contends that the $400,000 is an inadequate price for the farm, but his contention is baseless. First, we mention the case of Gregory v. Moose, 266 Ark. 926, 590 S.W.2d 665 (Ark. App. 1979). In Gregory, a trustee was found by the trial court to be in breach of trust for agreeing to sell real estate belonging to the trust for an inadequate price. In reversing, the appellate court noted the broad powers invested in the trustee by the language in the testamentary trust and stated as follows:

We find the law to be that a trustee holding a power to sell under language used in this case has discretion not only as to whether or not to sell the trust property but as to the mode and terms of the sale as well. Before a sale will be cancelled for inadequate price, the price must be “grossly inadequate,” . . . evidenced by “bad faith,” or so low as to “shock the conscience of the court.”
[Generally speaking, a Trustee’s duty to his trust and to his beneficiaries in administering the trust is to exercise the care and skill a man of ordinary prudence would exercise in dealing with his own property in the light of the situation existing at the time. The conduct of the Trustee is not to be judged by hindsight knowledge of subsequently developed facts and circumstances.

Id. (citations omitted). Further, the Gregory court held that it is presumed that a trustee has acted in good faith, and the burden of proof rests upon those who question his actions and seek to establish a breach of trust.

In the present case, the only evidence presented regarding land values showed that between 1991 and 1996, property in the same area as the McCollum farm sold for $268.40 to $1504.80 per acre.

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Bluebook (online)
946 S.W.2d 181, 328 Ark. 607, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mccollum-v-mccollum-ark-1997.