Mangels v. Tippett

Digges, J., delivered the opinion of the Court. Bernard M. Mangels, late of Baltimore City, died on the 24th of December, 1931, leaving a last will and testament whereby, after making specific bequests of $5,000 to each of his three children, it was provided: “I give and bequeath to The Safe Deposit and Trust Company and Richard B. Tippett in special trust and confidence, however, all of the capital stock that I may own of Mangels-Herold Company, Incorporated, at the time of my death, to hold the same for the use and benefit of my wife, Gertrude Mangels, for and during the term of her natural life, and to pay the income therefrom to my said wife, Gertrude Man-gels, without power of anticipation; her own receipt at the time of the payment of any part ²⁹² thereof to be the only necessary discharge and acquittance to said trustees, and from and after the death of my said wife, Gertrude Mangels, the stock that I may own of Mangels-Herold Company, Incorporated, at the time of my death, shall become the absolute property of my three children, namely: Walter B. Mangels, William H. Mangels and Ruth G. Wineholt, so that each of my said children shall be entitled to and receive a one-third part of said stock of Mangels-Herold Company, Incorporated. In the event of the death of any of my children before the death of my said wife, Gertrude Mangels, then the share of my child or children so dying, shall be paid to his, their or her child or children, share and share alike. It is my will, and I so direct, that the trust hereby created in said stock of Mangels-Herold Company, Incorporated, owned by me at the time of my death, shall cease immediately upon the death of my said wife, Gertrude Mangels, and it is further my will, and I so direct, that my said trustees shall not sell said stock of Mangels-Herold Company, Incorporated, or any part thereof without the written consent of my said wife and said three children, or the survivor or survivors of my said children, .in the event any of my children shall die before my said wife.

If, however, my said wife and said children shall direct in writing, my said trustees to sell said stock of Mangels-Herold Company, Incorporated, that I may own at the time of my death, then the purchaser or purchasers thereof from my said trustees shall not be required to see to the application of the purchase money or any portion thereof, and my said trustees are hereby empowered to re-invest the sum of money derived from the sale of the capital stock of Mangels-Herold Company, Incorporated, that I may own ²⁹³ at the time of my death, in such securities as they in their discretion may deem proper, and to change such investments from time to time as in their discretion may be required, and no purchaser or purchasers thereof from my said trustees shall be required to see to the application of the purchase money or any portion thereof, it being my desire, and I so direct, that my said wife, Gertrude Mangels, shall receive the net income from the stock owned by me at the time of my death of Mangels-Herold Company, Incorporated, for and during the term of her natural life or the income from any substitution thereof, and that said stock or any substitution thereof, immediately upon the death of my wife, shall be paid over by my said trustees to my children, or the child or children of any deceased child or children, share and share alike in accordance with the terms of this my last will and testament. All the rest and residue of my estate of every kind and description and wheresoever situate, I give, devise and bequeath to my wife, Gertrude Mangels, absolutely. I hereby appoint Richard B. Tippett and Sons as attorneys for my executrix hereinafter named, to perform all legal services for my executrix pertaining to the administration of my estate, and I hereby direct my executrix to consult said Richard B. Tippett and Sons as to all legal matters pertaining to my said estate. I hereby constitute and appoint my wife, Gertrude Mangels, to be the executrix of this my last will and testament.” At the time of the testator’s death, he owned 1,250 shares of the capital stock of Mangels-Herold Company, of the par value of twenty-five dollars per share, the total capital stock of said company being 2,500 shares, the other 1,250 shares being owned by John H. Herold.

The business of this corporation was that of refining syrup ²⁹⁴ and molasses and making sale of same. It had been organized principally through the efforts of the testator, and the testator and Herold were the exclusive owners of all of the stock, which, as stated, was owned equally by the two. The company was unusually successful up until the death of the testator, and continued this success even through the period of depression to the present time. In accordance with the by-laws of the corporation, there were three directors, consisting of Bernard M. Mangels, John H. Herold, and J. W. Suter.

The officers of the company were Mangels as president, and Herold, as secretary-treasurer, each of whom was paid a salary of $15,000 per annum, after which a dividend of six dollars a share was paid to the stockholders, the balance of the net profits was each year added to the surplus of the company, to be used as working capital. After the death of Mangels, his widow, as executrix of the will, qualified and settled the estate through the Orphans’ Court of Baltimore City. The .1,250 shares, the subject of the trust created by the will, were appraised in the inventory at $100,000, and, after the settlement of the estate, to wit, in August, 1932, were transferred by the executrix into the hands of the Safe Deposit & Trust Company and Richard B. Tippett, the two testamentary trustees. The annual meeting of the stockholders of the company, succeeding the death of Mr. Mangels, was held on January 12th, 1932, at which meeting all of the stock of the company was represented and voted, 1,250 shares being voted by Herold, and 1,250 shares being voted by the estate of Bernard Mangels through Richard B. Tippett, who held a proxy from the executrix.

At that meeting three directors were elected; namely John H. Herold, Richard B. Tippett, and Arthur E. Reinheimer. At the conclusion of this stockholders’ meeting, the new directors of the company held a directors’ meeting for the election of officers; whereupon, on motion of Richard B. Tippett, John H. Herold was elected president and treasurer, and upon motion of Mr. Herold, Mr. Tippett was elected secretary of the company, for the ensuing year. The sal ²⁹⁵ ary of Herold, as president and treasurer, was fixed at $15,000 per year, payable in monthly installments of not more than $1,200 a month; and the salary of Tippett, as secretary, was fixed at $50 per week, payable weekly. The company functioned for the year 1932 under the aforementioned board of directors and officers, which resulted in profits for the year of approximately $35,000.

From this amount there appears to have been deducted the salaries of the officers, amounting to $17,600, an income tax of between $4,000 and $5,000, and a sum sufficient for the payment of a dividend of five dollars a share, or twenty per cent., being the rate of dividend declared by the board of directors, and subsequently paid. The balance of the profits, following what had been the usual practice of the company, was added to the surplus. The annual stockholders’ meeting for 1933 was held in January of that year, all of the stock being present and voting, the Mangels stock, which had theretofore been turned over to the trustees named in the will, being voted by the trustees, Richard B. Tippett, and John J. Nelligan, representing the Safe Deposit & Trust Company. The same directors who had been elected in the stockholders’ meeting of January, 1932, were re-elected.

Upon the adjournment of this stockholders’ meeting, there was held a directors’ meeting at which it appears from the record Mr. Nelligan, upon request, was present; and the same officers, with the same salaries, were duly elected. It appears that Richard B. Tippett had been the counsel for the corporation from the time of its inception to the death of Bernard M. Mangels; that he also prepared the will of Mr. Mangels, and his firm were, by the will, appointed attorneys for the executrix, and the executrix directed to consult them as to all legal matters pertaining to the estate. It further appears that, after Mr. Tippett became a director of the company, he advised the widow and children of the deceased testator that in his judgment it would be unwise to keep the whole trust estate in the stock of the company, and advised them to sell the stock to John H. Herold for the sum of $105,000, which ²⁹⁶ had been, offered for same by Herold, and invest the proceeds in six per cent, ground rents, which he thought the trustees would be able to secure; Tippett giving.as the reason for this advice the fact that it was practically a one-man business corporation, managed almost exclusively by Mr. Herold as president and treasurer and owner of one-half of the capital stock, and if anything should happen to Herold, the business of the company, in his judgment, would not continue to be successful, and that the whole of the trust estate should not be represented by such an investment. Mr. Nelligan, representing the Safe Deposit and Trust Company, the cotrustee (although there is some contradiction in the record as to this), thought well of Mr. Tippett’s suggestion as to the sale of the stock, and called a meeting at his office in the Safe Deposit & Trust Company of the widow and children of Bernard M. Mangels, who under the terms of the will had to consent in writing to the sale of the stock.

This meeting was held in November, 1932, the two trustees, the three children, and the widow being present. At that meeting the children refused to sell, and nothing more came of Tippett’s suggestion in that respect. There is considerable testimony in the record as to whether or not Mrs. Mangels knew of the appointment of Mr. Tippett as secretary of the company at a salary of fifty dollars per week, for a year or more after he had been so appointed. Again, there is some contradiction on the. point, but the record satisfactorily establishes that they did not learn of such appointment for approximately the time stated after it was made, and then through Mr. Nelligan, representing the cotrustee.

This being the condition, the widow and children, on May 10th, 1933, filed their petition in the Circuit Court of Baltimore City, wherein they prayed that that court assume jurisdiction of the trust created by the will of Bernard M. Mangels, and advise and direct the Safe Deposit & Trust Company of Baltimore and Richard B. Tippett, trustees thereunder, in the further administration of the trust and in the exercise of the powers vested in ²⁹⁷ them as trustees. The trustees answered this petition, alleging that it was not necessary for the protection of the parties that the court administer the trust, but assenting to the passage of a decree by which the court assumed jurisdiction and required the trustees to file their bond in the penalty of $5,000 for the faithful performance of the trust. Subsequently, Gertrude Mangels, the appellant, filed her petition setting forth the facts substantially as heretofore related, and further alleging that the company’s net income for the year 1932 was in excess of $35,000; that, although the trust estate is the owner of fifty per,, cent, of the capital stock, there was only paid as her share of the profits for the year 1932 by the trustees the sum of $6,250, from which was deducted the sum of $312.50 as their commission; that the petitioner, feeling that she was entitled to know the condition of the trust estate, as well as what disposition was made of the profits of the corporation in the year 1932, made inquiry of the trustees for the desired information, but that the trustees have failed to inform her in the matter; that in July, 1933, she repeated this request, through her counsel, but received no reply from the trustee; that, before the court assumed jurisdiction, one of the trustees, Richard B. Tippett, without the knowledge or consent of the petitioner, had himself appointed as secretary of the company, and that he could not have been so appointed without voting the stock of the trust estate for that purpose; that by virtue of his appointment as secretary he is now drawing from the company the sum of fifty dollars weekly, which salary he has been drawing for more than a year; that, as the trust estate is the holder of fifty per cent, of the capital stock of the company, the trust estate is charged with and pays fifty per cent, of the salary of Tippett as secretary; that his services as secretary are only nominal, without any value whatever to the trust estate; that the petitioner believes that the trust estate is not being administered to her advantage; that under the circumstances she cannot have that friendly ²⁹⁸ relation with Tippett as trustee which should exist between trustee and cestui que trust. The prayers are that Richard B. Tippett be removed as trustee, and be required to account to the trust estate for such sums as he may have received from the company as representing the trust estate.

This petition was answered by the appellee Richard B. Tippett, the pertinent parts of which answer are that he alleges that he was elected secretary of the company at a regular meeting of the directors called for the purpose of electing officers, which was one of the exclusive duties of the corporation, which had the right to elect a secretary and was required to do so under the by-laws of the corporation; that it was the exclusive business of the company, in the exercise of its corporate powers, to elect its officers, and the board of directors did elect its officers, and did elect the secretary and fix his compensation at the meeting, as it had the exclusive right to do; that the salary of fifty dollars per week was fixed by the directors and paid by the corporation; denies that the trust estate is charged with payment of said salary, but says that the same is part of the usual and ordinary expenses of the company, and that he has rendered valuable services to the company; that he has performed his duties as trustee to the best of his ability, and has always consulted the welfare and interest of the trust estate with the cotrustee. Testimony was taken in open court and disclosed the facts hereinbefore set forth. The chancellor passed a decree or order on January 5th, 1934, dismissing the petition of the appellant; from which action the appeal here is taken. We find nothing in the record which would require or justify the court in removing Mr. Tippett as cotrustee.

The testator named'him as trustee, and, in addition, requested that his wife, the executrix, consult with and be advised by him in the settlement of the estate, thereby displaying full confidence in his ability and integrity. The trust estate consisted of fifty per cent, of the stock in ²⁹⁹ Mangels-Herold Company; and the election of one of the cotrustees as a director of that company would seem to be not only proper, but the best means of protecting the estate and rendering the fullest measure of service thereto. It may be true that the cestui que trust and Mr. Tippett are not at present on the most pleasant terms; but that fact does not afford justification for or require his removal as cotrustee. It must be remembered that he is not the sole trustee, but must act after consultation and in conjunction with the cotrustee, the Safe Deposit & Trust Company.

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