Slay v. Burnett Trust
187 S.W.2d 377 · Texas Supreme Court · 1945
Facts
In 1923, Mrs. Mary Gouts Burnett established a trust for Texas Christian University, conveying valuable property to six trustees, including herself, W. H. Slay, and John H. Sweatt. The trust instrument granted broad powers to the trustees to manage and invest the property. Slay and his partner, U. M. Simon, served as attorneys for Mrs. Burnett and subsequently for the Trust. After Mrs. Burnett's death in 1924, Slay became chairman of the trustees. Between 1936 and 1939, several transactions occurred where Slay and Sweatt, as trustees, and Slay and Simon, as attorneys, allegedly received secret profits or caused losses to the Trust. For instance, in the Big Indian Syndicate transaction, the Trust loaned funds to Proctor to purchase syndicate units, but Slay, Simon, Sweatt, and Proctor agreed to divide anticipated profits from the venture, with portions of the Trust's loan funds being immediately distributed among them as profits rather than fully used for the intended purpose.
Procedural history
The plaintiffs, current trustees, brought suit against the defendants in the trial court. After a six-week jury trial resulted in a hung jury, the trial court discharged the jury and rendered judgment for the plaintiffs on undisputed evidence for various sums across several transactions. Defendants Slay, Simon, Proctor, and Longmire appealed to the Court of Civil Appeals, which modified some judgments, affirmed others, and reversed certain parts. Three applications for writs of error were subsequently filed and granted by this court: one by defendants Slay and Simon, one by defendants Proctor and Longmire, and one by the plaintiffs.
Issue
1. Can trustees maintain a suit against former trustees and their associates for breach of trust and recovery of secret profits without joining the beneficiary? 2. Are trustees and their knowing associates liable for secret profits made from trust transactions, regardless of intent to defraud or direct damage to the trust? 3. Does the beneficiary's acceptance of principal and interest from a loan preclude it from recovering secret profits made by trustees on that loan?
Holding
1. Yes, trustees can maintain such a suit without joining the beneficiary when the suit is in furtherance of the trust and no conflict of interest exists. 2. Yes, trustees and their knowing associates are liable for all secret profits made from trust transactions, regardless of intent to defraud or direct damage to the trust. 3. No, the doctrine of election of remedies does not preclude recovery of secret profits when the beneficiary was unaware of them and no double recovery occurs.
Rule
A trustee cannot make a profit from trust funds or property, nor place themselves in a position where self-interest conflicts with their fiduciary duty; any such profits belong to the cestui que trust, and the trustee must account for them, even without intent to defraud or actual damage. Trustees may sue on behalf of the trust without joining the beneficiary if the suit furthers the trust's purpose, the trust instrument grants broad powers, and no conflict of interest exists. Third parties who knowingly participate with trustees in breaching fiduciary duties are jointly and severally liable for the profits. The doctrine of election of remedies is disfavored and does not apply to prevent recovery of secret profits if the beneficiary was unaware of them and no double recovery for a single wrong occurs.
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