Price v. Johnston
1982 Tex. App. LEXIS 4383, 638 S.W.2d 1 (1982)
Rule of Law:
A trust instrument must specifically and clearly permit a trustee to sell trust property to a relative to overcome a statutory prohibition against such self-dealing, as general grants of power are insufficient to negate the high standards of fiduciary duty under the Texas Trust Act.
Facts:
- Rose Morris created a testamentary trust in her will, known as the 'Price' trust, for the benefit of her daughter, Ceeile Morris Price.
- The Price trust's property consisted of an undivided one-half interest in a house and the land on which it was located.
- Robert M. Johnston was designated as the trustee for the Price trust.
- Another trust, the 'Johnston' trust, owned the other undivided one-half interest in the same house, and Harold M. Johnston, Robert's brother, eventually became its sole owner.
- Robert M. Johnston, acting as trustee for the Price trust, sold the Price trust's one-half interest in the house to his brother, Harold M. Johnston, after giving notice to Ceeile Morris Price.
Procedural Posture:
- Ceeile Price, joined by her husband Orville Price, sued Robert M. Johnston (trustee) and Harold Johnston (purchaser) in a state trial court.
- The lawsuit sought to cancel the deed conveying the trust property and to remove Robert M. Johnston as trustee.
- Defendants Robert M. Johnston and Harold Johnston filed a motion for summary judgment, arguing that the terms of the will permitted the sale as a matter of law.
- The trial court granted the defendants' motion for summary judgment.
- Ceeile Price and Orville Price appealed the trial court's summary judgment to the Court of Appeals of Texas, Corpus Christi.
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Issue:
Does a will containing broad grants of power to a trustee, but without specifically authorizing a sale to a relative, negate the Texas Trust Act's prohibition against a trustee selling trust property to a relative?
Opinions:
Majority - Nye, Chief Justice
No, a will containing broad grants of power to a trustee does not negate the Texas Trust Act's prohibition against a trustee selling trust property to a relative unless the trust instrument specifically and clearly permits such a sale. The court reversed the summary judgment, holding that the trial court erred in concluding the will's terms authorized the sale to a relative. The Texas Trust Act, specifically Tex. Rev. Civ. Stat. Ann. art. 7425b-12, explicitly states that 'A trustee shall not...sell, either directly or indirectly, any property owned by...the trust estate...to a relative.' While the Act allows a trustor to relieve the trustee from such restrictions, this must be done through 'specific provisions' in the trust instrument, as per Article 7425b-22. The court reviewed the will and found that while it granted the trustee broad powers regarding sales, terms, and agreements (e.g., 'without the joinder or concurrence of any beneficiary,' 'on such terms, time, and condition...as the trustee may see fit,' 'all as the trustee may deem fit'), none of these provisions specifically permitted a sale to a relative. Texas courts do not interpret broad powers of management as justifying a lessening of high fiduciary standards, and a trust instrument must be strictly construed in favor of beneficiaries when a derogation of the Texas Trust Act is at issue. The court also addressed the adequacy of consideration on rehearing, finding the summary judgment evidence (uncontroverted opinions of defendants' experts through affidavits) insufficient to establish adequacy as a matter of law, especially when such opinions lack proper foundation or could have been readily controverted. However, it clarified that a court of competent jurisdiction may, for cause shown, relieve a trustee from the Act's restrictions or ratify a sale after a trial on the merits, as per Tex. Rev. Civ. Stat. Ann. art. 7425b-24.
Analysis:
This case reinforces the strict interpretation of trust instruments regarding fiduciary duties, particularly when a will purports to deviate from statutory prohibitions like self-dealing. It emphasizes that general grants of power to a trustee are insufficient to override specific statutory restrictions intended to protect beneficiaries. Future cases will likely require very explicit language in trust documents to permit actions (like sales to relatives) that would otherwise violate statutory fiduciary duties, ensuring that the trustor's intent to permit such actions is unmistakably clear. Furthermore, the opinion clarifies the evidentiary standards for summary judgment concerning expert testimony on valuation, stressing the need for properly founded and controvertible evidence.
