Slay v. Burnett Trust
187 S.W.2d 377 · 1945
Facts
On December 11, 1923, Mrs. Mary Gouts Burnett established a trust for Texas Christian University, conveying substantial property to herself and five other individuals as trustees. The trust indenture granted the trustees broad powers to manage, sell, and invest the property, and to collect revenues. W. H. Slay and John H. Sweatt were among the initial trustees, and Slay and his partner U. M. Simon served as attorneys for Mrs. Burnett and subsequently for the trust. Upon Mrs. Burnett's death in December 1924, W. H. Slay became chairman of the trustees. Between 1936 and 1939, Slay, Simon, Sweatt, and others (Proctor, Longmire) engaged in several transactions involving trust funds, including loans to W. C. Proctor for the Big Indian Syndicate and to the Public Service Corporation. In these transactions, Slay, Simon, and Sweatt, while acting as trustees or attorneys for the trust, allegedly received secret profits, commissions, or bonuses, which they shared with Proctor and Longmire, without the full knowledge or consent of the trust's beneficiary or other co-trustees.
Issue
Can trustees and their associated attorneys be held liable for secret profits and commissions obtained from transactions involving trust funds, even if the trust suffered no actual loss and the beneficiary lacked full knowledge of these arrangements? Is the beneficiary a necessary party in a suit brought by current trustees to recover such profits from former trustees and their associates?
Holding
Yes, trustees and their associated attorneys are liable to the trust for all secret profits and commissions made from transactions involving trust funds, regardless of actual loss or intent, if the beneficiary lacked full knowledge. No, the beneficiary is not a necessary party in such a suit when the trust instrument vests legal title in the trustees and there is no conflict of interest.
Rule
The rule of equity demands a very high and strict standard of conduct from fiduciaries, prohibiting a trustee from making any profit from the trust or placing personal interest in conflict with duty. This duty of loyalty requires trustees to account for any commission, bonus, or profit gained from trust property or duties, which then belongs to the cestui que trust. Recovery for such breaches does not require proof of intent to defraud, conspiracy, or actual damage to the trust. A beneficiary's consent to a trustee's act is only valid if they had full knowledge of all material facts and legal rights, and their consent was not improperly induced.
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