FIRST ALABAMA BANK V. SPRAGINS

515 So.2d 962 (Ala. 1937)


PROCEDURAL POSTURE: Defendant trustee appealed the judgment of the Madison Circuit Court (Alabama), which ruled in favor of plaintiff beneficiaries in their action for breach of fiduciary duty and mismanagement.

FACTS: Marion was formerly president and later chairman of the board of trustees of the First Alabama Bank (D) After settlement of his estate he had a net trust of $556,881 73 at least 70% of which consisted of stock in D's own holding company The Spragins (P) family brought suit against D as trustee of a trust created for them under the will of Marion D was permitted to withdraw as trustee following a jury verdict against it for breach of fiduciary duty and mismanagement That was later reversed on appeal and remanded with instructions to the trial court that the case should not have been tried by a jury and that no reasonable inferences existed to support a finding of bad faith or willful mismanagement that could justify an award of punitive damages On remand the trial judge found for Ps and ordered $685,560 in compensatory damages and $79,224 in interest

ISSUE: Can a trust agreement be employed to vitiate the duty imposed by the prudent person standard'?

RULE OF LAW: A trust agreement cannot be employed to vitiate the duty imposed by the prudent person standard

HOLDING: On remand the Circuit Court, Madison County, S.A. Watson, J., found that trustee breached fiduciary duty. The trustee appealed. The Supreme Court, Adams, J., held that: (1) sufficient evidence supported finding that trustee's continued investment of 70% to 75% of trust assets in bank stock was not in best interest of beneficiaries, and that damage to trust, as a result of breach of trustee's duty of loyalty, constituted compensable loss, and (2) it was not reversible error to award interest from date final judgment was entered in first trial.

ANALYSIS: The last will and testament of the decedent created a trust fund of which the decedent's family members were the beneficiaries and a local bank was designated as trustee. The beneficiaries filed suit against the trustee alleging that the trustee's concentration of the trust property in its own stock was a violation of its fiduciary duty and constituted self-dealing. The court held that the trial court was not in error in concluding that the trustee's management of the trust was at least imprudent and demonstrated insensitivity to the trustee's duty of loyalty. Further, the trial court did not err in finding that the trust suffered a compensable loss that warranted the award of compensatory damages. The award of prejudgment interest was also not reversible error. As the finding of a breach of trust was supported by substantial evidence, the judgment was appropriate.