author: Currie, C. J.

text:
    Barnard, Receiver, Plaintiff and Respondent, v. Coates (Lucille) and others, Defendants: Coates (Lloyd), Defendant and Appellant: Fowler, Intervenor and Appellant: Dawson, Intervenor and Respondent.

      June 1

    June 25, 1965.

      For the appellants there were briefs and oral argument by Delbert E. Fowler of Milwaukee.
    For the respondent Joseph Dawson there was a brief and oral argument by John H. Schleifer of Benton.

      Gilbert F. Barnard, Receiver, of Darlington, also argued.
   Currie, C. J.

These issues are raised on appeal:

(1) Should the appeal be dismissed with respect to plaintiff receiver ?

(2) Has respondent Dawson waived the right to object to the timeliness of the appeal ?

(3) Does either the mistake in legal description in the order for sale and in the notices of sale, or the $2,500 increase in bid made by appellant Fowler, or both, warrant this court in granting relief to appellants ?

Dismissal of Appeal as to Receiver.

On March 6 and 8, 1965, plaintiff receiver served a notice of motion to dismiss the appeal as to him. This motion was grounded on his affidavit which alleged among other things these facts: On October 8, 1963, he was appointed receiver of Elda Kay by the circuit court for Dane county in a supplementary proceeding instituted by Henry Butler as a judgment creditor; that the instant partition action in Lafayette comity court was instituted and prosecuted by authority of the Dane county circuit court; that subsequent to the partition judgment the receiver received a distributive share of the sales proceeds; that by order entered September 28, 1964, the accounts of the receiver were approved and allowed and he was discharged and the sureties on his bond released; and that he was not served with the notice of appeal until November 8, 1964 [actually November 18, 1964].

By order entered March 17, 1965, this court denied plaintiff receiver’s motion without prejudice to his renewing his motion if, in our decision on the merits herein, there is any ruling that he deems prejudicial to him. The plaintiff receiver appeared at oral argument and again renewed his motion to dismiss as to him.

We have been presented with no authorities holding that a person standing in a fiduciary relationship such as receiver, trustee, or executor can remove himself from an appeal timely instituted by his own voluntary act of seeking and obtaining his discharge as a fiduciary in proceeding apart from the appeal. Therefore, we again deny plaintiff receiver’s motion to dismiss.

Waiver by Respondent Dawson of Right to Object to Timeliness of Appeal.

The record discloses no service of a notice of entry of the trial court’s order of May 21, 1964, or of the July 24, 1964, judgment on either appellant. The record does establish, however, that a copy of such order of May 21, 1964, was personally served on appellant Lloyd Coates by the sheriff of Lafayette county on May 27, 1964, and that a copy of such order was mailed to appellant Fowler properly addressed on May 27, 1964.

Sec. 274.01, Stats., provides in part as follows:

“Except as otherwise provided the time within which a writ of error may be issued or an appeal taken to obtain a review by the supreme court of any judgment or order in any civil action or special proceeding in a court of record is limited to 3 months from service of notice of entry of such judgment or order or, if no notice is served, to 6 months from date of entry.”

In Cash v. Kruschke (1908), 134 Wis. 130, 113 N. W. 675, sec. 3042, Stats. 1898, was the controlling statute and provided, “The time within which an appeal may be taken directly from an order is further limited to thirty days from the date of the service by either party upon the other of a copy of such order, with a written notice of the entry of the same.” A notice of entry of the order appealed from had been served but not a copy of the order itself. This court held this was insufficient to trigger the thirty-day appeal period and declared (atp. 134):

“Service of a copy of the order was just as essential as service of a notice of the entry thereof to start the period of limitations running, . . .”

While this quoted language would provide strong support for holding that service of a copy of an order is not the equivalent of service of notice of entry of such order within the meaning of sec. 274.01, Stats., we find it unnecessary to decide this point here. Even if it were to be held to be the equivalent, Dawson has clearly waived the right to object to the timeliness of the appeal. This is because of his participation in the appeal by filing a brief and arguing the merits of the appeal. Sec. 269.51 (1); Guardianship of Barnes (1957), 275 Wis. 356, 82 N. W. (2d) 211.

Relief, If Any, to be Granted.

The last decision of this court on the subject of the right of a court to confirm or refuse to confirm a judicial sale because of inadequacy of price is Gumz v. Chickering (1963), 19 Wis. (2d) 625, 121 N. W. (2d) 279. The former Wisconsin cases on the subject were so thoroughly reviewed therein that no useful purpose would be served to again do so in this opinion. As held in the Gums Case, the applicable rules are as follows:

(1) The granting or refusing of an application to set aside a judicial sale rests in the sound discretion of the court and its determination will not be disturbed except for a clear abuse of discretion.

(2) Such a sale will not be set aside merely because the price is inadequate unless: (a) There is also a showing of mistake, misapprehension, or inadvertence on the part of interested parties or of intending bidders which caused thé failure to obtain a fair and adequate price; or (b) the inadequacy of price is sufficient to shock the conscience of the court.

Applying these rules to the instant case, and ignoring for the moment the mistake in description, there was no abuse of discretion on the part of the trial court in setting aside the first order of March 23, 1964, and entering the second order of May 21, 1964, which latter order confirmed the sale as originally made and reported by the sheriff. While the first order found that the additional $2,500 bid by Fowler over and above the total of the amounts bid at the sale “is of substantial nature and is of substantial benefit to the rights and interest of the parties,” there was no finding of mistake, misapprehension or inadvertence. Neither was there a finding made in this first order that the total amount of the two bids made at the sale was so inadequate as to shock the conscience of the court. The second order expressly found that these prices bid at the sale “were fair, just and reasonable, and were not so disproportionate as to shock the conscience.”

We turn now to the mistake in legal description which occurred both in the order for sale and in the notices for sale. This was a very serious error. Appellants’ brief asserts that the effect was to advertise a 144-acre farm for sale when the farm was actually approximately 250 acres in size. According to these figures the net mistake in acreage is 106 acres, while under our computation it is 115 acres. No acreage was stated in the descriptions used in the order and notices of sale so that the mistake was not obvious to anyone who merely read these descriptions.

Appellant Fowler filed an affidavit subscribed by him in opposition to the motion to set aside the order of March 23, 1964. In this affidavit Fowler stated that because of the mistake in description he attended the original sale prepared only to finance the purchase of 144 acres and not 250 acres. He relies on this mistake in description to account for the fact that he did not bid more for the premises at the sheriff’s sale. However, in spite of this affidavit, the trial court in the May 21, 1964, order, as well as the March 23, 1964, order, expressly found that the error of description “was not prejudicial to the rights of the parties.” Fowler is a cousin of the three owners and it seems odd that he would not have been acquainted with the true acreage of the farm prior to sale. There are no statements in affidavits or testimony in this record to support the trial court’s finding that the error in description was not prejudicial. The record does establish that at the time of sale the sheriff had a plat showing the location and acreage of the farm which he displayed to prospective bidders. The point which has caused this court concern is that it is impossible to know whether any persons neglected to attend the sale who might have been interested in purchasing a 250-acre farm had one of that size been advertised for sale, but were not interested in a smaller farm containing 106 or 115 acres less than 250 acres. Our surmise is that this is probably not the case, and that the trial court was probably right in finding the error not to have been prejudicial. However, we are of the opinion that this error was so serious in nature that it should not be condoned and passed over as of no consequence. Therefore, we deem this is a proper situation in which to exercise our discretion under sec. 251.09, Stats., in behalf of appellant Coates, and require a new sale to be had subject to the conditions hereinafter stated.

Appellant Fowler seeks to have the order of March 23, 1964, left intact by our court reversing and setting aside the order of May 21, 1964, thus effecting a sale to him of the entire farm at a price of $19,599.50. However, Fowler is also counsel for appellant Coates on this appeal, and protection of the interest of the latter requires that he not be put in a position of jeopardy whereby less than $19,599.50 be realized from the ultimate sale. Because of this we further exercise our discretion to direct the county court on remand to do the following:

1. Order a new sale of the farm subject to a total upset price of $19,599.50.

2. Not to vacate and set aside the order of March 23, 1964 (which order will be reinstated by operation of law by our reversal of the order of May 21, 1964), pending the holding of the new sale and the outcome of the same.

3. If a total price in excess of $19,599.50 be obtained at the new sale and the court determines to confirm such sale, the court, coincident to confirmation, shall then set aside the order of March 23, 1964.

4. If the new sale does not result in a total price being bid at the new sale in excess of $19,599.50, the results of such sale shall be reported by the sheriff to the court; the court shall enter proper findings as to what transpired at this sale ; and the final judgment thereafter to be entered in the partition action shall adjudge the finality of the order of March 23, 1964, and the sale pursuant thereto to appellant Fowler.

5. A proper order or judgment should be entered setting aside any sheriff’s deed heretofore issued which is in conflict with the final disposition of the farm premises ordered by the court.

We do not consider it necessary to spell out the mechanics to be followed in unscrambling the sales to Dawson and Fowler should either or both end up as not being purchasers. This unscrambling should await the outcome of the new sale. Inasmuch as plaintiff receiver and defendant owners have received a lesser distribution than they will ultimately be entitled to, there will be no necessity of requiring any refund of payment from them.

In providing for the continuation in effect of the order of March 23, 1964, pending the outcome of the new sale with the possibility that such order may in the end be validated for all purposes, we have not overlooked McDonald v. Byrnes (1911), 147 Wis. 139, 132 N. W. 888. That case is readily distinguishable from the instant one. There the successful purchaser at the original sale objected to having to consummate the purchase because of a serious defect in the notice of sale. Here appellant Fowler has requested that the sale to him at the increased price, which was confirmed by the March 23, 1964, order, stand. Furthermore, we consider that by our above directions to the county court we have made certain that the title will then be confirmed in Fowler against any objections that there were irregularities in the sale to him.

By the Court. — The judgment and order appealed from are reversed, and the cause is remanded for further proceedings not inconsistent with this opinion. No costs shall be taxed on this appeal by either party.

       An order, which set aside a sheriffs sale made in a partition suit because of an increased offer made at time of hearing the application to confirm, was reversed by this court in Gratiot State Bank v. Martin (1943), 242 Wis. 254, 7 N. W. (2d) 863, because there was no showing of mistake, misapprehension, or inadvertence.


source: Caselaw Access Project

author: Hallows, J.

license: Public Domain

text:
    Ehlers-Mann & Associates, Inc., Respondent, v. Madison American Guaranty Insurance Corporation and another, Appellants.

      June 1

    June 25, 1965.

      For the appellants there were briefs by Immell, Herró, Buehner, DeW.itt & Sundby of Madison, and oral argument by Jack R. DeWitt.

    For the respondent there was a brief by Milo G. Flaten and Huiskamp, Brewster & Flaten, all of Madison, and oral argument by Milo G. Flaten.

   Hallows, J.

The appellants attack the sufficiency of the credible evidence to support the finding the plaintiff entered into a contract with the management corporation. It is not seriously contended a contract was not entered into on behalf of the defendant insurance corporation. So far as it is material to this appeal, it is sufficient to state the insurance corporation was organized to engage in the business of insurance with the authorized capital stock of one million shares of the par value of $1 per share. It was proposed that 650,000 shares of stock would be sold to the public at $1.50 per share and until a minimum of 200,000 shares were sold the proceeds would be impounded in accordance with an agreement with the department of securities. The management corporation was organized for the purpose of managing the business operation of the insurance corporation, but there is testimony it was to assist in and promote the sale of stock of the insurance corporation. The officers and directors were basically the same for both corporations.

The directors and those interested in promoting the insurance and the management corporations were not experienced insurance executives nor skilled in the sale of insurance stock. Early in October, 1961, Harry Walsh, president of the insurance corporation, contacted Zane Mann, the plaintiffs vice-president with the view of securing the plaintiff's services in the promotion and sale of the stock. After conferences between Mann and the board of directors a general understanding was arrived at which was later confirmed by letter. The agreed remuneration for the plaintiff acting as a financial consultant and adviser was $20,000 contingent upon the successful selling of the public issue.

During the plaintiffs employment a sales organization was set up for the insurance corporation, and it started to sell its stock in January of 1962. By July, 1962, only some $300,000 of stock had been sold, but the insurance company was then entitled to engage in business. About that time new officers had obtained control of the insurance and management corporations. They were dissatisfied with the plaintiffs services and terminated the contract by the discharge of Mann. The sale of the 650,000 shares of stock was completed by the insurance corporation in November of 1963.

The evidence is in conflict whether the management corporation as well as the insurance corporation entered into the agreement with the plaintiff. In this period of the history of the two corporations very little distinction was made between them in the dealings with the plaintiff. Such is often the case with promoters when corporations have interlocking boards and officers. There is evidence the then president of the corporations and also their treasurer and assistant secretary understood the agreement with the plaintiff was on behalf of both corporations. The letter discharging the plaintiff was signed on behalf of both corporations. It was apparent from the record Zane Mann and those representing the insurance corporation and management corporation thought the oral contract was entered into by both of the defendants. Viewing the evidence in the light most favorable to the verdict, which we must do on appeal, there is sufficient credible evidence which under a reasonable view supports the jury finding and, therefore, it will not be disturbed. Rodenkirch v. Johnson (1960), 9 Wis. (2d) 245, 101 N. W. (2d) 83; Springen v. Ager Plumbing & Heating, Inc. (1963), 19 Wis. (2d) 487, 120 N. W. (2d) 692; Webb v. Wisconsin Southern Gas Co., Inc. (1965), 27 Wis. (2d) 343, 134 N. W. (2d) 407.

Defendants contend that in any event the judgment against the insurance corporation must be limited to $40.47 because of the application of sec. 201.10, Stats. Although this law in one form or another has been in existence over fifty years, it has not been interpreted by this court. This section prohibits any person in promoting an insurance corporation or the sale of its stock from selling such stock unless the contract of sale contain a provision stating, among other things, that no sum shall be used for commissions, promotion and organization expenses in excess of a certain percent but in no event in excess of 15 percent of the amount actually paid for the stock and the remainder of the payments shall be held or invested and used only in the conduct of the business of insurance. The purpose of such provision is to give some assurance that at least 85 percent of the funds paid in shall not be appropriated by the promoters but held for the benefit of the business. 44 C. J. S., Insurance, p. 632, sec. 99; see 9 Op. Atty. Gen. (1920), 238. The remedies provided for violation of the section are a criminal penalty (sub. (7) ) against the violator, normally the promoter, and the right (sub. (8) ) of the subscribers to void their subscription. Subscriptions, however, are valid and enforceable by the subscribers.

It is contended by the defendants that since the stock subscriptions amounted to $975,000, the promotional expenses could not exceed 15 percent thereof, or $146,250, and since during the years 1962 and 1963 a total of $146,209.53 was expended, only $40.47 was available for the plaintiff. This contention would add to the express sanctions of the section a third, that of the unenforceability of a contract or that part of a contract which exceeds the 15 percent prohibition. We do not read the statute as voiding or rendering unenforceable contracts which taken together with other contracts and expenses of promotion exceed 15 percent of the proceeds of the sale of stock. If the contracts for such expenditures were void or unenforceable, it would be impossible for promoters to violate the statute and they could thus immunize themselves from the criminal penalties of the section while securing the benefits of their acts. We think the remedies granted by the statute in creating the prohibition against the promoters are exclusive and the statute is not a defense to an otherwise enforceable contract which constitutes an expense of promoting or organizing the corporation or the sale of its stock. See Burke v. Madison (1962), 17 Wis. (2d) 623, 117 N. W. (2d) 580, 118 N. W. (2d) 898; Waisbren v. Blink (1932), 207 Wis. 619, 242 N. W. 169; Clancy v. Fire and Police Comm. (1912), 150 Wis. 630, 138 N. W. 109. Generally persons dealing with the promoters have no way to control the promoters or see that they comply with the statute. The statute is aimed at promoters, not the voiding of contracts with innocent persons.

No doubt the Wisconsin department of securities can suspend registration of securities upon discovery that a company is violating this section and its counterpart, the rule of the department set forth in 6 Wis. Adm. Code, SEC 1.10; but, that question is not before us.

We have found only three cases construing somewhat similar statutes. In Colorado Life Co. v. Madden (1923), 73 Colo. 504, 216 Pac. 551, suit was brought for a 20 percent commission on the sale of stock. The statute prohibited the use of more than 20 percent of the proceeds for organizational expenses. It was held the plaintiff could not be charged with knowledge of other organizational expenses and recovery was allowed. However, in Anchor Life & Accident Ins. Co. v. Taylor (1928), 29 Ohio App. 428, 163 N. E. 631, which was a suit in quantum meruit for services in selling the defendant’s insurance stock, a defense that the defendant had expended and reached the 15 percent limitation for promotional expenses was stricken by the trial court. On appeal the defense was allowed on the theory it was beyond the corporation’s power to contract for expenses in excess of the 15 percent limitation. In McCormick v. Life Ins. Corp. of America (1957), 6 Utah (2d) 170, 308 Pac. (2d) 949, which was a suit to recover a 20 percent commission for the sale of stock in converting a mutual insurance company into a stock company, the statute provided a 15 percent limitation. The plaintiff had been paid 20 percent on some sales and was suing for commissions on the balance. The court held the plaintiff could only recover 15 percent on the total sales and the amount of the contract in excess thereof was unenforceable. However, the court stated it was not concerned whether the 15 percent in fact exceeded together with other expenses 15 percent of the proceeds. Under this decision recovery may in fact result in expenses exceeding the prohibition of the statute.

These cases do not command an interpretation of our statute but they are enlightening. From these cases it does not appear the statutes involved provided any remedy for its violation. The remedies provided by sec. 201.10 (7) and (8) do not include rendering contracts for promotional services either void or unenforceable. Likewise, we find no intention of the legislature in the purpose or the language of the section to make void or unenforceable contracts other than subscriptions. As a practical matter, it would be difficult if not impossible to find which contracts would be void in whole or in part if the race is to the diligent for payment and without a determination of what are commission, promotion, and organization expenses and the total amount thereof. The effectiveness of the section must depend upon its own sanctions and if the section is violated, those injured, i.e., the subscribers to the stock, have both a civil and a criminal remedy.

The defendants assign as error the instruction of the court relating to what constitutes a legal justification for breach of contract. The verdict inquired whether the plaintiff breached any duty under the contract of employment and if so whether such breach constituted a justifiable ground for discharging Mr. Mann without compensation. In respect to the latter inquiry, the court instructed that a breach of the contract was not a legal justification for the discharge “unless the breach evidences moral turpitude or conduct that is manifestly injurious to the employer’s interest.” Whether this is a correct statement of the law involving a right to terminate a contract involving personal services because of a breach, we need not decide because the jury found the plaintiff did not breach its contract. Consequently, the jury never reached the inquiry involving justification for the defendants’ termination of the contract. Assuming the instruction to be erroneous, we find no evidence it affected the answers to the other questions.

On its petition for review the plaintiff argues it is entitled to interest oh the judgment from the day the defendants wrongfully terminated the contract. We find no motion requesting such interest or order denying such interest in the record. The record discloses only a requested instruction for interest from the day of the breach, which instruction was not given. But the plaintiff is not entitled to interest from the day of the breach of the contract. Giffen v. Tigerton Lumber Co. (1965), 26 Wis. (2d) 327, 132 N. W. (2d) 572, and Laycock v. Parker (1899), 103 Wis. 161, 79 N. W. 327, do not so hold. In Giffen there was a liability to pay the plaintiff’s attorney’s fees at the time of the demand for and the refusal of payment. The demand made the payment due. Nor is Olson v. Herman Farmers Mut. Ins. Co. (1925), 187 Wis. 15, 203 N. W. 743, controlling. The denial of liability under the insurance policy in that case was a waiver of the sixty-day period and the payment of its liability then accrued.

In the present case the contract provided the plaintiff’s fee was not to be paid until the issue was sold which did not occur until November, 1963, a year and a half after the contract with the plaintiff was breached by the defendants. The defendants’ breach did not accelerate the time of payment. At most, this would be the earliest date for the commencement of interest since the fee which is being sued for was not payable prior to that time. This issue, however, is not before us because the record does not disclose it was properly presented to the trial court and preserved for appeal.

By the Court. — Judgment affirmed.

Wilkie, J., took no part.

       “201.10 Stock companies; promotion; funds; commissions; literature; contracts. (1) No person shall, for the purpose of organizing or promoting any insurance corporation, domestic or foreign, or promoting the sale of stock of such corporation by it as principal or agent, sell or agree or attempt to sell within this state any stock in such insurance corporation, unless the contract shall be in writing and contain a provision in the following language: ‘No sum shall be used for commission, promotion and organization expenses on account of any share of stock in this corporation, in excess of ... . per cent of the amount actually paid upon separate subscriptions (or in lieu thereof there may he inserted, “or $.per share from every fully paid subscription”), for such stock, and the remainder of such payments shall be held or invested as authorized by the law governing such insurance corporation and held by the organizers (or trustees, as the case may be) and the directors and officers of such corporation after organization as bailees for the subscriber, to be used only in the conduct of the business of insurance by such corporation after having been licensed therefor by proper authority.’ The term ‘stock,’ as used in this section, shall include bonds and any other evidences of debt or of interest in the profits of any such corporation. . . .
      “(3) Every contract within subsection (1) shall give the names of the organizers (or trustees as the case may be) and their residences, the par value of the shares, and the prices at which shares have been, are, or are to be sold, the number of shares at each price, the total number of shares, and be filled in with the percentage or amount which may be used for commission, promotion or organization expenses, which together shall not exceed fifteen per cent of the amount actually paid upon separate subscriptions for such stock.
      “(7) Any person violating this section shall be punished by a fine of not less than twenty-five dollars nor more than one thousand dollars, or by imprisonment in the county jail not exceeding six months, or by both such fine and imprisonment.
      “(8) A contract for subscription to or the purchase of stock in any insurance corporation not conforming to the provisions of this section shall be valid and enforcible in favor of the subscriber or purchaser, but shall not be valid or enforcible in favor of the corporation or any person selling such stock, either as principal or agent.”


author: Gordon, J.

text:
    La Favor, Appellant, v. Industrial Commission and others, Respondents.

      June 1

    June 25, 1965.

      For the appellant there was a brief by Goldberg, Previant & Uebmen of Milwaukee, and oral argument by Albert J. Goldberg.

    For the respondent Industrial Commission the cause was argued by Gordon Samuels en, assistant attorney general, with whom on the brief was Bronson C. La Follette, attorney general.
    For the respondents Jack Levings, Kenneth Levings, and Shelby Mutual Insurance Company there was a brief by Kivett & Kasdorf, attorneys, and Clifford C. Kasdorf of counsel, all of Milwaukee, and oral argument by Clifford C. Kasdorf.

   Gordon, J.

The Industrial Commission determined that Mr. La Favor was functioning as an independent contractor at the time of his accident, and we believe that the record fully sustains such conclusion. The commission did not make an express finding that Mr. La Favor was not an employee at the time of the accident, but such determination is reasonably implicit in its order.

This appeal requires that we examine the nature of the services performed by the applicant in his two different capacities. In one he was an employee and in the other an independent contractor.

Mr. La Favor’s duties as an employee related in part to his supervision of the construction of new homes for the Levings brothers. In this work he hired subcontractors, inspected the work, and generally expedited the whole project. As an employee, Mr. La Favor gave his attention to the contracts which were made between the company and various subcontractors. He kept track of payments and prepared waivers. He also concerned himself with construction loans. Another facet of Mr. La Favor’s duties as an employee was to locate vacant property for future construction. As an employee of the Levings brothers, Mr. La Favor was paid $400 for each home that was constructed.

As an independent contractor, Mr. La Favor engaged m the trade of carpentry. Primarily he performed this trade for the Levings brothers, but he also had a number of contracts to do carpentry work for the Masonite Company. In carrying on his carpentry work, Mr. La Favor hired carpenters and treated them as his own employees. He set their hours of work and paid them directly from his own sources. He also paid the social-security taxes and took withholding on the wages of his employed assistants. Mr. La Favor carried workmen’s compensation insurance which covered the carpenters working for him.

In furtherance of his carpentry activities, Gordon La Favor had a truck with the name “Gordon Company” appearing upon it. His address and telephone number were also printed on the truck. He had a business checking account under the name of “Gordon Company.” The magnitude of Mr. La Favor’s carpentry business is suggested by the fact that a payroll audit by his compensation insurance carrier shows that between November, 1961, and May, 1962, Mr. La Favor paid wages in the amount of $2,688.

The appellant argues that he was in dual employment at the time of his injury; that he was doing carpentry work (as an independent contractor) and, in addition, that he was inspecting or supervising such work (as an employee). 'The facts disclosed by the record do not support the dual-employment argument. This is not an instance of dual service where at the time of the injury the two capacities of the workman are inextricably entwined. Murphy Supply Co. v. Industrial Comm. (1931), 206 Wis. 210, 239 N. W. 420; cf. Pinson v. Industrial Comm. (1955), 79 Ariz. 21, 281 Pac. (2d) 962; Vance v. Hut Neckwear Co. (1952), 281 App. Div. 151, 118 N. Y. Supp. (2d) 327; Johnston v. International Freighting Corp. (1949), 274 App. Div. 728, 87 N. Y. Supp. (2d) 297; Sweatt v. Board of Education (1953), 237 N. C. 653, 75 S. E. (2d) 738; 1 Larson, Law of Workmen’s Compensation, p. 721, sec. 48.50.

The commission’s finding that Mr. La Favor was acting as an independent contractor at the time of the accident is well supported. We find no valid basis for concluding that Mr. La Favor was also serving as an employee of the Levings brothers at such time. His duties as an employee were broad, but it is not reasonable to say that at the time of the accident they were intertwined with the carpentry work which was being performed.

Under sec. 102.07 (8), Stats., an independent contractor may not qualify as an “employee” if he maintains a separate business and also holds himself out to and renders service to the public. In view of Mr. La Favor’s activities in the carpentry business, he may not be considered a “statutory employee.”

By the Court. — Judgment affirmed.


author: Wilkie, J.

text:
    Will of Mueller: Mueller (Harold P.), Appellant, v. Mueller (Jean) and others, Respondents. In re Mueller Inter Vivos Trust: Same, Appellant, v. Same, Respondents.

      June 1

    June 25, 1965.

      For the appellant there were briefs by Michael, Best & Friedrich and oral argument by Kenneth K. Luce, all of Milwaukee.
    For the respondent Jean Mueller there was a brief by Gibbs, Roper & Fifield, attorneys, and Thomas B. Fifield of counsel, all of Milwaukee, and oral argument by Thomas B. Fifield.

    For the respondents Elizabeth Mueller Ellis and Robert W. Mueller there was a brief by Churchill, Duback & Smith of Milwaukee, and oral argument by Paul H. Duback.

      For the minors and unborn or presently unascertainable persons there was a brief and oral argument by Allen N. Rieselbach of Milwaukee.
   Wilkie, J.

Three major issues are presented on this appeal:

1. Did the trial court err in determining that the co-trustees had a duty to diversify the single asset of the trusts, the Worthington stock, and that this duty was breached by the failure to sell in October or November of 1961?

2. Are the beneficiaries of the trusts estopped from making any claim against appellant ?

3. Is appellant entitled to indemnification or contribution from his cotrustee as to any part of the amount of his surcharge on the two testamentary trusts ?

Diversification of the Trusts.

The trial court concluded first that the trustees should have diversified the investments of the three trusts within a reasonable time after October 18, 1958, when the THIRD and FOURTH article trust accounts were approved, and second, that the trustees should have disposed of 80 percent of the Worthington stock in October or November of 1961.

We first consider the trustees’ duty to diversify.

A basic rule of trust administration is that a trustee should diversify investments so as to minimize the risk of loss. The Restatement, 1 Trusts (2d), p. 541, sec. 228, provides:

“Except as otherwise provided by the terms of the trust, the trustee is under a duty to the beneficiary to distribute the risk of loss by a reasonable diversification of investments, unless under the circumstances it is prudent not to do so.”

Appellant first turns to the terms of the trust instruments and argues that the trustees had the power, under these instruments, to retain the Worthington common stock. However, the inter vivos trust instrument did not authorize the retention of any stock whatsoever and only Mueller common stock could have been retained under the express terms of the article THIRD and FOURTH trusts.

As to both the article THIRD and FOURTH trusts the will provided:

“[Article FIFTH] (c) Said trustees may in their discretion participate in and make any payments required by arty proceedings for the reorganization, refinancing, dissolution, or other transactions, including the acquisition of stock rights when offered, and may accept substituted or distributed stocks and securities, in respect of any corporate securities subsisting in said trusts.” (Emphasis added.)

Article 6 of the inter vivos trust contained an identical provision. Thus the trust instruments authorized the acceptance of substitute stock (Worthington), but contained no express authorization to retain the substituted stock.

While there is no express provision authorizing the trustees to retain the substituted stock, if the Worthington stock was substantially equivalent to Mueller, the trustees under both the article THIRD and FOURTH trusts (but in no event'under the inter vivos trust) could have retained the Worthington stock once it was received in the exchange for Mueller. But as appellant himself admitted, Worthing-ton was a considerably different corporation in terms of size, variety of products, and ownership. Accordingly, the stocks were obviously different and it cannot be seriously contended that the stocks were substantially equivalent.

As a further contention in support of his position that the express terms of the testamentary trust instrument (as distinguished from the inter vivos trust instrument) authorized the trustees to hold onto the Worthington stock, appellant cites another provision of the will, to wit article FIFTH, par. (b), which provides:

“My trustees shall have power in their discretion to take, receive, hold, administer, collect, invest, and reinvest the assets of said trust estates, with full power to bargain, sell, and convey at such prices and upon such terms as to them may seem best, or to exchange or otherwise realize upon any or all of the assets of said trust estates as and when said trustees, in their discretion, deetm it advisable. . . (Emphasis added.)

Relying on In re Allis’s Estate, Estate of Allis, and Welch v. Welch, appellant contends that this language, while not specifically sanctioning retention of the substituted stock, was broad enough to have permitted the trustees to do so without regard to any statutory limitations. In these three cases, this court held that where sweeping powers are given in regard to investing and reinvesting the trust assets, the trustees are not bound to comply with specific statutory limitations on retention of particular investments. But even with such broad powers, this court held that the trustees are still required to act as prudent and provident persons would act under similar circumstances.

In Allis the will granted the trustees:

“ . full power and authority in their discretion to invest, reinvest and employ said real estate and generally manage the same; to continue the same as it is invested at the time of my death- — and especially as invested in the E. P. Allis Company, or to change such investments; to receive and collect such profits and income thereof, and to dispose of the net income as follows.’ ”

In Welch the trust deed provided that:

“ ‘Said trustees, their survivors and successors, shall have full power and authority to grant, bargain, sell, convey and otherwise dispose of the whole or any part of said property and to invest and reinvest the proceeds of any sales thereof, and to convert-personal property into real property and real property into personal property as they may deem for the best interests of the trust estate, . . ”

A comparison of the above-quoted provisions of the Mueller will (Article FIFTH (b)) discloses that the trustees (as to the article THIRD and FOURTH trusts) may well have been empowered to retain the Worthington stock without complying with statutory regulations in regard to the type or class of security retained. However, in the last analysis, and as the Allis and Welch cases held, regardless of the trust provisions the ultimate question as to the two testamentary trusts and the inter vivos trust is whether or not the trustees acted prudently in retaining the Worth-ington stock.

Therefore, we now turn from a consideration of the effect of the terms of each trust instrument to an analysis of whether the action of the trustees in not diversifying each of the three trusts was prudent. The late Andrew Carnegie once admonished: “Put all your eggs in one basket and watch the basket.” This may be good advice for some investors, but it is not the prevailing rule governing the investment practices of trustees. The rule is diversification. The exception is to retain the stock.

Is there any guide in the statutes as to what is prudent? Ch. 320, the trust-fund-investment chapter, was amended on August 1, 1959, to adopt the “prudent man” investment rule. To begin with this statute provides:

“Executors, administrators, guardians and trustees may invest the funds of their trusts in accordance with the provisions pertaining to investments contained in the instrument under which they are acting, or in the absence of any such provision, then within the limits of the following standards: ”

Then follow subsections (1) and (2). Sec. 320.01 (1) provides that the fiduciary shall:

“. . . exercise the judgment and care under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital. . . .”

Sec. 320.01 (2) qualifies (1) by limiting (with certain qualifications not relevant here) the holdings in common stock to 50 percent of the total market value of the fund. Thus, in trusts subject to the provisions of sec. 320.01 (2), the statutes themselves forbid investment in common stock in excess of 50 percent of the fund. This is true of the inter vivos trust.

It appears that the standards set forth in sec. 320.01 (1) and (2), Stats., do not apply to the two testamentary trusts in the instant case in view of the authority vested in the trustee by the provisions above cited. On the other hand these standards do apply to the inter vivos trust where there was no similar provision in the trust instrument.

Respondents also point out that the statutes prior to August 1, 1959, limited investments in one stock to only 20 percent of the trust fund. Since the trial court concluded that the Worthington stock in the trusts should have been sold in October or November, 1961, the provisions of this section were not in effect at the time and have no bearing on any legislative standard of what is prudent. This is true even though the trial court’s determination that the trustees should have sold 80 percent of Worthington is apparently based, in part, on the provisions of this statute and, in part, on the fact that the objectors claim that the trustees had a duty to dispose of 80 percent of the stock.

Since the trial court concluded that the stock in all three trusts should have been diversified to the extent of 80 percent of the holdings of Worthington, the statutes, even as to the inter vivos trust, do not control what is prudent, and the determination as to whether or not the conduct of the appellant was prudent, in the last analysis, is governed as to all three trusts by the fundamental rules regarding diversification. The basic rule of diversification applies to both the making of investments and the retention of investments. In the Restatement, 1 Trusts (2d), p. 548, sec. 230, comment j, it is stated, in part:

“Diversification. Except as otherwise provided by the terms of the trust, the trustee is under a duty to the beneficiary to distribute the risk of loss by disposing of investments included in the trust at the time of its creation which, although otherwise proper investments for the trustee to retain, are improper because not properly diversified. Compare § 228. Thus, if a testator bequeaths all his property in trust and more than half of his estate consists of the bonds of a particular railroad, the trustee is ordinarily under a duty to sell some of the bonds and to invest the proceeds in other securities, so that the estate will not include an undue proportion of the securities of a single corporation.”

The trial court picked October 16, 1958, the date of the approval of the trustees’ accounts in the article THIRD and FOURTH trusts, as the date when the trustees’ duty arose to diversify by selling the Worthington stock in all three trusts. In essence, the court’s conclusion is based entirely on the application of the fundamental rules requiring diversification of trust investments.

There is no point in considering whether the duty to diversify actually arose back in 1954 when the Worthington stock was first received. The objectors concede that the “Order of October 18, 1958, approving prior accounts had the effect of relieving the trustees from their prior duty to diversify.” (Emphasis added.) It is the duty arising thereafter that the objectors contend for and which the trial court found. Once the duty to diversify arises the trustees should perform that duty as soon as they can reasonably do so. Fixing the exact deadline for diversification is an extremely difficult task and the general rule guiding the court in making that determination is set forth in 2 Scott, Trusts (2d ed.), p. 1548, sec. 209, where it is stated:

“. . . it is ordinarily impossible to fix that moment [of the period within which he should have sold] with any exactness, at least where no time within which the trustee must sell the property is fixed in the trust instrument. Probably the only rule is that the court will use its common sense and determine what under all the circumstances it is fair to say that the trustee ought to have received if he had done his duty in selling the property within a reasonable time.”

The trial court concluded that it was mandatory for the trustees to dispose of 80 percent of the stock no later than October or November of 1961. In arriving at this conclusion the trial court made certain findings of fact, which on review will be sustained unless against the great weight and clear preponderance of the evidence.

As a director of Worthington, appellant was aware of antitrust actions within the electrical industry. The status of certain treble-damage suits against Worthington was discussed at a directors’ meeting on October 18, 1961. Appellant attempts to minimize this knowledge by maintaining that he did not feel that Worthington would become involved in a significant number of suits. It may well be that Worth-ington’s ultimate involvement in the suits was negligible. But the trial court’s decision (Findings No. 10 and No. 11, and Conclusion No. 2) did not rest on this alone; it was not unreasonable for the trial court to have concluded that this information had at least a small bearing on the question of whether and when it was prudent to sell Worthington.

In addition, by virtue of his corporate office, appellant was aware that Worthington was in a profit squeeze. (Findings No. 10 and No. 11, and Conclusion No. 2). The percentage of income before taxes to billings had dropped from 7.18 percent in 1960 to 4.87 percent in 1961. Earnings dropped from $4.42 in 1960 to $3.40 in 1961. Dividends were also cut and the price of Worthington stock dropped approximately SO percent between September, 1961, and December, 1962. Appellant counters that it was not only Worthington but the whole capital-goods industry that was involved in a profit squeeze. But this analysis ignores the possibility of investing in another segment of the market. Appellant also points out that the backlog of Worthington’s unfilled orders was greater in 1961 than in 1960. But this is no particular advantage if profits are down.

Commencing on October 18, 1961, the date of the Worth-ington board of directors’ meeting, the appellant resumed the sale of his personally held Worthington stock. (He had sold 20,500 shares from 1954 through 1958 with no sales after that date until those in 1961.) All told, in the months of October and November of 1961, he sold 13,000 shares so that by the end of these sales he had disposed of 53.2 percent of his total holdings of 62,850 shares, leaving 29,380 shares. He received an average price of approximately $51 per share on these 1961 sales. No trust shares of Worthington were sold until 1963.

Appellant maintains that the corpus of the trust would have been significantly reduced by the payment of the state and federal income taxes on any sales of Worthington (in 1961 or otherwise), and that the trial court ignored these tax consequences in arriving at its twofold conclusion: The duty to diversify and the mandatory sale date of 1961. The Mueller Furnace Company stock had a tax basis of zero in the THIRD and FOURTH article trusts, and five cents a share in the inter vivos trust. The respective bases were transferred to the Worthington stock under the tax-free reorganization in 1954. Although the tax factor is one which can be properly considered in passing on the prudence of the trustee’s actions, the trial court not only made no mention of it in its conclusions, findings, or decision, but expressly indicated during the trial that “the tax angle has nothing to do with the propriety of the accounts.” However, the failure of the trial court to consider any income-tax ramifications is not grounds, of itself, for reversal in this case. This is because the trial court could still have properly concluded, relying on the general rule calling for diversification in connection with appellant’s knowledge of Worthington’s financial condition, that it was imprudent to retain the stock even if he had considered the possible tax implications. This is not to say that the tax aspect is unimportant; rather it is to say that under the circumstances any tax advantages gained by not diversifying were outweighed by the factors requiring the sale of part of the Worthington stock.

At the trial, appellant introduced many investment digests, analyses, and bulletins he had received which indicated, in somewhat glowing terms, that Worthington was a sound investment. But a trustee cannot ignore the rule requiring diversification merely because a particular stock is a prudent investment in terms of quality.

It is apparent from its decision and findings, that the trial court placed much emphasis on the fact that appellant Mueller disposed of a considerable block of his personal holdings of Worthington in the fall of 1961, while not making similar disposals of the stock in the trusts. However, although appellant did sell 13,000 shares in October and November, he retained 29,380 shares, or 46.8 percent of his original holdings in the company. No further sales were made until August of the next year. In addition, the mere fact that appellant sold some of his own Worthington stock does not mean that retaining the stock in the trusts was imprudent per se. The sale has a bearing on the present case only if the same reasons which prompted it would also dictate a diversification of the trusts. Because he was in a 90 percent tax bracket, appellant claims that he sold the Worthington stock, upon the suggestion of his financial adviser, in order to invest in municipals. Even assuming, then, that it was to his advantage to dispose of his Worthington holdings, this does not mean that it was not to the advantage of the beneficiaries to sell. Mrs. Mueller, the income beneficiary of the THIRD article and inter vivos trusts, was in the 65 percent bracket herself. Arguably, it would have been equally as sound to invest in municipals to give her a tax break also. But this is somewhat conjectural.

Appellant believes that a recent New York case, In re Kellogg’s Trust, controls the present situation. In Kellogg, the trust assets consisted of most of the stock of a holding company which in turn held stock of a family corporation and title to the family estate. A new tax law subsequently necessitated the dissolving of the holding company, and the assets passed directly to the trust. The beneficiaries objected to the trustee’s account, claiming that it was improper to retain the stock of the family corporation as the sole asset. After considering all the relevant facts, the court found that the trustee had acted prudently. Kellogg can be distinguished on three grounds without discussing all the unique facts in the case. First, the court concluded that the stock could be retained under the terms of the trust agreement. This was not the case here. Second, New York law does not place the emphasis on diversification that Wisconsin law does. Third, in Kellogg the trustee had confidence that the long-range prospects of the business were good, whereas here the trustee had so little confidence in Worthington that he sold a sizeable block of his own stock.

The trial court found as a matter of fact (Finding No. 13) that appellant retained the Worthington stock in the trusts primarily for voting-control purposes. But since there were over 1,600,000 shares of Worthington stock outstanding, of which only a little more than 15,000 were held by the trust, this could hardly have been a “paramount consideration.” In addition, the fact that he had disposed of over half of his personal holdings is inconsistent with this purportedly avowed purpose. Furthermore, there was no evidence adduced which affirmatively demonstrated that voting control played any part in his decision. Therefore, this particular finding is against the great weight and clear preponderance of the evidence.

However, keeping in mind that diversification is the general rule, it cannot be said, in light of the information possessed by appellant concerning the financial affairs of Worthington, that the trial court erred in concluding that 80 percent of the stock should have been sold in the fall of 1961.

Estoppel.

The trial court concluded (Conclusion No. 3) that, “None of the beneficiaries of the trusts are estopped” from making a claim against appellant Mueller. Appellant attacks this as error.

As previously discussed, the beneficiaries of the two testamentary trusts concede that they are barred in these proceedings from questioning the prudence of retaining the Worthington stock as the sole asset prior to October 16, 1958, the date the accounts were approved. However, they do not concede that they are barred from questioning the prudence of retaining the stock in those two trusts after that date.

The general rule is that a beneficiary who, with knowledge of the facts, has acquiesced in the carrying of certain securities by the trustee is precluded from obtaining relief for a breach of trust for holding them. The key fact of which the beneficiary must have knowledge is that the specific asset, the retention of which he now complains was imprudent, was held by the trust.

With reference to the inter vivos trust, there is no evidence that any of the beneficiaries were aware that the Worthing-ton stock was the sole asset in the trust. It was reasonable, therefore, for the trial court to conclude that none of the beneficiaries of that trust is estopped from objecting to the appellant’s failure to diversify.

With reference to the article THIRD and FOURTH trusts, none of the beneficiaries, with the exception of Jean Mueller, knew of the status of the trust assets. Whether Jean Mueller is estopped because of her knowledge that Worthington continued as the sole asset of these trusts gained from her signing of the annual accounts, presents a moot question because in any event the other beneficiaries were not estopped from objecting to the failure to diversify these trusts.

Liability of Cotrustee.

After concluding (Conclusion No. 4) that appellant and respondent Jean Mueller were each at fault in the THIRD and FOURTH article trusts and thus equally responsible to the other beneficiaries, the trial court decided that Mrs. Mueller was entitled to indemnity from appellant for any liability on her part but that appellant had no corresponding right of indemnity against her because he was “substantially more at fault.”

While she does not specifically attack the conclusion that she was at fault, respondent Jean Mueller devotes much time in her discussion of the indemnity issue to the proposition that she was in no way culpable. Since the question of indemnity does not even arise unless she actually was at fault, her argument along those lines will be treated, for the purposes of this opinion, as a challenge to the trial court’s decision.

According to the Restatement, a cotrustee is liable to beneficiaries for a breach of trust committed by another co-trustee if he :

“(b) improperly delegates the administration of the trust to his co-trustee; or
“(d) by his failure to exercise reasonable care in the administration of the trust has enabled his co-trustee to commit a breach of trust; . . .”

These clauses are illustrated as follows:

“[b] A and B are co-trustees. A directs B to invest the trust funds without consulting with A. In breach of trust B invests in shares of stock. A is liable for breach of trust.”
“[d] A and B are co-trustees. A improperly permits B to have the sole custody and management of the trust property and makes no inquiry as to his conduct. B is thereby enabled to sell the trust property and embezzle the proceeds. A is liable for breach of trust.”

It should be noted that the breaches in the examples involved affirmative conduct on the part of one of the trustees. In the clause (b) example, one trustee actually directed the other to manage the trust, while in the clause (d) illustration the trustee was guilty of embezzlement. In the present case, there is no evidence that respondent Jean Mueller expressly authorized appellant to handle the trust affairs. It appears that any fault on the part of appellant was passive rather than active. But there is no good reason why subsection (b) should not apply when the one trustee impliedly consents to letting the other do the administering, or why (d) would not apply in a situation where the breach results from mere omission.

Professor Scott says:

“Where there are several trustees, each of them is under a duty to participate in the administration of the trust and to use reasonable care to prevent a co-trustee from committing a breach of trust. Even if one trustee does not affirmatively delegate the administration of the trust to his co-trustee, he is liable if by his failure to exercise reasonable care in supervising the conduct of his co-trustee he allows him to commit a breach of trust.”

Respondent Jean Mueller was content to let appellant alone handle the trust affairs from the date of its inception. The record shows that she made no inquiries of him regarding trust affairs subsequent to the time the Worthington stock was acquired in 1954. Having assumed the position of trustee, she was bound to perform the duties required of her, and cannot escape liability merely because she relied entirely on the cotrustee to actually run the show. Any other result would drive cotrustees into the weeds for safety’s sake.

Having established that respondent Jean Mueller was at fault, the question of whether appellant is entitled to indemnity or contribution from her is reached.

The general rule is that when two trustees are liable for a breach of trust, each is entitled to contribution from the other except that:

“(a) if one of them is substantially more at fault than the other, he is not entitled to contribution from the other but the other is entitled to indemnity from him; . . .”

The Restatement lists four factors to be considered in determining whether one trustee is substantially more at fault than the other:

“(1) whether he fraudulently induced the other to join in the breach of trust; (2) whether he intentionally committed a breach of trust and the other was at most guilty of negligence; (3) whether because of his greater experience he controlled the conduct of the other, as in the case where he was an attorney and the other was a person without business experience who was accustomed to rely upon his judgment; (4) whether he alone committed the breach of trust and the other is liable only because of an improper delegation, or failure to exercise reasonable care to prevent him from committing a breach of trust, or neglect to take proper steps to compel him to redress the breach of trust.”

Respondent Jean Mueller considers the following example given in the Restatement to control the present case:

“A and B are trustees for C. B permits A to assume the sole management of the trust. A purchases securities which are not proper trust investments. B does not know of or consent to the purchase. The securities are sold at a loss of $1000. If A makes good the loss he is not entitled to recover anything from B. If B makes good the loss he is entitled to recover $1000 from A.”

But since her consent was required before any trust assets could be sold, Jean Mueller knew that the Worthington stock was the sole asset of the trust, and knew that no sales of Worthington were being made to diversify the trust. As a trustee she was bound, as much as appellant, to diversify the trust assets unless it was imprudent to do so.

One trustee is not more at fault so as not to be entitled to contribution merely because he was more negligent or active than the other. The mere fact that the other trustee did not actively participate in the breach does not necessarily put him in the position of being substantially less at fault.

We conclude, therefore, that Harold Mueller was not “substantially more at fault” than Jean Mueller. It follows that, although each is surcharged for the entire amount of the charge as to the two testamentary trusts where they were cotrustees, if the appellant pays the entire amount he is entitled to a contribution from Jean Mueller of half that amount. If she pays the entire amount then she is entitled to contribution from appellant of half the amount. In other words, they should share equally in these particular surcharges.

A minority of the court, including the author of this opinion, would affirm the lower court and hold that the appellant was “substantially more at fault” because of the fact that for whatever motive he sold a substantial block of his own Worthington stock in October or November of 1961 (after not making any personal sales of Worthington since 1958) without discussing with his cotrustee the fact of these sales or the advisability of selling or retaining the trust holdings in Worthington.

By the Court. — Judgment reversed as to that part ordering Harold P. Mueller to indemnify Jean Mueller with respect to the surcharges and interest thereon imposed under the testamentary trusts pursuant to paragraph 1 of the judgment; paragraphs 1 and 3 of the judgment affirmed; paragraph 4 vacated and cause remanded for revision thereof in a manner not inconsistent with this opinion. Costs on this appeal to be awarded to appellant as against respondent Jean Mueller and to other respondents as against appellant.

       Sec. 228 of 3 Scott, Trusts (2d ed.), p. 1707, likewise states: “Distribution os' risk of loss. The trustee should exercise prudence in diversifying investments so as to minimize the risk of large losses. He should not therefore invest more than a reasonable proportion of the trust estate in a single security, or, it would seem, in a single type of security. This is a commonplace among experts in the art of making investments. . . See also Bogert, Trusts & Trustees (2d ed.), p. 414, sec. 612,

       Article THIRD, par. (5) and article FOURTH, par. (a) (4) contain identical provisions authorizing “my said trustees to retain among the assets of said trust estate all of the stock of said L. J. MUELLER FURNACE COMPANY, with express authority to purchase additional common stock of said corporation.”

       Restatement, 1 Trusts (2d), p. 553, sec. 231, comment f; 3 Scott, Trusts (2d ed.), p. 1740, sec. 231.4, which states in part: “Substitution of new securities. Where a trustee is authorized to retain certain securities but is not authorized to purchase similar securities, and owing to a merger or other change in the corporate organization new securities are issued in place of the old securities, the question arises whether the trustee can properly receive and retain the new securities. It has been held that he can properly do so if the new securities are substantially equivalent to the old ones. On the other hand, if the new securities are substantially different from the old ones the trustee is under a duty to sell them. . . .”

       (1904), 123 Wis. 223, 101 N. W. 365.

       (1926), 191 Wis. 23, 209 N. W. 945, 210 N. W. 418.

       (1940), 235 Wis. 282, 290 N. W. 758, 293 N. W. 150.

        Welch v. Welch, supra, footnote 6, at page 314; Estate of Allis, supra, footnote 5, at page 33; see also Restatement, 1 Trusts (2d), p. 543, sec. 228, comment q.

        In re Allis’s Estate, supra, footnote 4, at page 225.

        Welch v. Welch, supra, footnote 6, at page 294.

         In re Kellogg’s Trust (1962), 35 Misc. (2d) 541, 230 N. Y. Supp. (2d), 836, 846.

       See Restatement, 1 Trusts (2d), p. 541, sec. 228; footnote 1, supra.

       Ch. 233, Laws of 1959.

       Sec. 320.01, Stats.

       Sec. 320.02 (4), Stats. 1953.

         Estate of Dreier (1931), 204 Wis. 221, 235 N. W. 439.

         Estate of Allis, supra, footnote 5, at page 34; Welch v. Welch, supra, footnote 6, at page 307.

         See In re Kellogg’s Trust, supra, footnote 10.

       Restatement, 1 Trusts (2d), p. 541, sec. 228, comment a.

        Supra, footnote 10.

        Will of North (1940), 235 Wis. 639, 294 N. W. 15; Estate of Schlicht (1939), 231 Wis. 324, 285 N. W. 730; Estate of Grotenrath (1935), 217 Wis. 109, 258 N. W. 453.

       Restatement, 1 Trusts (2d), p. 521, sec. 224 (2). .

       2 Scott, Trusts (2d ed.), p. 1640, sec. 224.3.

       Restatement, 1 Trusts (2d), p. 650, sec. 258 (1) (a).

       Restatement, 1 Trusts (2d), p. 652, sec. 258, comment d.

       Id. Illustration 4.

       Restatement, 1 Trusts (2d), p. 653, sec. 258, comment e.


author: Beilfuss, J. Hallows, J.

text:
    Whitman, Respondent, v. Whitman, Appellant.

      June 2

    June 25, 1965.

      For the appellant there were briefs by Benton, Bosser, Fulton, Menn & Nehs, attorneys, and Peter S. Nelson of counsel, all of Appleton, and oral argument by Mr. Nelson.

    For the respondent there was a brief and oral argument by Edgar E. Becker of Appleton.
   Beilfuss, J.

Did the trial court abuse its judicial discretion by permitting the plaintiff to remove the minor children to Florida?

The statutory authority for revision of a divorce judgment insofar as custody of the children is concerned is contained in sec. 247.25, Stats.:

“The court may from time to time afterwards, on the petition of either of the parties and upon notice to the family court commissioner, revise and alter such judgment concerning the care, custody, maintenance and education of any of the children, and make a new judgment concerning the same as the circumstances of the parents and the benefit of the children shall require” (Emphasis added.)

The extent of the review permitted an appellate court of orders affecting custody of children was recently well stated in Belisle v. Belisle (1965), 27 Wis. (2d) 317, 321, 134 N. W. (2d) 491:

“Custody matters are highly discretionary and the rule is well established that the trial court’s determination will not be upset in the absence of a’ clear abuse of discretion. Although each case must be considered in light of all the particular facts and circumstances, guidelines have been established to aid the trial court in its decision. True, other things being equal, preference will ordinarily be given to the mother if she is not unfit. This is not a rule of law, but merely an important element to be considered; the crucial and controlling factor is the welfare of the child.”

Otherwise stated, “this court relies heavily upon the determination by the trial court.” Pollock v. Pollock (1956), 273 Wis. 233, 243, 77 N. W. (2d) 485. Especially important is the fact that the trial court is in a better position than this court to determine the best interests of the children, State ex rel. Hannon v. Eisler (1955), 270 Wis. 469, 71 N. W. (2d) 376; and to see and observe the parties and the way in which they conduct themselves. Brown v. Brown (1960), 9 Wis. (2d) 322, 101 N. W. (2d) 48; Pollock v. Pollock, supra; Greenlee v. Greenlee (1964), 23 Wis. (2d) 669, 127 N. W. (2d) 737.

The overriding rule in custody disputes between divorced parents, assuming that neither has been found unfit, is that the best interests of the minor child shall dictate to whom custody shall be awarded.

In this instance the issue is not which parent shall have custody but whether the mother can remove them from the state.

In Peterson v. Peterson (1961), 13 Wis. (2d) 26, 28, 108 N. W. (2d) 126, we stated:

“The majority of the cases deciding this point support the rule that if the parent who has custody of a child has good reason for living in another state and such course of action is consistent with the welfare of the child, the courts will permit the removal. See Annos. 154 A. L. R. 558, and 15 A. L. R. (2d) 468.
“Generally, the same considerations which determine custody of children are applied to the question of removal of children out of the state. The controlling consideration is the welfare of the child and it has often been said by this court that the determination of that welfare is primarily the task of the trial court and, except where there is a clear abuse of discretion, the trial court’s order should prevail. Smith v. Smith (1957), 1 Wis. (2d) 174, 83 N. W. (2d) 672; Dodge v. Dodge (1955), 268 Wis. 441, 67 N. W. (2d) 878.”

From the record and the memorandum opinion of the trial court, it appears that the physical facilities for the maintenance of the children, their educational opportunities, and their moral and religious instruction and supervision would be substantially the same in Fort Myers, Florida, as in Appleton, Wisconsin.

Two further approbative considerations in this case are that the children should have the day-by-day love, care, discipline, and protection of their mother, and should be able to know their father and have the benefit of his love and guidance through adequate visitation.

Under the order of the court, permitting the mother to remove the children to Florida and providing for generous rights of visitation, these objectives can be accomplished. This is not a case where the interests of the children would be best served by removal from the state because of economic, health, educational, moral, or emotional reasons.

The issue then becomes, under these circumstances, is it fair to impose additional burdens of time, distance, and expense upon the father in the exercise of his right of visitation in order to accommodate the mother’s desire to move to Florida.

A divorced man or woman is free to move about and pursue his or her life and living without restraint from his former spouse; as divorced parents of minor children they may be required to curtail these liberties or forfeit some of their rights to custody or visitation, as the case may be, consistent with the best interests of the children and the rights of the other parent.

The trial court concluded that plaintiff wanted to move to Florida to continue to reside near her parents; that this desire was natural and not deplorable; that the children should be with the mother and that she should be permitted to take the children to Florida. The court further concluded that visitation rights of the defendant in Florida and Wisconsin would not unduly burden the defendant either as to the time or expense involved.

As stated above, “the trial court’s determination will not be upset in the absence of a clear abuse of discretion.”

The same trial judge heard the divorce action. He had the benefit of his recollections of the conduct of the parties toward each other insofar as it might affect the children; he observed the parties and their witnesses and was charged with determining the credibility of the witnesses and the weight of the testimony. The trial court is in a superior position to evaluate the conflicting interests of the parties and the children; the law, therefore, imposes on the trial court the responsibility of evaluating the factual proof and applying the law. This court cannot interfere unless there is an erroneous application of the law or a clear abuse of discretion in applying the facts to the law.

The plaintiff’s proof is meager. It might well be possible that some members of the majority would join with our dissenting brothers if we would have heard the petition as an original matter. We cannot, however, conclude that the trial court abused its discretion when it determined that the plaintiff’s desire to move was for a proper purpose and beneficial to her, that it was not detrimental to the children, and that under the circumstances removal to Florida would not constitute an undue burden upon the defendant in exercising his visitation rights. The order permitting removal must be affirmed.

The defendant contends that the court prejudicially abused its discretion in refusing to order a psychiatric examination of the minor children. There is no allegation nor proof to show that the minor children were not normal physically or emotionally, or that the move to Florida could have that effect. There is no showing of an abuse of discretion in this respect.

Three additional problems in this appeal, while not necessary to the opinion, are worthy of note.

After the hearing on July 7th, but before the trial court’s decision on August 17th, the plaintiff filed several affidavits tending to show conduct on the part of the defendant that was either detrimental to the children or disconcerting to the plaintiff. The defendant filed an affidavit of general denial. The trial judge advised the parties he would consider them insofar as they were material. The record does not reveal in what respect, if any, these affidavits were considered. We assume they formed no part of the trial court’s finding and this opinion disregards whatever impact they might have.

The plaintiff contends that these affidavits may be considered as a part of the proof by virtue of sec. 269.32 (2), Stats.

While we do not say that an affidavit filed subsequent to a hearing in a custody matter cannot be considered under any circumstances, we do disapprove of materially disputed facts being presented in this manner. (In fairness to counsel we must report he did have his witnesses present and offered to produce them.)

The quotation that follows goes beyond a fair criticism of the record in this case, but illustrates the importance of sworn testimony as contrasted to affidavits in child-custody cases:

“The plaintiff further contends that the trial court, in determining this controversy, proceeded in an unwarranted manner, in that no hearing, such as ought to have been had in so important a matter, was in fact had. The whole hearing was conducted quite informally and without an opportunity to make a record or without a record in fact being made. We think the procedure adopted by the court in this important matter is justly subject to criticism. Judgments in divorce actions should not be so modified as to the custody of a child or children. In such a case where a contest exists and especially where a hearing is demanded, a hearing should be given. The witnesses should be sworn and an opportunity given to cross-examine them. The testimony should be taken by the reporter so that a record may be made in case either of the parties desires to appeal and have such order reviewed. We have not before us in this appeal any record of what was said by the attorneys, what informal conversations were had between the court and the witnesses, what testimony, if any, was given, and what in fact the court acted upon. In a matter of such vital concern to the parties and to the child whose interests are of paramount importance, a record should be made to the end that a party may not be denied an effective appeal.” Smith v. Smith (1932), 209 Wis. 605, 610, 245 N. W. 644.

The plaintiff’s order to show cause to commence these proceedings demands that the defendant show cause “why an order should not be entered herein confirming the change of residence of the children of the parties. . . to the State of Florida.”

It is the plaintiff’s position that because the judgment awarding custody of the children to her did not restrain her from removing the children from the state she was at liberty to do so without permission of the court.

The family court, by virtue of sec. 247.25, Stats., is obligated to retain jurisdiction for custody purposes. The minor children are, in a sense, wards of the court. Even though the courts of our sister states accord “full faith and credit” to the judgments and orders of the courts of this state, the enforcement of those orders may become, as a practical matter, cumbersome and prohibitively expensive.

We subscribe to the statement in 2 Nelson, Divorce and Annulment (2d ed., 1961 rev.), p. 267, sec. 15.20:

“A party who has been awarded the custody of a minor child should procure leave of court, by an order properly entered in the cause in which the custody was awarded, before taking [the] child out of the state.”

Our final comment deals with the order permitting the plaintiff to remove the children to Florida pending the appeal. The defendant, by order to show cause, asked that the order amending judgment permitting removal of the children be stayed pending this appeal. The court denied the motion to stay but ordered the plaintiff to post a bond in the amount of $1,500 as security to assure the return of the children to Wisconsin in the event the order permitting removal was reversed. Pursuant to these orders the children were removed and have been in Florida since September, 1964.

Except in those instances where the trial court finds it would be contrary to the best interests of the children, or unduly restrictive or detrimental to the removing parent, we deem it advisable for the trial court to stay the execution of the order permitting the removal of the minor children pending the appeal from that order when an appropriate motion is made. This is because of the disrupting effect it may have upon the children if the order is reversed.

By the Court. — Order affirmed.

Hallows, J.

(dissenting). In my opinion the trial court clearly abused its discretion in allowing Mrs. Whitman to remove the children to Florida for no better reason than that she wanted to be near her parents who contemplated moving from Wisconsin to Florida. When the divorce was granted and the custody of the children was awarded to the mother, she was given the home in Appleton where the children and their father could enjoy at least weekend association. The burden of proof to change this arrangement rests upon Mrs. Whitman to show the well-being of the children will be better served by the removal of the children to Florida. Greenlee v. Greenlee (1964), 23 Wis. (2d) 669, 127 N. W. (2d) 737; Anderson v. Anderson (1959), 8 Wis. (2d) 133, 98 N. W. (2d) 434; 27B C. J. S, Divorce, p. 483, sec. 313. This she has failed to do. The most the evidence shows is that in respect to economic and educational matters the interests of the children were not affected, but we think more is required to justify a modification of the divorce judgment respecting the children.

The proof should show that the interests of the children are better served and promoted by the change, not merely that their interests are not adversely affected. In Peterson v. Peterson (1961), 13 Wis. (2d) 26, 108 N. W. (2d) 126, we allowed a mother to remove a child to Minnesota but it was pointed out that such removal was for the best interests of the child. Likewise, in Anderson v. Anderson (1959), 8 Wis. (2d) 133, 98 N. W. (2d) 434, this court required children to be brought back to Wisconsin from Mexico because the health requirements for their being in Mexico no longer existed and their future would be better assured by their return to Wisconsin. In Bennett v. Bennett (1938), 228 Wis. 401, 280 N. W. 363, we allowed the father who had custody of the children to remove them to New York where he had secured a better job with greater opportunities, but this was on the ground that such reasons relating primarily to the parent who had custody indirectly were for the best interests of the children and would result in a benefit to them. To the same effect are Baer v. Baer (Mo. App., 1932), 51 S. W. (2d) 873; King v. King (1931), 61 N. D. 422, 237 N. W. 854; see 15 A. L. R. (2d) 432, Anno.—Custody of Child—Right of Nonresident.

No such case is presented here; the only reason advanced is that an adult woman wants to follow her parents’ removal from Wisconsin. She claims she has a right to live her own life in a place conducive to her happiness and welfare. This reason illustrates one of the tragedies of all divorces — an egocentric attitude and an unwillingness to sacrifice for others. It has been rightly said the real tragedy of a divorce falls upon the helpless children of the ill-starred marriage; they are the ones who can no longer look forward to the love and security of a normal homelife and the guidance and association of both parents. Because of this fact, the law is ever zealous of their rights and requires that the dominant and paramount reason for any change in their custody be their best interests. Greenlee v. Greenlee, supra; Block v. Block (1961), 15 Wis. (2d) 291, 112 N. W. (2d) 923; Bliffert v. Bliffert (1961), 14 Wis. (2d) 316, 111 N. W. (2d) 188; Subrt v. Subrt (1957), 275 Wis. 628, 83 N. W. (2d) 122; Dodge v. Dodge (1955), 268 Wis. 441, 67 N. W. (2d) 878.

The majority opinion pays little heed to the right of the children to emotional stability, to their rights to the association of both parents. While divorce has severed the marriage, it has not dissolved any bonds of parenthood. True, the law has not yet developed to the point where the rights of the children of divorces are recognized independently from those of the parents. We still determine children’s rights in our adversary system through the enforcement of some right of a warring parent, but such an approach emphasizes too much the form in which the determination is made and tends to treat all children of a divorce as chattel. The majority opinion does not consider the effect on the children of being denied their right to the association and the companionship of their father. It is no answer to say the father is wealthy and can afford to go to Florida and his job is not so time-consuming as to make the trip a hardship. This is viewing the problem solely from the standpoint of the father. Living in Florida is not as convenient or conducive to a normal relationship between the father and his children from the children’s standpoint as living in the same city.

I am authorized to state that Mr. Chief Justice Currie joins in this dissent.

        Belisle v. Belisle, supra.

        Peterson v. Peterson, supra.

       “. . . The moving party may be allowed to present upon the hearing, records, affidavits or other papers, not served with the motion papers, but only upon condition that opposing counsel be given reasonable time in which to meet such additional proofs, should request therefor be made.”