The opinion
Ed. F. McFaddin, Justice, dissenting. For convenience, I refer to the appellant as “The College” and the appellee as “The Trustees.” The Chancery Court made the following as its decree:
“(a) The ‘Trustees’ of Respondent are not required to distribute to the Petitioner all net income, but that, acting in good faith, they may distribute each year all or such part of the net income from the Trust properties as they deem best.
“ (b) The Trustees may refuse to distribute net income to the College for reasons other than injury to the Corpus.
“(c) That the ‘Board’ or the College, or a four year College, may not compel the distribution of net income of the Trust.
“(d) (e) That the Trustees of George W. Donaghey Foundation have no control over the educational policies of the College, and the Board of Directors of the College have no control over the policies of the Board of Trustees of the Donaghey Foundation; that the College shall be operated by its Board under the power and authority granted by its Constitution and under the authority of the Laws of the State of Arkansas governing the creation of eleemosynary corporations; and that the Donaghey Foundation shall be governed by and operated under the powers granted to its Board of Trustees by the Deed in Trust, creating the said Trust.
“(f) That it is within the power of the ‘Board’ (of the College) to expand the College to a four year college without the consent of the Trustees (of the Donaghey Foundation) but that such a four year college is not or would not be a ‘ Successor ’ to the ‘ Present Little Rock Junior College’, and the said Trustees shall not be required to make any distribution of income from the Trust to such a four year college.
“(g) That a four year institution (college) will not have the same rights, powers, duties and obligations under the ‘Deed in Trust’ as the present Little Rock Junior College.”
I agree with the findings of the Chancery Court; so I necessarily dissent from the opinion of the majority of this Court.
To reach the conclusion that it has reached, the majority has necessarily found each and all of the following:
(1) That the statements contained in Governor Donaghey’s books, written many years after the execution of the Trust Deed here involved, may be received in evidence as affecting or changing the language contained in the Trust Deed.
(2) That the Trustees have acted arbitrarily in refusing to pay the College the $75,000.00.
(3) That the Trustees must pay to the College the income of the Trust, regardless of whether the College is a Junior or a Senior College, and regardless of the discretion the Trustees desire to exercise.
I most vigorously dissent from each of these holdings. As regards the first point, it is certainly “new law” to say that what a man wrote in a book- — years after he executed a solemn instrument — can be used to vary the terms of the instrument: yet that is what the; majority is holding. I see no ambiguity in the Trust-Deed, so there is no reason to resort to “other writings” of the Trust settlor.
Coming to the other two matters, I express my views as follows:
I. The Discretion Allowed The Trustees By The Deed. When Governor Donaghey executed the Trust Deed in 1929 covering the Donaghey Building and the Waldon Building, he named seven men as Trustees. They were: G. DeMatt Henderson, J. F. Loughborough, A. G. Kahn, F. W. Neimeyer, Charles L. Thompson, Leo Pfeifer and Fred W. Allsopp. These Trustees were allowed to fill any vacancies, so that in this suit the Trustees are: C. L. Thompson, A. G. Kahn, Leo Pfeifer, William Nash, C. E. Lowry, Dr. Henry G. Hollenberg, and John Eule. Among other provisions in the Trust Deed, I quote these:
(1) "No compensation shall be paid to any Trustee ...”
(2) "The surviving Trustees shall at all times have the right to fill any vacancy in their membership caused by death, resignation, or otherwise ...”
(3) "Said Trustees . . . shall have the sole and exclusive management, control, and direction of said property .. . and in every respect to deal with and handle and manage said properties as an individual might do ... ”
(4) “After paying all interest, principal, fixed charges, upkeep, insurance and all operating expenses maturing during any year, the Trustees may annually (or more frequently, if they deem best) pay over on January 1st of each year all or such part of the net income from the said properties as they deem best; . . . In the event there should at any time be accumulations of net income under the terms hereof, the same may be expended for the purposes of this trust at such times and in such amounts as the Trustees think best.” (Italics supplied.)
(5) "In the event there should at any time be accumulations of net income under the terms hereof, the same may be expended for the purposes of this Trust at such times and in such amounts as the Trustees think best.” (Italics supplied.)
(6) "It is the intention hereof that the Trust hereby created shall continue perpetually, except that the Trustees . . . may, by unanimous vote at any time after 50 years from the date of this instrument, expend all or any part of the Trust Fund or property and all and any accumulations of income then in their hands, for the purpose of erecting or contributing to the erection of a permanent building or buildings. . .”
(7) “Nothing herein contained shall require the Trustees at any time to expend any portion of the principal of said Trust Fund or property ...”
(8) “The said Trustees shall have absolute right to determine, by a majority vote, all necessary rules and regulations for the management and control of the properties ...”
I have copied at length from the Trust Deed to show the broad discretion allowed the Trustees, who serve without remuneration. In the face of such broad discretion, the majority of this Court is now holding that the Trustees — -even against their vote and better judgment- — -must, deliver income from the Trust to the College. I cannot so interpret the Trust Deed.
II. Hoto The Trustees Wish To Exercise Their Discretion. The majority opinion entirely ignores one of the major contentions made by the Trustees in this case, which is the right of the Trustees to build up a reserve for the protection of the Trust. The testimony of the witnesses, T. W. Kirkwood, Russell Brown, and A. G. Kahn, on this most important angle of the case, is found on pages 86 to 131 (inc.) of the transcript. The Trustees say that to now require them to distribute trust income is tantamount to requiring them to distribute trust income at any subsequent time that the College may desire it; that the expense of a Senior College is far greater than the expense of a Junior College; that if the College starts out to be a Senior College, then it can, year after year, go into Court and require the distribution of the income from the Trust without allowing the Trustees to exercise their discretion to build up the permanent reserve fund of the Trust; and that in effect the Courts will be taking over the discretion reposed in the Trustees and the perpetual Trust will fail because the Trustees will not have been allowed to build up a suitable permanent reserve fund. I certainly agree with these contentions.
The testimony reflects that on July 1, 1929, Governor and Mrs. Donaghey executed the Trust Deed, here involved, which transferred to the Trustees two buildings in Little Rock located at 7th and Main Streets, and being the Donaghey Building and the Waldon Building. 1 At that time, the two buildings were mortgaged for a balance of $760,000.00 and interest. The Trust Deed provided that the Trust was to pay Governor Donaghey the sum of $1,000.00 per month for the remainder of his life, and then to pay Mrs. Donaghey $750.00 per month for the remainder of her life. These payments to Governor and Mrs. Donaghey, and the payment of the interest and the mortgage, required substantially all of the income of the Trust: so that no depreciation account was ever set up for the buildings until after Governor Donaghey’s death in 1937. Then the Trustees had the buildings appraised as of 1929 and set up a depreciation account of 2% per annum. As of December 31, 1953, the total depreciation so claimed was $942,569.97. Against this depreciation account, $204,592.60 had been spent to improve the Waldon Building, so that the net depreciation account on the books was $737,977.37.
Good accounting requires that the permanent reserve fund should equal the net depreciation account. In other words, the Trust should have on hand, in bonds or other assets, a permanent reserve fund to equal every dollar shown in the net depreciation account. But when we examine the permanent reserve fund, we see that it only has $364,733.07 on hand. In other words, there is a deficiency in the permanent reserve fund of $373,244.30. This is because the Trustees have been paying money to the College instead of putting it in the permanent reserve fund. The Trustees want to limit their contributions to the College for several years, until the permanent reserve fund equals the depreciation account; and that is certainly a good, sound accounting principle. Mr. Russell Brown, a Certified Public Accountant, has so advised the Trustees. His letter of 1952 is in the record; and he so testified before the Court. It was testified that it would require half a million dollars to air-condition the Donaghey building, in order to keep the building occupied with tenants capable of paying thé rents. The Trustees want to limit the amount to be paid the College for a number of years, until they can build up the permanent reserve fund. I think the Trustees have full authority to withhold all payments to the College, in their discretion. Mr. A. G. Kahn, one of the Trustees selected by Governor Donaghey and' still serving, testified that this Donaghey Trust was one of the most vulnerable trusts with which he was acquainted, because it had no diversification; that the income is derived entirely from buildings located in a concentrated locality; and that if the Trust is to be perpetual, these buildings must be kept modern against eventualities of any competing office building that might be constructed in Little Rock.
In the light of all of this testimony: when we consider that the Trustees are serving without remuneration; that they are trying to keep the Trust perpetual; that they have not yet on hand in the permanent reserve fund enough to equal the net depreciation allowed by the Government; and that the buildings are old and need to be made modern in many respects — in the light of all these matters — I cannot see how the majority of this Court can interfere with the discretion that these Trustees are seeking to exercise; and I cannot see how the majority of this Court can substitute its views for those of the Trustees. If this Court can direct the Trustees to pay $75,000.00 a year to the College now, it can direct the Trustees to pay double that amount or any other amount that the College may say it needs.
The whole case gets back to the point that the Trustees should be allowed to exercise their discretion. It would be nice for Little Rock to have a senior college: but this Court should certainly refuse to do violence to the Trust Deed in this case. Courts are not constituted to legislate: they are. to interpret the meaning of trust ■ instruments. By this trust instrument Governor Donaghey invested these Trustees with full discretion. The record shows that they are attempting to exercise their discretion in a wise and prudent manner. The majority of this Court is interfering with the discretion reposed in the Trustees.
Therefore, I respectfully dissent.
The record (Tr. 89) reflects that several years after this Deed of Trust covering the Donaghey Building and the Waldon Building, Governor and Mrs. Donaghey conveyed to the Trustees, by instruments not in the present record, some property at 119 Main Street and also some property at 8th and Main Streets. The income from these two latter properties (not appreciable, when compared with the income from the Donaghey and Waldon Buildings) is included in the audits and figures supplied to the Court by the Trustees. But the major part of the record here relates to the situation as regards the Donaghey Building and the Waldon Building.