# Petition — Clark v. American National Bank & Trust Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1976
- **Citation:** 423 U.S. 1053

## Text

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NOV 10 1975

IN THE | MICHAEL RODAK, ., CLERK

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Supreme Court of the United States
OCTOBER TERM, 1975

_ 75 6871

N

NORMA FRANCES RAOUL CLARK and
ANN ELIZABETH RAOUL,
Petitioners,
vs.

AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHATTANOOGA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO
THE SUPREME COURT OF THE STATE
OF TENNESSEE

LEONARD R. TANNER, JR.

RicHarp P. JAHN

TANNER & JAHN
1223 Volunteer Building
Chattanooga, Tennessee 37402
615-756-8473

Counsel for Petitioners
November 8, 1975

E. L. Mendenhall, Inc., 926 Cherry Street, Kansas City, Mo. 64106, 816-421-3030

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Constitutional Provisions Involved ................ 5
r ie. eben ß ö. 5

How Federal Question Was Raised ............. 10

Reasons for Granting the Writ—

1. The Equal Protection Clause requires that Pe-
titioners be given the benefit of the discovery
doctrine announced in the Teeters case 11

2. Under the Due Process Clause a claim against
a trustee may not be barred by the Statute
of Limitations where the trustee had failed to
make full disclosure and the beneficiary-claim-

ants had no actual knowledge or reason to
know until immediately before suit wasfiled .... 16

D ] mA... ̃ m ek ws obi 19

Table of Authorities

CasEs

Beck v. Washington, 369 U.S. 541, 8 L. Ed. 2d 98,
e, d 11. 15
Binkerhoff-Farris Trust & Savings Co. v. Hill, 281
U.S. 673, 74 L. Ed. 1107, 50 S. Ct. 451 (1930) 11
Buchalter v. New York, 319 U.S. 427, 87 L. Ed.
e 16
Cowan v. Hamilton National Bank, 177 Tenn. 94,
rr ssc aceecnseekeness 10
Family Savings and Loan, Inc. v. Ciccarello, 207
D i a go atin eee beak ahenesy 15

II

Hutsell v. Citizens National Bank, 166 Tenn. 598,

,, m mo c é rere ree 15
Knox County v. Fourth and First National Bank,

181 Tenn. 569, 182 S. W. 2d 980 18
Layton v. Allen, 246 A. 2d 794 (Del. 1968) 13
McCroskey v. Bryant Air Conditioning Company,

.... Tenn. ...., 524 S. W. 2d 487 (1975) ...4, 11, 13
Mills v. Scott, 99 U.S. 25, 25 L. Ed. 294 (1878) .. 16

Milwaukee Electric Railway & Light Co. v. Wiscon-
sin Ex Rel. Milwaukee, 252 U.S. 100, 64 L. Ed.

rt ͤ 11
Roberts v. New York, 295 U.S. 264, 79 L. Ed.
Nn 15
Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 79
L. Ed. 1045, 55 S. Ct. 525 (1935) .............. 11
Teeters v. Currey, .... Tenn. ...., 518 S.W. 2d
, ⅛ uA. ane — 4, 5, 10, 11, 14
Third National Bank v. Nashville Trust Co., 191
Tenn. 123, 232 8. W. 2d 7 (1960) ............... 9
Truax v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, 42
RR 0 ee rey eee tee ete 11, 16
Wilson v. Iseminger, 185 U.S. 55, 46 L. Ed. 804,
,.. · ekeneee ess 16

CONSTITUTIONAL PROVISIONS AND STATUTES

Fourteenth Amendment, Constitution of the United

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TExTs
37 Am. Jur. 2d Fraud and Deceit §332 .......... 15
76 Am. Jur. 2d Trusts 5335 and 833. 18

60 C.5.8. “Truste” o „„ „„ „ „ 6 15

m
INDEX TO APPENDIX

Chancellor’s Memorandum Opinion (March 25,1970) .. 21

Opinion of Court of Appeals (December 31, 1970) ...... 26
Opinion of Court of Appeals On Petition to Rehear
GE w- 35
Chancellor’s Memorandum Opinion (March 15,1973) .. 36
Final Decree (December 27, 1973) ................ 47
Opinion of Court of Appeals (August 30, 1974) ... 48
Court of Appeals Decree (August 30, 1974) ....... 70
Opinion of Court of Appeals On Petition to Re-
e ẽ᷑gÿ 71
Order of Court of Appeals Denying Petition to Re-
hear (November 6, 1970½lů j 73
Order of Supreme Court of Tennessee Denying Peti-
tion for Writ of Certiorari (July 7, 1975) ........ 74

Decree (July 7, 1975)

Memorandum Opinion On Petition to Rehear (Au-
D esit 76

Decree (September 29, 1975)

IN THE

Supreme Court of the United States
OCTOBER TERM, 1975

No.

NORMA FRANCES RAOUL CLARK and
ANN ELIZABETH RAOUL,
Petitioners,
vs.

AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHATTANOOGA,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO
THE SUPREME COURT OF THE STATE
OF TENNESSEE

The petitioners, Norma Frances Raoul Clark and
Ann Elizabeth Raoul pray that a writ of certiorari issue
to review the order and decree of the Supreme Court
of the State of Tennessee rendered in these proceedings
on July 7, 1975, and the memorandum opinion on peti-
tion to rehear and the decree thereon rendered in these
proceedings on August 11, 1975.

2

OPINIONS BELOW

None of the opinions of the Courts below are as
yet reported. They are as follows:*

(a) Opinion of the Chancery Court of Hamilton
County, Tennessee, filed March 25, 1970 sustaining
the defense of laches (pp. 21-26).

(b) Opinion of the Court of Appeals of Tennessee
filed December 31, 1970, reversing the Chancellor; find-
ing no laches and remanding the case for decision on
the merits (pp. 26-34).

(c) Opinion of the Court of Appeals of Tennessee
filed March 16, 1971, overruling Respondent Bank's
petition to rehear, but reserving ruling on the Statute
of Limitations issue pending further decision by the
Chancellor (p. 35).

(d) Opinion of the Chancery Court of Hamilton
County, Tennessee, filed March 15, 1973, finding that
the Respondent Bank as Petitioners’ trustee violated
the prudent man rule and the undivided loyalty rule
when exchanging Cavalier Corporation stock in trust
in 1944 (pp. 36-47).

(e) Final decree of the Chancery Court of Hamil-
ton County, Tennessee, filed December 27, 1973, ren-
dering judgment in favor of Petitioners in the amount
of $3,941,799.74 (pp. 47-48).

(f) Opinion of the Court of Appeals of Tennessee
filed August 30, 1974, concurring with the Chancel-

*All page references are to the pages of the appendix infra
unless preceded by Tr.“ in which event reference is to the
trial transcript.

3

lor's finding of imprudence; disagreeing with the Chan-
cellor's finding of a breach of the loyalty rule; and
dismissing the case on the ground that the claim was
barred by T.C.A. 28-309, the Tennessee six year Statute
of Limitations (pp. 48-69).

(g) Order of the Supreme Court of Tennessee,
filed July 7, 1975 denying the petition for writ of cer-
tiorari and reciting only that this Court is of the opin-
ion that the Court of Appeals reached the correct
conclusion (p. 74); also the decree on said order filed
the same date (p. 75).

(h) Opinion of the Supreme Court of Tennessee
filed August 11, 1975, overruling the petition to rehear
and rejecting the Federal constitutional grounds asserted
in said petition (pp. 76-77); also the decree thereon filed
the same date (p. 78).

JURISDICTION

As shown above, both the memorandum opinion
on the petition to rehear, and the decree of the Su-
preme Court of Tennessee thereon, were filed Au-
gust 11, 1975 (pp. 76-78). This petition for certiorari
was filed less than 90 days from the date aforesaid.
The jurisdiction of this Court is invoked under 28
USC §1257(3).

QUESTIONS PRESENTED

In its 1970 opinion overruling the Chancellor on the
laches issue, the Court of Appeals of Tennessee ex-
pressly held (p. 32) that Petitioners had no “actual
or chargeable knowledge” of the facts giving rise to
their cause of action against the Respondent Bank, by
reason of its actions in 1944 as their trustee, until

4

shortly before they filed suit in 1964. The Defendant
Bank did not appeal from this finding and accordingly
it is now the law of this case.

The 1974 opinion of the Court of Appeals of Ten-
nessee (pp. 48-69) sustained the Statute of Limitations
defense (pp. 68-69) without reversing or altering said pre-
vious 1970 fact finding, now final. This 1974 decision,
however, was entered immediately prior to the land-
mark decision on December 9, 1974, of the Supreme
Court of Tennessee in Teeters v. Currey, .... Tenn.

, 518 S.W. 2d 512, adopting the so-called discov-
ery doctrine” for the State of Tennessee, and expressly
overruling all prior Tennessee precedent to the con-
trary. Under this doctrine, applied retroactively to
pending cases, the applicable statute of Limitations does
not begin to run until the wrong giving rise to the
claim is or should have been discovered by the claim-
ant. Teeters was a medical malpractice case.

In a subsequent ruling in McCroskey v. Bryant Air
Conditioning Company, decided by the Supreme Court
of Tennessee on April 7, 1975, .... Tenn. ...., 524
S.W. 2d 487, at 491, that Court held that the discov-
ery doctrine was not to be limited to medical malprac-
tice cases, but instead was one of universal applica-
tion in Tennessee in cases involving injuries to persons
or property arising out of tort, including negligence,
product liability and misrepresentation, and again over-
ruled all prior cases to the contrary.

The petitioners’ cause of action expressly charged
negligence in the exchange of stock in question as well
as breach of trust (pp. 26, 32, 48).

In its memorandum opinion on the petition to re-
hear in the subject case filed August 11, 1975, the
Tennessee Supreme Court stated:

5

We fully considered Teeters, supra, and concluded
that it had no relevance to the issues in this con-
troversy.

The questions thereby arising are:

1. Whether the refusal to apply the discovery
doctrine announced in Teeters to the subject case, there-
by eliminating the Statute of Limitations defense, vio-
lated fundamental rights of Petitioners under the Equal
Protection Clause of the Fourteenth Amendment.

2. Whether the Due Process Clause of the Four-
teenth Amendment is violated, if a trustee is permitted
to assert the Statute of Limitations as a defense to
a cause of action, where the trustee had failed to make
full disclosue to its beneficiaries of its 1944 action caus-
ing the loss here complained of, and the beneficiaries
did not know of same, and had no reason to know of
same, until 1963, when they learned what had occurred
shortly before suit was filed.

CONSTITUTIONAL PROVISIONS INVOLVED

Constitution of the United States, Amendment XIV,
§1:

“

nor shall any state deprive any person of
life, liberty, or property without due process of
law; nor deny to any person within its jurisdic-
tion the equal protection of the laws.

STATEMENT OF FACTS

Petitioners were beneficiaries of express trusts
designated No. 927 and No. 929, administered by the
Respondent Bank. In 1944 the Bank, as their trustee,
exchanged 323 shares of no par value common stock of

6

Cavalier Corporation which it held in said trusts, for
323 shares of newly authorized $100.00 par value com-
mon stock in said corporation (pp. 21, 28-29, 36-38, 49,
53-54).

The Chancellor found that the effect of making
the exchange was to deny a total immediate bene it
to the trusts of $341,775.99 if the exchange had not
been made, and that in making the exchange the Bank
gave up then and there 8198.05 per share of each
share’s pre- exchange book net worth, and a much higher
share of actual net worth (p. 40). No higher Court
has disagreed with these findings of the Chancellor.

The Chancellor (pp. 42-43) and the Tennessee Court
of Appeals (p. 58) concurred as to the Bank’s resulting
imprudence. Thus, it is the law of this case, by rea-
son of the concurrence of these two lower Courts on
this question of fact, that the Bank was imprudent and
is accordingly liable but for the Statute of Limita-

tions defense.

The exchange was the result of a plan conceived
by Gaston Raoul, for many years head of Cavalier,
its chief stockholder and a director, to further his per-
sonal estate planning and to shift equity to his son
and others with minimal gift and estate tax conse-
quences. Gaston Raoul personally sought to persuade
the other no par shareholders to exchange (pp. 38-40,
44-45, 53-54).

Gaston Raoul was also a director of the Bank,
whose president and fellow director was E. Y. Chapin.
Chapin was a close personal friend of Gaston Raoul;
was also a director of Cavalier; had previously been
Cavaliers Chairman of the Board, and held a small
amount (15 shares) of stock in Cavalier. Cavalier was

7

an important account for the Bank, which also acted
as Cavalier’s stock transfer agent (pp. 38, 54).

E. Y. Chapin headed the Bank’s trust investment
committee but personally handled the exchange of stock
in trust (Tr. 706-710, 714-715, 722; Exs. 71 and 72)
without consulting said committee (Tr. 871-875). Al-
though Cavalier’s 1944 reorganization plan provided a
two months’ period within which to exchange, Chapin’s
personal shares and those in the trusts were the first
to be exchanged at the very outset of the available
period (p. 40; Tr. 715; Ex. 23). It was then known
however, that due to the persuasion of Gaston Raoul.
who set the apparent example of exchanging his own
shares also, that most of the no par shareholders also
planned to exchange (pp. 39-40, 54; Exs. 42 and 119: Tr
175, 193). Gaston Raoul had discussed and conferred
with E. Y. Chapin about the proposed plan of ex-
change (p. 54).

During the trial petitioners accidentally discov-
ered in files brought to the trial by Bank Director
William Raoul, that his father, Gaston Raoul, had writ-
ten a memo after the exchange about its circumstances
(Tr. 650-660, 665-670). This memo (pp. 44, 60-61) stated
that E. Y. Chapin had “disapproved of the idea in
voto, as being a give-away by the then principal own-
ers to the no par stockholders who might elect not
to exchange. . He went along with the plan
however, like the loyal friend he always was.

Despite exhaustive discovery procedures this memo
was never revealed to Petitioners previously by Re-
spondent Bank.

In his second opinion in 1973 the Chancellor ex-
pressly found (p. 45):

8

Nowhere does the record indicate that the Trustee
Bank ever disclosed to anyone acting on behalf of
the plaintiffs the effects that the exchange of
stock hereinabove outlined would have on these
trusts.

Not only does the record fully support these findings
but no higher Court has disagreed.

Trusts 927 and 929 terminated in 1956 when
Petitioners’ father, Norman Raoul, died (pp. 53, 56-57).
Prior thereto in 1949 and 1950, Petitioners had agreed
with their Uncle Gaston Raoul, to the establishment of
Trust 1661 for their benefit with the Bank as trustee
(Ex. 4). It was agreed that certain assets would be
immediately placed in Trust 1661 for them by Gaston
Raoul in consideration of Petitioners’ agreeing that in-
stead of taking the assets of Trusts 927 and 929 free
from trust upon their then living father’s death, in ac-
cordance with the terms of those trusts, said assets
instead would upon such death be transferred to al-
ready existing Trust 1661 and there continue in trust
for Petitioners’ lifetimes (pp. 27-28, 52). A written
assignment to the Bank to accomplish this was signed
by Petitioners in 1950 (Ex. 152). The Bank continues
as trustee of Trust 1661 for Petitioners to this day,
the assets of which trust were increased in 1956 upon
their father’s death pursuant to the foregoing agree-
ment.

The Bank’s theory at the trial was that Trust
1661 was merely an extension and consolidation of
Trusts 927 and 929 (Tr. 57, 744-747, 809, 843-844;
Ex. 146). Nonetheless, the Tennessee Court of Appeals
concluded that Tennessee’s six year statute (T.C.A.
28-309) was set in motion when Trusts 927 and 929
technically ended in 1956 (pp. 56-57) and thus had run

9

by the time Petitioners first learned in 1963 what had
occurred in 1944 (Tr. 36-45, 233-235, 764, 776-778).
In so ruling, the Tennessee Court of Appeals relied
upon Third National Bank v. Nashville Trust Co.
(1950), 191 Tenn. 123, 232 S.W. 2d 7 (see pp. 55-56
infra). This decision in no way afforded comfort to
a trustee which failed to make a full disclosure, and
in any event is now subject to the new Tennessee
discovery doctrine requiring actual or constructive in-
covery of the wrong before the statute can begin to
run.

The Tennessee Court of Appeals, after noting the
Chancellor's viewpoint (pp. 59-62), somehow disagreed
and felt that the Raoul memo could be explained on
a basis consistent with the Bank’s duty of undivided
loyalty to Petitiners (pp. 62-64). No ome can ex-
plain why, if the Bank recognized through Chapin that
a give-away by principal owners was involved
when exchanging, there could be any difference with
smaller shareholders. Actually, the Bank as trustee,
with 323 shares, was a principal shareholder. Only
five out of the thirty shareholders who exchanged held
more shares, and none who did not exchange held
more shares (Exs. 20 and 23). Further, no one can
explain why, if the Bank, unlike most of the mis-
guided exchanging shareholders, was sophisticated
enough to know that a give-away was involved by the
principal shareholders, it was not a breach of trust to
fail to accept the recognized corresponding benefits
($341,775.99—p. 40) for Petitioners by refusing to
exchange.

A classic case is presented where the Bank had a
duty to fully disclose what it did know, and give the
beneficiaries an opportunity to protest, instead of pro-
ceeding unilaterally without Court approval.

10

To reach the result which it did, the Tennessee
Court of Appeals also ignored the rigid principles of
trust law fully set forth in the leading case of Cowan
v. Hamilton National Bank, 177 Tenn. 94, 146 S.W.2d
359 (1941), forbidding a trustee to act at all unless
it is wholly disinterested and without any possible ad-
verse personal interest which might be served thereby.
Under Cowan, when the Bank nonetheless acted with its
many conflicts of interest involved, a breach of trust oc-
curred per se, and the rule of no further inquiry ap-
plied regardless of what a Court might think otherwise
of the propriety of the action.

How Federal Question Was Raised

When the Supreme Court of Tennessee on July 7,
1975, denied Petitioners’ petition for a writ of certiorari
to the Court of Appeals of Tennessee (pp. 74-75), a peti-
tion to rehear was filed. This petition asserted a viola-
tion of Petitioners’ rights under the Due Process and
Equal Protection clauses of the Fourteenth Amendment,
by reason of the failure to apply the discovery doctrine
first announced in Teeters (p. 76). In its memo opin-
ion denying said petition to rehear, the Tennessee
Supreme Court did not specifically pass on the issue,
merely holding Teeters had no relevance” (p. 77). This
was the first and only occasion Petitioners had to raise
this federal issue previously in this protracted litigation.

Inherent in this issue is the second issue of
whether as a matter of due process of law the statute
can begin to run to protect a trustee who failed to dis-
close, until the beneficiaries discovered the wrong. Peti-
tioners have contended before all three lower courts
that it cannot, most recently as an assignment of error
by the Tennessee Court of Appeals in the Petition for
Certiorari to the Tennessee Supreme Court.

11

REASONS FOR GRANTING THE WRIT

1. The Equal Protection Clause requires that Pe-
tioners be given the benefit of the discovery doctrine
announced in the Teeters case.

The equal protection clause requires uniformity in
dealing with parties in similar circumstances. Stewart
Dry Goods Co. v. Lewis, 294 U.S. 550, 79 L. Ed. 1045,
55 S. Ct. 525 (1935). Distinctions can be made between
parties but the classification must be based on reason.
Truax v. Corrigan, 257 U.S. 312, 66 L. Ed. 254,
42 S. Ct. 124 (1921). The guarantee of equal protec-
tion applies to judicial action as well as legislative and
executive action. Binkerhoff-Farris Trust & Savings
Co. v. Hill, 281 U.S. 673, 74 L. Ed. 1107, 50 S. Ct.
451 (1930).

It is recognized, however, that the equal protec-
tion clause does not assure uniformity of judicial de-
cisions or immunity from judicial error. Beck v. Wash-
ington, 369 U.S. 541, 8 L. Ed. 2d 98, 82 S. Ct. 955
(1962). Thus, one who has lost a judicial decision but
can show a later decision between strangers irrecon-
cilable on a matter of law with the earlier decision
has had no federal right violated. Milwaukee Electric
Railway & Light Co. v. Wisconsin Ex Rel. Milwaukee,
252 U.S. 100, 64 L. Ed. 476, 4 S. Ct. 306 (1920). This
simply means that a State Court is free to change its
mind. In the subject case, however, the Tennessee
Supreme Court has not sought to overrule its recently
announced Teeters decision, further expounded upon in
McCroskey, but instead, without explanation, asserted
in the subject case (p. 77). that Teeters had no rele-
vance to the issues in this controversy.”

In Teeters the Tennessee Supreme Court stated
(518 S.W. 2d 512 at 514-516):

12
„When does the cause of action accrue?

“In Bodne v. Austin, 156 Tenn. 366, 2 S.W. 2d
104 (1927) the Court said:

‘. . . we have been referred to no authority hold-
ing that mere ignorance and failure to discover
the existence of the cause of action, or the con-
sequential damages resulting from the breach of
duty or wrongful act, can prevent the running of
the statute of limitations.’

“But this was in 1927 almost half a century ago.

a: SS ee
“The time has come for us to re-examine the past
holdings of our Appellate Courts in the light of
contemporary standards of justice and of the hold-
ings of the courts of last resort in other American
jurisdictions.”

R * *
We find it difficult to embrace a rule of law re-
quiring that a plaintiff file suit prior to knowledge
of his injury or, phrasing it another way, requir-
ing that he sue to vindicate a non-existent wrong,
at a time when injury is unknown and unknow-
able.

* * *
We recognize that statutes of limitations are stat-
utes of repose designed to promote stability in the
affairs of men and to avoid the uncertainties and
burdens inherent in defending stale claims.

“In recognition of this, traditionally our courts
have held that a right of action accrues immedi-
ately upon the infliction or occurrence of injury

13

and that mere ignorance or failure of plaintiff to
discover his cause of action or the subsequent re-
sulting damage does not toll the statute. Bodne
v. Austin, supra.“

That this is a harsh and an oppressive rule there
can be little doubt. To counter the casualties it
has produced the courts have fashioned the so- called
‘discovery doctrine’, under which the statute does
not begin to run until the negligent injury is, or
should have been discovered.

The Court quoted with approval at 518 S.W. 2d
516 from Layton v. Allen, 246 A. 2d 794 (Del. 1968)
as follows:

Where choice must be made between the defen-
dants’ problems of lost evidence, faded memories,
and missing witnesses on the one hand, and a dep-
rivation to the plaintiff of any and all remedy for
the wrong done her, on the other, the law must be
construed in favor of the blamelessly ignorant plain-
tiff and against the interests and convenience of
the wrong-doer.”’

In McCroskey the Tennessee Supreme Court stated
(524 S.W. 2d 487 at 491 and 493):

We hold that in tort actions, including but not
restricted to products liability actions (‘‘conceived
in an illicit intercourse of tort and contract“) pred-
icated on negligence, strict liability or misrepre-
sentation,® the cause of action accrues and the

* Prosser, The Fall of the Citadel, 50 Minn. L.
Rev. 791, 800 (1965).

* Misrepresentation is a tort. See Restatement
(Second) of Torts, Sec. 402B (1965).

14

statute of limitations commences to run when the
injury occurs or is discovered, or when in the ex-
ercise of reasonable care and diligence, it should
have been discovered. All cases contra are over-
ruled.

“Petitioner insists that the Court has ‘legislated’
in reaching its decision in defining or redefining
the accrual date of the cause of action. We cannot
assume that the Legislature would adopt a statute
which would deny redress to a citizen by requiring
that he sue prior to knowledge of his injury. We
therefore, adopted a discovery rule in order to vali-
date the statute and prevent a plain deprivation
of justice.

Petitioners’ cause of action was based upon both
negligence in making the exchange and breach of trust
(pp. 26, 32, 48). If nonetheless the unexplained rationale
of the refusal to apply Teeters to the present case is
that the cause of action was not to be classified as
sounding in tort, and that the discovery doctrine is
to be limited to injured tort claimants, despite the
blurred line between tort and contract in the included
product liability cases, then it is respectfully submitted
that a distinction or classification is being made, that
is wholly arbitrary and capricious, and without a ma-
terial difference between wronged citizen-claimants. A
plain violation of the Equal Protection Clause accord-
ingly results. The test for application of the discovery
doctrine is obviously when the injury or wrong was
first known or should have been known, and not the
nature of the cause of action selected thereafter to
achieve a remedy.

15

Further, as quoted above, misrepresentation is a
tort. Like wise, a failure of a trustee as here to ob-
serve the full disclosure duty is a fraudulent conceal-
ment constituting a tort equivalent to misrepresenta-
tion. Opinion of the Court of Appeals of Tennessee
(pp. 58-59); Hutsell v. Citizens National Bank, 166 Tenn.
598, 64 S.W. 2d 188 at 192; 90 C.J.S. “Trusts” §247
(2). To perpetrate a fraud is to commit a tort. 37
Am. Jur. 2d Fraud and Deceit 5332.

A recent decision of the Supreme Court of West
Virginia, Family Savings and Loan, Inc. v. Ciccarello,
207 S. E. 2d 157 (1974), applied the discovery doctrine
to a situation where an attorney had committed an
act of professional negligence. The Court held that the
statute of limitations began to run when the wrong-
doing was discovered or, by the exercise of reasonable
diligence, should have been discovered. There would
appear to be little distinction between such acts of
negligence, whether committed by an attorney or a
trustee.

Petitioners assert that there can be no rational
basis for granting some claimants in Tennessee the
benefits of the discovery doctrine while denying Peti-
tioners the equivalent benefit. The error is gross and
obvious, as well as arbitrary and capricious, justify-
ing intervention by this Court. Roberts v. New York,
295 U.S. 264, 79 L. Ed. 1429, 55 S. Ct. 689 (1935):
Beck v. Washington, supra. This Court has announced
that it will correct violations of equal protection rights
if the burden of showing essential unfairness can be
met by those who claim the injustice. Beck v. Wash-
ington, supra. Petitioners respectfully submit that they
have met that burden.

16

Under the Equal Protection Clause, the Tennessee
Supreme Court is not privileged to grant some citizens
the benefit of a rule of state law, and without revoking
the rule, to selectively deny the same benefit to others
in identical material circumstances. A Court may not
permit a desired result to control the applicability of a
rule of law; instead the rule must control the result.

2. Under the Due Process Clause a claim against
a trustee may not be barred by the Statute of Limita-
tions where the trustee had failed to make full dis-
closure and the beneficiary-claimants had no actual
knowledge or reason to know until immediately before
suit was filed.

The due process clause requires that the action of
the state through any of its agencies must be consistent
with fundamental principles of liberty and justice.
Buchalter v. New York, 319 U.S. 427, 87 L. Ed. 1492,
63 S. Ct. 1129 (1943). Basically, the due process clause
requires that even in a civil case every man shall have
the protection of his day in Court or at least have the
opportunity for his day in Court. Truax v. Corrigan,
supra. This Court has repeatedly held that a statute
of limitations that is unduly short under the circum-
stances, after the accrual of a cause of action, violates
this right. Wilson v. Iseminger, 185 U.S. 55, 46 L.
Ed. 804, 22 S. Ct. 573 (1902); Mills v. Scott, 99 U.S.
25, 25 L. Ed. 294 (1878).

So far as Petitioners have been able to discover,
the issue here presented, however, has not been pre-
viously considered by this Court.

The unappealed from and hence conclusive 1970
finding that there was no basis for laches as a defense,
by reason of Petitioners’ lack of knowledge or reason

17

to suspect (p. 32), in and of itself should be conclusive
that the Bank-trustee failed in its fundamental duty,
to make full disclosure in 1944 or thereafter to its bene-
ficiaries. The issue is thus a basic one of

(a) Whether trustees are to be encouraged to re-
main silent and violate their universally recognized duty
to disclose, with the hope that in due course the statute
will run against their unsuspecting beneficiaries, and
bar otherwise resulting claims; or

(b) Whether fiduciaries who have failed to make
full disclosure shall know with certainty that the statute
will not protect them unless they can show that the
beneficiaries otherwise knew or should have known.

The Court of Appeals of Tennessee held that fraud-
ulent concealment tolling the application of the statute
had not occurred, solely on the ground that the Bank
had sought and obtained Petitioners’ father’s consent to
the exchange. Based on this fact alone it concluded that
“the exchange in 1944 was in no manner hidden from
anyone and that There was no physical concealment
from anyone of the transaction itself (p. 59). The
Tennessee Supreme Court has concurred only in the
conclusion of the Court of Appeals that the statute
barred the claim, and nothing more (p. 74).

The Bank did not seek Court approval of the ex-
change. There was no contention that any disclosure
of any sort was made to Petitioners themselves at any
time. There was no proof as to what if anything the
Bank disclosed to Petitioners’ father, Norman Raoul,
prior to obtaining his brief written consent (Ex. 140).
Significantly, Chapin, who knew all, had Bank Trust
Officer Martin, who was admittedly uninformed, con-
tact Norman Raoul, a World War II Post Exchange

18

Manager, to obtain said consent (Tr. 714-715, 722-729,
737). Norman Raoul was not authorized to act for
Petitioners by any Court. His consent, whether in-
formed or uninformed, was meaningless. 76 Am.Jur.
2d Trusts 5335 and §336.

The burden was on the Bank to prove that it had
made a full disclosure. Knox County v. Fourth and
First National Bank, 181 Tenn. 569, 182 S. W. 2d 980
at 986. This disclosure obviously had to be to the
right parties. Consent obtained without it is no de-
fense. 76 Am. Jur. 2d Trusts“ 5336. The Raoul memo
(p. 44) demonstrates that the Bank fully understood
through Chapin the consequences of the exchange,
namely that a giveaway was involved, but there is
not one shred of evidence that this knowledge was com-
municated to the beneficiaries or anyone authorized to
act on their behalf (p. 45). This was a plain violation
of the duty to disclose, which the father’s consent can-
not possibly excuse.

It is accordingly submitted that a shocking miscar-
riage of justice will have occurred, contrary to basic
and universal principles of American jurisprudence, if
the Statute of Limitations is allowed to shield the Bank,
despite breach of its duty to fully disclose. This breach
of duty resulted in lack of knowledge on the part of Pe-
titioners until after the statute had run. A clear viola-
tion of basic rights of Petitioners under the Due Process
Clause is accordingly involved, in the Tennessee Su-
preme Court’s approving this departure from the ac-
cepted and usual course of judicial proceedings, by sus-
taining the statute of limitations defense.

19

CONCLUSION

For the foregoing reasons, it is respectfully sub-
mitted that the Tennessee Supreme Court has decided
a federal question of substance not heretofore deter-
mined by this Court, and in a way not in accord with
the applicable decisions of this Court. A writ of cer-
tiorari should accordingly issue to review the action of
the Supreme Court of the State of Tennessee, embodied
in its decrees upholding the statute of limitations as a
bar to Petitioners’ claims.

Respectfully submitted,

LEONARD R. TANNER, JR.
Ricuarp P. JAHN
TANNER & JAHN
1223 Volunteer Building
Chattanooga, Tennessee 37402
Attorneys for Petitioners
November 8, 1975

21
APPENDIX

| No. 38441
IN THE CHANCERY COURT, PART 1, OF
| HAMILTON COUNTY, TENNESSEE

NORMA FRANCES RAOUL CLARK, et al.,
Plaintiffs,
, vs.
AMERICAN NATIONAL BANK and TRUST
COMPANY OF CHATTANOOGA,
Defendant.

CHANCELLOR’S MEMORANDUM OPINION
(Filed March 25, 1970)

This suit was brought in 1964 by plaintiffs, Norma
Frances Raoul Clark and Anne Raoul, as the benefi-
ciaries of express trusts against American National
Bank and Trust Company of Chattanooga (‘Bank’’),
trustee of the trusts, and charges the Bank with negli-
gent breaches of trust (a) in exchanging, in 1944, 323
shares of no-par common stock of Cavalier Corporation,
Chattanooga, Tennessee (Cavalier), for an equal num-
ber of shares of that company’s $100.00 par value
“common” stock and (b) in failing to file suit against
0 Cavalier, its directors and others in 1963 to prevent
Cavalier from calling for redemption the said 323 shares
of par stock at $100.00 per share and accrued divi-
= dends. The complaint contains a third charge of breach
of trust—that the Bank was negligent in voting for a
1954 amendment to Cavalier’s charter, which, so the
plaintiffs allege, took away liquidation rights from the
par stockholders but at the trial it was stipulated that
the 1954 amendment changed no rights of the holders
of par stock (Tr. 864-05), hence this third charge must
now be considered as having been abandoned. What-

77

22

ever the liquidation rights of the par stock before the
1954 amendment, they were not changed by that
amendment.

Cavalier had a right to redeem the par stock at
$100.00 per share under provisions of its charter, the
provisions being also printed on the face of the par
value stock cer“ ificates.

(Here follows discussion of issue of whether or not
Cavalier's par common stock shared beyond its prefer-’
ence on liquidation, no longer material.)

The Court concludes that the $100 par value com-
mon stock was not entitled to share with the no-par
common stock in any surplus upon liquidation of the
Cavalier Corp. beyond the $100.00 par value plus ac-
cumulated dividends.

Accordingly,’ the Court holds that plaintiffs were
in no wise injured by having their $100.00 par stock
called for redemption prior to the sellout of Cavalier
to Seeburg. Therefore, the defendant Bank, as Trus-

tee for plaintiffs, did not fail in any duty toward

plaintiffs when it accepted the redemption of plaintiffs’
stock without protest in 1963.

The other prong of this suit is the claim of the
plaintiffs that the defendant Trustee committed a breach
of trust in 1944 when it exchanged the no-par common
stock which it then held in the assets of plaintiffs’
trust accounts for the new issue $100.00 par value
common stock of the Cavalier Corp. The insistence is
that the Bank was disqualified to act as Trustee in this
instance because two of its directors, Mr. E. Y. Chapin,
Sr., who also was the senior trust officer of the Bank,
and Mr. Gaston Raoul, who was chairman of the board
of Cavalier Corp., were also directors of the Cavalier

23

Corp. Plaintiffs contend that this situation of having
directors of the Bank who were also directors of the
Cavalier Corp. placed the Bank, as Trustee, in the
position of having a conflict of interest so that in
exchanging the stock in question the Bank was engag-
ing in “‘self-dealing’’ which would authorize the bene-
ficiaries of the trust to disaffirm the exchange. In the
alternative, the plaintiffs insist that the Bank failed
to exercise reasonable prudence and due caution in ex-
changing the no-par value stock for the new $100.00 par
value common stock since, in the opinion of the plain-
tiffs, the $100.00 par value stock was not as suitable
an asset of the trust as was the no-par value common
stock which was exchanged.

The defendant Bank, Trustee, asserts several de-
fenses to these claims on the merits and also pleads the
defense of laches. The plaintiffs’ reply to the defen-
dant’s claim of laches is that the plaintiffs were not
aware of their cause of action until Cavalier sold its as-
sets to Seeburg in 1963 and that they should not be
repelled for failing to bring an action when they had no
knowledge of its existence. But is this insistence of
plaintiffs’ valid?

“A cestui que trust cannot sit idly by and close
his eyes to what is going on around him. One who
would repel the imputation of laches on the score
of ignorance of his rights must be without fault in
remaining so long in ignorance of those rights. In-
dolent ignorance and indifference will no more avail
than will voluntary ignorance of one’s rights. As
a Pennsylvania court has said: ‘Laches is not ex-
cused by simply saying: ‘I did not know.’ If by
diligence a fact can be ascertained, the want of
knowledge so caused is no excuse for a stale claim.

24

The test is not what the plaintiff knows but what
he might have known by the use of the means of
information within his reach, which vigilance the

law requires of ;
„.. . The courts are suspicious of claims founded
on remote transactions where in the interval the
property has greatly increased in value, and the
plaintiff made no claim until this change has oc-
curred.’’ Bogert, Trusts & Trustees, Section 949,
Laches.

Laches in suing to set aside transfers of property
to corporate officers often depends upon whether
the stockholder who sues is chargeable with knowl-
edge of the transfer. As to this matter, it is gen-
erally held in this country that means of knowledge
plainly within the reach of stockholders by the ex-
ercise of the slightest diligence is, in legal effect,
the equivalent of knowledge. 3 Fletcher, Cyclo-
pedia of Corporations, Section 987.

“The view followed by most of the authorities on
the point is that, if the other elements of laches are
present in the case, the complainant may be charged
with laches if, but only if, he was either actually
or presumptively aware of his rights. Under such
view, knowledge of the conduct giving rise to the
complainant’s cause of action may be imputed to the
complainant by reason of an opportunity to acquire
knowledge or because of circumstances of which he
was cognizant, such as obvious and unconcealed ac-
tivities affecting the property in dispute. He will
be charged with knowledge where the evidence leads
to the conclusion that he could have informed him-

ad

— . — ee re rn ae eer

an

—— —

25

self of the facts by the degree of ‘diligence’ which
the law exacts—described as ‘reasonable’ diligence—
or where circumstances of which he was cognizant
were such as to put a man of ‘ordinary’ prudence
on inquiry. Knowledge may be imputed to the com-
plainant by reason of the fact that the circumstances
of the transaction were publicly and generally known
at the place of his residence. 27 Am.Jur.2d,
Equity, Section 167.

The Court concludes in this case that the plaintiffs
knew or sbould, in exercise of reasonable diligence, have
known of all the facts constituting their alleged cause
of action for breach of trust by the defendant Bank in
exchanging their stock, at least since 1950 when the
younger one became 21 years of age. The exchange of
stock was made openly and the circumstance that Mr.
Chapin and Mr. Raoul were common directors of the
Bank and Cavalier Corp. was known or could easily
have been ascertained by the plaintiffs; and, in fact,
everything which the plaintiffs have asserted in this
action could have been as easily ascertained 14 years
ago as now. There is no evidence that the trustee bank
refused to give any information to the plaintiffs; indeed,
the plaintiffs sought none until 1963. The Court is of
the opinion that the tremendous increase in the value of
the no-par stock from the time of the exchange to the
time suit was brought is a factor which calis for the
application of laches and shows great prejudice to the
defendant as does the fact that the principal witnesses
and parties involved, such as Mr. Chapin and Mr.
Gaston Raoul, have long since died and are unavailable
as witnesses 27 Am.Jur.2d, Equity, Section 171; Bernard
v Walker, 186 Tenn. 617, 212 S.W.2d 600; Gibson’s
Suits in Chancery, 5th Edition, Section 81; 54 Am.Jur.,
Trusts, Section 579; Restatement of Law of Trusts, Sec-

EE

26

tion 219; Cullen v Coal Creek Mining & Mfg. Co.,
(Tenn.Chanc.App.) 42 S.W. 693; Uffelman v Boillin, 19
Tenn.App. 1, 82 S.W.2d 545; Kissler & Co. v Ensley
Co., 141 Fed. 130.

The Court concludes that the defense of laches
should be sustained and accordingly the Court does not
reach the question whether or not the Bank as Trustee
actually committed a breach of trust.

Accordingly, the complaint will be dismissed.
March 25, 1970.

/s/ Ray L. Brock, Jr.
Chancellor— Part 1

IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION SITTING
AT KNOXVILLE

Hamilton Equity #193
NORMA FRANCES RAOUL CLARK, et al.,

Appellants,

vs.
THE AMERICAN NATIONAL BANK
& TRUST COMPANY,
Appellee.

OPINION
(Filed December 31, 1970)

Beneficiaries of express trusts brought suit in the
Chancery Court of Hamilton County, Tennessee, against
American National Bank and Trust Co. of Chattanooga,
Trustee of the trusts, charging negligence in the ex-
change of certain stocks, in failing to prevent the re-

— ee — — — ewe ene

27

demption of the exchanged stock by appropriate Court
action, and breach of trust. The Decree was in favor
of the trustee and the beneficiaries have appealed.

The stock in question is 423 shares of Cavalier Cor-
poration, designated as 8100 par-value common stock

The trust in question was composed of these 423
shares at the time call was made by the corporation.
The Trustee acquired the Cavalier stock in the manner
following:

(a) In 1932, Gaston C. Raoul, president of Cavalier
and uncle of the complainants, gave in trust 124 shares
(Cavalier then being known as Tennessee Furniture Com-
pany) of no-par value stock, for the benefit of complain-
ants and their father, Norman Raoul.

Subsequently, Gaston C. Raoul purchased from his
brother, Norman Raoul, the interest of his brother,
Norman Raoul, in their father’s (W. G. Raoul) estate,
and donated the entire interest including 160 shares of
Cavalier no-par value to this trust.

(b) Complainants’ grandmother, Mary M. Raoul,
by testamentary trust for the benefit of complainants
and their parents, gave 39 shares of Cavalier no-par
value.

(c) In 1950, prior to Norman Raoul’s death, Gaston
C. Raoul felt that the trust should continue on for com-
plainants’ lifetime, rather than terminate on Norman’s
death or when complainant, Norma Raoul (Clark) be-
came 25 years of age, as the trust then provided. There-
fore, Gaston C. Raoul offered to deposit 50 shares of
$100 par-value common stock in the trust if Ann Raoul,
who was over 21, would so agree, and an additional 50
shares of $100 par-value common stock when Norma
Raoul (Clark) became 21 years of age and conditioned

28

upon her ratification in writing. Both Ann and Norma

agreed, with Norma confirming the new trust arrange-
ments subsequent to becoming of age.

Of the total 423 shares in the trust, 384 shares were
gifts from Gaston C. Raoul, and 39 were received under
the Will of Mary M. Raoul.

The general purpose of the trusts created was to
provide for the maintenance and education of Norma
and Ann Raoul and the maintenance of their father,
Norman Raoul, if needed. However, the dominant pur-
pose was to provide for Norma and Ann Raoul.

In 1944, the Trustee exchanged the 323 shares of
no-par value common stock of Cavalier it then held for
a like number of redeemable 8100 par- value common
stock of Cavalier. In 1963 the corporation called in
and redeemed at par all 8100 par- value common stock
then outstanding. The Trustee in 1963 held 423 such
shares, having acquired by donation from Gaston C.
Raoul subsequent to 1944 an additional 100 shares of
8100 par-value common stock when life of the trust
was extended for the lifetime of Norma and Ann Raoul.
The Trustee received, at the time of the call, $100.00
per share it held plus any accrued interest or dividend.
Approximately four months after the call of the shares,
Cavalier was sold to Seeburg Corporation and Cavalier
was liquidated with substantially in excess of $100.00
per share paid to those holding no-par common stock.

A thrust of this suit is directed towards the
voluntary exchange by the Trustee in 1944 of the 323
shares of no-par common it then held, for a like number
of redeemable 8100 par- value common stock“. The
complainants contend that the Trustee was negligent in
permitting the exchange, exercised bad faith, and

on — —

-

breached its trust. Because of this exchange, com-
plainants were denied the right to participate in the
surplus on liquidation of the corporation. Seemingly
almost incongruous to us, complainants also contend
that the 8100 par- value common stock had the right
to participate with other common shareholders on liqui-
dation. We say incongruous because if the 8100 par-
value shareholders had participation rights on liquida-
tion, the Trustee certainly committed no wrong in ex-
changing common stock with no preferred income and
no par value for stock with preferred income, par value,
and the right to participate on liquidation.

The complainants also have maintained that the
Trustee breached its trust in 1963 when it permitted
the redemption of the 8100 par- value common stock
without protest and without seeking relief from the
Courts to prevent such redemption; or, upon learning of
liquidation, failure to take appropriate steps to prevent
the distribution of funds to no-par value shareholders.

Of course, this position depends upon whether or
not the par value shareholders are entitled to share
with no-par value shareholders on liquidation.

The learned Chancellor concluded that the ‘$100
par-value common stock was not entitled to share with
the no-par common stock in any surplus upon liquida-
tion of the Cavalier Corporation beyond its $100 par
value plus accumulated dividends. Therefore, the
Chancellor held that since the par value stock was
redeemed at its maximum possible value and could not
share in any surplus, it became immaterial as to
whether or not the Trustee was negligent in 1963 in
permitting the stock it held to be redeemed.

As to the question of the propriety of the 1944
exchange of stock by the Trustee, the learned Chancellor

30

concluded that the complainants were guilty of laches in
waiting 14 years before bringing suit from the date the
youngest complainant beneficiary reached her majority,
and the complaint regarding the 1944 transaction was
barred. Therefore, the Chancellor never reached the
issue of whether or not the Bank, as Trustee, actually
committed a breach of trust in regard to the 1944
transaction. There is no finding of fact in that regard
in this record.

The Errors assigned are the foregoing conclusions
of the Chancellor.

We are of the opinion that the Chancellor was cor-
rect in his conclusion that the par value shareholders
were not entitled to share with no-par value share-
holders in the surplus upon liquidation beyond $100
par value plus accumulated dividends.

(Here follows discussion of issue of whether or not
Cavalier’s par common stock shared beyond its prefer-
ence on liquidation, no longer material.)

Therefore, the Chancellor was correct in holding

that par-value holders would not be entitled to share
with no-par holders in surplus after liquidation, there-
by pretermitting all questions of the Trustee’s negli-
gence or breach of trust subsequent to the 1944 ex-
change. The first Assignment of Error is therefore
overruled.

The question now remaining is whether or not the
Chancellor was correct in applying the doctrine of laches
to the 1944 transaction by the Trustee involving the
exchange of no-par for par-value stock. The record
indicates that complainant, Norma Raoul Clark, was
a minor at the time of the 1944 transaction, not attain-
ing her majority until August 15, 1950. Complainant,

—

— we ee

31

Ann Raoul, was born June 2, 1921, and therefore was
over 21 years of age in 1944. However, the income
from the trust existent in 1944 and periodic statements
pertinent thereto were received by Norman Raoul, the
father of the complainants. Both complainants testi-
fied they were unaware of the trust terms until 1950
when Gaston C. Raoul made the donation heretofore
mentioned of an additional 100 shares. Complainants
did not directly receive the income from the trust ex-
istent in 1944 until after the death of their father in
1956, at which time statements and income were re-
ceived by them. Also, the record reveals that com-
plainant, Ann Raoul, was committed to Eastern State
Hospital in 1960, but subsequently restored. There-
fore, at the time of the alleged wrongful transaction,
one of the beneficiaries was a minor and neither of the
beneficiaries knew of the existence or nature of the
trust, as all matters pertaining thereto were handled
by their father and all income and statements from
the Trustee were received by him. The Chancellor
was of the opinion that complainants were barred by
laches as everything which the plaintiffs have asserted
in this action could have been as easily ascertained
14 years ago [1956] as now. Evidently, the learned
Chancellor was of the opinion that, upon the death of
complainants’ father in 1956, and by this fact the crea-
tion of a more direct relationship between beneficiaries
and Trustee, the beneficiaries knew or should have
known, or could have learned by the exercise of rea-
sonable diligence of the circumstances surrounding the
1944 transaction. We must respectfully disagree with
the learned Chancellor on the question of the applicabil-
ity of the doctrine of laches. The beneficiaries, from
1956 to the redemption of the stock issued, regularly
received dividends and statements. On the statements

32

opposite the number of shares was the notation 8100
par common”. There was no change in the notation
from 1956 to redemption. The beneficiaries would have
no reason to know or suspect any change had been
made in the nature of the stock in 1944. Why should
or how could the beneficiaries inquire of the Trustee
concerning the 1944 transaction when they knew not of
its existence? The beneficiaries were not title holders
of the shares in question. Title was held by the
Trustee. We do not think it reasonable to require
beneficiaries of stock held by a Trustee, when bene
ficiaries become aware of the trust, to demand of de
corporation access to corporate minutes, etc., or be
barred by laches, when the beneficiaries would have no
idea when or if an alleged breach took place. Nor do
we think it incumbent upon the beneficiaries to demand
of the Trustee explanation of an event of which the
beneficiaries had no knowledge. We are unable to find
any circumstance subsequent to 1956 which would put
a person of ordinary prudence on inquiry concerning
the complained of stock exchange in 1944. In order
for the doctrine of laches to apply, there must not
only be a long delay, but the sleeping on of one’s
rights. To sleep on’’ one’s rights entails an acquies-
. cence in the fact complained of. To acquiesce in a
fact, there must be actual or chargeable knowledge
of a fact. The real test as to chargeable knowledge
is what he might have known, by the use of the
means of information within his reach, with the vigi-
lance the law requires of him”. Bogert, Trusts &
Trustees, 2nd Edition, page 455. We hold that there
was no such knowledge present in this case and ap-
pellants’ second Assignment of Error is sustained.

We hold that, whether or not there was negligence
or breach of trust on the part of the trustee in 1944

33

is a question of fact that should have been determined
by the Chancellor. This remaining issue of fact is
determinative of the case and the matter is before us
without a finding of fact by the Chancellor on that
determinative factual issue. Ordinarily, we would pro-
ceed to make such a decree as we think should have
been made under the proof whenever there is an incom-
plete finding of fact by the Chancellor. However, the
finding of fact by the Chancellor which we lack in this
case, addresses itself to the very heart of the matter.
When such is the case and justice requires, we have
the authority to remand the cause for further findings
of fact. T.C.A. 27-329; Carver v. Crocker, 43 Tenn.
App. 636, 311 S.W. 2d 316; Hicks v. Hicks, 168 Tenn.
539, 79 S.W. 2d 802; Polston v. Scandlyn, 21 Tenn.
App. 252, 108 S.W. 2d 1105.

While it is true that we have before us a full
and complete transcript containing all the testimony
and proof regarding the issue pretermitted by the Chan-
cellor, this remaining issue involves an alleged breach
of trust which necessarily also involves the credit-
ability of witnesses. We are of the opinion that justice
could be better served if a proper finding of fact and
decision by the Chancellor, who has had the opportunity
to observe the manner and demeanor of the witnesses,
was afforded us. Therefore, the cause is remanded to
the Chancery Court for a decision and further find-
ing of fact on the remaining issue, which we hold is
not barred by laches. The effect of this remand shall
not dispose of this cause or displace it from the docket
of this Court, but it shall be retained, suspended, until
the order of remand be complied with. A finding of
fact and decision shall be made by the Chancellor, certi-
fied and transmitted to this Court. See as authority
for this procedure: Mynatt v. Hubbs, 6 Heisk. 320,

34

322; Nolan v. Black, 3 Shannon Cas. 578; Mrs. Nannie
Lawrence Williams v. First National Bank of Dickson,
Middle Section, Court of Appeals, June 18, 1932, un-
reported, yet cited with approval by the Supreme Court
in Hicks v. Hicks, supra.

An order will be entered remanding this cause to
the Chancery Court of Hamilton County so that the
Chancellor may prepare and file his written finding of
fact and decision on the alleged breach of trust by the
Trustee in the 1944 exchange of Cavalier stock, and the
same may be certifed by the Clerk and Master to this
Court as a part of the record in this cause. After the
receipt by this Court of the Chancellor’s decision and
finding of fact, the parties shall be allowed 20 days
from such receipt to file additional Briefs. A copy of
this Opinion will accompany the Procedendo on the
remand.

Nearn, J.

Carney, P. J.
Matherne, J.

35

IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION SITTING
AT KNOXVILLE

HAMILTON EQUITY #193

NORMA FRANCES RAOUL CLARK, et al,
Appeilants,
vs.
THE AMERICAN NATIONAL BANK &
TRUST COMPANY,

Appellee.
(Filed March 16, 1971)

ON PETITION TO REHEAR

A very courteous and comprehensive Petition for
Reheering and For Finding of Other or Additional Facts
has been filed with the Court. However, the Petition
must be denied as it raises no new matter for our con-
sideration.

The Petition also seeks to have us apply the Statute
of Limitations to the complainants’ cause of action, while
admitting that, because of the Chancellor's view of the
matter, that issue has not been previously raised in this
Court. In this case, the applicability or inapplicability
of any Statute of Limitations cannot be determined until
a decision is reached regarding the remaining issue and
conclusions yet to be made by the Chancellor.

The Petition is respectfully denied.
Nearn, J.

Carney, P. J.
Matherne, J.

| |

36

No. 38441

IN THE CHANCERY COURT, PART 1, OF
HAMILTON COUNTY, TENNESSEE

NORMA FRANCES RAOUL CLARK, et al,
Plaintiffs,
v

THE AMERICAN NATIONAL BANK
& TRUST COMPANY,
Defendant.

CHANCELLOR’S MEMORANDUM OPINION
(Filed March 15, 1973)

This is an action by the beneficiaries of express
trusts against the Trustee Bank to recover for alleged
breach of trust in exchanging, in 1944, trust assets con-
sisting of 323 shares of common stock of the Cavalier
Corporation of Chattanooga, Tennessee, for an equal
number of a new issue of stock in the same company
called the 8100.00 par value common” stock. The
plaintiffs have alleged that the Trustee violated its duty
of undivided loyalty in making said exchange of stock
and failed to exercise reasonable care and skill of a paid
trustee ij: making said exchange. The remedy sought
by the plaintiffs is to recover from the Bank the value,
at the time suit was brought in 1964, of the common
stock they would have owned but for said exchange.

Following the original trial, this Court did not deter-
mine whether or not the Trustee had committed a breach
of trust but decided the case in favor of the Trustee
Bank on the ground of laches. However, on appeal,
the Court of Appeals reversed the holding of this Court
that the defense of laches had been made out and re-
manded the cause to this Court with the direction that

37

this Court ascertain whether or not the defendant Bank
in fact had violated its trust as alleged. The defendant
Bank again has asserted the defense of laches and like-
wise has pleaded the six-year statute of limitations in
bar of the plaintiffs’ action. But the Court is duty
bound to follow the decision of the Court of Appeals on
the question of laches and is further convinced that the
Court of Appeals would deny application of the statute
of limitations for the same reasons it denied application
of the rule of laches. See: Bogert, Law of Trusts, Sec.
170 (Hornbook Series). Accordingly, these two defenses
of the defendant Trustee must be denied. It is perhaps
the duty of the Court to state, however, that, were it
free to do so, it would sustain the plea of the statute
of limitations as insisted by the defendant Bank.

The Court comes to the issue whether or not the
Trustee Bank committed a breach of trust. In deter-
mining this question, the actions of the Trustee are to
be judged by the facts as they were known to it in 1944
at the time said stock was exchanged and not by any
hindsight consisting of the events occurring thereafter.

Two trusts are actually involved. It was the pur-
pose of each to support and educate the plaintiffs, one
of whom was 15 years of age and the other 23 years of
age in 1944. One consisted of 284 shares of common
stock in the Cavalier Corporation, and in it the Trustee
was granted broad powers to sell or exchange any se-
curity . . . in any manner which may seem wise. The
other trust consisted of 39 shares of the common stock
of the Cavalier Corporation, and in this trust instrument
the Trustee was not granted any power of sale or re-
investment. One question is whether the law of Georgia
or that of Tennessee governs the administration of the
trust consisting of the 39 shares, and on this issue it

38

is the finding of the Court that the law of Tennessee.

controls and, therefore, that the so-called “prudent man
rule is the proper one to apply to the actions of the
Trustee in exchanging these 39 shares for the $100.00
par value stock. It should be noted here that these two
particular trusts were later merged into a new trust and
100 additional shares of $100.00 par value stock were
added to the corpus in 1949. This additional 100 shares
of $100.00 par value stock is in no wise involved in this
litigation, but the fact that the two original trusts ter-
minated and were supplanted by the new trust is sig-
nificant because the Bank insists that the statute of
limitations began to run when the two original trusts
terminated on October 15, 1956, the date of the death
of the father of the plaintiffs.

The date of the exchange of the common stock for
the $100.00 par value stock was October 31, 1944 and
at that time two of the directors of the Trustee Bank,
Mr. E. Y. Chapin and Mr. Gaston C. Raoul, were at
the same time directors of the Cavalier Corporation, had
been serving in such dual capacities for several years,
and each owned stock in the Cavalier Corporation. Mr.
Chapin had been Chairman of Cavalier’s board of di-
rectors in 1941. Cavalier’s account was one of the more
important accounts of the Bank at that time and the
Bank also acted as Cavalier’s transfer agent.

The exchange in question grew out of a plan of
recapitalization of Cavalier conceived over a period of
many months by Mr. Gaston C. Raoul who had devoted
most of his life to the development of Cavalier. One
of his primary motives appears to have been to transmit
his large holdings in Cavalier to his son and to Mr.
Lane, his business associate of many years, and to do
so in a manner calculated to hold Federal death taxes

—

39

or gift taxes to the very minimum. The Cavalier Cor -
poration constituted Mr. Raoul's consummate interest.

Before the exchange, Cavalier had outstanding 8,872
shares of common stock and of this total Mr. Gaston
Raoul and his family of brothers, sisters, neices and
nephews owned 6,973 shares. After considering various
plans, he finally decided upon the one here in litigation
and did everything within his power to see that it was
carried out. He wrote many letters advising and even
urging his relatives to exchange their common stock for
the new $100.00 par value stock.

The new $100.00 par stock was, in effect, a pre-
ferred stock. It was preferred in dividends up to $2.50
per year, if earned and declared, but it was limited to
a total of $7.50 per year in dividends. It was subject
to redemption on 90 days’ notice at $100.00 per share
plus accrued dividends and, in the event of liquidation,
it was preferred over the common to the extent of
$100.00 per share, but was not entitled to share in liqui-
dation beyond that amount. It had no right to vote
unless the $7.50 dividend was not paid or the company
failed to maintain current assets of 150% or more of
the amount of par stock outstanding. Of course, the
common stock was the equity stock ef the company
with unlimited right to dividends and to assets upon
liquidation after the preference just mentioned, and it
had the sole voting control, with the two exceptions
above mentioned.

Holders of the common stock were given the option
of exchanging their stock for the new $100.00 par stock
between October 31, 1944 and December 31, 1944. Mr.
Gaston C. Raoul had iittle difficulty in leading nearly
all the other holders of common stock likewise to ex-
change for the new $100.00 par stock; after all, he had

40

built the company and, presumably, knew best. 7,389
shares of the common stock were exchanged for the
$100.00 par value stock, leaving the equity ownership
of the company in the 1,383 shares of common stock
remaining unexchanged. The Trustee Bank exchanged
the stock it held in the plaintiffs’ trusts on the very
first day of the exchange period.

The Court will now consider the book value, earn-
ing capacity, dividends, liquidation and voting rights
of these two stocks. Immediately prior to the exchange,
8,772 shares of common stock were outstanding and the
book value of each share was approximately $298.05.
By simple arithmetic, it is apparent that immediately
upon exchanging a share of said common stock for a
share of the new $100.00 par stock the person exchang-
ing has given away $198.05 of the net worth of the com-
pany to those who continued to hold the common stock.
This makes a total of $1,463,391.45 of the net worth of
the company which by reason of the exchange was trans-
ferred from those stockholders who exchanged to the

holders of the common stock who did not exchange.

Thus, if the defendant Trustee had not exchanged the
common stock in these trusts for the $100.00 par stock
it would have gained $1,050.13 in book value or net
worth per share of the common stock in the plaintiffs’
trusts, or a total benefit to the plaintiffs of $341,775.99.
This fact, coupled with the fact that the common stock
was not limited in the amount of dividends which could
be paid to its holders and the fact that there was no
limitation of the amount the common stock would share
upon liquidation of the company, after payment of the
$100,000 par, convinces the Court that the Trustee vio-
lated the prudent man rule in making the exchange of
common stock for the $100.00 par value stock. Section
176 of the Restatement of Trusts states, The trustee

41

is under a duty to the beneficiary to use reasonable
care and skill to preserve the trust property. (Emphasis
added.) The right of unlimited sharing in liquidation
was an important factor in the mind of Mr. Raoul in
planning the recapitalization as shown by a memorandum
written by him dated June 30, 1944 in which he said:
‘Theoretically this common stock (no par) is never worth
to its holder more than cost plus appreciation, but sup-
pose some day a good opportunity arises and the com-
pany is sold out lock, stock and barrel. There might
be very few common shares outstanding at that time,
but surely they would receive everything after satisfac-
tion of the preferred and A ($100.00 par) shares. They
might thereby make a killing (less taxes) but the A
($100.00 par) should not care as it would first have to
be paid off in full. The old gentleman could not have
known how right he was in view of the sale in 1963 of
Cavalier to Seeburg, lock, stock and barrel, for
$9,413,188.00, plus 120,000 shares of Seeburg no par
common stock of the value of 23 3/8 per share, or a
total consideration of $12,098,188.00.

Aside from the net worth, or book value, of the
respective stocks, it should be noted that beginning in
1940 Cavalier earned $5.03 per share of common stock,
in 1941, $22.94 per share, in 1942, $9.23 per share, in
1943, $9.63 per share and in 1944, $12.67 per share.
Mr. Gaston Raoul reported to the Board of Directors
on October 21, 1943, J am glad to report that earnings
for the current year are entirely satisfactory. . .”

Further, although dividends had not been paid for
several years prior to 1944, dividends were paid on the
common stock in 1944 prior to the proposed exchange
as follows: April 19, 1944—$1.00 per share; July 18,
1944—$.50 per share; October 18, 1944—$.50 per share.

42

The defendant Trustee Bank, through its directors Mr.
Gaston Raoul and Mr. E. Y. Chapin, knew that for
the year 1944 profits after taxes would amount to be-
tween $175,000.00 and $200,000.00. Since the earning
power of stock is one of the prime characteristics there-
of, it should be noted that for the year 1944 the earn-
ings per share of common stock before the recapitaliza-
tion was $14.67, but after the recapitalization and as-
suming that the Trustee had not exchanged the 323
shares in the plaintiffs’ trusts and that maximum divi-
dends of $7.50 a share had been paid on the $100.00
par value stock, the earnings per common share would
have jumped from said $14.67 per share to $52.97 per
share, or an increase of $38.30 per share.

Weighing all of these factors, the Hon. Forrest
Hodge O’Neal, Dean of the Duke University Law School
and a specialist in closely held corporations, testified
that no reasonably prudent businessman would have
exchanged the Cavalier common stock for the $100.00
par stock at the end of 1944, and that the new $100.00

par value shares were of substantially less value than

the equity stock which the defendant Trustee exchanged
for them. Likewise, Mr. William G. Stiegelmier, a
specialist in the valuation of stocks in closely held cor-
porations, testified that although the purpose of the
trusts was to educate the plaintiffs, it was most im-
prudent for the Trustee in 1944 to exchange the 323
shares of common stock held in the trust for the new
$100.00 par stock. Mr. William E. Heer, a professional
investment counsel with 35 years’ experience, testified
that as of December 31, 1944, immediately after the
exchange, the common had a value of $745.00 per share
while the new 3100.00 par had a value of only $80.00
per share. In conclusion on this phase of the case, the
Court is of the opinion that the Trustee breached its

— — . —

43

duty as stated in Section 174 of the Restatement of
Trusts, to wit:

“The trustee is under a duty to the beneficiary
in administering the trust to exercise such care and
skill as a man of ordinary prudence would exercise
in dealing with his own property; and if the trustee
has greater skill than that of a man of ordinary
prudence, he is under a duty to exercise such skill
as he has. See also: Knox County v. Fourth &
First Nat. Bank, 181 Tenn. 569, 182 S.W.2d
980, 984.

The Court now deals with the contention of the
plaintiffs that the Trustee violated its duty of loyalty.
See: Bogert, Law of Trusts, Sec. 95, (Hornbook Series);
54 Am Jur. 247, Trusts, Sec. 312. That duty is stated
in Section 170 of the Restatement of Trusts as follows:

i) The trustee is under a duty to the bene-
ficiary to administer the trust solely in the interest
of the beneficiary. (Emphasis added.)

(2) The trustee in dealing with the benefi-
ciary on the trustee’s own account is under a duty
to the beneficiary to deal fairly with him and to
communicate to him all material facts in connection
with the transaction which the trustee knows or
should know.

Further, under Comment p' to said Section 170, is the
following, to wit:

“Action in the interest of a third person. The
trustee is under a duty to the beneficiary in ad-
ministering the trust not to be guided by the in-
terest of any third person. Thus, it is improper
for the trustee to sell trust property to a third
person for the purpose of benefiting the third per-

44

son rather than the trust estate.” (Emphasis
Added.) See also: Cowan v. Hamilton Nat.
Bank, 177 Tenn. 94, 146 SW2d 359, 367.

It is obvious that in this case Mr. Gaston Raoul,
while acting as a director of the Trustee Bank and thus
onerated with the duties of undivided loyalty owned by
a Trustee to his beneficiaries (Plaintiffs) was at the
same time acting in his own personal interest in carry-
ing out his personally devised scheme of recapitaliza-
tion, the ultimate aim of which was to place equity
ownership of the Cavalier Corporation in his son and
close associate, Mr. Lane, while paying little or no
Federal taxes.

Eleven years later on August 2, 1954, Mr. Raoul,
in a personal memorandum, stated:

“Incidentally, Mr. Chapin disapproved of the
idea in toto as being a giveaway of the then prin-
cipal owners to the no par stockholders who might

elect not to exchange. I disagreed with him, and

after 11 years still do. He went along with the .

plan, however, like the loyal friend he always was.
W. C. R.“ (Emphasis added.)

This memorandum of Mr. Raoul was with respect to
the 1944 stock exchange. Said memorandum is very
revealing in two respects. First, it tells us that “Mr.
Chapin disapproved of the idea in toto as being a give-
away”, and, secondly, that Mr. Chapin, who handled
these trusts for defendant Bank, failed to exercise in
behalf of the trust beneficiaries his said judgment of
disapproval but went along with the plan however,
like the loyal friend he always was. These actions
by Mr. Raoul and Mr. Chapin appear to be precisely
what Section 170 of the Restatement of Trusts states
is a violation by the Trustee of its duty of loyalty.

45

It appears that Mr. Raoul viewed the plan almost
solely from a standpoint of achieving his own personal
estate objectives rather than from the standpoint of
Trustee for the plaintiffs. It is understandable how
Mr. Raoul could disagree with Mr. Chapin as indicated
by said memorandum because to Mr. Raoul the plan
was accomplishing his estate plan objectives. He did
not wish his estate to enlarge as the company grew.
From the standpoint of death taxes, the plan had the
effect of shifting high value assets (no par common
stock, book value of $298.05) out of his estate so that
he might hold low value assets ($100.00 par common
stock) and thereby defeat death taxes. If he had made
an inter vivos gift he would have incurred Federal gift
taxes and the objectives of his bounty would not have
received as much as they would have received under
his plan. But Mr. Chapin must have viewed the whole
scheme from a different aspect; his only personal in-
terest was friendship for Mr. Raoul. The new stock
was subject to redemption for $100.00 per share, repre-
senting a “give away of $198.05, of book value and
the earnings and dividends that went with it. Mr.
Gaston Raoul did not regard this as a give away for
him because he was giving to his son and business
associate, Mr. Lane, and his family was retaining what
he deemed sufficient voting control to protect their re-
maining investment. Finally, the Trust assets were
always vulnerable to redemption for the sum of
$32,300.00.

Nowhere does the record indicate that the Trustee
Bank ever disclosed to anyone acting on behalf of the
plaintiffs the effects that the exchange of stock here-
inabove outlined would have on these trusts. See:
Knox County v. Fourth & First Nat. Bank, supra,
at P. 986. It seems of great importance to the Court

46

that the Trustee Bank was chargeable with notice not
only of what Mr. Chapin knew, but also of what Mr.
Gaston Raoul knew about the recapitalization plan,
the prospects for Cavalier and the advantages and dis-
advantages of the two stock issues, and he knew just
about all there was to know.

Section 205 of the Restatement of Trusts provides:

“If the trustee commits a breach of trust, he
is chargeable with

(a) any loss or depreciation in value of the
trust estate resulting from the breach of
trust; or

(b) any profit made by him through the breach
of trust; or

(c) any profit which would have accrued to the
trust estate if there had been no breach of
trust.

Section 206 of the Restatement of Trusts provides:

The rule stated in Sec. 205 is applicable where
the trustee in breach of trust sells trust property
to himself individually, or sells his individual prop-
erty to himself as trustee, or otherwise violates his
duty of loyalty. (Emphasis added.) See also:
Bogert, Law of Trusts, Sec. 157, (Hornbook Series).

It is the opinion of the Court that the rule stated
in Section 205 (c) and in Section 206 of the Restatement
of Trusts is the proper rule to be applied in this case.
According to the computations in the plaintiffs’ brief,
the application of said rule of damages, after allowing
credit for the $32,300.00 already paid plaintiffs, results
in a net recovery to the plaintiffs of the sum of $2,540,256.11,
plus any surplus in dividends paid on the common
stock since 1944 over and above that paid on the

47

$100.00 par stock. As suggested in the briefs, the
case will be referred to the Master for appropriate find-
ings as to the precise sum due in accordance with this
decision. Solicitor for plaintiffs shall submit an ap-
propriate decree.

March 15, 1973.

/s/ Ray L. Brock, Jr.
Chancellor Part 1

No. 38,441
IN THE CHANCERY COURT OF HAMILTON
COUNTY, TENNESSEE

NORMA FRANCES RAOUL CLARK, ET AL
Plaintiffs
vs.
AMERICAN NATIONAL BANK & TRUST CO.
Defendant

FINAL DECREE

This cause came on to be heard on the Report of
the Master, as ordered in the Decree of this Court
entered on June 22, 1973, and the Master, having
filed his Report, showing a computation of interest
to December 20, 1973, said report is hereby incorpo-
rated herein by reference.

It is accordingly

ORDERED, ADJUDGED and DECREED that the
Plaintiffs have and recover from the Defendant the total
sum of $3,941,799.74 plus the costs of this cause for
which execution may issue if necessary.

A lien is hereby declared upon said recovery cover-
ing the attorneys’ fees of Tanner and Jahn, Attor-
neys for the Plaintiffs, in such amount as is evidenced

48

by their agreement with the Plaintiffs at such time as
adjudication of this cause becomes final.

The Chancellor's opinion and the Report of the
Master shall constitute a finding of fact and decision
by this Court and the Clerk and Master is ordered to
certify and transmit same to the Court of Appeals as
a part of the record in this cause.

Enter this 27 day of December, 1973.

Js, Ray L. Brock, Jr.
Chancellor

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON

Hamilton Equity

Norma Frances Raoul Clark, et al,
Original Appellants,
vs.
American National Bank and Trust Company
of Chattanooga,

Original Appellee.

OPINION
(Filed August 30, 1974)

This is a trust case involving an alleged breach
of trust and it is the second time that the matter
has come before this Court. Previously, this Court re-
manded for additional findings by the Chancellor.

In the original complaint, filed in 1964, the bene-
ficiaries of express trusts charged the defendant Trustee,
American National Bank and Trust Company of Chatta-
nooga, Tennessee, with negligence in the exchange of
certain stocks held in trust; in failing to prevent the

49

redemption of the exchanged stock by appropriate court
action; and breach of trust.

The main thrust of the complaint was that the
Trustee had committed a breach of trust in 1944 when
certain shares of trust stock were exchanged for a dif-
ferent type of stock in the same corporation. Prior to
the complaine? of 1944 transfer of stock the Trustee
held shares of Cavalier Corporation no- par common
stock. These shares were voting shares with no divi-
dend preference and would share equally on dissolu-
tion of the Corporation. In 1944 the ‘‘no-par” common
stock was voluntarily exchanged by the Trustee for a
like number of what was termed 8100.00 par value
common stock’’. The par value stock enjoyed dividend
preference and was subject to redemption by the Cor-
poration.

In 1963 Cavalier called in and redeemed the $100.00
par value stock at $100.00 per share. Approximately
four months thereafter Cavalier was sold to Seeburg
Corporation for approximately 12 million dollars and
Cavalier was liquidated. The holders of common stock
in Cavalier participated in the division of the sale
proceeds upon dissolution while the former holders of
$100.00 par value stock did not. This fact precipi-
tated this suit.

In addition to charging a breach of trust in the
1944 transaction, complainants contended at the first
trial that the 8100.00 par value common stock” had
the right to participate with other common shareholders
on liquidation.

At the first trial the Trustee contended that the
breach of trust claim was barred by the doctrine of

laches and even if it were not, there had been no
breach. Further, the $100.00 par value stock was not

SO

entitled to share upon liquidation with the no-par com-
mon stock.

The Chancellor held: (a) the “$100.00 par value
common stock was not true common stock but was
preferred as to dividends and its par value; (b) upon
liquidation it did not share with the common stock in
the overage after payment of its par value; and (c) the
plaintiffs were barred by the doctrine of laches on the
breach of trust issue and, consequently, made no fact
finding on that point.

On appeal, we affirmed the Chancellor’s holding
regarding the nature of the 8100.00 par value common
stock, but reversed the Chancellor’s holding regarding
the application of the doctrine of laches and remanded
for a finding of fact on the pretermitted issue.'

On remand, the Trustee, having lost the issue re-
garding laches, raised the issue of the statute of limita-
tions as set out in T.C.A. § 28-309, and again insisted
that the facts did not constitute a breach even if the
claim was not barred by the statute of limitations.

The Chancellor has filed his finding of fact and
conclusions and held that T.C.A. § 28-309 was not a
bar to the suit and that the Trustee had committed a
breach of trust in 1944 in exchanging the no-par
value stock for the 8100.00 par value stock. Judg-
ment in the amount of $3,941,799.74 was rendered
against the Trustee.

1. In an effort to have this Opinion conform to some degree
of reasonableness in length, we will not reiterate here our reasons
for our previous holding, as a copy of our previous Opinion may be
obtained from the Clerk of this Court by those who have an in-
terest in that portion of these proceedings.

51

Now the Trustee appeals and insists that the Chan-
cellor erred in not sustaining the plea of the statute of
limitations as well as in holding there had been a breach
of trust. In addition, it is also insisted that the Chan-
cellor erred in the manner of assessment of damages
and interest.

For an understanding of this matter it is necessary
to give some history of the trusts involved.

Gaston C. Raoul, uncle of Anne Raoul and Norma
Raoul, planted the seed of the trusts in 1932. In that
year, Gaston Raoul, the President of Tennessee Furni-
ture Company and its prime movant, gave in trust to
the defendant Trustee 124 shares of the company’s no-
par value common stock.' The trust was for the
benefit of his nieces, Anne and Norma Raoul, the com-
plainants, and their father, Norman Raoul, who was
Gaston’s brother.

Subsequently; Gaston purchased from Norman
his brother’s interest in their father’s (W. G. Raoul)
estate. Gaston then gave in trust as additional corpus
this interest, which included 160 shares of Cavalier
no-par value common stock.

Complainants’ grandmother, Mary M. Raoul, by
testamentary disposition increased the trust corpus by 39
shares of Cavalier no-par value common stock.

Thus, it may be seen that at this point there
were 323 shares of Cavalier no-par value stock held in
trust. The trust provided that it was to terminate up-
on the youngest of the nieces reaching twenty-five years

1. Tennessee Furniture later came to be known as Cavalier
Corporation and in all references in this Opinion all stock will
be referred to as that of Cavalier.

.

52

of age and the death of their father Norman Raoul, but
in no event prior to Norman’s death. Beneficiary Anne
Raoul was born June 2, 1921, and Norma was born
August 15, 1929. Norman Raoul died October 15, 1956.

In late 1949, prior to Norman Raoul’s death,
Gaston Raoul, the settlor became of the opinion that it
would be better if the corpus was held in trust for the
lifetime of his nieces instead of being distributed to
them upon the death of their father, Norman Raoul.
Therefore, Gaston proposed to deposit 50 shares of
$100.00 par value shares of Cavalier stock' in a trust
if Anne Raoul, who was over 21 years of age, would
agree to place her expected share of the first trust,
when that trust terminated, in trust with the 50 shares
offered by Gaston. He also proposed to deposit an
additional 50 shares of the same stock in that trust
if Norma would likewise agree and would ratify the
agreement upon reaching 21 years of age. Both Anne
and Norma agreed; with Norma confirming the new
trust arrangements subsequent to attaining majority.
Of course, Norma Raoul, a beneficiary of the first
trust, was not and could not be a party to the agree-
ment as the first trust, according to its terms, was
to terminate upon his death and the corpus distributed
to his daughters. Gaston Raoul had in this manner
placed 100 shares of $100.00 par value Cavalier stock
in trust; which trust existed contemporaneously with the
first trust until the first fell in upon the death of
Norman in 1956. The named trustee of the second

1. In the 1944 transaction, both the trustee and Gaston
Raoul had voluntarily exchanged their no-par value stock for
$100.00 par value stock, so at the time of the new agree-
ment the 100 shares offered by Gaston and the 323 held by the
Trustee were all $100.00 par value shares.

—— —— — —

53

trust was the same as the first, that is, the defen-
dant, the American National Bank and Trust Company
of Chattanooga.

Hence, at one point in time there existed two sep-
arate trusts with the same named Trustee. One, the
first in time, consisting of 323 shares, which is the
subject of this suit, and the second consisting of 100
shares with which this litigation is not concerned.

While the Trustees of the trust were the same,
neither the corpora, settlors, beneficiaries, or terms
were the same. In the first trust, we may consider
Gaston C. Raoul as the settlor with Anne, Norma and
Norman Raoul as named beneficiaries with termination
conditioned upon the death of Norman. In the second
trust Gaston, Anne and Norma Raoul are the named
settlors with Anne and Norma as the named benefi-
ciaries with termination upon the death of Anne and
Norma. The general purpose of the first trust was
to provide for the maintenance and education of Norma
and Anne Raoul and the maintenance of their father,
Norman, if needed. However, the dominant purpose
of that trust was to provide for Norma and Anne.
The sole purpose of the second trust was to provide
for Norma and Anne. The second trust contained a
spendthrift clause while the first did not. Also, there
existed contemporaneously for a time two distinct cor-
pora; the first consisting of 323 shares and the second
consisting of 100 shares.

Upon the death of Norman Raoul on October 15,
1956, the defendant Trustee transferred the 323 shares
from the first trust to the corpus of the second.

Now, a brief summary of the events of 1944. Cav-
alier Corporation represented the life’s work of Gaston

54

C. Raoul. He was justly proud of his business and
in 1944 began to contemplate about its future when
death would remove him as captain of the ship. Over
the years Cavalier had done its banking with the de-
fendant bank. Mr. E. Y. Chapin, a director of the
bank and a trust officer, became a personal friend of
Gaston Raoul. Chapin also owned a few shares of
Cavalier stock. In the year 1944 both Chapin and
Raoul were members of the board of directors of both
the defendant bank and Cavalier. Gaston conceived
the idea of the $100.00 par value stock. His fear was
that after his death the Corporation would be ab-
sentee owned, that is, those who were actively engaged
in the day to day operation of the Corporation would
not be common shareholders and as a consequence the
business would suffer for lack of real concern by those
who were operating it. Also, as will be later shown,
the exchange of common stock for par value stock
would have definite tax benefits for Gaston Raoul.
Therefore, he proposed that the Corporation offer to

exchange $100.00 par value stock with dividend pref- .

erence on a share-for-share basis for common stock.
The ultimate hoped for result would be that those who
did not actively contribute to the running of the busi-
ness would exchange their common stock for the pre-
ferred stock, which would have the effect of making
the common ownership stock available by purchase or
bonus incentive to those who actually ran the business.
Gaston Raoul discussed and conferred with E. Y.
Chapin about this plan. The offer was made to the
stockholders in 1944 and nearly all of the absentee
owners, including the defendant Trustee and Gaston
Raoul, exchanged the no-par value common stock for
the $100.00 par value preferred.

55

It is not in dispute that T.C.A. § 28-309 is appli-
cable to trusts. See Third Nat. Bk. v. Nashville Trust
Co. (1950) 191 Tenn. 123, 232 S.W. 2d 7. The statute
provides in effect that this action shall be commenced
within six (6) years after the cause of action accrued.”

It has been generally stated that a statute of lim-
itations does not apply to express trusts. However,
the misconception that the foregoing generality has cre-
ated was interred by our Supreme Court in the case of
Third Nat. Bk. v. Nashville Trust Co., supra, when the
Court stated:

“The rule that no statute of limitations applies
to express trusts, has been widely and loosely
stated. The equitable theory upon which the rule
was based was that since in equity, the possession
of the trustee was the possession of the cestui
que trust and so could not be adverse, that no legal
statute of limitations could commence to run until
the possession was adverse. That the rule is lim-
ited to the time that the trustee is in possession
of trust funds, and to the continuing relation of the
parties as trustee and cestui que trust, is abun-
dantly clear from the early cases cited in Judge
Catron's opinion in Armstrong's Heirs v. Campbell,
11 Tenn. 201, 24 Am. Dec. 556. Our research
was limited by the availability of these old cases
to Beekford v. Wade, 17 Ves. 96, and Melvy v.
Cawley, 4 Price 107. In the course of his opinion,
Judge Catron said, 11 Tenn. at page 227: Al-
though a trustee cannot, in general, set up his pos-
session in opposition to his cestui que trust, or
plead the statute of limitations against him, so
long as the relation of trustee and cestui que trust
subsists between them, yet if that relation is once

56

dissolved, or if the trustee to the cestui que trust
notice that he intends to hold in opposition to him,
the statute of limitations will run“

In the course of that opinion the Court quoted with
approval the rule as set out in Corpus Juris as follows:

In order to set the statute in motion in favor
of the trustee the trust must terminate, as by its
own limitation or by settlement of the parties, or
there must be a repudiation of the trust by the
trustee and an assertion of an adverse claim by
him, and the fact made known to the cestui que
trust. This proposition is well established by all
the numerous cases in which the question has
arisen, there is no conflict of authority whatever
upon the subject. 37 C. J., Limitations of Ac-
tions, Section 267, pp. 903-904-905; 54 C. J. S.,
Limitations of Actions, Section 178. (191 Tenn.
130-31) (Emphasis supplied)

By its terms, the first trust terminated on October
15, 1956, upon the death of Norman Raoul. The second
trust was already in existence on that date. The
second trust cannot be simply an extension of the first
trust as argued by counsel for the beneficiaries.
The only common denominator between the two trusts
is the name of the Trustee, American National Bank
and Trust Company of Chattanooga. There is no proof
in this record that the Trustee attempted in any manner
to induce the beneficiaries of the first to create the
second for any reason, much less for the reason of
“covering up any past mistakes. The second trust
was based on the agreement between the nieces and
their uncle, that the nieces would place in a trust what
was theirs personally when they were entitled to it, if
their uncle would also place in that trust 100 shares.

— — ee. ee —

57

On October 15, 1956, the corpus of the first trust be-
came the personal property of the nieces to do with it
as they saw fit. They saw fit to place that corpus in
another trust already created. Therefore, the statute o.
limitations in this case would begin to run on the first
trust on the date of its termination, October 15,
1956, for the Trustee no longer had any duties under
that trust and, in effect, turned over the corpus to
the beneficiaries, who had by prior agreement agreed to
place it in another trust; unless it can be said that
fraud is involved.

In Bates v. Preble, 151 U.S. 149, 14 S.Ct. 277,
cited in Hall v. DeSaussure (1956 W.S.) 41 Tenn. App.
572, 297 S.W. 2d 81, it was said. if the fraud
be secret in its nature, and such that its existence
cannot be readily ascertained, or if there be fiduciary
relations between the parties, there need be no evidence
of a fraudulent concealment other than that implied
from the transaction itself.

We must therefore determine if the 1944 exchange
itself was a fraudulent transaction. Evidently the Chan-
cellor was not of the opinion that the transaction of
1944 was a fraudulent transfer for he did not so find.
The Chancellor held, after an exhaustive finding of fact,
that the Trustee in the 1944 transaction failed in its
duties as set out in Section 174 of the Restatement
of Trusts, to wit:

The trustee is under a duty to the bene-
ficiary in administering the trust to exercise such
care and skill as a man of ordinary prudence
would exercise in dealing with his own property;
and if the trustee has greater skill than that of a
man of ordinary prudence, he is under a duty to
exercise such skill as he has.

58

In other words, the Chancellor found that the
Trustee violated the prudent man rule.

Expert testimony was adduced on both sides
of this controversy concerning the prudent advisabil-
ity of exchanging or not exchanging the stock. The
experts properly viewed the exchange in the light of
circumstances existent in 1944. The Trustee’s expert
witnesses testified in that light and not judging by
hindsight were of the opinion the exchange was prudent.
On the other hand, expert witnesses for the beneficiaries
viewed the exchange in the same light and through
the same sight and were of the opinion the ex-
change was not prudent. The Chancellor accepted
the testimony of the latter and we cannot say the evi-
dence preponderates against the finding that the ex-
change was imprudent. However, an imprudent mis-
take, even a bad one, does not make out a case of
fraud and we hold the proof does not warrant such con-
clusion.

Nevertheless, it is argued that whether a mistake
be fraud or not, if the cause of action is concealed
from the beneficiaries, the concealment thereof is fraud
and a fraudulent concealment will toll the statute.
“It is not the fraud, but its concealment by the party
perpetrating it, unmixed with fault or negligence on the
part of him who complains, which works this result.”
Woodfolk v. Marley (1897) 98 Tenn. 467, 40 S.W.
479, at page 471.

Absent a fiduciary relationship that concealment
must be evidenced by some overt act, but where a
fiduciary relationship exists and there is the duty to
speak, mere silence may constitute a fraudulent con-
cealment. Pomeroy, Equity Jurisprudence, 5th Edition,
§ 902 page 550; Simmons v. Evans (1947) 185 Tenn.

— — a — —

59

282, 206 S. W. 2d 295; Sewing Machine Company v.
Jackson (1885) 83 Tenn. 418.

Immediately prior to the 1944 transfer of stock,
the Trustee, through a trust officer (not Mr. Chapin)
discussed the matter of the exchange of stock with
Norman Raoul, beneficiary of the first trust and father
of the co-beneficiaries, Anne and Norma. Norman
gave the Trustee permission for the transfer and stated:
“It is entirely satisfactory with me to exchange any
Cavalier old stock for the new Cavalier stock that
you are holding in trust for my children.” The ex-
change in 1944 was in no manner hidden from any-
one. After the exchange, the records of the Trustee
indicated that the stock was $100.00 par value stock
where before it had been listed simply as shares. In
short, there was no physical concealment from anyone
of the transaction itself.

It is the position of the beneficiaries that Mr.
Chapin was of the opinion that the exchange was not
in the best interest of the beneficiaries and he was un-
der a duty to reveal to the beneficiaries any un-
certainty in his mind regarding the soundness of the
stock exchange. This brings us to the Chancellor's
finding that the Trustee breached its duty of loyalty.

On that point we copy from the Chancellor's opin-
ion:

“The Court now deals with the contention of
the plaintiffs that the Trustee violated its duty
of loyalty. See: Bogert, Law of Trusts, Sec.
95, (Hornbook Series); 54 Am.Jur. 247, Trusts,
Sec. 312. That duty is stated in Section 170 of
the Restatement of Trusts as follows:

‘(1) The trustee is under a duty to the
beneficiary to administer the trust solely in the
interest of the beneficiary. (Emphasis added.)

60

(2) The trustee in dealing with the bene-
ficiary on the trustee’s own account is under a
duty to the beneficiary to deal fairly with him
and to communicate to him all material facts
in connection with the transaction which the
trustee knows or should know.

Further, under Comment p' to said Section 170,
is the following, to wit:

‘Action in the interest of a third person.
The trustee is under a duty to the beneficiary
in administering the trust not to be guided by
the interest of any third person. Thus, it is
improper for the trustee to sell trust property
to a third person for the purpose of benefiting
the third person rather than the trust estate.’
(Emphasis Added.) See also: Cowan v. Hamil-
ton Nat. Bank, 177 Tenn. 94, 146 SW2d 359,
367.

“It is obvious that in this case Mr. Gaston
Raoul, while acting as a director of the Trustee
Bank and thus onerated with the duties of undi-
vided loyalty owed by a Trustee to his benefi-
ciaries (Plaintiffs) was at the same time acting
in his own personal interest in carrying out his
personally devised scheme of recapitalization, the
ultimate aim of which was to place equity owner-
ship of the Cavalier Corporation in his son and
close associate, Mr. Lane, while paying little or
no Federal taxes.

Eleven years later on August 2, 1954, Mr.
Raoul, in a personal memorandum, stated:

‘Incidentally, Mr. Chapin disapproved of

the idea in toto as being a giveaway of the

— —ͤ—

exchange. I dis-

years still do.
He went along with the plan, however, like the
loyal friend he always was. W. C. R.“ (Empha-
sis added.)

This memorandum of Mr. Raoul was with re-
spect to the 1944 stock exchange. Said memo-
randum is very revealing in two respects. First,
it tells us that ‘Mr. Chapin disapproved of the
idea in toto as being a giveaway’, and, secondly,
that Mr. Chapin, who handled these trusts for de-
fendant Bank, failed to exercise in behalf of the
trust beneficiaries his said judgment of disapproval
but ‘went along with the plan however, like the
loyal friend he always was. These actions by Mr.
Raoul and Mr. Chapin appear to be precisely what
Section 170 of the Restatement of Trusts states
is a violation by the Trustee of its duty of loyalty.

“It appears that Mr. Raoul viewed the plan
almost solely from a standpoint of achieving his
own personal estate objectives rather than from the
standpoint of Trustee for the plaintiffs. It is un-
derstandable how Mr. Raoul could disagree with
Mr. Chapin as indicated by said memorandum be-
cause to Mr. Raoul the plan was accomplishing
his estate plan objectives. He did not wish his
estate to enlarge as the company grew. From the
standpoint of death taxes, the plan had the effect
of shifting high value assets (no par common
stock, book value of $298.05) out of his estate so
that he might hold low value assets ($100.00
par common stock) and thereby defeat death taxes.
If he had made an inter vivos gift he would have

62

incurred Federal gift taxes and the objectives of his
bounty would not have received as much as they
would have received under his plan. But Mr.
Chapin iust have viewed the whole scheme from
a differeat aspect; his only personal interest was
friendship for Mr. Raoul. The new stock was
subject to redemption for $100.00 per share, repre-
senting a give away of $198.05, of book value
and the earnings and dividends that went with it.
Mr. Gaston Raoul did not regard this as a give
away for him because he was giving to his son
and business associate, Mr. Lane, and his family
was retaining what he deemed sufficient voting
control to protect their remaining investment. Fi-
nally, the Trust assets were always vulnerable to
redemption for the sum of $32,300.00.

Nowhere does the record indicate that the
Trustee Bank ever disclosed to anyone acting on
behalf of the plaintiffs the effects that the ex-
change of stock hereinabove outlines would have
on these trusts. See: Knox County v. Fourth
& First Nat. Bank, supra, at P. 986. It seems
of great importance to the Court that the Trustee
Bank was chargeable with notice not only of what
Mr. Chapin knew, but also of what Mr. Gaston
Raoul knew about the recapitalization plan, the
prospects for Cavalier and the advantages and dis-
advantages of the two stock issues, and he knew
just about all there was to know.

It should be noted that in Gaston Raoul’s memo-
randum, upon which the Chancellor placed so much
weight, it was stated that Chapin “disapproved of the
idea in toto, as being a giveaway by the then principal
owners to the no par stockholders who might elect not

63
to exchange. The memorandum was a note written by
Gaston to himself evidently in 1956 when he was in a
reminiscing mood and was in reference to a letter of
1944 that had been transmitted to the directors of Cava-
lier expiaining the nature of the then proposed new is-
sue of $100.00 par value stock. The letter had nothing
to do with trust stock but was the embodiment of the
idea for the new' stock. It appears to us that Gas-
ton Raoul was saying that Chapin disapproved the idea
of the new $100.00 par value stock because it was a
giveaway of ownership by the then principal owners
but that Chapin eventually went along with the plan.
If this be a proper interpretation of the minds of Gas-
ton Raoul and Chapin, both now being dead and un-
able to tell us differently, what does that opinion of
disapproval of the stock issue and the “giveaway”
feature of equity ownership have to do with the man-
ner which Chapin was obligated to view the securities
from an investment standpoint? Issues of non equity
ownership stock, with preferred dividends could legiti-
mately be considered by a trustee as a better trust in-
vestment than equity ownership stock, dependent upon
circumstances. In other words, Chapin may have felt
that Gaston and the other large equity owners may
have been cutting their own throats as to real owner-
ship in the Corporation; but as Trustee entrusted only
with relatively few shares of stock with no real owner-
ship say-so, also have felt that the interests of his bene-
ficiaries would be better served with preferred income.
Chapin could disagree with the wisdom of Gaston’s
plan in so far as Gaston was concerned, and still be
of the opinion that the new stock issue was best for
his beneficiaries. It is interesting to note that Chapin
also exchanged the few shares of common stock that he
and his wife owned for the $100.00 par value stock

64

about the same time the trust stock was exchanged.
Chapin handled his personal stock in the same manner
as he did that of the trust. If he intended to help
Gaston at the expense of the trust by the exchange he
also intended to injure himself.

There is no proof in this record, other than the
various interpretations placed by counsel on the Gaston
memorandum, that would indicate that Chapin ever
acted as Trustee without the best of motives. His

judgment and that of the other members of the trust
committee of the defendant bank may have been wrong,

as evidently it was; and they may not have given the
then present and future prospects of Cavalier their
proper due, as evidently they did not; but we are un-
able to find proof upon which we could base the conclu-
sion that Chapin had knowledge of his mistake and
failed to reveal such to the beneficiaries.

Therefore, in so far as the actions of Chapin are
concerned, we disagree with the Chancellor and do not
find that Chapin breached his duty of loyalty to the
trust.

We now turn to that portion of the Chancellor’s
holding wherein he held that since Gaston was a di-
rector of the Trustee bank he was also a Trustee of the
trust and any knowledge he had concerning the advisa-
bility of the exchange was imputed to the bank as
Trustee.

Gaston Raoul was not a trust officer of the bank.
He was a director and, as far as this record is con-
cerned, he did not act in an advisory capacity or
otherwise in the management of the trust department.
Nothing that he knew about his own Corporation was
ever acquired by virtue of his capacity as director of the

6 rene 1 oe

65

bank. There is no proof that Gaston Raoul ever as-
sumed to act in any manner in the capacity of a
Trustee.

The general rule as stated in Fletcher’s Cyclopedia,
Corporations, Permanent Edition, Vol. 3, §808 p. 72, is
as follows:

“Information not acquired in the course of his em-
ployment, or by or in performance of some duty
as agent or director owing to the corporation, is
not imputed to the corporation, because the di-
rector is under no obligation to communicate such
knowledge to the corporation, and the corporation
is not presumed to have been informed by the
director of what he ascertained in that transac-
tion. Accordingly, the knowledge of a member
of the board of directors of a banking corporation
cannot in law be attributed to the bank, where
it does not appear that at the time he was in any
way engaged in the bank’s business, or acting in
its behalf.

We are of the opinion that the general rule, as
above stated, is the rule of this State.

The Chancellor seemed to consider the tax advan-
tages to Gaston’s estate as the personal motive which
induced Gaston in some manner to sway the mind of
Chapin so that the shares held in trust would be ex-
changed. This theory will not bear scrutiny. Whether
or not the shares in trust were exchanged would have
no bearing on Gaston’s estate or the tax liability there-
on. Gaston had already parted with the ownership of
those shares, when, during his lifetime he placed them
in trust. They never could become part of his estate
and there would be no tax advantage to him one way
or the other.

66

Therefore, we hold that the Chancellor was in error
when he held that Gaston Raoul as Trustee had
breached his duty of loyalty.

All of what we have said before being true, coun-
sel for beneficiaries argues that the reasons we gave
in our first opinion for overruling the Chancellor on the
question of laches are good and sufficient reasons for
not applying the statute of limitations.

It should be noted that the Chancellor was of the
opinion that the statute of limitations was a good plea
in bar, but he was convinced that the Court of Appeals
would deny the application of the statute for the same
reasons it denied application of the rule of laches in the

first appeal and commented as follows:

“It is perhaps the duty of the Court to state, how-
ever, that, were it free to do so, it would sustain
the plea of the statute of limitations as insisted by
the defendant Bank.”’

In the first appeal of this case, the beneficiaries

of the trust had lost in the lower court on the basis

of the Chancellor sustaining the plea of laches. The
appeal was directed to the Chancellor's error in apply-
ing the doctrine of laches. Of course, the appellant-
beneficiaries did not raise the additional defense of the
statute of limitations. Nor did the Trustee on that
appeal raise the defense of the statute of limitations.
The first appeal was determined on the question of
laches with no mention of the statute of limitations.
The issue of the statute of limitations has been first
raised in this Court on this appeal. On remand, the
Chancellor was perfectly free to rule upon that issue
as he saw fit and it is our opinion that he should
have followed his inclinations and sustained the plea.

67

Laches is a defense peculiar to Courts of equity
and the doctrine is usually applied where no statute of
limitations governs the case. However, on occasions
the doctrine is applied to bar a stale claim prior to the
running of the statute of limitations; but it should be
applied in such cases when there is gross laches in the
prosecution of the claim. See Bogert on Trust, Section
169 (Hornbook series); State Ex Rel v. Abernathy
(1929) 159 Tenn. 175, 17 S.W. 2d 17; Carpenter v.
Wright (1929) 158 Tenn. 289, 13 S.W.2d 51.

Laches is actually based on equitable estoppel and
is dependent upon the facts and the equities of each
individual situation. State Ex Rel v. Abernathy, supra,
and Hamilton Nat. Bank v. Woods (1948 E.S.) 34
Tenn. App. 360, 238 S.W. 2d 109. Contrarywise,
there is little, if any, equity involved in a statute of
limitations. Statutes of limitations are arbitrary time
periods fixed by the Legislature to put at rest possible
litigation after the lapse of that period fixed by the
Legislature for the benefit of society in general in or-
der to promote certainty and repose.

Long delay alone in the prosecution of a claim is
insufficient for the application of the doctrine of laches.
The present circumstances of the parties must be con-
sidered. There must be actual aquiescence or that im-
plied from the circumstances of the case, in the conduct
of the defendant. Whether or not such exists is depen-
dent upon the facts. And whether the facts are suffi-
cient is dependent upon the Court applying those facts.
One Court may reach a different conclusion than another.
Initially, we could find no factual condition in the
record, as we reviewed it, that would put the complain-
ant-beneficiaries on reasonable inquiry or notice of the
complained of exchange which, therefore, tolled the
running”’ of the doctrine of laches.

68

However, the question of the reasonableness of the
opportunity to discover is not a matter for judicial con-
clusions when dealing with statutes of limitations as
they are statutes of repose. See and compare West v.
Moore (1952) 193 Tenn. 431, 246 S.W. 2d 74; Lee v.
Harris (1949) 188 Tenn. 373, 219 S.W. 2d 892. A plea
of laches and a plea of the statute of limitations are
not the same thing. As in this case, laches may not
bar the claim; but the statute of limitations will.
See and compare In Re Estate of Darwin (1973) 503
S.W. 2d 511.

Able counsel for the beneficiaries also argues that
even if all the foregoing is true, which by no stretch
of the imagination is conceded, the defendant bank as
Trustee was obligated to sue itself when it received the
corpus of the first trust on the death of Norman Raoul.
This position is based on the theory that when the
bank accepted the corpus from the old trust, it was
obligated to check the manner in which it had previ-
ously handled the first trust, and if irregularities were

discovered to sue the prior Trustee which happened to

be itself. Since the second trust was an express trust
and not terminated, the statute of limitations has not
yet begun to run against the Trustee as Trustee of the
second trust. We are cited to cases which involve
the duties of successor trustees. However, the bank
as Trustee under the second trust was not and is not
a successor trustee. Any cause of action for the mis-
management of the first trust belonged to the bene-
ficiaries thereof upon its termination and never became
the right or duty of the Trustee under the second trust,
which trust was not and is not the same as the first
trust.

For the reasons stated, we are of the opinion that
the claim of the beneficiaries is barred by the statute

of limitations and the Chancellor erred in not so hold-
ing. We do not reach the other Assignments of Error.

The result is that the suit will be dismissed.

The Court is of the opinion that in this case the
costs below and costs of appeal are to be adjudged
against the defendant bank.

So order.

Judge William P. Puryear, by designation of the
Supreme Court of Tennessee, took part in the hearing

of this appeal in the absence of Presiding Judge C. S.
Carney, Jr.

/s/ Nearn, J.
Nearn, J.
/s/ Matherne, J.
Matherne, J. (Concurs)

/s/ W. P. Puryear
Puryear, Sp. J. (Concurs)

70
COURT OF APPEALS

DECREE

Filed August 30, 1974
John A. Parker, Clerk

Hamilton Equity (#38441)

NORMA FRANCES RAOUL CLARK, et al,
vs

AMERICAN NATIONAL BANK & TRUST
COMPANY OF CHATTANOOGA.

REVERSED & DISMISSED

This cause coming on to be heard upon a transcript
of the record from the Chancery Court of Hamilton

County, assignments of error, reply brief and argument
of counsel, upon consideration whereof the Court is of
opinion that in the decree of the Chancellor there is error.

It is therefore ordered and decreed by the Court

that the decree of the Chancellor be reversed, and that

this suit be dismissed.
Costs in the Chancery Court and in the Court of
Appeals are adjudged against the defendant, American

National Bank & Trust Company of Chattanooga, for
which execution may issue if necessary.

71

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON

Hamilton Equity
Norma Frances Raoul Clark, et al,
Original Appellants,
vs.
American National Bank and Trust

Company of Chattanooga,
Original Appellee.

ON PETITION TO REHEAR
(Filed November 6, 1974)

A petition to rehear, response thereto and a re-
sponse to the response have all been filed in this matter.

The petition to rehear filed by counsel for complain-
ant-appellants raises seven alleged grievances. Six of
those seven were heretofore thoroughly argued and
briefed by counsel and were considered by this Court
in its Opinion rendered August 30, 1974. Therefore,
they will not again be considered. See Lyman v. Ameri-
can Nat. Bank and Trust Co. (1960 E.S.) 48 Tenn. App.
328, 346 S.W. 2d 289.

However, the petition does raise the issue of the
alleged improper reliance of counsel for the Bank and
this Court on the statute of limitations as set out in
T.C.A. § 28-309. The gist of the complaint is that by
their pleadings, the Bank relied specifically on T.C.A.
§ 28-310 with no mention therein of the limitation as
set out in T.C.A. § 28-309.

The record reveals that the pleadings of the Bank
do not specifically mention T.C.A. § 28-309. The record
does further show that nowhere has the Bank's right to

72

rely on T.C.A. § 28-309 ever been questioned until the
petition to rehear was filed. The record further reveals
that T.C.A. § 28-309 was the issue below and was con-
sidered by the Chancellor as he specifically mentions
the six year statute of limitations in his Opinion which
is part of the record. The argument below and the issue
and argument on appeal was the interpretation and ap-
plicability of the limitations as set out in T.C.A. § 28-
309. The Bank’s inability to rely on the statute for fail-
ure to specifically plead same is an issue that has
never before in this cause been raised until this time.
The limitation as set out in T.C.A. § 28-309 has been
at all times heretofore considered by the parties, the
Chancellor, and this Court without objection by com-
plainant-appellants. The objection comes too late.

It is a well established rule that a litigant will not
be permitted to act on one theory in the Trial Court
and switch to another on appeal. Thomas v. Noe (1956
E.S.) 42 Tenn. App. 234, 301 S.W. 2d 391. The rule

is applied with double force when the switch takes place

on a petition to rehear.

The petition is denied with costs adjudged against
complainant-appellants.

Nearn, J.

Matherne, J. (Concurs)
Puryear, Sp. J. (Concurs)

73

IN THE TENNESSEE COURT OF APPEALS
AT KNOXVILLE

(Filed Nov. 6, 1974)
(John A. Parker, Clerk Court of Appeals)

Hamilton County Chancery Cause No. 38441

NORMA FRANCES RAOUL CLARK, et al,
Original Appellants,
vs.
AMERICAN NATIONAL BANK & TRUST
COMPANY OF CHATTANOOGA,

Original Appellee.

PETITION TO REHEAR DENIED

This cause coming on to be heard upon a petition to
rehear, response thereto and a response to the response,
upon consideration whereof the Court is of the opinion
that the petition is not well taken and must be denied:

Therefore, it is adjudged and decreed that the peti-
tion to rehear be and hereby is denied at petitioners
costs.

Said costs incidental to the petition to rehear and

adjudged against the petitioners Norma Frances Raoul
Clark, et al, and surety Warren K. Clark, for which let
execution issue.

Nearn, J.
Matherne, J.
Puryear, J.

74

IN THE SUPREME COURT OF TENNESSEE
AT KNOXVILLE

HAMILTON EQUITY

NORMA FRANCES RAOUL CLARK and |
ANNE ELIZABETH RAOUL,
Plaintiff-Petitioners,
vs.
AMERICAN NATIONAL BANK and TRUST
COMPANY OF CHATTANOOGA,
Defendant-Respondents. j

ORDER DENYING PETITION FOR WRIT
OF CERTIORARI

(Filed July 7, 1975)

After a consideration of the petition, briefs of coun-
sel and the entire record, this Court is of the opinion
that the Court of Appeals reached the correct conclu-

Sion.

The petition for writ of certiorari is accordingly
denied.

Per Curiam

75

SUPREME COURT OF TENNESSEE,
AT KNOXVILLE

SEPTEMBER TERM 1974

DECREE

(Filed July 7, 1975)
(John A. Parker, Clerk)

Hamilton Equity
(No. 38441)

NORMA FRANCES RAOUL CLARK and
ANNE ELIZABETH RAOUL,

vs.

AMERICAN NATIONAL BANK and TRUST
COMPANY OF CHATTANOOGA.

WRIT DENIED

This cause coming on to be heard upon a tran-
script of the record from the Chancery Court of Hamil-
ton County, opinion and Decree of the Court of Ap-
peals, petition for certiorari, assignments of error and
briefs of counsel, upon consideration whereof the Court
is of opinion that the petition for writ of certiorari is
not well taken, and said petition for certiorari is denied.

The petitioners, Norma Frances Raoul Clark and
Anne Elizabeth Raoul, and surety, Warren K. Clark,
will pay the costs incident to filing petition for cer-
tiorari, for which let execution issue.

Per Curiam

76

IN THE SUPREME COURT OF TENNESSEE
AT KNOXVILLE

HAMILTON EQUITY

NORMA FRANCES RAOUL CLARK and
ANNE ELIZABETH RAOUL,
Plaintiff-Petitioners,
vs.

AMERICAN NATIONAL BANK and TRUST
COMPANY OF CHATTANOOGA,
Defendant-Respondents.

MEMORANDUM OPINION ON PETITION
TO REHEAR

(Filed August 11, 1975)
Petitioners have filed a petition to rehear.

We are asked to reconsider and recede from our
prior decision to deny the writ of certiorari on two
grounds which may be summarized as follows:

a. Petitioners were deprived of their constitutional

right to have their petition considered by the full Court.

b. The failure to apply the rule of Teeters v. Cur-
rey, 518 S.W.2d 512 (Tenn.1975) constitutes a denial
of their rights under Article 1, Sections 8 and 17 of
the Constitution of Tennessee and the Fourteenth
Amendment to the Constitution of the United States.

Article 6, Section 2 of the Constitution of Tennessee
provides that ‘‘(t)he concurrence of three of the judges
shall in every case be necessary to a decision.

Section 16-301 T.C.A. contains substantially the
same provision.

77

In the case of Radford Trust Company v. Lumber
Company, 92 Tenn. 126, 21 S. W. 329 (1893), this
Court, after reciting the constitutional requirements.
held:

The same number which may render a judgment
constitute a quorum of the Court.

It is settled law that the concurrence of three
judges of this Court produces a valid judgment. Pierce
v. Tharp, 224 Tenn. 328, 461 S.W.2d 950 (1970).

In this case three judges of this Court, following
substantial consideration, unanimously determined that
the writ would be denied.

We fully considered Teeters, supra, and concluded
that it had no relevance to the issues in this contro-
versy.

The petition to rehear is respectfully denied.

/s/ Henry
Henry, J.
Concurrences:
Fones, C. J.
Harbison, J.
Cooper, J. and

Brock, J. did not participate

78

SUPREME COURT OF TENNESSEE,
AT KNOXVILLE

SEPTEMBER TERM, 1974

(Filed August 11, 1975)
(John A. Parker, Clerk)

Hamilton Equity
(No. 38441)

NORMA FRANCES RAOUL CLARK and
ANNE ELIZABETH RAOUL,
vs.

AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHATTANOOGA.

DECREE
(Filed September 29, 1975)
PETITION TO REHEAR DENIED

This cause came on to be further heard on the
Petition to Rehear, upon consideration whereof the
Court is of the opinion the Petition to Rehear is not
well taken and should be denied.

It is, therefore, ordered and decreed by the Court
that the Petition to Rehear is denied.

Costs on the Petition to Rehear will be paid by
petitioners, Norma Frances Raoul Clark and Anne Eliza-
beth Raoul, and surety, Warren K. Clark, for which
let execution issue.

Joseph W. Henry, J.
William H. D. Fones, C.J.
William J. Harbison, J.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1300%3A1. Public record. Not legal advice.