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JEAN COX HARPER, INDIVIDUALLY & AS EXECUTRIX OF THE ESTATE OF ROBERT LEX HARPER v. MICHAEL S. HARPER

FEBRUARY 12, 1986

JEAN COX HARPER, INDIVIDUALLY & AS EXECUTRIX OF THE ESTATE OF ROBERT LEX HARPER
v.
MICHAEL S. HARPER, ET AL.



EN BANC

PRATHER, JUSTICE, FOR THE COURT;

The former opinion is hereby modified and this version substituted therefor.

This appeal brings into issue alleged conflicting fiduciary duties. The conflict arose when a testator appointed his widow to the multiple roles of executrix of his will, beneficiary of a one-half interest in his estate, corporate officer in the family business, and trustee of the residuary one-half interest belonging to his children as beneficiaries of the testamentary trust. Alleging dissipation of the assets of the estate, three adult children of the parties as residuary beneficiaries of the trust filed suit against their mother for an injunction, accounting, surcharge of funds, judgment, removal of executrix, dissolution of trust and distribution of estate.

 The parties to this lawsuit are the heirs of Robert Lex Harper, who died on November 4, 1978, in Hinds County. Robert Lex Harper's widow, Jean Cox Harper, was appointed executrix of his estate and is the appellant here. The appellees are the three adult children of Robert and Jean Harper, Robert William Steven Harper, Michael Stewart Harper, and Shawn Kathleen Harper. Another child, David Haley Harper was made a party defendant with his mother, who was sued as executrix and as an individual. A guardian ad litem was appointed by the court to represent the interests of David, who is deaf. From an adverse holding in the Chancery Court of Hinds County surcharging the executrix and granting judgment of $257,000.00 to the children, the executrix, Mrs. Jean Cox Harper, appeals, and her adult children crossappeal. The assignments of error of both appeal and crossappeal are as follows:

 (1) On appellant's appeal, Mrs. Harper asserts the lower court erred in granting appellees' motion for reconsideration and surcharging Mrs. Harper $93,348.00 for failing to obtain court authority to continue the operation of Harper Supply Company, a corporation, following the death of R. L. Harper; however, appellees and cross-appellants contend that the trial court erred in surcharging Mrs. Harper only $93,348.00, the liquidated value of Harper Supply Company, rather than $1,245,989.10, the operational losses of the company, or alternatively $334,745.19, the book value of the company as of December 31, 1978.

 (2) Appellant also contends that the the trial court erred in surcharging Mrs. Harper $68,684.89 as the loss in value to the estate resulting from a division of property between the estate and N. Sidney Harper; however, the crossappellants contend that the trial court erred in inadequately surcharging Mrs. Harper only $68,684.89 for the loss resulting from the division of property between the estate and N. Sidney Harper.

 (3) Appellant Mrs. Harper challenges the trial court's ruling in surcharging Mrs. Harper $24,520.75 for legal fees paid to Mr. O. Murray McNeely after October, 1979, and the sum of $9,405.99 for the interest paid to the United States and the State of Mississippi due to the late filing of the estate tax returns. On the contrary, cross-appellant children assert error in surcharging Mrs. Harper only $24,520.75 for legal fees paid to O. Murray McNeely, contending the amount should not have been less than $49,297.40.

 Additionally, the direct appeal of Mrs. Harper assigns as error:

 (4) The trial court erred in surcharging Mrs. Harper $49,651.73 due to her payment of debts of the decedent which were not probated, registered or allowed, and

 (5) The trial court erred in removing Mrs. Harper as executrix of the estate.

 The cross-appellants seek reversal on their cross-appeal of additional assignments of:

 (6) The lower court erred in failing to surcharge Mrs. Harper $47,478.00 for salary and $16,295.86 for other personal benefits she received from Harper Supply Company.

 (7 ) The trial court erred in failing to surcharge Mrs.

 Harper $240,000.00 for causing the estate to assume an unenforceable debt and to pledge unencumbered real property.

 I.

 Robert Lex Harper died testate on November 4, 1978, at the age of 47. Surviving Robert Harper were his wife of 28 years, Jean Cox Harper (appellant herein), and four children: 27 year old Robert William Stephen Harper, 25 year old Michael Stewart Harper, 21 year old Shawn Kathleen Harper and 19 year old David Haley Harper (appellees herein).

 At the time of his death, Robert Harper together with his brother, N. Sidney Harper, owned interests in several closely held corporations and partnerships. According to the Federal Estate Tax Return, the adjusted gross value of the Harper estate was approximately $1,200,000.00.

 Robert L. Harper had executed a valid Last Will and Testament naming his wife, appellant Jean Cox Harper, as executrix, waiving bond, accounting and appraisal. The will first provided that personalty go to his surviving spouse, Mrs. Harper. Secondly, Robert Harper bequeathed to Mrs. Harper an amount equal to one-half of his" adjusted gross estate "as determined for federal estate tax purposes, known as the maximum marital deduction. By the terms of the will, the remainder of the estate was to be placed in a trust known as the" Harper Trust "with Mrs. Harper as trustee for the benefit of his four children. Generally, the powers granted under the trust to Mrs. Harper as trustee were as broad as the power of the testator himself in his lifetime.

 Prior to his death, Robert Harper was president of Harper Supply Company, a position he had occupied since November 21, 1977 and had been a director of Harper Supply Company since 1974. At the time of her husband's death, Mrs. Harper was secretary/treasurer of Harper Supply Company, a position she had held since November 21, 1977. Mrs. Harper had also been a director of Harper Supply Company since 1974. N. Sidney Harper, the decedent's brother, was vice-president of Harper Supply Company at the time of his brother's death and had been a director of the corporation since 1974.

 On November 27, 1978, Mrs. Harper as director, secretary-treasurer and executrix, called a special meeting of the shareholders and directors of Harper Supply Company. Michael S. Harper, son of the decedent, was elected to fill the unexpired term of Robert Harper as director. Mrs. Harper was elected to fill the unexpired term of Robert

 Harper as chairman of the board, and also president at an annual salary of $52,000.00 per year, the same amount her husband had earned at the time of his death.

 Harper Supply Company had not returned a profit since 1976. During the calendar year of 1978, the corporation lost approximately $300,000.00. Following Robert Harper's death, Harper Supply Company continued to lose money. In the Spring of 1979 the Harper Estate began negotiating with Sidney Harper for the purpose of transferring jointly owned assets in such a manner as to completely divide the respective interest of the estate and Sidney Harper. On July 12, 1979, an agreement was reached between Sidney Harper, Mrs. Harper and Michael S. Harper. Under the terms of the agreement, the Harper Estate was to transfer all its stock in Harper Foundry & Machine Company, another closely held family corporation, to Sidney Harper. In return, Sidney Harper was to transfer to the estate all of his stock in Harper Supply Company. Additionally, the agreement called for Mrs. Harper to convey the estate's 25% interest in the Harper & Elliott Partnership and the estate's 25% interest in Mississippi Valley Leasing Corporation to Sidney Harper. The agreement further provided for the transfer of numerous parcels of real estate between the parties.

 As executrix of the Harper Estate, Mrs. Harper spent $49,651.73 in payment of debts of the estate which were not probated, registered or allowed. These payments included a $39,770.84 check to Harper Supply Company in payment of an unprobated debt of Robert Harper to Harper Supply. At the time the check was issued in October of 1979, Harper Supply Company owed an outstanding debt to Robert Harper in the amount of $21,328.00, which cross-appellants contend should have been offset against the $39,770.84 before payment.

 From November 10, 1978 until the bill of complaint was filed in October of 1980, Murray McNeely acted as the attorney of record for the Robert Harper Estate. Mrs. Harper, as executrix of the estate, paid Mr. McNeely $49,297.40 for his services without obtaining court approval.

 On April 30, 1979 the appellant, Mrs. Jean Harper, entered into an agreement with two of the appellees, Michael Harper and Stephen Harper. Under the terms of the agreement, Mrs. Harper was to resign as president of Harper Supply Company, and allow Michael Harper to assume that office. In return, Mrs. Harper was to continue receiving a weekly salary of $750.00 and to retain possession of the company car and company telephones maintained at her home. The agreement

 further provided that any complaint Stephen and Michael Harper may have had regarding Mrs. Harper's operation of Harper Supply Company" are now compromised and settled. "

 II.

 Some preliminary remarks are in order. Duties and rights of executors and administrators with the will annexed are generally set forth in Miss. Code Ann. 91-7-1 et seq. (1972), but specifically see 91-7-47 which provides:

 Every executor or administrator with the will annexed, who has qualified, shall have the right to the possession of all the personal estate of the deceased, unless otherwise directed in the will; and he shall take all proper steps to acquire possession of any part thereof that may be withheld from him, and shall manage the same for the best interest of those concerned, consistently with the will, and according to law. He shall have the proper appraisements made, return true and complete inventories except as otherwise provided by law, shall collect all debts due the estate as speedily as may be, pay all debts that may be due from it which are properly probated and registered, so far as the means in his hands will allow, shall settle his accounts as often as the law may require, pay all the legacies and bequests as far as the estate may be sufficient, and shall well and truly execute the will if the law permit. He shall also have a right to the possession of the real estate so far as may be necessary to execute the will, and may have proper remedy therefor.

 Duties of an executor have been outlined further in the case law of Yeates v. Box, 198 Miss. 602, 22 So.2d 411 (1945), wherein this Court stated the executor's duties are" (1) to reduce to possession the personal assets of the testator; (2) to pay the testator's debts; (3) to pay legacies; and (4) to distribute the surplus to the parties entitled thereto. Powers granted an executor are coextensive with the will and therein grounded. Ricks v. Johnson, 134 Miss. 676, 99 So. 142 (1924); Grant v. Spann, 34 Miss. 294 (1857).

 The duly appointed executor shall carry out all of the provisions of the will that may be lawful. The will is the source and measure of the power of the executor. Ricks, 99 So. at 146. And in determining the powers of executors,

 the basis for all construction of language within the will is to determine first the intention of the testator as gathered from the whole will. Yeates v. Box, 198 Miss. at 602, 22 So.2d at 411.

 One serving in the capacity of executor or administrator is an officer of the Court and holds a fiduciary relationship to all parties having an interest in the estate. A trust arises from the appointment of the executor or administrator. Schreiner v. Cincinnati Altenheim, 61 Ohio C.T.App. 344, 22 N.E.2d 587 (1939); 33 C.J.S., Executors and Administrators, 3, p. 878 (1942).

 Thus in answering questions of the powers, duties, and liabilities of executors, this Court applies the above Mississippi statutory and case law, as well as the expressed intent of the testamentary instrument itself.

 In answering these questions this Court must establish a standard of care chargeable to an executor in evaluating charges of maladministration. It appears proper that since a trust and fiduciary relationship is established by these connections, this Court holds that the same standard of care applicable to a general trustee applies to an executor or administrator. This standard is expressed as follows:

 Ordinary care, skill, and prudence are normally required of trustees in the performance of all their duties, unless the trust instrument provides otherwise. The rule is "that trustees are bound in the management of all the matters of the trust to act in good faith and employ such vigilance, sagacity, diligence and prudence as in general prudent [persons] of discretion and intelligence in like matters employ in their own affairs. The law does not hold a trustee, acting in accord with such rule, responsible for errors of judgment." "All that equity requires from trustees is common skill, common prudence, and common caution." [Footnotes omitted]

 Bogert, Law of Trusts, 93 (5th ed. 1973). See also, Scott, Scott on Trusts, 174 (3rd ed. 1967).

 Applying to this case the general standard of care and skill that a person of ordinary prudence would exercise in dealing with his or her own property, this Court now analyzes the assignments of error on appeal and cross-appeal in light of this standard.

 III.

 Did the trial court err in granting appellees' motion for reconsideration and surcharging Mrs. Harper $93,348.00 for losses resulting from the continued operation of Harper Supply Company following the death of Robert Harper? As suggested by the cross-appeal, was this award inadequate?

 Harper Supply Company is a closely held family corporation of which the decedent owned 50.03% of the stock, his brother owning the remainder.

 In its original opinion, the trial court found that Harper Supply Company's financial problems dated back several years before the death of Robert Harper. The court expressly declined to find that Mrs. Harper's actions were solely responsible for the downfall of the company and accordingly refused to surcharge Mrs. Harper for any losses in value of Harper Supply Company's stock due to alleged mismanagement of the company. Upon motion for reconsideration, the trial court made a finding that Mrs. Harper did in fact continue to operate Harper Supply Company without court authority from the date of Robert Harper's death until the corporation closed. The court surcharged Mrs. Harper $93,348.00 for the loss to the estate occasioned by her continued operation of the company.

 Two questions will be considered under this assignment of error: (A) Whether the continued operation of a corporation by the executrix of a majority shareholder requires court approval; if so, should an executrix acquire authority to vote stock owned by the decedent in a closely held corporation? (B) Whether the continued operation of Harper ...


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