WARD, et al.
NATIONSBANK OF VA, N.A., et al.
November 6, 1998
Record No. 972622
Record No. 972640
LYNN-HALL WARD, ET AL.
NATIONSBANK OF VIRGINIA, N.A., ET AL.
THE LIFE INSURANCE COMPANY OF VIRGINIA
LYNN-HALL WARD, ET AL.
OPINION BY JUSTICE ELIZABETH B. LACY
FROM THE CIRCUIT COURT OF ALBEMARLE COUNTY
Rayner V. Snead, Judge Designate
Present: Compton, Lacy, Hassell, Keenan, Koontz, and Kinser, JJ.
In this case, the beneficiaries of a trust filed a bill of
complaint against the trustee alleging that the trustee breached
the trust agreement by executing a purchase option, agreeing to a
deed of trust on the trust property securing funds lent to the
lessee/purchaser for development of the property, and
subsequently conveying the trust property. Because we conclude
that the trustee had the authority to grant the purchase option
and exercised that authority in a prudent manner, and that the
deed of trust on the trust property provided a benefit to the
trust, we will affirm the judgment of the trial court.
In March 1965, J. L. Hartman and Pauline H.
Hartman created a trust for the benefit of their grandchildren,
Lynn-Hall Ward, Robert Lee Walker, Jr., Margaret M. Martin, and
Anne Walker Durrett (collectively "the Beneficiaries").
Virginia National Bank, NationsBank of Virginia, N.A.’s
predecessor, was named as trustee (the Trustee). The trust
property was a 29.26-acre tract of land located in Albemarle
In May 1969, the Trustee leased the trust
property to Wendell W. Wood. The lease contained an option to
purchase the property for $750,000 at the expiration of the
25-year lease term. In December 1972, Wood assigned his interest
in the lease to Rio Associates Limited Partnership (Rio).
In conjunction with the assignment, the
Trustee, Wood, and Rio executed an agreement (1972 agreement) in
which the Trustee agreed to subordinate its fee interest in the
trust property to first lien deeds of trust securing loans to Rio
for development of the property. In return, Rio and Wood agreed
to provide collateral security to insure performance of their
obligations. The 1972 agreement further provided that when the
first development loan was obtained, the lease would be amended
by changing the option to purchase clause to a contract to
purchase with the deed of conveyance naming Rio or its successors
as the grantee.
Between 1976 and 1994, Rio developed the trust
property into Albemarle Square Shopping Center. Development of
the property was financed by three loans totaling over $5 million
from The Life Insurance Company of Virginia (Life of Virginia).
When the first loan for $4.1 million was obtained in June 1976,
Rio exercised the purchase option in accordance with the 1972
agreement and agreed to close on the purchase of the trust
property and pay the purchase price in December 1994 (contract of
sale). Also in accordance with the 1972 agreement, the Trustee
executed a subordination agreement, subordinating its fee
interest to a deed of trust securing Life of Virginia’s loan to
Rio. Subsequent development loans were similarly secured.
In 1987, the Beneficiaries told the Trust
manager, David P. Masich, that they felt the $750,000 purchase
price stated in the lease was too low. Masich subsequently
informed the Beneficiaries in October 1988 that the sale of the
property at the end of the lease was "a done deal."
In the spring of 1994, the Beneficiaries
retained E. Randall Rawlston, an attorney, to represent them.
Rawlston told the Beneficiaries that they could file a suit to
enjoin the sale of the property. One of the legal theories under
consideration as a basis for such litigation was that the Trustee
had breached its fiduciary duty when it entered into the purchase
option. After conferring with another attorney, Rawlston told the
Beneficiaries that additional work necessary to analyze whether
the trust agreement authorized the Trustee to enter into a
purchase option required a retainer of $2,000. The Beneficiaries
decided not to pursue the matter because they did not want to
incur the cost associated with the additional work.
Ralston also advised the Beneficiaries that
they could defer capital gains taxes of $250,000 if the sale of
the trust property was structured as a like-kind exchange.
Because the Trustee’s cooperation was necessary to accomplish
this type of exchange, the Beneficiaries decided not to institute
legal proceedings to enjoin the sale of the trust property and to
proceed with the sale as a like-kind exchange. They did intend to
pursue litigation, however, after the transaction was complete.
The closing on the sale of the trust property
was originally scheduled for December 1994 but was delayed to
accommodate the like-kind exchange. In conjunction with the
closing, Life of Virginia agreed to loan Rio an additional $6.9
million, part of which was to be used to pay off the prior loans.
As with the previous loans, the Trustee subordinated its fee
interest, and on December 24, 1994 the Trustee and Rio executed a
deed of trust on the property to Life of Virginia to secure the
loan (1994 Deed of Trust). On January 5, 1995, the Trustee
executed a deed conveying the property to Rio (1995 deed or deed
In November 1995, the Beneficiaries filed a
bill of complaint against the Trustee, Rio, and Life of Virginia,
alleging that the Trustee breached its fiduciary duty and the
terms of the trust agreement by granting a purchase option in the
1969 lease. The Beneficiaries asked the court to void the January
1995 conveyance of the trust property from the Trustee to Rio, to
void the December 1994 Deed of Trust granted by the Trustee and
Rio to Life of Virginia, and to remove NationsBank as Trustee of
The Trustee, Rio, and Life of Virginia
responded, denying, inter alia, any breach of
fiduciary duty and asserting that the 1969 lease and option to
purchase, the 1976 contract of sale, the 1994 Deed of Trust, and
the 1995 deed of conveyance were valid. They also raised the
affirmative defenses of consent, ratification, and affirmation of
the 1995 deed by the Beneficiaries and asserted that the
Beneficiaries were estopped from challenging the 1995 deed of
conveyance. The Trustee sought attorney’s fees. Rio and Life of
Virginia filed a cross-bill for sanctions and attorney’s fees
under Code Sect. 8.01-271.1.
A demurrer and motions for summary judgment
were filed. Prior to trial, the trial court denied the demurrer,
but granted the Beneficiaries partial summary judgment, holding
that the grant of the purchase option in the 1969 lease was a
breach of the trust agreement because it was not expressly
authorized by the agreement and could not be inferred from or
implied by the language of the agreement. The trial court also
concluded that the breach was not excused under the exception set
out in Sect. 190, comment k, of the Restatement (Second)
of Trusts, because the trust property could have been
advantageously sold to Wood in 1969 without the purchase option.
The trial court held that none of the other issues could be
decided on summary judgment and denied the remaining motions.
Following an evidentiary hearing, the trial
court entered an order holding that the 1994 Deed of Trust and
the 1995 deed of conveyance were valid, that the Beneficiaries
had ratified, acquiesced, and consented to the 1995 deed and
could not challenge the deed as a breach of trust, and that the
Beneficiaries were estopped from challenging the 1995 deed. The
trial court declined to remove NationsBank as the Trustee,
awarded the Trustee attorney’s fees, and denied Rio and Life of
Virginia’s cross-bill for sanctions and attorney’s fees under
Code Sect. 8.01-271.1.
The Beneficiaries appealed, raising nine
assignments of error. The Trustee, Rio, and Life of Virginia
assigned cross-errors. Life of Virginia filed a separate appeal
challenging the denial of attorney’s fees pursuant to Code
Sect. 8.01-271.1. We granted the parties’ appeals on all
assignments of error and cross-error and consolidated the two
appeals for our consideration. A number of the assignments of
error and cross-error are dispositive of other issues.
III. OPTION TO PURCHASE
The trial court held that the trust agreement
was not ambiguous, that it did not expressly authorize the
Trustee to grant an option to purchase the trust property, and
that the power to grant an option to purchase would not be
implied because an option to purchase "involves much more
discretion in the determination of a purchase price as in this
case before the sale actually occurs under the option." The
Trustee, Rio, and Life of Virginia assert that the trial court
erred in holding that the power to grant an option to purchase
should not be implied from the terms of the trust agreement.
Alternatively, they argue that that trial court erred in holding
that the trust agreement was unambiguous and denying the use of
parol evidence to ascertain the intent of the grantor.
In refusing to find that the language of the
trust agreement was sufficient to include an option to purchase,
the trial court relied on Sect. 190, comment k, of the Restatement
(Second) of Trusts. Comment k, which the trial court
described as stating "the common law rule," provides
that "[w]here by the terms of the trust a power of sale is
conferred upon the trustee, it is ordinarily not proper for the
trustee to give an option to purchase property." Restatement
(Second) of Trusts Sect. 190 cmt. k (1959). The trial
court’s reliance on this comment was misplaced in this case.
Section 190 of the Restatement is
entitled "Power of Sale" and the discussion in comment
k addresses a trustee’s power to grant an option to purchase
based solely upon the expressly granted power to sell the trust
property. See also 3 William F. Fratcher, Scott
on Trusts Sect. 190.8, at 117-18 (4th ed.
1988). In this case, however, the trust provision expressly
granting the Trustee the power to sell the trust property is not
the only provision of the trust agreement which is relevant in
determining whether the Trustee has the power to grant a purchase
In determining the scope of a trustee’s powers,
we seek to effectuate the intent of the grantor as expressed in
the terms of the trust. Frazer v. Millington, 252 Va. 195,
199, 475 S.E.2d 811, 814 (1996). This process requires
consideration of the document as a whole. Id.; Dascher
v. Dascher, 209 Va. 167, 169, 163 S.E.2d 144, 146 (1968).
Although not explicitly identified in the trust agreement,
authority to take certain actions may be implied if the intention
to create such power is evident, the power may be appropriate or
necessary to carry out the purposes of the trust power, and the
power is not forbidden by the trust agreement. Frazer, 252
Va. at 199, 475 S.E.2d at 814; Dascher, 209 Va. at 169,
163 S.E.2d at 147; Restatement (Second) of Trusts
Sect. 186 cmt. d.
As recognized by the trial court, the trust
agreement vested very broad powers in the Trustee.  Of particular relevance here is not
only the power granted in Article VI of the trust agreement to
sell and lease, but also the authority granted in subsection (m)
of that Article to do all other acts and things not inconsistent
with [the trust agreement which the Trustee] may deem necessary
or desirable for the proper management [of the trust] in the
same manner and to the same extent as an individual might or
could do with respect to his own property. (emphasis added).
Any reasonable interpretation of this language would include the
ability of the Trustee to grant an option to purchase. Therefore,
we must determine whether an option to purchase is appropriate or
necessary to carry out the purpose of the trust.
All parties agree that the purpose of this
trust was to provide for the education of the grantors’
grandchildren. The trust agreement states that it is the
grantors’ "primary concern in the creation of this trust to
provide each beneficiary with an adequate and sufficient
education." To effectuate this purpose, the trust agreement
gave the Trustee broad discretion to manage the trust property in
a way which would insure that sufficient assets would be
available throughout the period needed to complete the
grandchildren’s education.  The
Trustee’s use of an option to purchase is in no way inconsistent
with this purpose. Considering all the provisions of the trust
agreement, we conclude that the language of the agreement is
sufficient to imply that the Trustee was given the power to grant
an option to purchase and that there is no basis to exclude use
of the purchase option as a mechanism for achieving the purposes
of the trust.
This conclusion, however, does not end our
inquiry. The authority to undertake a specific action and the
proper exercise of that authority are distinct considerations.
The decision to grant a purchase option is at the discretion of
the Trustee and, even though a trustee’s discretion is generally
broadly construed, "his actions must be an exercise of good
faith and reasonable judgment to promote the trust’s
purpose." NationsBank of Virginia, N.A. v. Grandy,
248 Va. 557, 561, 450 S.E.2d 140, 143 (1994). The trustee must
"exercise the same degree of discretion in the management of
the trust that a prudent man of discretion and intelligence would
exercise in his own like affairs." Parson v. Wysor,
180 Va. 84, 89, 21 S.E.2d 753, 755 (1942).
The trial court considered whether the
Trustee’s action in this case was prudent. Its analysis was made
in the context of determining whether the Trustee’s action
qualified for the exception to the Restatement rule set
out in Sect. 190 comment k. The exception requires a finding
that "the grant of the option was prudent." Regardless
of the purpose for the prudence review, the analysis and the
standard to be applied remain constant and, therefore, the trial
court’s conclusion in this regard is relevant to the inquiry
The trial court concluded that the Trustee’s
action in granting the purchase option was prudent. Based on the
evidence before it on the motions for summary judgment, the trial
court found that there is no evidence that the lease with the
option to Mr. Wood may not have been prudent in light of the
financial analysis advanced by the [Trustee]. The lease of the
property with the option to purchase appears to have rendered
greater financial benefit to the beneficiaries than an outright
sale of the property to Wood would have rendered.
The Beneficiaries disagree with this conclusion
and argue that the actions of the Trustee in this regard were not
prudent because the option contained no escalation in the
purchase price over the course of the 25-year term, no evidence
of how the sales price was reached in 1969, and no provision for
evaluating the market value of the property at the time of sale
at the end of the lease. While the Beneficiaries may be correct
about the state of the record regarding these items, on appellate
review, the factual findings regarding the Trustee’s actions made
by the trial court in this case can be set aside only if there is
no evidence in the record to support them. Code
The financial analysis referred to by the trial
court was that of the Trustee’s expert witness, who compared the
value of the trust following the 1995 deed of conveyance with
what the value of the trust would have been if the trust property
had been sold outright in 1969. Using a $200,000 purchase price,
the highest price Wood indicated he would have paid for the land
in 1969, and taking into account the actual disbursements to the
Beneficiaries and a reasonable return on the trust assets, the
expert testified that the value of the trust in January 1995, if
sold in 1969, would have been $85,000. In contrast, as calculated
by the expert, the actual value of the trust following the 1995
deed of conveyance was $905,830.46. This evidence supports the
trial court’s conclusion that the lease with the option to
purchase "rendered greater financial benefit to the
Beneficiaries" than had the trust property been sold
Furthermore, the record reveals that in 1969
the trust property was swampy wetland, producing no income, and
that only part of the property was zoned for business purposes.
The 1969 assessed value of the property was $281,133 which
included an adjustment to reflect the pre-1977 Albemarle County
policy of assessing real estate at 15% of the fair market value.
Even though Wood testified he wanted to purchase the property in
1969, the most he was willing to pay for it was $200,000.
Finally, he testified that he would not have leased the property
without an option to purchase it. These circumstances support the
trial court’s determination that the Trustee’s actions in setting
a sales price of $750,000 with an income stream in excess of
$400,000 over the 25-year term of the lease were prudent.
In summary, we conclude that under the terms of
the trust agreement, the Trustee had the implied power to grant
an option to purchase, that an option to purchase was not
inconsistent with effectuating the purpose of the trust, and that
the manner in which the Trustee exercised its authority to grant
the purchase option was prudent. Because the Trustee did not
breach the trust agreement in granting the option to purchase,
the Beneficiaries’ challenge to the 1995 deed based on the 1969
purchase option as amended in 1976 must fail. Accordingly, for
the reasons stated, we will affirm the trial court’s decision
that the 1995 deed of conveyance was valid.
IV. 1994 DEED OF TRUST
In light of our holding that the exercise of
the purchase option by the Trustee was valid and not a breach of
the trust agreement, we need not address the Beneficiaries‘
assignments of error I, III, and that portion of II relating to
the validity of the 1995 deed of conveyance based on the 1976
contract of sale; assignment of error IV relating to consent,
ratification and affirmation of the 1995 deed of conveyance;
assignment of error V relating to equitable estoppel; and the
Trustee’s remaining assignments of cross-error. We do, however,
address the Beneficiaries’ claim that the trial court erred in
holding that the 1994 Deed of Trust on the trust property was
The Beneficiaries assert that the 1994 Deed of
Trust executed by the Trustee in favor of Life of Virginia was
invalid because the trust agreement only allowed the Trustee to
place a deed of trust on the trust property for the benefit of
the trust. The Beneficiaries contend that the loan secured by the
1994 Deed of Trust was for improvements to the property and those
improvements did not and were not intended to benefit the trust.
The record shows, however, that the 1994 Deed
of Trust was part of the plan worked out to develop the property
and secure financing for the development. Consequently, whether
the 1994 Deed of Trust benefited the trust must be evaluated
within the context of that plan.
In 1969, the trust property was swampy wetland
with "scrub trees" and a dilapidated, uninhabited house
on it. Wood testified he tried to purchase the property outright,
but the Trustee refused, requiring instead a lease which would
provide an income stream over an extended period of time. Wood
hoped to develop the property himself, even though the Trustee
refused to include a provision in the lease that it would agree
to subordinate its fee interest to secure development financing.
After struggling for a few years with zoning
and financing, Wood was approached by the principals of Rio with
an offer to undertake the development of the trust property as a
shopping center. The shopping center development was feasible for
Rio only if the fee simple interest could be "put up"
as part of the financing. Negotiations ensued, resulting in the
assignment of the lease and option to purchase from Wood to Rio
and the execution of the 1972 agreement. As a condition for
subordinating its fee interest, the Trustee required removal of
"all risks" from the Trustee’s standpoint. Accordingly,
the 1972 agreement provided a guarantee of the rental income and
purchase price by requiring Rio and Wood to acquire a line of
credit for the rent and a certificate of deposit for the purchase
price. Additionally, the Trustee was relieved from all risk
related to rezoning, sewer, road access, environmental concerns,
in short, from all risks connected with "anything [Rio] might do with the property."
The 1994 Deed of Trust was part of the
financing and development plan initiated by the 1972 agreement.
In that agreement, the Trustee agreed to subordinate its fee
interest in the future in exchange for a "virtually
risk-free" position while insuring income to the trust over
a period of years. Without that agreement, the trust had
only Wood’s personal obligation to pay over $13,000 a month for
non-income producing property. This change in position benefited
Based on the facts we have just recited, we
conclude that the 1994 Deed of Trust was executed in performance
of the 1972 agreement. As such, it was a contributing factor to
the overall benefit which the 1972 agreement brought to the
trust. Therefore, the trial court did not err in holding that the
1994 Deed of Trust was valid.
V. REMOVAL OF THE TRUSTEE
In their assignments of error VI and VII, the
Beneficiaries argue that the trial court erred in not removing
NationsBank as Trustee because the record "is replete"
with evidence that the Trustee acted dishonestly, negligently,
and engaged in misconduct in its management of the trust and in
its dealings with the Beneficiaries. As support for this
argument, the Beneficiaries contend that the record shows,
contrary to the trial court’s finding, that the 1969 purchase
option damaged the trust and did not enhance or benefit the
The Beneficiaries assert that damage to the
trust as a result of the 1969 option was evident because, at the
time of the sale in 1995, the assessed value of the trust
property without the improvements was approximately $4 million.
Therefore, according to the Beneficiaries, granting the purchase
option in 1969 caused the trust to suffer a substantial loss
because the sales price was only $750,000. The Beneficiaries thus
conclude that the record cannot support a holding that the
purchase option benefited the trust.
In Part III of this opinion, we discussed the
evidence which supported the trial court’s pre-trial
determination that the Trustee acted prudently when it granted
the purchase option. That evidence likewise provides an adequate
basis for the trial court’s post-trial determination that the
trust was not harmed by the purchase option and that the option
enhanced the trust.
As additional grounds for removal, the
Beneficiaries recite here, as they did in the trial court,
various actions of the Trustee in relation to the execution of
the 1969 lease and option to purchase, 1976 contract of sale,
deeds of trust, the 1995 deed of conveyance, and information
relayed to the Beneficiaries regarding the status of the purchase
Removal of a trustee is within the discretion
of the trial court. The trial court must determine whether it is
in the best interest of the trust for the trustee to be removed. Clark
v. Grasty, 210 Va. 33, 37, 168 S.E.2d 268, 271 (1969). The
trial court reviewed all of the Trustee’s actions and their
impact on the trust, but declined the Beneficiaries’ request to
remove NationsBank as trustee. Based on our review, we cannot
conclude that this decision was an abuse of discretion.
VI. ATTORNEY’S FEES
The Beneficiaries assign error to the trial
court’s determination that the Trustee was entitled to an award
of attorney’s fees to be charged against the trust. The
Beneficiaries challenge both the basis for and the amount of the
Citing Willson v. Whitehead, 181 Va.
960, 965, 27 S.E.2d 213, 216 (1943), the Beneficiaries assert
that a trustee is entitled to attorney’s fees only if the
litigation was initiated "without his own fault." Here,
the Beneficiaries assert, the basis for the litigation was the
Trustee’s action in granting the purchase option, and therefore
the Trustee is not entitled to attorney’s fees. The Beneficiaries
As applied by the Beneficiaries, Willson
would bar an award of attorney’s fees in every case naming the
trustee as a respondent because virtually every case challenging
the administration of a trust is based on some action taken by
the trustee. The correct application of Willson is that a
trustee, who has the duty to defend the actions challenged as
detrimental to the trust, is entitled to attorney’s fees when he
has been called on to defend himself against a charge of
dereliction of duty and there is neither substantial evidence
that the trustee wasted or mismanaged the trust nor evidence of
any conduct warranting the removal of the trustee. Id. at
967, 27 S.E.2d at 217.
In this case, the Trustee was required to
defend against claims of dereliction of duty in granting the
option to purchase the trust property. As we have held, this
action along with the other actions of the Trustee under attack
in this case did not damage the trust but, in fact,
benefited the trust.
The relevant legal principle we apply here is
that where a trustee has a good faith basis for defending a suit
challenging his actions as trustee, attorney’s fees and costs
incurred in the defense of the suit should be charged against the
trust. Cooper v. Brodie, 253 Va. 38, 44, 480 S.E.2d 101,
104 (1997). In this case, the Trustee had a good faith basis for
defending this law suit and there was no evidence of
mismanagement, waste, or any other actions warranting removal of
The Beneficiaries also assert that not all the
fees awarded were related to the defense of the trust, and that
the amount of the fees was unreasonable. The claims made by the
Beneficiaries and the relief sought related to documents and
events which involved all of the respondents; therefore, the
Trustee’s attorneys were required to consult with and review
pleadings and other matters generated by Rio and Life of
Virginia. The Beneficiaries produced no evidence to support their
charge that the consultations were unnecessary or that the amount
of the fees was unreasonable. In contrast, the Trustee introduced
expert witness testimony to establish the reasonableness of the
time spent on the case and the amount of the fees. Furthermore,
the trial court reduced the Trustee’s request for attorney’s fees
Accordingly, we will affirm the trial court’s
judgment awarding attorney’s fees to the Trustee.
VII. CODE Sect. 8.01-271.1
Finally, we reject claims made by Life of
Virginia and Rio that the trial court erred in refusing to impose
sanctions against the Beneficiaries and their counsel pursuant to
Code Sect. 8.01-271.1. The trial court concluded that this
litigation was not frivolous. A number of issues in this
case, even though decided against the Beneficiaries, were subject
to legitimate debate. The relief requested by the Beneficiaries
included vacating the 1995 deed of conveyance and the 1994 Deed
of Trust. Neither of these remedies could have been granted
without joining Rio and Life of Virginia as parties.
In reviewing a trial court’s award of sanctions
pursuant to Sect. 8.01-271.1, we apply an abuse of
discretion standard. Oxenham v. Johnson, 241 Va. 281, 287,
402 S.E.2d 1, 4 (1991). Based on our review in this case, we
conclude that the trial court did not abuse its discretion in
denying the imposition of sanctions and attorney’s fees.
The Beneficiaries’ final assignment of error,
that the trial court erred in adopting the respondents’ findings
of fact and conclusions of law, merits little attention. We have
reviewed and affirmed all the factual findings and legal
determinations of the trial court necessary for the disposition
of these appeals. There is no need to review matters which have
no bearing on the issues before us.
In summary, for the reasons stated in this
opinion, we will affirm the judgment of the trial court.
Record No. 972622–Affirmed.
Record No. 972640–Affirmed.
 Article VI of the trust agreement granted the Trustee
the power to "dispose" of the trust property by
"sale, exchange, or otherwise as and when it shall deem
advisable;" to dispose of the property "upon such terms
and conditions as it, in its absolute discretion, may deem
advisable, at either public or private sale, either for cash or
deferred payments or other consideration, as it may
determine;" and to "lease any or all of the real estate
. . . upon such terms and conditions as said
Trustee, in its sole judgment and discretion, may deem
 At the time the trust was created, one of the
beneficiaries had not yet been born and the other three were
between three and eight years of age.
 The evidence upon which the trial
court based its pre-trial finding was presented to the court by
affidavit and exhibits prepared by the Trustee’s expert. The same
evidence was subsequently presented ore tenus
during trial through the expert’s testimony.