Estate Of Collins

72 Cal. App. 3d 663, z139 Cal. Rptr. 644 (1977)

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Nature of the Case

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Facts

Testator established a trust for his wife, children, and parents (P). The trust instrument authorized the trustees (D) to make any kind of investment and granted them absolute discretion in administering the trust. After Testator's death, the trustees made such distributions as required by the will. They took the funds available for investment and loaned them to clients of one of the trustees who were real estate developers. The loan was secured by a second deed of trust to land owned by the clients, and by stock in the clients' company. D was aware that the clients were having financial problems. However, they did inquire as to the market value of the property, and the financial status of the clients before making the loan. The clients began making payments on the loan. About a year later, however, the company went into involuntary bankruptcy, and the principals filed for personal bankruptcy. D foreclosed on the deed, but their claim to the land was defeated by the senior lienholder. The lower court found that D acted in a reasonably prudent manner, and refused to hold them liable for the lost trust assets. P appeals, arguing that D failed to act prudently by not diversifying the investments; by taking a second deed of trust; and by investing without adequately investigating the borrowers and collateral.