## Facts

- A farm owner leased 400 acres of his Phillips County farmland to his daughter and son-in-law for 25 years at $35 per acre per year, with a use requirement tied to planting and harvesting crops.
- The owner’s will placed all farm land, including the leased acreage, into a testamentary trust for the life benefit of his second wife, with the daughter and son-in-law named as trustees.
- In 1989, the son-in-law stopped active farming due to declining health, and the couple entered a lease of their broader farming operation (including the 400 acres) to a third-party farm partnership at about $67 per acre.
- Despite collecting the higher sublease rent for the trust land, the trustees continued paying the trust only the original $35 per acre for the 400 acres.
- After the life beneficiary died, her estate’s executrix sued, alleging breach of fiduciary duty and seeking the unpaid rental value, prejudgment interest, and attorney’s fees.
- The chancery court found self-dealing, concluded the lessees had no rights under the original lease once they ceased farming, and awarded damages based on fair rental value plus prejudgment interest (1989–1991) and attorney’s fees.

## Issues

1. Whether the trustees breached the duty of loyalty through self-dealing by subleasing trust land at a higher rate and retaining the enhanced rent.
2. Whether the court erred in concluding the lessees had no enforceable benefits under the original lease after they stopped farming the land.
3. Whether the awards of prejudgment interest (1989–1991) and attorney’s fees were erroneous.
4. Whether recovery should have been the full sublease rentals rather than fair rental value (cross-appeal).

## Decision

- The Arkansas Supreme Court affirmed the finding that the trustees engaged in self-dealing by failing to pass the enhanced rental value to the trust beneficiary.
- The court affirmed the ruling that once the trustees ceased farming, they had no continuing rights under the original lease that would allow them to keep sublease profits while paying only the lower lease rate to the trust.
- The court affirmed the awards of prejudgment interest for 1989–1991 and attorney’s fees.
- The court declined to consider the cross-appeal challenging the damage measure due to lack of supporting authority.

## Legal Principles

- Trustees owe beneficiaries a duty of undivided loyalty and generally may not profit personally from trust property at the beneficiary’s expense.
- A trustee who also occupies another role involving trust property (such as lessee) must still administer the property to benefit the beneficiary and must not retain gains derived from conflicted dealings.
- Self-dealing can constitute a breach of fiduciary duty even absent proof of intent to harm the beneficiary.
- Prejudgment interest may be awarded in equity when a determinable sum was wrongfully withheld, and attorney’s fees may be awarded in appropriate trust and fiduciary litigation.

## Conclusion

The court held that trustee-lessees breached their fiduciary duty by subleasing trust land for a higher rent while remitting only the lower lease rent to the trust, and it upheld damages based on fair rental value along with prejudgment interest and attorney’s fees.


Hosey v. Burgess, 890 S.W.2d 262 (Ark. 1995)