Opinion ID: 2598252
Heading Depth: 2
Heading Rank: 1

Heading: Rejection of Rock Springs Agreement

Text: [¶ 13] To address whether the trial court erred by refusing to confirm the Rock Springs purchase agreement, we must ascertain what standard the trial court should have applied by first examining the trust agreement's terms. The trust agreement provided the trust was to be administered without the active supervision of the court [2] and the trustee would be permitted to deal with the trust property as natural persons would deal with their own property including sale thereof. [3] It also provided the trustee could exercise those powers set forth in the Uniform Trustees Powers Act. Though the trust required a concurrence of a majority of trustees for certain matters pertaining to its administration, notably absent is any provision requiring the beneficiaries to approve a sale of trust property. The provision regarding consent of the majority of the trustees has no application here because, at all times relevant to this appeal, there was only one trustee. [¶ 14] The trust's plain language gave ANB authority to sell the ranch property without the beneficiaries' approval. Hronek, 866 P.2d at 1307; see also Parrette v. Hutchison, 165 Cal.App.3d 157, 211 Cal.Rptr. 313, 315 (1985) (the trust document's language is the centerpiece of interpretation. Words are to be taken in their ordinary and grammatical sense unless a clear intention to the contrary can be ascertained). While a trustee may sua sponte seek the beneficiaries' agreement, unless the trust agreement so provides, their consent is not required. [¶ 15] In an apparent effort to avoid any question concerning the propriety of the sale, ANB sought the beneficiaries' consent to the sale pursuant to the Rock Springs agreement. Unable to obtain that consent, and probably in an effort to foreclose future challenges to the sale, ANB included a clause in the Rock Springs agreement as follows: APPROVAL BY THE COURT: This sale is subject to confirmation by the Converse County District Court, Eight[h] Judicial District, Probate No. 39-56 wherein [ANB] was appointed as Trustee of the Colista Combs Clements Trust. If for any reason the sale is not confirmed and ratified by the appropriate judicial authority, [Rock Springs] shall be entitled to receive all earnest money paid to date as a total refund under the Agreement and the right to declare the Agreement null and void and of no further force or effect. [¶ 16] ANB's and Rock Springs' rights and obligations under the sales agreement were not altered or suspended in any way pending the trustee's efforts to obtain court confirmation of the sale. Both parties were bound by the agreement as any other seller and buyer would be. However, since the Rock Springs agreement was conditioned upon court confirmation, the trustee continued to offer the property for sale and, ultimately, a year later, secured the second agreementthe Reed agreement. While that agreement provided a higher purchase price, it had other less attractive terms including a minimal earnest money deposit, the inclusion of mineral rights, and the condition precedent that the buyer must first sell certain coalbed methane leases for a minimum of $10 million. [¶ 17] The standard governing the trial court's consideration of the request to confirm the sale should be whether the trustee was acting in a reasonable and prudent manner at the time the agreement was executed, not whether it had obtained the highest price possible at the time the court acted. [M]ere inadequacy of price will not justify a court in refusing to confirm a sale, thus depriving the purchaser of the benefit of his bargain, unless the inadequacy is such as amounts to fraud. Where the inadequacy of price is accompanied by substantial irregularity which affects the rights of a party or parties to the proceeding, reviewing courts will sanction the disapproval of a sale. In this case the only reason appellee seeks disapproval of the sale is because more money was offered. The fact that events subsequent to a sale in good faith result in the trust estate being deprived of a substantial sum of money, does not outweigh the injustice which a denial of confirmation would work upon appellant. Evans v. Hunold, 393 Ill. 195, 65 N.E.2d 373, 376 (1946) (emphasis added & citations omitted). This concept is reflected more recently in the following excerpt: A trustee enjoys the discretion to make decisions regarding the disposition of the trust corpus, provided that he or she acts prudently. He or she is not obligated to accept the highest offer, if there are advantages to accepting the offer of another bidder. He or she cannot, however, direct benefits to non-beneficiaries at the expense of the beneficiaries. Aloha Lumber Corporation v. University of Alaska, 994 P.2d 991, 1000 (Alaska 1999) (footnote omitted). This standard is also referred to as the prudent investor rule. Overall trust performance is a factor in evaluating the performance of the trustee. But it is not by itself controlling. The court's focus in applying the Prudent Investor standard is conduct, not the end result. J. Alan Nelson, The Prudent Person Rule: A Shield for the Professional Trustee, 45 Baylor L.Rev. 933, 939 (1993). The American version of the prudent investor rule began with the Harvard College case: `All that can be required of a trustee to invest, is, that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.' Nelson, 45 Baylor L.Rev. at 939 (quoting Harvard College v. Amory, 26 Mass. (9 Pick.) 446, 460-461 (1830)). In Harvard College, the court recognized that trust assets could never be fully protected from the uncertainties of the market place; thus, the prudent investor standard was necessarily flexible. Nelson, 45 Baylor L.Rev. at 938. Johnston v. Cooper, 81 Wash.App. 79, 913 P.2d 393, 398 (1996). Likewise, Wyo. Stat. Ann. § 4-8-103 (LexisNexis 2001) (repealed 2003) authorized trustees to perform, without court authorization, every act which a prudent investor would perform for the purposes of the trust. [¶ 18] In this case, the trial court found ANB's acceptance of the Rock Springs agreement was a prudent decision at the time it was made. Whether such a decision was prudent or not is a question of fact. Johnston, 913 P.2d at 398. The beneficiaries filed no appeal from that finding. Substantial evidence supported the court's finding. In May 1999, when the ranch was partitioned, the trust property was valued at approximately $805,000. In the same time frame, two of the three beneficiaries indicated in a letter they thought a fair valuation of the property was $1,065,000. A year later, Rock Springs offered $1 million and made a $50,000 earnest money payment. The mineral rights were not included, and no real estate commission was involved. Considering the record as a whole, we agree with the trial court that ANB acted prudently and reasonably when it entered into the Rock Springs agreement. [¶ 19] However, since the Rock Springs agreement required court confirmation, we must determine whether that fact altered or diminished the trustee's authority. In D'Ottavio v. Union National Bank and Trust Company of Joliet (Estate of Masters), 152 Ill.App.3d 907, 105 Ill.Dec. 898, 505 N.E.2d 24, 27 (1987), the court considered the meaning of the phrase subject to court approval included in two competing contracts for sale of trust real property, the first contract having been accepted the night before the second and offering a slightly higher purchase price. In D'Ottavio, as in the instant case, the trustee inserted the court approval provision even though it was not required by the trust, the will, or any statute. The court held: [T]he insertion of the provision Subject to Court Approval in the [first] contract amounted to conditional acceptance of the offer to purchase rather than merely making the contract a conditional offer. The trustee-bank then owed [the first purchaser] the duty to use reasonable efforts to obtain court approval of the contract. Having entered into a binding contract with [the first purchaser] subject only to court approval, the trustee should not have entered into a subsequent contract to sell the property to another party. The equitable interest [the second purchaser] acquired under his contract with the trustee was subject to the [first purchaser's] interests under the prior transaction. This follows the general rule that where equities are otherwise equal, the older in point of time prevails. It is conceded that the trustee, [the realty companies], and [the second purchaser] all had knowledge of the execution of the [first] contract on the day prior to when the agreement embodying the higher offer was ... executed. D'Ottavio, 105 Ill.Dec. 898, 505 N.E.2d at 27 (citation omitted). [¶ 20] We find this reasoning compelling and conclude that ANB conditionally accepted the Rock Springs agreement and had a duty to use reasonable efforts to secure court approval. The record reveals that, although ANB filed the declaratory judgment action promptly after executing the Rock Springs agreement, over a year passed before the parties obtained a hearing. Ultimately, the trustee joined with the beneficiaries to request approval of the later contract. This placed Rock Springs in the unenviable position of having to intervene in the ongoing litigation, where significant hostility had developed between the beneficiaries and the trustee, in order to protect its rights under the agreement ANB had conditionally accepted. The record indicates the beneficiaries made ANB's pursuit of court approval of the Rock Springs agreement difficult at best. The court eventually found that ANB had made a prudent and sound decision when it signed the Rock Springs agreement. On the basis of that finding, we can reasonably infer the trial court would have confirmed the Rock Springs agreement had there not been the delay caused by the beneficiaries' litigious actions. [¶ 21] Despite finding the Rock Springs agreement was prudent, the trial court apparently concluded it must look beyond that fact and determine whether the sale was, a year later, in the trust's best interest. The beneficiaries argued this was the appropriate test because the Rock Springs agreement had provided for court confirmation and that fact alone warranted the court to undo what the trustee had done if it determined at a later date that a higher price could be obtained. The trial court found the court approval clause conveyed to it broad advisory and even supervisory powers over those matters within the trustee's authority and require[d] judicial consideration of the benefit to the trust and the best interest of the Beneficiaries as a matter of the Court's exercise of discretion in decision. We disagree. The trustee's authority was not altered or diminished when the trustee simply asked the court to confirm the sale. The authority granted by the settlor could not be altered by an agreement between the trustee and a third party, essentially a stranger to the trust, to seek the protection of court confirmation of a proposed sale of property. Marvin F. Hall Trust v. Hall, 810 S.W.2d 710, 714 (Mo.Ct.App.1991). [¶ 22] The court's authority to review a trustee's actions is limited to assuring the terms of the trust are met. The Restatement (Second) of Trusts provides: Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court, except to prevent an abuse by the trustee of his discretion. Comment: c. Kinds of discretionary powers. The rule stated in this Section is applicable both to the powers of managing the trust estate conferred upon the trustee either in specific words or otherwise, and also to such powers as may be conferred upon him to determine the disposition of the beneficial interest. Thus, it is applicable not only to powers to lease, sell or mortgage the trust property or to invest trust funds, but also to powers to allocate the beneficial interest among various beneficiaries, to determine the amount necessary for a beneficiary's support, or to terminate the trust. Restatement (Second) of Trusts § 187 & cmt. c at 402 (1959). Many jurisdictions have applied this rule and have limited review of trustee actions to determining compliance with the trust's terms, not replacing the trustee's judgment with that of the court. `To the extent to which the trustee has discretion, the court will not control his exercise of it as long as he does not exceed the limits of the discretion conferred upon him.' 2 Scott on Trusts (2d ed.1956) § 187 at 1374. Benadom v. Colby, 81 Md.App. 222, 567 A.2d 463, 468 (Ct.Spec.App.1989); see also Templeton v. Peoples National Bank of Washington, 106 Wash.2d 304, 722 P.2d 63 (1986); Miller v. First Hawaiian Bank, 61 Haw. 346, 604 P.2d 39, 42-43 (1979). The trial court's assumption of expansive authority over the trust because a trustee or beneficiary has asked for clarification of a narrow question penalizes the trustee. Benadom, 567 A.2d at 469. This is illogical. Rather, the court should determine: (1) the extent of the Trustees' discretion under the Trust; (2) if the Trust instrument confers discretion on the Trustees regarding the matter in issue; and (3) if the court determines there is discretion on the matter at bar, the court defers, assuming the Trustees have acted honestly and reasonably. Id. Generally, a court of equity, as part of its general supervisory powers over trusts, has the authority to instruct and advise trustees about their powers and duties. However, there are limits on a court's authority to advise and instruct trustees, the prime limitation being that such instructions should be given only when the trustees have reasonable doubt about their duties.... [ C ] ourts should not serve as legal advisers to trustees. Thus, the purpose of a court's guidance to trustees is to protect the trustees in those situations where the advice of competent lawyers is not sufficient protection because of doubtful meaning of the trust instrument or uncertainty as to the proper application of the law to the facts. [ First National Bank v. ] Christopher, 624 S.W.2d [474,] 481 [ (Mo.App.1981) ]. Marvin F. Hall Trust, 810 S.W.2d at 715 (some citations omitted & emphasis added). [¶ 23] Sound public policy supports giving effect to contracts entered into with trustees in good faith and for adequate consideration. Goldberg v. Strass, 11 Wis.2d 410, 105 N.W.2d 553 (1960). Prospective purchasers must be provided the certainty that their contracts will be honored in order for trusts to be able to function effectively. Id.; Evans, 393 Ill. 195, 65 N.E.2d 373. Rock Springs argues the policy is almost indistinguishable from that which promotes the integrity of sheriff's deeds such as was at issue in Lutz v. Schmillen, 915 P.2d 599 (Wyo. 1996), abrogated on other grounds by Vaughn v. State, 962 P.2d 149, 151 (Wyo. 1998). We recently made reference to a similar policy in the context of foreclosure sales, stating: Manion v. Chase Manhattan Mortgage Corporation, 2002 WY 49, ¶ 7, 43 P.3d 576, ¶ 7 (Wyo.2002), indicates this court's continued reticence to set aside or vacate a foreclosure sale absent clear prejudice and irregularity of the proceedings even when an inadequate price has been paid.... .... .... [T]he [purchaser is] entitled to rely upon the sanctity and finality of the foreclosure process and to protect [its] interest.... McNeill Family Trust v. Centura Bank, 2003 WY 2, ¶¶ 14-20, 60 P.3d 1277, ¶¶ 14-20 (Wyo.2003). [¶ 24] The record in this case discloses good reason for such finality. While an appraisal at the time of the original agreement supported the $1 million value, the beneficiaries presented a second appraisal dated a year later with a higher value. The court recognized the second appraisal had some problems and relied heavily on anecdotal information the successor trustee provided regarding ranch operations. The evidence also suggested the property's condition was improved after the first agreement was signed which may have increased the property's value, and Rock Springs argued it assisted in making the improvements. These changes in circumstances are typical in matters of real estate and demonstrate why a standard which allows the trustee's actions to be judged by proverbial twenty/twenty hindsight is problematic. [¶ 25] The trial court also considered the resistance of the Successor trustee and the Beneficiaries in refusing to confirm the Rock Springs agreement. We believe the court should have been governed by the settlor's intent, not the beneficiaries' preferences, when they were entitled to no more than the trustee's proper exercise of its fiduciary duty. The trust's terms make it clear the settlor intended the trustee to exercise its judgment regarding what was in the trust's best interest without interference by the courts. This trust provided the trustee with authority to deal with trust property as any natural person would. While it is understandable a trial court may lean toward allowing the beneficiaries to have input into how the trust assets are managed, as a matter of law, when the court is asked to confirm a trustee's actions, the trust terms must govern, and the actions must be judged, in light of those terms, at the time the action is taken. [¶ 26] The trial court improperly refused to confirm the Rock Springs agreement for the sole reason evidence existed that the property had a higher value over a year later. Once the trial court determined ANB acted in a prudent manner when it accepted the Rock Springs agreement, it should have confirmed that agreement. Therefore, we reverse and remand to the trial court for entry of an order of confirmation and authorization of the Rock Springs agreement consistent herewith.