Court Opinion

ID: 6381020
Source: CourtListenerOpinion
Date Created: 2022-06-25 00:00:38.532144+00
Date Added: 2024-06-11T15:50:21.257654
License: Public Domain

Van Dusen, P. J.,
concurring. — Section 233, comment to, of the A. L. I. Restatement of Trusts, which authorizes the payment out of principal of the carrying charges of unproductive trust property, should be read in connection with section 240, which requires the sale of such property within a reasonable time. It is the carrying charges for that interval which are to be paid out of principal. Such charges are an expense of liquidation — an administrative expense — the cost of putting the trust property in shape to produce income. So far as sale is delayed beyond a reasonable time, we have another problem, to be solved when we come to it. Claims by life tenants under section 241 of the Restatement of Trusts for *317a part of the proceeds of the sale of unproductive property will, when made, present still another problem.
What is a reasonable time, of course, would depend upon circumstances. Trustees should be warned that it is not their duty to delay in order to get a better price. It is their duty to sell when a sale can be made at a fair price, and not to speculate with the trust property. Of course, situations arise in which practically no sale at all can be made, or a sale only at an absurd price. In such cases the reasonable time might be long.
If the matter is dealt with in this way, I think that many of the objections stated by Judge Stearne in his earnest and thoughtful dissenting opinion would disappear. One objection requires special notice. The case in which there is a legal life estate and a legal remainder is different from the case of a trust estate in this, that in the first case there are two separate owners of one piece of property, not an item in a trust fund, and they must manage their property themselves as best they can. If a life tenant does not want to assume carrying charges, he may refuse the burdensome gift. But in the case of a trust estate there is the common representative of both parties who is charged with the duty of conversion, and who, in most eases, has other trust funds to help finance the operation. During the limited period in which the trustee is to make conversion, the payment of carrying charges as an administrative expense is not a violation of the general rule that the life tenant must pay current expenses.
I am not prepared to accept the suggestion that the expense of carrying the property during the reasonable time should depend upon who was benefited by carrying the property. I should suppose that if there was a gain, all parties were benefited, and I would be surprised to meet a case where it would be otherwise. What is to be done if there is a loss? The rule of the Restatement seems to be just and not to require any variation. That rule is found in section 233, comment m. The reasons are those *318which I have stated above. The rule of apportionment of the proceeds of property held as security for a debt is found in section 241 of the Restatement. To my mind the reasons for this rule are those which I stated in Dornan’s Estate, 19 D. & C. 539, namely, that the security is held for the benefit of principal and income alike, and that the salvage operation is conducted for the proportionate benefit of the two parties in interest. The two matters are separate, and founded on different reasons, and they ought not to be confused.
If there is any difference between unproductive real and personal estate, it may appear when a case involving the latter class comes before us.
It is objected that the rule now adopted upsets what has heretofore been supposed to be the law. We must not hesitate to adopt new law to be applied to old situations, when, in new light, it appears to be best. The Restatement will no doubt introduce us to other doctrines to which we were hitherto strangers. The “salvage operation” method of handling foreclosed mortgages was entirely new in this State, though trust estates had handled foreclosed mortgages for decades.
In the present case, the auditing judge has found that the delay has resulted in a gain which is more than enough to pay the carrying charges. This does not mean that the delay was reasonable. So far as appears, the property could have been sold for a fair price at an earlier date and the trustee ought not to have yielded to the life tenant. But as the trustee has speculated successfully, the funds so raised should bear the expense of the speculation. That is to say, the gain by the delay is the net gain — the increase in price less the expense of waiting.
Therefore, I concur in the conclusion of the majority.