Court Opinion

ID: 9538962
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:44:38.2958+00
Date Added: 2024-06-11T14:58:20.774863
License: Public Domain

DISSENTING OPINION OF
RICHARDSON, C.J.
I respectfully dissent.
The Bishop-Post agreement can be sustained as a prudent trustee action under the will of Bernice Pauahi Bishop.
The majority arrived at its conclusion regarding the Bishop-Post agreement by a two-step process. First, the majority states that “the Bishop-Post agreement must stand on its own merits, independently of the KDC-Post agreement and without regard to any consideration based on the majority trustees’ prior dealings with Post. Secondly, the majority finds that the Bishop-Post agreement cannot stand on its own merits and is, therefore, invalid.
I am not persuaded by the majority’s reasoning on either point.
The majority reasons that “the Bishop-Post agreement must be capable of withstanding scrutiny independently of the KDC-Post agreement because the obligation of the trustees to make the conveyance thereunder is not conditioned on the performance of Post’s obligations in the KDC-Post agreement.” In other words, because the probable benefits to the estate of the KDC-Post agreement were not technically a part of the Bishop-Post agreement, they must be disregarded entirely by the court in evaluating the prudence of the trustees’ action in undertaking the Bishop-Post agreement. This reasoning can only be based on a view of trustees’ fiduciary duties that is, in my opinion, unduly restrictive.
As the majority concedes, the trustees of the Bishop *350Estate “are vested with a discretion to act in regard to the sale and disposal of land, . . . and ... a court of equity should not intervene unless it is made to appear that the trustees are abusing the discretionary powers vested in them.” Hyde v. Smith, 11 Haw. 535, 538 (1898).
In determining questions of trustee discretion regarding the disposal or investment of trust assets, this jurisdiction has in the past used as a criterion the “prudent investment rule” set forth in Dowsett v. Hawaiian Trust Co., 47 Haw. 577, 583, 393 P.2d 89, 94 (1964) as follows:
In acquiring, retaining, exchanging, selling, investing, reinvesting and managing property of another,including investments for account of their trusts by trust companies acting as trustees or guardians, a trust company shall exercise the judgment and care, which, under the circumstances then prevailing, men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds and property considering both probable income and probable safety of capital. Dowsett v. Hawaiian Trust Co., 47 Haw. at 583, 393 P.2d at 94 (emphasis added).1
Application of this rule clearly requires consideration of factors external to the sale of property in judging a trustee’s action, and it was so applied in both Dowsett v. Hawaiian Trust Co., supra, and its companion case, Steiner v. Hawaiian Trust Co., 47 Haw. 548, 393 P.2d 96 (1964).
According to the law of this jurisdiction prior to this case, then, the benefits which were likely to accrue even*351tually to the estate from the KDC-Post agreement were a proper element to be considered in judging the trustees’ evaluation of the Bishop-Post agreement. The majority’s holding that this was improper has no basis in law and will, in my opinion, have the unfortunate consequence of severely restricting trustee investments in this jurisdiction.
The majority also states that “the Bishop-Post agreement must be capable of being sustained as a prudent trustee action under the will without regard to the original agreement or anything which previously transpired between the majority trustees and Post, for the reason that the original agreement had no binding effect on the estate without the approval of the circuit court.”
The majority offers three reasons why the submission of the original agreement to the circuit court was necessary to give that agreement binding effect. First, it is stated that “the development of the portion of the mauka area outside of the boundaries of the project lands is not within KDC’s authority under the judgment.”
I disagree.
Paragraph 2 of the judgment provides “the corporation, when formed, will engage in the business of development, subdivision, sale, leasing of the real property conveyed to it and in general will have authority to do all things relating to the development of said lands which are customarily done by similar business corporations . . . .” The original KDC-Post agreement provides for the joint development of the lands described in the judgment and another piece of land, the land to be sold to Post. It is clear to me that this is a “thing relating to the development of {the lands described in the judgment} which [is] customarily done by similar business corporations” and consequently is within KDC’s authority under the judgment.
The majority uses paragraph 8 of the judgment, which states that “to develop other lands of the estate, *352the trustees are authorized to form corporations for said purposes, subject to . . . approval by the court prior to their formation” (emphasis added), as support for its contention that KDC is not authorized to engage in a joint development which will include all of the land sold to Post. The original agreement did not contravene paragraph 8, however, for the reason that the agreement did not require KDC to develop any lands of the estate other than those described in the judgment. The land to be developed, other than that described in the 1965 judgment was to be land not of the estate, but rather land which by the time the development agreement took effect would be owned by Post. The original joint venture agreement, then, was entirely within KDC’s authority under the 1965 judgment.
The majority follows a circuitous route in presenting its other two reasons for requiring the submission of the original agreement to the circuit court. The majority states that the trustees’ actions, in joining in an agreement which made KDC an equal participant with Post in the joint development of the entire mauka area and in agreeing to the formula of allocation of the improvement cost of the makai area, were “questionable” as prudent trustee actions. The questionableness of each action is a separate reason for requiring the submission of the original agreement to the circuit court.
Even if the majority’s view on the questionableness of the trustees’ actions is accepted, their reasoning does not support their position. The majority asserts that since the original agreement was the result of an abuse of discretion by the trustees, it was not binding on the estate and therefore, not to be considered by this court in evaluating the prudence of the trustees’ action in entering into the Bishop-Post agreement. In order for this to be so, however, we must say that the trustees’ actions constituted a clear abuse of discretion, which would have led a court ineluctably to hold the original agreement in*353valid. If the actions were merely “questionable”, there would exist the possibility that if referred to a court the agreement would be upheld and that Post would then insist on performance. If such were the case, the estate would be in a worse position than if the trustees did not submit the agreement to the court but instead negotiated a superseding agreement more advantageous to the estate, which is what the trustees in fact did. Even if the trustees’ actions were “questionable”, then, in judging the prudence of the Bishop-Post agreement we must allow that it was reasonable for the trustees to consider the possibility that the original agreement was binding on them.
We come now to the question of whether entering into the Bishop-Post agreement constituted an abuse of discretion on the part of the trustees. The majority’s first contention on this point is that “the majority trustees executed the Bishop-Post agreement upon a determination that the sale mentioned therein was necessary for the capital or operational requirements of the Kamehameha Schools [only in that it] was a means to free the estate from the original agreement.” The majority feels that the determination was insufficient, and proclaims that “[a] determination that an agreement is better than the agreement previously executed, with no binding force on the estate and as to which the majority trustees entertained enough reservation to form a desire not to go through with it, is not a determination that the sale mentioned therein is for the best interest of the estate.”
In my view, the majority’s position is utterly untenable. The majority is again basing their argument on a post facto disagreement with the reasonableness of the trustees’ determination of the benefits of the original agreement. For the reasons discussed above, I disagree with the majority’s premise that the trustees should have acted as though the original agreement had no binding *354force on the estate. Once the premise is discarded, it is clear that the trustees’ execution of a subsequent agreement, concededly more advantageous to the estate, was based on a determination that the sale mentioned therein was for the best interest of the estate.
Finally, we come to the issue of the sale price of the lands to be sold to Post under the Bishop-Post agreement. The majority reasons that the Bishop-Post agreement must be judged as if the KDC-Post agreement didn’t exist and as if the majority trustees’ prior dealings with Post had never occurred. If this were so, using a July 1, 1968 appraisal figure as the price for a December 29, 1969 agreement would indeed be inexplicable and a patent abuse of discretion on the part of the selling trustees. As explained above, however, the majority’s refusal to appreciate the total factual picture is not based on a sound view of the law and therefore, the Bishop-Post agreement must be judged in view of the circumstances leading up to and concomitant with the transaction. Some of these circumstances were: the estate’s shortage in cash and income flow; the benefits which would accrue to the estate from the KDC-Post transaction; the fact that an earlier agreement had been negotiated with Post on which he had been ready to perform since January 1969; the fact that the development project was a potentially large revenue source for the estate; and the fact that the estate-owned lands mauka of the Post lands, hitherto of negligible value, would greatly increase in value as a result of the projected development. In view of these circumstances, the 1968 appraisal value was a price that a reasonably prudent businessman would have settled for were he in the position of the trustees.
The Bishop-Post agreement, then, constituted a prudent trustee action under the will of Bernice Pauahi Bishop. In my opinion, the circuit court erred in disapproving the agreement and ordering the trustees not to effect the sale of land mentioned therein.
*355I agree with the majority that “£t]he function of the attorney general, as parens patriae of charitable trusts, is to oversee the activities of the trustees to the end that the trust is performed and maintained in accordance with the provisions of the trust document, and to bring any abuse or deviation on the part of the trustees to the attention of the court for correction. Hite v. Queen’s Hospital, 36 Haw. 250, 262 (1942). The authority of the attorney general over charitable trusts does not extend beyond the performance of that function. M. R. Fremont-Smith, Foundations and Government, 198 (1965).”
To conclude, I feel that the majority’s reasoning upon analysis is revealed to be basically a mere criticism of the considered judgment of intelligent, conscientious trustees. The majority of this court has substituted its judgment for that of the trustees. As a result of this decision, the trustees of Bishop Estate and of other trust estates in this jurisdiction will find themselves hamstrung in their business dealings by a fear of constant critical scrutiny by courts possessed of the perfect vision of hindsight. This will be a highly unfortunate result of an unfortunate case.
I would reverse.

 Although the cited statement is a quotation of a statute, R.L.H. 1955, § 179-14, now HRS § 406-22, this court in Dowsett cited the statute only because it “best stated” the “prudent investment rule”, 47 Haw. at 583, which is a common law rule. Cf. Scott, Trusts, § 227, 1805-1806 (3d ed. 1967) . Although in Dowsett this court was concerned with the actions of a trust company, the "prudent investment rule” applies equally to the trustees of the Bishop Estate.