Court Opinion

ID: 6392960
Source: CourtListenerOpinion
Date Created: 2022-06-25 00:21:02.295386+00
Date Added: 2024-06-11T15:50:47.297282
License: Public Domain

Adjudication
Bolger, J.,
Michael Ehret died February 17, 1913, leaving a will and codicils which were duly probated.
By the seventh paragraph of his will, testator gave two thirds of his residuary personal estate and all of his real estate, subject to a life estate in one third thereof, to his trustees in trust, to hold until the expiration of 21 years after the death of his last surviving child. During the continuation of the trust, he directed his trustees to pay the income, per stirpes, to his descendants living at each quarterly distribution date. At its termination, he directed the payment of principal to his then living descendants, per stirpes. However, by the ninth paragraph of the will, testator gave each of the children a power by will to appoint his share of income and principal among his issue.
*52Michael Ehret named his sons, Harry S. Ehret and Alvin. M. Ehret, and his friend, George W. Elkins, as his executors and trustees. By item eighth of his will, he provided that upon the death or resignation of Elkins, some reliable trust company be appointed in his place. George W. Elkins died on October 23, 1919, and the remaining trustees petitioned this court for the appointment as trustee of Land Title and Trust Company (now Provident National Bank by virtue of various mergers). By decree of this court dated December 12, 1919, accountant’s predecessor was appointed substituted trustee____
By decree of this court dated September 14, 1965, Harry Polish, Esq., was appointed guardian ad litem for designated minors and Ellen S. McCall, an incompetent, and trustee ad litem for all unborn and unascertained persons having a possible interest in this trust. His report is annexed. With one exception, he approves the account as stated, and he requests that it be confirmed with one modification....
On page 7 of the account as a disbursement of principal, there appears a credit of $10,000 characterized as “Corporate trustee’s compensation”. Since this trust is to continue in existence until July 15, 1985, this compensation to the corporate trustee is an interim commission on principal. This is the one exception to the account taken by the guardian and trustee ad litem.
It was stated by counsel for accountant that the claim for $10,000 interim commission is solely on account of, or as part payment for, ordinary services performed by the trustee to date. It does not include any claim for extraordinary services.
In support of its claim for an interim commission on principal, accountant presented the testimony of two of its officers, a trust officer and a vice president in charge of trust administration. They testified as *53to the various duties performed by the corporate trustee over the period of its involvement with this trust, such as bookkeeping, possession of the assets of the trust, investment reviews and decisions. Their testimony showed that previous to the payment of the $10,000 in controversy, the corporate trustee had received principal commissions of $2,200.50. This figure is three percent of $73,350 realized on the sale of real estate. This commission was approved at a prior accounting and is not before us. During the continuation of this trust, it has received commissions on income totalling $65,762.75. The account value (as corrected by the testimony of one of the witnesses) of this trust is $746,550.81, and the market value at the accounting date is $1,020,958.16.
It was stated by the guardian ad litem that, if an interim principal commission was properly allowable at this time, the amount of $10,000 was fair and proper under all the circumstances. It is his view of the matter, however, that such a commission is not properly allowable; that it is barred by the rationale of the decisions of the Supreme Court in Williamson Estate, 368 Pa. 343 (1951), and in Scott Estate, 418 Pa. 332 (1965).
Accountant takes the position that the Act of May 1, 1953, P. L. 190, 20 PS §3274 et seq., by its terms operates retroactively to permit an interim principal commission and that there is no bar to its application to a trust created in 1913. In its view, the Act of 1953, permitting interim principal commissions, deals purely with an administrative matter, a matter which can be changed by the legislature at will. It argues that principal commissions will be paid in any event upon the termination of the trust, and it is merely a question when such compensation is to be received.
Prior to the passage of the Act of 1953, it was a long established rule that no commissions on principal *54were payable until the termination of the trust: Snyder Estate, 346 Pa. 615 (1943); Bosler’s Estate, 161 Pa. 457 (1894). This was the state of the law when accountant first became a trustee in 1919, and it is still the law with respect to this trust: Williamson Estate, supra; Scott Estate, supra. Both Williamson and Scott dealt with the question of double commissions, i.e., the payment of a principal commission to a trustee who had received a principal commission as executor. In both cases, the Supreme Court held that the Act of 1953 could not be applied retroactively to pre-1945 trusts in order to permit double commissions. The rationale of both decisions was that when the trustee accepted the trust under the then existing law, an implied contract was created between all of the parties, and such contract could not be abrogated by subsequent legislation. It was part of the contract in this trust that interim commissions on principal were not allowable except in extraordinary circumstances, and this term of the contract is likewise beyond legislative abrogation. The acceptance by accountant of this trust in 1919 fixed the rights, liabilities, and expectations of both income beneficiaries and remaindermen, and the Act of 1953 cannot be applied retroactively to change these rights.
The position of accountant, that the timing of principal commissions is merely an administrative matter which may at any time be altered by the legislature, is explicitly rejected.
In view of the foregoing, the accountants must be surcharged $10,000 for claiming credit for an improper disbursement of principal. . . .
The account shows a balance of principal of $829,350.51, to which add a surcharge of $10,000, making a total of $839,350.51, which, composed as indicated, is awarded to Provident National Bank, surviving trustee, and Richard M. Ehret and Alvin *55M. Ehret, Jr., substituted trustees, in trust, for the uses and purposes set forth in the will. . . .
December 2,1966.
And now, April 27, 1966, the account is confirmed nisi.
Opinion sur Exceptions to Adjudication
Saylor, J.,
This is a “test case” to determine the constitutionality of the Act of May 1, 1953, P. L. 190, 20 PS §3274, as applied to allow reasonable interim commissions on principal to the substituted trustee of a pre-existing trust.
A corporate fiduciary and an individual court-appointed trustee of a testamentary trust dating back to 1914 filed their fifth account which contained a credit against principal of $10,000, characterized as “corporate trustee’s compensation”. The guardian and trustee ad litem objected to this item as it was an interim commission on principal, since by its terms, the trust continues until 1985. The auditing judge disallowed the credit under the authority of Williamson Estate, 368 Pa. 343 (1951) and Scott Estate, 418 Pa. 332 (1965). Exceptions filed by the trustee are before the court en banc.
There was no contention that the credit was in payment for extraordinary services rendered by both trustees or either of them. Officers of the corporate trustee testified as to the various duties performed by the company, as to amounts received by way of commissions on income, and showed the market value of principal at the accounting date as exceeding one million dollars. Neither trustee had served as an executor. Hence, the question of double commission is not raised here.
The question to be answered is simply this: Does the Act of May 1, 1953, P. L. 190, 20 PS §3274, et seq., which permits the payment out of principal of interim commissions to a trustee, apply in a trust estate *56created prior to its effective date? We have seen that in Williamson Estate, supra, and Scott Estate, supra, the Supreme Court has ruled that the Act of 1953 is unconstitutional with respect to estates created prior to its enactment, so far at least as it concerned the payment of principal commissions to trustees who had received commissions as executors. Do these decisions affect interim commissions? Are they authority for the refusal of the learned auditing judge to allow the credit? The parties have agreed that $10,000 is an acceptable amount for the interim commission at this time, if any commission is to be allowed. The auditing judge and his colleagues do not disagree. Hence, the single issue is the constitutionality of section 5(1) of the 1953 act, which gives a retroactive right to a ■trustee of a pre-1953 trust to interim commission if no commission was paid to it on principal as an executor.
Following argument before the court en banc in May, 1966, the court ordered reargument on two specific questions. The first concerned the effect of the spendthrift limitations in the will on the life tenant’s consent to the allowance of interim commissions. Only the guardian and trustee ad litem has- objected to the credit item. The answer to this question appears to be that beneficiaries’ acquiescence in the commission charge should not influence the court one way or the other in deciding the legal question. Only expenses that are legally payable and allowed by the court in accordance with existing law are beyond the reach of a complaining party in interest. Where allowance is based merely on consent by the parties, a decree making such allowance would violate the trust instrument, for it would amount to approval of a release of trust principal and necessarily a diminution of the income payable to the spendthrift beneficiary.
The answer to the second question is the important *57one. The question is this: “Whether the ruling in Scott Estate is a binding holding or dictum?”
Both Williamson Estate, supra, and Scott Estate, supra, involved double commissions. In addition, Williamson Estate involved interim commissions. It was a test case to secure for a corporate trustee which had been executor not only increased compensation, but also interim commissions on principal. It was decided after the passage of the Act of April 10, 1945, P. L. 189, but before the adoption of the 1953 act. In affirming the unanimous opinion of this court that it was contrary to long-established law in Pennsylvania, the Supreme Court, through Mr. Justice Stearne, said, at page 350:
“We have repeatedly decided that except in extraordinary or unusual circumstances a trustee is to be compensated only at the termination of the trust or at the ending of the trustee’s connection therewith [citing cases]. No interim commission on principal is originally allowable under the law so declared”.
Hence, there was a denial by the court of any double commission to the trustee, whether terminal or interim.
In Scott Estate, supra, interim commissions were not involved. There, a trustee which had served as executor and had been paid a commission on principal sought payment of an additional $20,000 out of principal for its ordinary services. The Supreme Court affirmed the action of this court sitting en banc in denying such additional compensation. In the opinion filed by Mr. Chief Justice Bell, he said, at page 339:
“We hold that Williamson Estate directly controls the instant case and that the 1953 Act stands on the same footing as the 1945 Act”.
In Scott Estate, appellant contended that that part of the Supreme Court decision holding the Act of 1945 to be unconstitutional with respect to pre-1945 trusts —that is, it could not apply retroactively — was dictum *58and should be repudiated or overruled. The Supreme Court disposed of this contention by stating through the Chief Justice, page 837:
“Irrespective of whether this part of the Williamson Estate Opinion was or was not dictum, we find it persuasive and applicable”.
The Act of 1953 was declared to be unconstitutional respecting pre-1953 trusts, just as the Act of 1945 had been so declared respecting pre-1945 trusts.
Consequently, in the matter now before us in the trust, dating back to 1914 for its inception, the allowance of an interim commission payable out of principal would be contrary to the law found by the Supreme Court to have been in effect prior to the enactment of both the 1945 and the 1953 statutes. That is to say, interim commissions, as well as double commissions, are not allowable in any pre-1945 or pre1953 trust, and the retroactive section of the legislative provision for interim commissions can not constitutionally be applied to the trust before us.
While the result may be that trustees in pre-1945 and pre-1953 trust estates will not be fully or adequately compensated under this dispensation, the fact remains that they continue to be bound by the law in effect at the inception of the trust, and cannot legally receive compensation not contemplated for them when they took up their duties. In 1914, when the trust before us came into being the law of Pennsylvania did not allow interim commissions on principal. Subsequent legislation, not being constitutional as to the retroactive provision, cannot remedy the situation. In Williamson Estate, supra, the Supreme Court said, at page 352:
“Appellant, the corporate fiduciary, accepted this trust in 1930 under the law as it then existed. It was paid in full (except for commission thereafter received by it on income it received and distributed). Such ac*59ceptance fixed the rights, liabilities, exemptions, defenses and expectations of both life tenant and remaindermen”.
December 2,1966.
We all share the opinion that the preferable rule would be to allow payment of the interim commissions claimed by the trustee, and we would adopt this rule if we had authority to do so. However, as a court of first instance, we have no right to ignore a decision of the Supreme Court which apparently disposed of the question in issue. A majority of the court believes that Scott Estate, supra, has decided the point now before us for determination.
The exceptions are dismissed, and the adjudication is confirmed absolutely.