Court Opinion

ID: 3848200
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:24:39.729169+00
Date Added: 2024-06-11T07:40:47.895661
License: Public Domain

On its face this is an ordinary case in which an attempt is made to surcharge testamentary trustees, a comparatively small sum of money, for alleged negligence in failing to sell non-legal securities. That it is no ordinary case, but is one of extraordinary interest, is shown by the fact that about 136 trust companies, represented by an array of leading counsel, filed or joined in the filing of a brief amici curiæ. This was because our decision will vitally affect all fiduciaries in the Commonwealth.
Considered chronologically, the facts of the case as found by the learned auditing judge, a distinguished member of the Orphans' Court of Philadelphia County, are as follows: John Casani made his will on January 27, 1930, a codicil thereto on June 2, 1930, and died on September 13, 1930. A considerable part of his estate consisted of non-legal securities. Although he lived through a part of the national economic depression, which began in October, 1929, and although *Page 484 
he made his will during its continuance, and did not die until almost a year after it started, he did not authorize his executors or trustees to retain the non-legal securities in his estate. After testator's death, the trustees did not convert the securities, even after they had received them as trustees from themselves as executors, and year after year, although most of them were daily marketable, they did not convert them, and after seven years of such failure, in December, 1938, the petitioner, Caroline V. Byrne, a life tenant, for herself and minors, interested in the estate, filed her petition demanding an accounting and surcharge. The burden of proof was upon the trustees to show that they had acted according to law in retaining the securities, and the auditing judge concluded they had not maintained that burden and surcharged them.
The record clearly shows that, after a full hearing, the auditing judge found, that these trustees had not shown any legal justification for their failure to convert the non-legal securities within a period of seven years. He found, that without any authorization to do so, the trustees retained these securities for this long period of time; and doubtless this finding was based, inter alia, on the testimony of John Casani, one of the trustees, that they were determined not to sell them until they returned to their inventory value. He testified that "regardless of what loss may be incurred, or regardless of what the operating statement of the company showed", he was "still of the opinion that they should still hold that stock". I have carefully examined the record and found that the findings of fact are convincingly supported by the testimony. The auditing judge applied the principles of law applicable to the facts as stated by this Court in Seamans' Estate, 333 Pa. 358, and properly directed a surcharge. Exceptions to the adjudication, after argument, were dismissed by the court en banc, and the adjudication affirmed, with a slight modification not pertinent to *Page 485 
the question here under consideration. In its opinion, the learned court below said, inter alia: "Seamans' Estate, however, definitely rules that the fiduciaries, no matter how dutiful and vigilant, in the absence of exceptional circumstances (and there are none) must promptly convert non-legals. We are unanimously of the opinion that the auditing judge, under existing authority, was constrained to rule as he did. We find no error in his findings of fact and conclusions of law, which we affirm." Three months later that court, on its own motion, directed a reargument, and some months thereafter rendered another opinion (to which Judge BOLGER, and Judge LADNER, the auditing judge, entered a vigorous dissent), in which it reversed its former decision, disregarded the findings and conclusions of the auditing judge, and sustained the exceptions of the trustees. In explanation, the court said in its second decision: "After our decision (supra), and before appeal, the Supreme Court filed two opinions: Clabby's Estate,12 A.2d 71 [338 Pa. 305] and Shipley's Estate, 12 A. 2nd 343 [337 Pa. 571]. As these cases employ language which is apparently at variance with what was written in Seamans'Estate, this court, upon its own motion, directed a reargument." Thus, it clearly appears that the learned court would have refused a reargument and would have stood upon its original decision, affirming the adjudication of the auditing judge, were it not for the sole fact that it was of the opinion that we had reversed or modified controlling legal principles enunciated in Seamans' Estate. The view of the court in this respect was entirely mistaken. The majority opinion of our Court, concurred in to this extent by this dissent, shows thatShipley's Estate and Clabby's Estate are distinguishable on their facts from Seamans' Estate, and, further that Seamans'Estate has not been overruled or modified. In Clabby's Estate
there was power given by the will to the trustee to dispose of the non-legal securities *Page 486 
at his discretion and also there was acquiescence on the part of the beneficiaries for the trustee to retain them. In neither the present case, nor in Seamans' Estate, was there either authority given to retain or acquiescence. We said in Clabbys'Estate (p. 314): "The case of Taylor's Estate, 277 Pa. 518;Kelch's Estate, 318 Pa. 296, and Seamans' Estate, 333 Pa. 358, have no direct application because they involved the retention of non-legal securities by fiduciaries who had no such discretionary power." In Shipley's Estate there was complete acquiescence on the part of the beneficiary and, for that reason, Seamans' Estate was not in point. It seems to me the only thing now to do, in this situation, is to remit the record to the court below so that it may correct its error and reinstate the adjudication of the auditing judge as originally confirmed by it. Instead, however, the majority of our Court has affirmed the second decision and absolved the trustees of all liability.
There is nothing in Seamans' Estate that should have induced anyone to believe that we there fixed one year as the period in which non-legal securities must be converted. We said no such thing. It would be a very casual reader who would conclude that by the use in a footnote of Comment b, section 230, Restatement of Trusts (which itself does not fix a year as the rule) we meant by the reference that we so intended. Our prior cases show that we could have had no such intention. In Seamans'Estate one year was the time fixed in which conversion should have been made; in Stewart's Appeal, 110 Pa. 410, we said that almost four years was not too long under the circumstances to have held the securities; in Borell's Estate, 256 Pa. 523, it was decided that two years after death of testator was a proper time; and in the present case the auditing judge fixed three years as the time in which the trustees should have converted. In Seamans' Estate we *Page 487 
held, following and amplifying the existing law, that a trustee must sell non-legals promptly, that is, within a reasonable time, and that what is to be determined in a given case as a reasonable time depends upon the facts and circumstances of that case; in other words, that non-legals must be sold promptly or with reasonable diligence, unless there is authority to retain, acquiescence of beneficiaries, or other unusual circumstances. We decided that, under the facts there presented, one year was a reasonable time in which those trustees should have sold. In that connection we said (p. 366): "Certainly by the end of a year after he received the stock . . . appellant [trustee] should have realized that the probable duration of the depression could not be foretold, but that it certainly was not merely a temporary condition and that any conclusion as to whether stocks would recover or sink to still lower level could be based only on guesswork."
While it is true that non-legals must be converted within a reasonable time, or with reasonable diligence or promptly, whether they have been so converted is a question of law and not one of fact, under all the circumstances. It is not to be left to the discretion or determination of the fiduciary alone. There is no doubt a trustee must determine the time to sell or hold, but he does it at his own risk, and is liable if later it is found that he did not convert promptly under all the circumstances. The majority opinion seems to ignore the requirement of prompt conversion. It does not place such condition in the "general rule", which it claims to be "common prudence, common skill and common caution". It makes ordinary negligence the rule of liability, seeming only to require good faith. This destroys the fundamental difference between legals and non-legals. It makes no distinction between authorization to retain and where no such authority is given. In short, in my view, all the benefits and protection *Page 488 
now given such beneficiaries is destroyed by the removal of the distinction between legal and nonlegal securities, thus permitting fiduciaries to treat both types alike, and as if they were their own property. In Seamans' Estate we said (p. 362): "Notwithstanding the broad tenor of some of the language thus quoted, a fiduciary is not justified in inferring that the principle which exempts him from liability for acts performed in good faith and with ordinary prudence necessarily applies wherever there is a failure to convert non-legal securities within a reasonable time. The law imposes limitations upon 'ordinary prudence' in such cases in order to preserve the differentiation between non-legal and legal securities, and between fiduciaries and others as to the right to speculate. The mere fact that a trustee may honestly believe that an unauthorized security will appreciate in value at some more or less remote period is not sufficient justification for his retention of it in the trust estate, and 'common prudence' or 'normally good judgment' must not be deemed to confer such latitude of discretion."
It was not until Taylor's Estate, supra, in 1923, that this Court was called upon to declare the established law regarding the retention of non-legal securities by a trustee. What we there said, speaking through Chief Justice MOSCHZISKER, was followed in Seamans' Estate with care and precision by Mr. Justice STERN, as has already appeared. The majority opinion, and this dissent, agree that Seaman's Estate is the law of the Commonwealth, and, therefore, it is difficult for me to understand why we should not all agree that that case rules this case, since the facts of the two cases are almost identical.
With the exception of Taylor's Estate and Seamans' Estate, the cases mentioned in the majority opinion do not seem to me to be applicable to the facts and circumstances of this case. I have taken them up in the *Page 489 
order in which they appear in the majority opinion and briefly stated why each case is distinguishable.1
Let us consider briefly the testimony in the case. The will was silent as to the nature of the investments to be held for the benefit of the residuary trust. In October, 1931, upon audit of the account of Collins and Casani as executors, certain non-legal corporate stocks and bonds which had comprised part of the investments which testator had made in his lifetime were awarded in kind to them as trustees. On February 1, 1939, they, at the demand of the life tenant, filed their first account, showing that they had retained the greater part of these securities and that they were then of greatly impaired value. The life tenant and the trustee ad litem demanded a surcharge. The auditing judge, considering each of the securities separately, found that by October, 1933, it was apparent that there was no *Page 490 
reasonable likelihood of an early return to stable market conditions which would restore normal values and therefore, at that date, a reasonable period had elapsed for the conversion of the non-legal securities into investments authorized by law and that the trustees must be surcharged for not having by that time effected such conversion. Just as in Seamans' Estate, the trustees here in December, 1931, turned over the possession of the securities to a trust company under an agency agreement whereby the latter collected the income, made investments (subject to the approval of the trustees) and provided an advisory service. The same inference raised there that the trustees must therefore have felt that they were relieved of the duty of watchful observation is equally applicable here. And similarly, the testimony of the trustees that they watched quotations, consulted with officers of the trust company, and sought the opinions of others as to the desirability of retaining these securities, is not convincing of their desire to comply with the legal requirement of prompt conversion nor a proper excuse for failure to do so. A witness, called in the trustees' attempt to have corroborated the fact that they had sought the advice of experts, instead contradicted the trustees in material respects. That these trustees deliberately, and even stubbornly, retained these securities when they knew or should have known they were bound to sell, is clearly manifested by Casani's testimony, that he was determined not to convert the investments until they had returned to their inventory value, irrespective of what losses were incurred and regardless of what the operating statements of the various corporations showed from time to time. Moreover, Casani, who undoubtedly was the dominant trustee, treated the securities almost as his own property. He had a remainder interest in the trust principal and hence might be inclined to engage in speculation in the hope of regaining some of *Page 491 
the lost value. These trustees did not consult with the life tenant or any other beneficiary, during this extended period during which they retained the securities, in order to ascertain their desires and wishes in connection with such retention. Testator did not authorize the retention of the securities and therefore it must be presumed that he intended the trustees to follow the course which the law required of them, especially since his will was executed in 1930, after the depression had set in and stocks and bonds were, to say the least, most unstable. All the securities were marketable at all times, and yet for years the trustees retained them in face of failing dividends and decrease in values. Thus, they treated the securities as legal investments, and ignored their duty to convert promptly or within a reasonable time.
The facts of this case show such a breach of duty by the trustees, that it matters little the rule of law applied; if it be merely that mentioned in the majority opinion, "common prudence, common skill and common caution", they should be surcharged. Any higher requirement of duty would only accentuate their negligence, and make more certain the necessity for a surcharge.
I would reverse the court below, and reinstate its first adjudication.
1 Brown's Estate, 287 Pa. 499 (agreement of beneficiaries to retain and also large discretion granted under will); Detre'sEstate, 273 Pa. 341 (power given to trustee to invest and beneficiaries approved purchases); Dickinson's Estate, 318 Pa. 561
(trustee authorized to retain); Stephen's Estate, 320 Pa. 97
(sole beneficiary requested postponement of conversion);Curran's Estate, 312 Pa. 416 (acquiescence); Clabby'sEstate, supra (acquiescence and power to retain); Shipley'sEstate, supra (acquiescence); Old's Estate, 176 Pa. 150
(acquiescence); Riebel's Estate, 321 Pa. 145 (court authorized retention); Cridland's Estate, 132 Pa. 479 (investment such as law permits); Catanach's Estate, 273 Pa. 368 (agreement of parties); Nola's Estate, 333 Pa. 106 (direction of testator to sell at stipulated time); Reinhard's Estate, 322 Pa. 325 (no market); Dempster's Estate, 308 Pa. 153 (large power under will and no market); Drueding v. Tradesmens National Bank and TrustCo., 319 Pa. 144 (trustee executed loan agreement); Dauler'sEstate, 247 Pa. 356 (no market); Borrell's Estate, supra (held two year retention by executor, under circumstances presented, not sufficient for surcharge); Gardner's Estate, 323 Pa. 229
(broad powers of retention and acquiscence); Stewart'sAppeal, supra (held retention for four years by executor, because of particular facts, not sufficient for surcharge).