Court Opinion

ID: 3848201
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:24:39.736498+00
Date Added: 2024-06-11T07:40:47.899791
License: Public Domain

The phrase on which is built the whole structure of the court's opinion is that a "trustee must exercise commonprudence, common skill and common caution in the performance of his duties." With that slogan1 *Page 492 
no one can quarrel, but it amounts to scarcely more than a truism. It is a generality which applies to every act, of whatever nature, which a trustee is called upon to perform, but there are also, of course, a multitude of special rules, or requirements of the law, governing particular problems of trust administration. While the phrase in question may constitute sufficient guidance for the conduct of a trustee who is authorized to retain non-legal investments2 it certainly does not express the exact or categorical duty of one not so authorized.
From the law of negligence there may be advanced an analogy. There the general principle is that every one must act with "ordinary care." But the law does not rest content with this generalization, which is obviously too vague to serve as a standard of conduct in particular instances. Accordingly, in its application, it is crystallized into subordinate rules which fix absolutely and precisely the requirements of "ordinary care" under particular circumstances; for example, that before crossing a railroad track one must stop, look and listen, and in alighting from a car one must wait until the vehicle has come to a stop.
At the outset, therefore, it is necessary to ascertain what the exercise of "common prudence, common skill and common caution" specifically requires of a trustee in regard to non-legal securities included among the assets of the trust at the time of its inception where no authority to retain such securities has been given. To this question the authorities give practically a unanimous answer, namely, that he convertthem within a reasonable time: Restatement of the Law of Trusts, section 230. In the majority opinion it is said that *Page 493 
"if non-legal investments are received without authority to retain them, they must be converted into legals with reasonable diligence," but it is explained that "with reasonable diligence" means "within a reasonable time considering the circumstances."
We thus arrive at the real crux of the present problem — "What is a "reasonable time" in which to convert?3 In determining that question there is need again for greater particularization, because, in the domain of law, a "reasonable time" varies widely according to the particular field to which it is applied, ranging, for example, from 24 hours in which to deposit a check to several days, months, or even years in which to seek redress at law or in equity for various types of grievances. In Seamans' Estate, 333 Pa. 358, 5 A.2d 208,4 where the doctrine of "reasonable time" was accepted as the governing principle established by the authorities, it was pointed out that there is "no rigid criterion" as to the time in which a fiduciary must convert non-legals, and that "each case must depend largely upon its own circumstances," but that, in theabsence of exceptional circumstances, they should be converted promptly. Under the facts of that particular case it was held that a year was the limit of time in which the securities should have been converted, but there were suggested various types of conditions and circumstances under which a fiduciary would be excused from converting non-legals within that or any other definite period. *Page 494 
It is in its application of the rule of "reasonable time" to the facts of the present case, that, to my mind, the majority opinion represents a complete departure not only fromSeamans' Estate but from all other Pennsylvania authorities, and from those, generally speaking, of other jurisdictions. Here the trustees retained non-legal securities from the time they received them in the trust until the audit of their account, a period of approximately eight years, and apparently they are still retaining them. The result is that Lehigh Valley R. R. bonds, inventoried at 91 5/8, declined to a low, when the account was filed, of 11 1/2; General Electric Company stock from an inventory value of 71 7/8 to a low of 27 1/4; United Gas Improvement Company stock from an inventory appraisement of 36 3/8 to a low of 8 3/4; Union Traction Company stock from an inventory price of 26 5/8 to a low of 1 5/8. All these securities were listed on the exchange and could have been sold at any time on a telephone call to a broker. Why were they not sold? One of the trustees testified that "we were merely trying to get for this estate the inventory figures of 1930." And on what did the trustees rely as justifying the optimism which this objective implied? The information they received by "following the market" and interviewing brokers. The gist, therefore, of the present decision is this: that a trustee, having no authority to retain non-legal investments, may nevertheless hold them for eight years, and presumably for any greater length of time, if stock brokers advise him that in their opinion better prices might be obtainable at some more or less remote period in the future. If this is not speculation I fail to discern the difference, for I do not see how it is distinguishable from that of any individual owner of securities who holds them in the hope or expectation that they will rise in price. We are not dealing here with the situation referred to in Seamans' Estate, of a security *Page 495 
"abnormally depressed in value because of a general economic and financial collapse, so that a sale can be effected only at a sacrifice, but there is a reasonable likelihood of an early return to stable conditions which will restore the normal value." How can any one pretend that an era of low prices, extending for eight years and more, represents a temporary depression due to a panic or other abnormal situation? How can any one say that a higher range of prices prevailing over a course of years indicates any more the "real" values of securities than a lower range existing over another long period of years? How can any one claim that the prices of securities in "boom" years, years of financial hysteria, are more truly representative of intrinsic values than the prices prevailing in duller or more conservative periods? If these trustees are to be allowed, as apparently they are by the present decision, to continue to hold non-legal securities until they realize "the inventory figures of 1930," what likelihood is there that the securities will ever be converted?
There is another question which inevitably arises from a reading of the majority opinion, namely: What is the difference, if that opinion correctly represents the law, between the obligation of a trustee to convert non-legal securities in a case where he is not given authority to retain them and one where he is given such authority? In the opinion of the court this day handed down in In the Matter of theEstate of Thomas Clews Stirling, Deceased, in which it is held that the fiduciary was given authority to retain non-legals, the duty to convert them was properly said to be measured by "common prudence, common skill and common caution."5 In the present case, where admittedly no such authority was given, only the same measure of duty is applied, and no adequate attention is paid to the additional and *Page 496 
more positive obligation of conversion within a reasonable time.6 Certainly no one has heretofore supposed that the express grant by testators of authority to their executors and trustees to retain or to invest in non-legal securities is a provision which adds nothing to the powers which such fiduciaries would otherwise enjoy. On the contrary, every intelligent testator has presumably had in mind that his executors and trustees would not be allowed by the law to retain such securities unless permission was given in the will.
In conclusion, I think it can confidently be stated that there is no case in the books, as far as the law of Pennsylvania is concerned, which goes to the length of the present decision in exonerating a fiduciary who, without authority to retain non-legal investments salable at all times on a public exchange, nevertheless retains them for eight years and indefinitely into the future, merely in the hope or belief, based on the opinions of stock brokers, that they will again reach values attained years before during a notoriously speculative period.
I would affirm the original decision of the court below in banc, and would reverse the subsequent conclusion reached by a majority of that court on re-argument.
1 When it is said that a trustee must exercise common prudence and caution there is obviously meant the prudence and caution rightly demandable of one who is a trustee and is therefore not dealing with his own property. In other words, a trustee must act not merely as a prudent man, but as a prudent trustee. See 89 U. of P. Law Review 229.
2 "The law is clear that where (as here) a trustee is authorizedto retain the settlor's non-legal investments, and in so doing exercises reasonable skill, prudence and caution in the management of the estate and is guilty of no bad faith, no surcharge will be imposed": Dickinson's Estate, 318 Pa. 561,563, 179 A. 443, 444.
3 The majority opinion says that "to perform that duty [to convert within a reasonable time] required them [the trustees] to determine what would be a reasonable time." I cannot conceive that the trustees themselves should be the final judges in that regard; if they had such power it would be without parallel in the law, since in every other case where there is a standard of "reasonable time" it is for the court, under established facts, to say what constitutes it.
4 For discussions of this case see 89 U. of P. Law Review 130; 89 U. of P. Law Review 227; 15 Temple Univ. Law Quarterly 269.
5 See note 2.
6 It is true, as previously stated, that the majority opinionrecognizes the duty of a trustee to convert non-legals "with reasonable diligence," but the standard by which it actually
judges the conduct of the trustee in this case is merely "common prudence, common skill and common caution," or "due care in the circumstances." *Page 497