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Attorney(S)

Robert B. Wolf, with him Wolf, Block, Schorr Solis-Cohen, for appellant. M. E. Maurer, with him Harold J. Borofsky and Arthur Littleton, for appellees.

Judges

OPINION BY MR. JUSTICE LINN, January 19, 1948:
DISSENTING OPINION BY MR. JUSTICE PATTERSON:

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Smart Summary

Summary — Stone Estate (Supreme Court of Pennsylvania, January 19, 1948)

Factual and Procedural Background

The Fidelity-Philadelphia Trust Company, as Trustee under the will of Charles F. Stone, entered into an agreement to sell certain real estate to David Balaity for $24,000. The trust provided for net income to the testator's widow for life (the widow was 86 years of age), then to the children for life, with remainder to the children's issue, and contained spendthrift provisions. Before settlement, the life tenant and the remaindermen (the beneficiaries) filed a petition in the Orphans' Court to set aside the agreement of sale, alleging that the net income estimated from sale proceeds would be considerably less than present income from the property, upon which the widow was "dependent almost wholly."

The Trustee answered asserting authority under the will to make such a sale (quoting the will's provision authorizing sale) and contending the sale was for the best interests of all parties, noting rising offers (from $9,000 to $24,000), assessed value, appraisals, the age of the building, and anticipated net income after sale (approximately $800 per annum versus a historical average of $339.88 per annum for 1934–1945). The Orphans' Court set aside the sale. The vendee appealed to the Supreme Court of Pennsylvania. The Supreme Court affirmed the decree of the Orphans' Court; reargument was refused March 24, 1948.

Legal Issues Presented

Whether the Orphans' Court had the power to set aside the Trustee's discretionary agreement of sale (i.e., whether the court could vacate a fiduciary's discretionary sale absent abuse of discretion).
Whether the purchaser (vendee) was bound by a court order setting aside the sale where the written agreement expressly made sales by fiduciaries subject to the approval of a court of competent jurisdiction.

Arguments of the Parties

Petitioners' (Beneficiaries') Arguments

The net income anticipated from the net proceeds of the sale would be considerably less than the present income derived from the property.
The widow, the primary life tenant, was dependent "almost wholly" upon the present income from the property; therefore the sale would harm her income interest.
Accordingly, the beneficiaries asked the Orphans' Court to set aside the agreement of sale prior to settlement.

Trustee's Arguments

The Trustee asserted authority under the will, quoting: "I authorize and empower my said trustee to sell at public or private sale clear of all trusts and without any liability of the purchaser or purchasers to see to the application of the purchase money any of or all of my real estate whenever in the judgment of my said trustee such sale or sales will be for the advantage of my Estate and to execute and deliver the necessary deed or deeds of conveyance therefor."
The Trustee contended that, when viewed from the standpoint of all interests (life and remainder), the proposed sale was for the best interests of the parties in interest, citing successive higher offers (from $9,000 up to $24,000), assessed value ($10,600 for 1946), appraisals (not exceeding $17,500), age of the existing building (circa 1865), and an anticipated increase in net income after sale (approximately $800 per annum versus an average of $339.88 per annum for 1934–1945).
The Trustee submitted itself to the order of the court in its responsive answer.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Dundas's Appeal, 64 Pa. 325	Cited as an example that, prior to the Act of 1945, the Orphans' Court possessed power to review actions of a fiduciary done pursuant to discretionary power vested in a trustee by settlor or testator.	This case was cited in the dissenting opinion to support the view that the Orphans' Court formerly had power to review fiduciary discretionary acts; the majority did not adopt this as the basis for its affirmance.
Demmy's Appeal, 43 Pa. 155	Also cited for the proposition that the Orphans' Court previously could review discretionary acts of trustees.	Quoted in the dissent to show historical power of the Orphans' Court; not relied upon by the majority to decide the appeal.
Brereton Estate, 355 Pa. 45, 48 A.2d 868	Cited for the proposition that the Act of 1945 did not violate Article V, Section 22 of the Pennsylvania Constitution and (as described in the opinion) that the legislature could remove from the Orphans' Court the power to review discretionary powers vested in trustees.	Referenced in the dissent to demonstrate prior recognition of the legislative abolition of the Orphans' Court's reviewing power; the majority did not base its decision on Brereton Estate.
Commonwealth Trust Company General Mortgage Investment Fund Case, 357 Pa. 349	Cited in the dissent in connection with characterizing the Orphans' Court as a "court of competent jurisdiction" in the context of prior decisions and statutory changes.	Used in the dissent to argue that the majority's reliance on the contract clause improperly permits delegation of fiduciary discretion to a court; the majority did not adopt this precedent as dispositive in affirming the decree.
Kohler Estate, 348 Pa. 55, 33 A.2d 920	Cited for the principle that a fiduciary may not substitute the discretionary judgment of another for his own judgment (i.e., a fiduciary cannot delegate his personal discretionary power).	Relied upon in the dissent to argue that the Trustee could not lawfully vest discretionary power in the Orphans' Court by covenant; the majority declined to rest its decision on this principle and affirmed on the contractual clause ground.

Court's Reasoning and Analysis

The Court summarized the proceedings and the positions taken. The Orphans' Court had set aside the sale on the apparent ground that it could set aside a discretionary action of the Trustee even though the Orphans' Court found no abuse of discretion. The Supreme Court majority stated it was "not now prepared to assent to that view of the power of the court" — i.e., the majority did not accept the Orphans' Court's asserted power to set aside a trustee's discretionary decision merely because the court believed it should do so.

The majority nevertheless affirmed the Orphans' Court order for a different and narrower reason grounded in the written agreement of sale. Paragraph 18 of the agreement expressly provided that "All sales by fiduciaries being liable to vacation by the courts, this agreement is made upon the express condition that if executed by the Vendor as fiduciary it is subject to the approval of a court of competent jurisdiction if, prior to settlement and delivery of Deed, proper action is taken in court to prevent the sale or if the Vendor is required by law to obtain a judicial decree approving this agreement before consummating the sale." The Trustee's answer also stated that settlement was intentionally scheduled after January 1, 1947 to permit petitioners to seek court action to set the sale aside.

Because the parties expressly made the agreement subject to court approval, the purchaser (appellant) was bound by the court's order setting aside the sale. The Court therefore affirmed the decree on that contractual ground and awarded costs against the appellant.

Holding and Implications

Holding: The decree of the Orphans' Court setting aside the agreement of sale was AFFIRMED (the court affirmed the order and assessed costs against the appellant).

Implications:

The immediate legal effect is that the sale to David Balaity was set aside and the purchaser was bound by the Orphans' Court's order, because the written agreement made the sale subject to court approval.
The majority opinion did not adopt the Orphans' Court's asserted general power to set aside a trustee's discretionary sale where no abuse of discretion was found; rather, it affirmed on the narrower contractual ground. The opinion thus does not restate or establish a broad new rule that the Orphans' Court may revoke discretionary fiduciary actions in the absence of abuse.
The dissenting opinion argued that the Act of 1945 removed the Orphans' Court's power to control fiduciary agreements for the sale of real estate except for fraud, accident, or mistake, and further argued that a trustee cannot delegate discretionary power to a court by agreement; that view was not adopted by the majority.

Disposition: Affirmed at appellant's costs. Opinion announced January 19, 1948; reargument refused March 24, 1948.

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Stone Estate.

Trustees — Contracts — Provisions — Approval of court — Sale of real property.

Where it appeared that a trustee entered into an agreement for the sale of real property which expressly provided that it was subject to the approval of the court if, prior to settlement and delivery of deed, proper action was taken in court to prevent the sale or if the vendor was required by law to obtain judicial approval; and, upon petition of the beneficiaries, the orphans' court set aside the sale; it was Held that, as the parties had made their agreement subject to the approval of the court, the purchaser was bound by the court's order.

Mr. Justice PATTERSON filed a dissenting opinion.

OPINION BY MR. JUSTICE LINN, January 19, 1948:

The Fidelity-Philadelphia Trust Company, Trustee under the will of Charles F. Stone, agreed to sell to David Balaity for $24,000 certain real estate left by the decedent. The net income from the trust estate, containing spendthrift provisions, was payable to testator's widow for life, then to their children for life, remainder to the children's issue. The widow is 86 years of age.

Before the time for settlement arrived all the beneficiaries joined in a petition citing the Trustee to show cause why the agreement of sale should not be set aside. The reasons, briefly stated, were that the net income estimated to be received from the net proceeds of the sale will be considerably less than the present income derived from the property upon which income the widow in the words of the petition, "is dependent almost wholly."

The Trustee filed a responsive answer to the petition asserting the power to make the sale but submitting itself to the order of the court. The answer set forth that in executing the agreement the Trustee acted pursuant to the following provision of the will: "ITEM. I authorize and empower my said trustee to sell at public or private sale clear of all trusts and without any liability of the purchaser or purchasers to see to the application of the purchase money any of or all of my real estate whenever in the judgment of my said trustee such sale or sales will be for the advantage of my Estate and to execute and deliver the necessary deed or deeds of conveyance therefor." Another paragraph of the answer contained the following: ". . . Respondent denies in any event that the proposed sale would not be for the best interests of the parties in interest in this Trust Estate. Respondent avers that it has an obligation as Trustee both to the life tenants and to the remainder interests in the Trust Estate being administered by it and that when viewed from the standpoint of all the interests, both for life and in remainder, the proposed sale is for the best interests of the parties in interest, for the reasons that Respondent has received successively higher offers for the purchase of [the property in question] pursuant to which the price offered therefor has increased from $9000 to $24,000; that the assessed value thereof for 1946 is $10,600, and current appraisals of said premises in no case exceed $17,500; that the existing building was erected upon said premises at or about the year 1865; and that the net income from the premises for the period 1934 to 1945, both years inclusive, averaged $339.88 per annum, whereas net income anticipated therefrom after said sale is approximately $800 per annum."

The case was heard on petition, answer, and a stipulation of facts. The learned court set aside the sale on the ground, as we understand the opinion filed, that the court had the power to set aside this discretionary action of the Trustee although there was no abuse of discretion in the action of the Trustee. We are not now prepared to assent to that view of the power of the court, though for another reason we must affirm the order appealed from.

The agreement of sale, which was dated October 9, 1946, provided: "18. All sales by fiduciaries being liable to vacation by the courts, this agreement is made upon the express condition that if executed by the Vendor as fiduciary it is subject to the approval of a court of competent jurisdiction if, prior to settlement and delivery of Deed, proper action is taken in court to prevent the sale or if the Vendor is required by law to obtain a judicial decree approving this agreement before consummating the sale." In its answer the Trustee sets forth that "the Agreement of Sale was specifically drawn with a provision that settlement take place after January 1, 1947 in order that petitioners might, if they so desired, make application to this Court for the setting aside thereof . . ." As the parties made their agreement subject to the approval of the court the appellant is of course bound by the court's order. On that ground we affirm the order.

Affirmed at appellant's costs.

DISSENTING OPINION BY MR. JUSTICE PATTERSON:

The decree of the court below restraining the sale and setting aside the agreement of sale should be reversed for the reason that the Act of 1945, P. L. 944, 20 PS Section 818, removed from the Orphans' Court power to control fiduciary agreements for the sale of real estate in the absence of fraud, accident or mistake and the court was without power to set aside the discretionary act of the trustee.

The majority opinion while denying the power of the court to set aside the discretionary act of trustee, does nevertheless permit trustee by agreement with another party to delegate to a third person — a "court of competent jurisdiction" — its power to determine the propriety of contracts of sale. No right to delegate such power now exists.

Prior to the Act of 1945, supra, the Orphans' Court possessed power to review actions of a fiduciary done pursuant to discretionary power vested in trustee by settlor or testator: Dundas's Appeal, 64 Pa. 325; Demmy's Appeal, 43 Pa. 155. This Court held in Brereton Estate, 355 Pa. 45, 48 A.2d 868, that the Act did not violate Article V, Section 22 of the Constitution of this Commonwealth. In so holding this Court dismissed the contention that the legislature could not properly remove from the Orphans' Court the power to review and to control the exercise of discretionary powers vested in a trustee by the creator thereof. Having there recognized abolition of that power a majority of this Court now holds that the Orphans' Court is a "court of competent jurisdiction." See Commonwealth Trust Company General Mortgage Investment Fund Case, 357 Pa. 349, A.2d.

The power of the Orphans' Court to approve or disapprove the exercise of the discretionary powers entrusted by a testator to his trustee has been taken away. This discretionary power of the fiduciary cannot be delegated to the Orphans' Court or any other body or person whom the trustee might select. It cannot be seriously contended that a fiduciary with such personal discretionary power may delegate the same to a real estate broker so that he in his discretion may approve or disapprove of trustee's actions. The covenant with appellant to vest such power in the Orphans' Court was improper and void. It is well settled that a fiduciary may not substitute the discretionary judgment of another for his judgment: Kohler Estate, 348 Pa. 55, 58, 33 A.2d 920. This, however, is the very result which the majority opinion not only approves but specifically states to be the basis for affirming the decree of the court below.

The decree of the court below should be reversed and the petition dismissed.

STONE ESTATE