Duncan Trust, In re

• Decision Date: 05 October 1978
• Citation: 480 Pa. 608,391 A.2d 1051
• Parties: In re Anne A. DUNCAN TRUST for Anne Baker Weimer. Appeal of J. Duncan KNISELEY.
• Court: Pennsylvania Supreme Court

Page 1051

391 A.2d 1051

480 Pa. 608

In re Anne A. DUNCAN TRUST for Anne Baker Weimer.

Appeal of J. Duncan KNISELEY.

Supreme Court of Pennsylvania.

Argued March 7, 1978.

Decided Oct. 5, 1978.

Wray Grayson Zelt, III, Washington, Joseph P. Klock, Jr., Steel, Hector & Davis, Miami, Fla., for appellant.

Robert F. Patton, James W. Ummer, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Pittsburgh, for appellee.

Before EAGEN, C. J., and O'BRIEN, ROBERTS, POMEROY, NIX, MANDERINO and LARSEN, JJ.

OPINION

EAGEN, Chief Justice.

Upon the death of his maternal grandmother, Anne Baker Weimer, on February 11, 1975, appellant, J. Duncan Kniseley, became entitled to receive one half of the corpus of a trust established by Anne A. Duncan, known as the "Baker Trust." ¹ On August 19, 1975, appellee, the Union National Bank of Pittsburgh (the bank), sole trustee since the death of Mrs. Weimer, ² filed in the Court of Common Pleas of Washington County, Orphans' Court Division, its third and partial account in which it charged against appellant's share of the corpus as compensation for its services the sum of $17,045. Appellant objected that this amount was in excess of the amount which the bank had agreed to charge against corpus when the trust was created. After an evidentiary hearing on the matter, the auditing judge confirmed the amount requested by the bank and subsequently dismissed appellant's exceptions and made his decree final. This appeal followed.

The record reveals that on July 17, 1935, John W. Thompson, then vice-president of the bank, wrote a letter to Walter H. Baker, the husband of the settlor's daughter and the proposed co-trustee of two trusts Anne A. Duncan planned to establish, outlining his understanding of the proposed trusts. In that letter he indicated that if the bank were named corporate trustee its compensation "upon corpus at termination" would be 2% In the "Duncan Trust," not here involved, and 3% In the "Baker Trust," involved instantly. He further noted that "the additional charge upon corpus in the Baker Trust is made on account of the greater length of time it will operate."

On August 14, 1935, however, Mr. Thompson wrote another letter to Mr. Baker, which stated the following:

"Confirming my conversation with you today herewith schedule of compensation to be paid The Union National Bank of Pittsburgh during the continuance of the Baker and Duncan Trusts:

(1) Securities made up largely of family owned securities with a co-trustee 2% Upon income.

(2) When and if sale of family owned securities is made and funds reinvested in approved investments for the trust with a co-trustee 3% Upon income.

(3) In the event that all co-trustees named should not act and the entire responsibility devolves upon the bank as sole trustee, its compensation will be

(a) Securities in the trust made up largely of family owned securities 3% Upon income;

(b) Securities in the trust reinvested in approved investments for the trust 5% Upon income.

(4) At the termination of the trusts the compensation of the bank upon principal will be 2% Based upon the values at which the securities are put upon our books at the time the trusts are established. " (Emphasis added.)

Thus, the terms of the bank's compensation with regard to corpus were significantly altered by the second letter. ³ Five days later the trusts were established, the corpus of the trust involved instantly consisting of securities, largely of family-owned companies, valued at the time at $159,470.87. The value of the corpus on February 11, 1975, the termination date of the Kniseley portion, was $1,136,084.70. Appellant, however, relying upon the terms of the August 14, 1935, letter, contends that the bank's fee upon termination must be limited to 2% Of half the value of the trust at its inception, $1,594.71.

Section 7185 of the Probate, Estates and Fiduciaries Code, 20 Pa.C.S.A. § 7185, provides in pertinent part as follows:

"(a) When allowed. The court shall allow such compensation to the trustee as shall in the circumstances be reasonable and just, and may take into account the market value of the trust at the time of the allowance, and calculate such compensation on a graduated percentage.

"(b) Allowed out of principal or income. Neither the fact that a fiduciary's service has not ended nor the fact that the trust has not ended shall be a bar to the fiduciary's receiving compensation for his services out of the principal of the trust. Whenever it shall appear either during the continuance of a trust or at its end, that a fiduciary has rendered services for which he has not been fully compensated, the court having jurisdiction over his accounts, shall allow him such original or additional compensation out of the trust income or the trust principal or both, as may be necessary to compensate him for the services theretofore rendered by him. The provisions of this section shall apply to ordinary and extraordinary services alike.

"(c) Compensation prescribed by will or other instrument. Where the compensation of a fiduciary is expressly prescribed either by provisions of a will or deed of trust or other instrument under which he is acting or by provisions of an agreement between him and the creator of a trust, nothing in this section shall change in any way the rights of any party in interest or of the fiduciary."

In his opinion dismissing appellant's exceptions, the auditing judge concluded that Section 7185(c) was inapplicable because there was no valid or enforceable contract fixing the amount of the trustee's compensation. He based this conclusion on two grounds. First, he concluded there was no evidence that Walter H. Baker was authorized to act for the settlor in negotiating the terms of the bank's compensation with the bank's vice-president or that the settlor had agreed to the terms outlined in the vice-president's letter of August 14, 1935. Second, he concluded that even if there was an agreement between the settlor and the bank, to enforce the contract reflected in the August 14 letter would be contrary to public policy because the evidence indicated that Mr. Baker took advantage of his positions as director of the bank and president of a large steel company, which company was a depositor of the bank, to obtain a "special deal" from the bank not available to its other customers, and because there was a conflict of interest between Mr. Baker's duties as a director of the bank and his desire to reduce the amount of compensation his descendants, as beneficiaries of the trust, would have to pay the bank for its services. Thus, disregarding Section 7185(c) as inapplicable, the judge determined that the amount requested by the bank was reasonable compensation for its services pursuant to Section 7185(a). Alternatively, he concluded that even if there was an enforceable contract, the bank was entitled to the amount requested as compensation for extraordinary services over and above the services contemplated by the parties at the time the trust was created.

The record indicates that, at the beginning of the evidentiary hearing below, both parties stipulated the August 14 letter represented a valid agreement between the settlor and the bank, and that the judge concluded that " the contract has been established." Throughout the hearing both the parties and the judge appear to have proceeded under that assumption. The determination that there was no valid agreement governing compensation and the grounds supporting it appear to have been injected sua sponte into the judge's opinion in support of his decree. In adjudicating the exceptions to his decree, however, the judge was performing an essentially appellate function. It was error for him in this capacity to make a sua sponte determination on the basis of issues not raised or litigated by the parties. See Coleman v. Board of Education, 477 Pa. 414, 383 A.2d 1275 (1978); Wiegand v. Wiegand, 461 Pa. 482, 337 A.2d 256 (1975). We thus assume that the August 14 letter represented a valid agreement between the settlor and the bank. ⁴ We must therefore decide whether the judge erred in determining that the bank was entitled to the compensation requested because in its capacity as trustee it rendered extraordinary services beyond those contemplated or foreseen at the inception of the trust. ⁵

It is well settled that where there is a valid agreement between settlor and trustee fixing the terms of the trustee's compensation, courts must ordinarily enforce the terms of the agreement without making an independent determination of whether the terms are reasonable. See Estate of Breyer, 475 Pa. 108, 379 A.2d 1305 (1977); Williamson Estate, 368 Pa. 343, 82 A.2d 49 (1951). Nevertheless, although this Court seems never to have approved additional compensation where there was an agreement specifically limiting the amount of the trustee's fee, as long ago as Estate of Hays, 183 Pa. 296, 38 A. 622 (1897), we intimated that the presence of extraordinary circumstances might compel a different result. An exception to the general rule, in circumstances where the trustee has performed extraordinary services beyond those contemplated by the parties or where the compensation fixed by the agreement is so low that the unwillingness of a competent trustee to continue or undertake to administer the trust would defeat or substantially impair its purposes, is well recognized. Annotation, 19 A.L.R.3d 520 (1968), and cases cited therein; 3 Scott, Trusts § 242.4 (3d ed. 1967). A number of courts in Pennsylvania have awarded additional compensation in such circumstances. See, e. g., Rea Trust, 28 Pa.D.&C.2d 433 (O.C. Montg. 1962) (additional compensation from principal for extraordinary services); Carnahan Trust, 27 Pa.D.&C.2d 744, 12 Pa.Fiduc.Rep. 416 (O.C. Allegh. 1962) (additional prospective compensation from income of charitable trust).

In our view, the exception for extraordinary circumstances to the general rule requiring...