Ellis' Estate, In re

• Decision Date: 18 March 1975
• Citation: 333 A.2d 728,460 Pa. 281
• Parties: In re ESTATE of Frank H. ELLIS, III, Deceased. Appeal of Henry J. PRESTON, Executor.
• Court: Pennsylvania Supreme Court

Page 728

333 A.2d 728

460 Pa. 281

In re ESTATE of Frank H. ELLIS, III, Deceased.

Appeal of Henry J. PRESTON, Executor.

Supreme Court of Pennsylvania.

March 18, 1975.

James N. Robertson, Robertson & Bullen, Media, William H. Bender, Bender & Bender, Downingtown, for appellant.

Edward M. David, Saul, Ewing, Remick & Saul, Philadelphia, Samuel Evans Ewing, 3rd, Ewing & Ewing, West Chester, for appellee Church Farm School.

J. Peter Williams, Drinker, Biddle & Reath, Philadelphia, for appellee, New Bolton Center of University of Pa.

Charles F. Mayer, Media, for appellee, one-third of heirs of Adele Ellis.

James W. Sutton, Jr., Asst. Atty. Gen., for appellee, Com. of Pa.

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

OPINION

JONES, Chief Justice.

The court below, on petition of the appellees, various beneficiaries of the Estate of Frank H. Ellis, III, surcharged appellant, Henry J. Preston, for breach of his fiduciary responsibilities while serving as executor for the estate. The appellant filed exceptions to the adjudication and those exceptions were denied. From that denial this appeal resulted. ¹ We affirm.

The executor-appellant undertook to dispose of certain realty holdings of the estate. He planned to accomplish this liquidation by public auction. Before he had entered into a formal agreement with the auctioneer, a realtor approached the appellant and intimated that he had a purchaser available. Appellant informed the realtor that he fully intended to conclude an agreement for sale by auction unless, prior to that agreement, the realtor could produce a purchaser willing to buy the entire tract at a specified price per acre. After this meeting, the realtor forwarded a registered letter to the appellant informing him that he, the realtor, had shown the property to the prospective purchaser, who remained interested. ²

The appellant did not respond to this letter and the property was sold at auction. The purchaser of the major portion of the property was the General Services Administration of Pennsylvania, presumably on behalf of the Bureau of Prisons, which had been the prospective purchaser mentioned by the realtor. ³ One year after the sale of the property and the payment of commissions to the auctioneer by the estate, the realtor was awarded, in an assumpsit action, a commission on the sale of the same property. ⁴ Counsel for the estate filed an appeal but later withdrew it with prejudice, and the estate satisfied the judgment. The appellant submitted his final account and appellees objected. The action for surcharge followed, and the appellant was held individually liable for the second payment of commissions on the single tract of realty.

The question before us in this appeal is whether the appellant has violated his obligation of prudent due care so as to make him personally liable for the payment of the second commission. Appellant relies on three grounds for reversal of the lower court. First, he alleges that the objectors presented no evidence. Second, he asserts that no reasonably prudent executor could have foreseen that the facts here could have been deemed to have created a contractual relationship. Finally, he maintains that even if a contractual relationship could reasonably be assumed to have existed, the appellant's failure to perceive that relationship was not 'supine negligence' sufficient to impose surcharge. We find each of these arguments unpersuasive.

Normally, those who seek to surcharge a fiduciary have the burden of establishing his wrongful conduct. Lohm Estate, 440 Pa. 268, 274, 269 A.2d 451, 454 (1970); Maurice Estate, 433 Pa. 103, 107, 249 A.2d 334, 336 (1969). However, where a patent error has occurred, the burden of going forward with evidence demonstrating prudent management is on the executor. Lohm Estate, 440 Pa. at 274, 269 A.2d at 454; Maurice Estate, 433 Pa. at 108, 249 A.2d at 336. Here, the fact of dual payment for realty commissions was admitted by all parties. As the lower court noted in its opinion: 'Such a (double) payment is not a common or usual transaction in the normal course of business. The details as to how it came about ought to be put forth and scrutinized.' It is the duplication of commissions as opposed to the splitting of a commission which is suspect. Cf. Section 3360 of the Probate, Estates and Fiduciaries Code of 1972, 20 Pa. S. § 3360. Once the payment of Two full commissions was conceded by the executor he had the burden of going forward with evidence establishing prudence, skill and due care. Thus, appellant's first basis for reversal is without merit.

We also reject appellant's second argument which suggests that no surcharge was permissible since no reasonable man could have assumed that a contract existed. The existence of the contractual relationship between the appellant and the realtor ⁵ is foreclosed from our consideration. The withdrawal of the appeal of the award to the realtor finally determined the existence of a contract between the parties to that action. The appellant cannot now plead the absence of a contract. Under criteria announced in this opinion, he is bound by the principles of collateral estoppel.

Traditionally, collateral estoppel can only be invoked where there is a mutuality of estoppel, that is, both parties must be bound by the previous adjudication before either party can claim the benefits of that adjudication. Restatement of Judgments, § 93(b) (1942). That mutuality is absent here and, under a strict adherence to Restatement principles, the appellant could re-litigate the existence of a contractual relationship between himself and the real estate agent. However, Pennsylvania has never strictly adhered to the requirements of mutuality. See Posternack v. American Casualty Co., 421 Pa. 21, 25, 218 A.2d 350, 352 (1966), and cases cited thereat. Although mutuality has been the general rule, Posternack indicates that exceptions have been allowed to prevent injustice.

It seems unwise, though, to retain a rule whose potential for unfairness necessitates an Ad hoc development of numerous exceptions. The rule sacrifices all consideration of judicial economy to satisfy a judicial desire for symmetry: unless both parties are bound by the former action, neither can plead it in the latter one. But Judge Hastie in Bruszewski v. United States, 181 F.2d 419, 421 (3d Cir. 1950), recognized that 'no unfairness results . . . from estoppel which is not mutual. . . . (T)he achievement of substantial justice rather than symmetry is the measure of the fairness of the rules of Res judicata.'

The assault upon the requirement of mutuality began with Justice (later Chief Justice) Traynor's opinion in Bernhard v. Bank of America National Trust and Savings Association, 19 Cal.2d 807, 122 P.2d 892 (1942). That case held that a plea of collateral estoppel was valid if (1) the issue decided in the prior adjudication was identical with the one presented in the later action, (2) there was a final judgment on the merits, and (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication. Using the Bernhard decision as a common basis, numerous jurisdictions have in varying degrees abandoned the requirement of mutuality. ⁶

Logic compels us to accept California's position: a plea of collateral estoppel is good where the party against whom it is asserted has had a full and fair opportunity to litigate the issue in question in a prior action. ⁷ Here, the appellant has had a full opportunity to litigate the issue of the contractual relationship existing between him and the realtor. ⁸ Therefore, the re-litigation of the issue of contractual relationship is barred by collateral estoppel.

This result comports with the goal of substantial justice which, Bruszewski, supra, correctly noted, should be the basis for the principles of res judicata and of its corollary, collateral estoppel. If the appellant were allowed to demonstrate the absence of a contract in the surcharge action, a contradictory result would occur. The estate would have suffered an obviously unnecessary expense of a type normally recoverable from the executor. Yet the beneficiaries could not successfully surcharge the executor for the loss. Thus, the estate would lose because there was a contract and the beneficiaries because there was not. Clearly, collateral estoppel must be a permissible plea to avoid such a contradiction.

The final argument of appellant is that even assuming that the finding of a contractual relationship was reasonable, his failure to realize this did not amount to 'supine negligence,' which he asserts is the standard of care applicable to the situation. It is hornbook law that '(a fiduciary) is required to use such common skill, prudence and caution as a prudent man, under similar circumstances, would exercise in the management of his...