In Re the Estate of Bishop

499 P.2d 670, 53 Haw. 604, 1972 Haw. LEXIS 157

• Court: Hawaii Supreme Court
• Decided: July 28, 1972
• Docket: 5119
• Status: Published

Opinions

OPINION OF THE COURT BY

LEVINSON, J.

This is an appeal from an order approving the 83rd Annual Account of the trustees of the Bishop Estate. Appeals have been filed by the Attorney General and by the Master appointed by the court to review the account.

The first issue raised by the Attorney General is whether the Estate’s trustees may take commissions on amounts received by the Estate but paid to the State for property taxes levied on commercial property. The attorneys for the Estate’s trustees argue that the issue is not properly before us. They contend that the Attorney General has asked for an “advisory opinion” and that the matter does not present a justiciable “case of controversy.” Alternatively, they argue that it is entirely proper for the trustees to take commissions on the real estate taxes in question.

In an action for an accounting, a court of equity is called upon to determine the propriety of every entry in an estate’s account. The court may invoke any one of a number of remedial measures to correct an improper entry. It may allocate funds among income and principal; it may surcharge the trustees for improper management; it may redetermine the amount of trustees’ commissions. In many instances, even though the court has found a clear error in an account, it may exercise its discretion to invoke no remedy, simply directing the trustees to adopt a different accounting practice. See, e.g., In re Bishop Estate, 36 Haw. 403, 425-26 (1943). Thus, one of the very functions of a court in an accounting proceeding is to advise the trustees on the propriety of continuing their present practices. In re Bishop Estate, 36 Haw. 403 (1943).

In any event, the fact that the Attorney General has for unknown reasons decided to question the manner in which the commissions are computed without also requesting the obvious relief of a surcharge would not prevent us from granting all appropriate relief. As the court said in Griffith v. Cooper, 145 Colo. 439, 442-43, 359 P.2d 360, 362 (1961), “. . . a suit in equity for an accounting constitutes an exception to the general rule that affirmative relief will not be granted to a defendant unless he makes a claim to it ... .” Accord, Hochen v. Rubin, 24 A.D.2d 254, 265 N.Y.S.2d 554 (1965), aff'd 18 N.Y.2d 866, 276 N.Y.S.2d 119 (1966). Apart from the traditional equity rules, Rule 54(c) of the Hawaii Rules of Civil Procedure has specifically provided that “every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleadings.” That rule is especially appropriate to protect the Estate’s beneficiaries where the Attorney General has appeared as their representative, but for unknown reasons has failed to demand appropriate relief.

Turning to the merits of the issue raised, we reject the Attorney General’s position that sums collected from lessees and paid to the State for real property taxes imposed on commercial property are not income to the Estate.¹ HRS § 607-20 (1968) provides that commissions may be taken “on all moneys received in the nature of revenue or income of the estate, such as rents, interests, and general profits.” Amounts paid by lessees as “rents” are “in the nature of revenue and income.” The fact that some portion of the amount received must be paid to the State for taxes does not change the nature of the amount received. Were we to accept the Attorney General’s position, we would be constrained to deduct all expenses from all amounts received and compute commissions on the basis of the Estate’s net income. Such is not the intent of the statute. We share the Attorney General’s concern over the fact that the trustees’ yearly commissions are increasing dramatically. Between 1968 and 1969 alone, each trustee’s share of the commissions jlimped from $34,948 to $50,187² and all indications point •to further increases.³ The question of whether the formula used in computing trustees’ commissions should be reexamined, however, is a legislative problem, and we are unable to reduce the amount of commissions awarded in the absence of legislative action.

Another*major question raised in this appeal concerns the trial judge’s decision to award a master’s fee of $6,000.

The Master testified at trial that he felt his services were worth $15,000 but that he considered one third of his time “a public service contribution” and asked for a fee of $10,000. The trial judge felt that much of the master’s report dealt with matters beyond the scope of the accounting and awarded a fee of only $6,000.

Much of the Master’s problem arises from the fact that, as he himself puts it, he was “caught between the conflicting positions of the Attorney General and the Circuit Judge.” While the judge’s master does not ordinarily examine such matters as the reasons why “youngsters of Hawaiian culture . . . encounter difficulty in an educational system,” the Attorney General had apparently given the Master directions to make a study of the administration of the Kamehameha Schools. For obvious reasons, the Master found himself unable to comply simultaneously with his conflicting duties.

The coverage of a Master’s report should properly be limited to the matters which may be dealt with by an equity court in an accounting proceeding. Such a court may interfere with the trustees’ administration of a trust only when it finds an abuse of the trustees’ discretion or a violation of law. Restatement, Trusts (Second) §§ 187 and 382 (1959). There may, of course, be occasions when an equity court would request an extensive sociological treatment of the Kamehameha Schools. Whether an equity court should require its own reports after so many exhaustive studies have already been conducted⁴ must be determined by weighing the benefits to be gained from additional reports against the fact that the reports are expensive. In any event, the trial judge did not in this case authorize an extensive review of the policies of the Kamehameha Schools. While the report submitted by the Master is well written and perceptive, we cannot say that the court abused its discretion in awarding a fee of only $6,000.

Tany S. Hong and Shirley Smith, Deputy Attorneys General {George Pai, Attorney General of counsel) for appellant, cross-appellee. Boyce R. Brown {Moore, Torkildson & Schulze of counsel) for Master-appellee, cross-appellant. J. Garner Anthony {Anthony, Hoddick, Reinwald & O’Connor of counsel) for Trustee-appellees.

We do not reach or intimate any opinion on the issues discussed in Mr. Justice Abe’s concurring opinion for the reason that those issues were neither raised in the trial court nor argued in this court.

The trial court’s order approving the Eighty-Third Annual Account of the trustees of the Bishop Estate and awarding a master’s fee is affirmed.

1 The trustees do not charge commissions on amounts collected for taxes on residential property covered by HRS § 246-4. Since the tax under that section falls directly on the lessees, amounts received by the Estate as a collection agent and forwarded to the government never become “income” to the Estate. By contrast, where the tax is imposed on the Estate, amounts received by the Estate are income, even though some portion of the amount must be paid to the Estate as an expense. Computation of trustees’ commissions does not depend on the fact that the trustees have performed services for the Estate but on the fact that “income” has been earned.

2 Summary of Receipts, Schedule “A,” at page 28 of Eighty-Second Annual Account, Vol. 22 of Circuit Court’s File in Docket No. 2048, p. 41, and Summary of Receipts, Schedule “A” at page 29 of Eighty-Third Annual Account, Vol. 23 of Circuit Court’s File in Docket No. 2048, p. 38.

3 Previous to 1967 the Estate received an annual rental on the Royal Hawaiian Hotel property of $25,000 per year. Beginning in 1976, the annual rental will be increased to $1,170,000 per year. This increase alone will give each trustee an increase in additional yearly compensation of almost $4,600, and is but one example of the need for reevaluation of the schedule used to compute trustees’ commissions.

4 During 1968 and 1969 alone seven separate studies of policies of the Kamehameha Schools were conducted. Trustees’ Ex. 1, Vol. 24, Circuit Court file in No. 2048, p. 205.