Williamson Estate

82 A.2d 49, 368 Pa. 343, 1951 Pa. LEXIS 479

Opinions

Opinion by

Mr. Justice Allen M. Stearne,

A corporate fiduciary presents a “test case” seeking to induce this Court to overrule a long line of cases extending for over a century and a half which established principles of fiduciary compensation. The appeals are an effort to induce a general revision of the compensation of trustees. It constitutes an almost perennial attempt by corporate fiduciaries to secure increased compensation and also interim commissions on principal.

The Philadelphia Orphans’ Court decided that it was bound by the many decisions of this Court. It declined to award additional compensation requested by appellant, although expressing the opinion that the request appeared to them to be just and reasonable. It is urged by the able counsel for the trustee — but vigorously opposed by the learned guardian and trustee ad litem — that the cases establishing these principles should now be overruled. It is asserted that corporate trustees now lose money in trust administration because of added duties and increased costs, which necessitates the “stream lining” of fiduciaries’ commissions. It is argued that the requested compensation be applied retroactively.

Ella Williamson, testatrix, died February 15, 1930. Her will, dated January 5, 1925, probated by the Register in Philadelphia County, provided (tenth item) that after payment of various legacies a trust of $40,000 be erected with appellant as trustee, whereunder Margaretta C. Anthony was to receive the income for life and upon her decease the principal of the fund was to fall in and become part of the residuary estate. Under the twelfth item of the will the residue was directed to be held in trust by the appellant-trustee to pay the income to named great nieces and great nephews for their lives and upon the death of each to pay the principal to his or her descendants absolutely. The appellant and testatrix’s nephew, Edward C. Dale, were named, and thereafter qualified, as executors of the will. The original record discloses that the first account of the executors was filed on October 30, 1930 and audited by President Judge Lamorelle who filed his adjudication December 13, 1930. In the account a credit was taken by the executors of $5961.44 “com- t missions 3% on $198,714.69 principal” and $215.75 “commissions 5% on $4314.92 Income”. By the schedule of distribution, approved June 13, 1932, $40,000 (in scheduled securities) was assigned to appellant as trustee for Margaretta O. Anthony (the trust herein accounted for) and to appellant as trustee of the residuary estate of $62,486.93 composed as therein indicated.

Appellant, as trustee for the Margaretta C. Anthony trust, filed its account stating in its petition for dis tribution that the reason for such filing “is the termination of . .-. the trust” (being the decease of the life tenant); because no account has been filed since its inception and “to permit the accountant an opportunity to present a request for compensation from the principal of the trust”.

The account was audited by Judge Klein who said in his adjudication: “These proceedings have been undertaken by the accountant as in the nature of a test case, in an endeavor to change the long established rule in Pennsylvania which prohibits a trustee from charging commissions against principal, in the absence of the performance of extraordinary services, until the termination of the trust or the termination of the trustee’s connection with the estate.”

It is also stated in the adjudication: “By note attached to page 2 of the supplemental account annexed hereto the accountant requested additional credit for an item stated to be ‘hot yet expended’ and designated ‘compensation to Fidelity-Philadelphia Trust Company’ in the sum of $3,000. It appears from the printed brief of counsel for the accountant, page 8, that the said sum of $3,000 ‘represents the aggregate of requests for compensation (a) with respect to services rendered in the Anthony Trust in the amount of $1,200 (as to which no credit was taken in the Anthony Account, reservation of the accountant’s right to claim same having been recognized in the adjudication of the present Auditing Judge of even date herewith in that trust) and (b) with respect to services rendered to the Residuary Trust, less the principal of the Anthony Trust, in the amount of $1,800’ (parenthesis supplied). The statement of proposed distribution requests the Auditing Judge to approve the trustee’s request for such compensation.”

Also: “In addition to the commissions claimed by the accountant at this audit, as recited above, the trustee’s position, as stated by Mr. Binge, its counsel, is that ‘in order for it to be adequately compensated for the performance of its duties in the future, it should be entitled to take as compensation in this estate one-half of one per cent of the principal of the trust, part to be paid from principal and part to be paid from income at the end of each year. That is to say, the trustee contends that for future services it is entitled to compensation on a “pay-as-you-go” basis.’ ”

The learned auditing judge expressed his opinion that while the trustee’s request for additional compensation was “entirely reasonable” he declined to award it because of the many decisions of this Court to the contrary. He said: “As a court of first instance, we have no right to ignore the decision of the Supreme Court on an issue which has been so squarely decided. Until such decisions have been overruled by the Supreme Court itself, or the law changed by the Legislature, it is the law of this Commonwealth, and must be respected and followed: (citing cases).”

Upon exceptions, the court in banc refused to reverse the auditing judge’s ruling that the established rule in Pennsylvania prohibits a trustee from charging commissions against principal in the absence of the performance of extraordinary services until the termination of the trust or the termination of the trustee's connection with the estate. Judge Hunter, speaking for the court, said: “The Judges of this Court are of the opinion that the rule forbidding interim compensation should be abrogated, but agree with the Auditing Judge that until it has been overruled by the Supreme Court itself, or the law changed by the Legislature, it is the law of this Commonwealth, and must be respected and followed.” (Italics supplied) Judge Ladner (now a Justice of this Court) wrote a concurring opinion joined in by Judge Bolger. He stated that he joined in the result but did not approve of all that was said in the adjudication; that the Philadelphia Corporate Fiduciaries’ Association, composed of practically all the trust companies in Philadelphia doing a fiduciary business, has been pressing the Orphans’ Court for years to approve a new basis and increased scale of compensation by substituting for the present rates a new rate of an annual charge of one half of one percent of the trust principal — one half to he paid out of principal and one half out of income. Judge Ladner further stated that the court declined to do this because contrary to controlling Supreme Court decisions and because (a) the Orphans’ Court had no knowledge whether the proposed increased scale is fair and reasonable (b) that the scale is proposed not only for new trusts but for pending ones (c) that the repeal of section 45 of the Fiduciaries Act of June 7, 1917, P. L. 447, by the Act of April 10, 1945, P. L. 189, cannot operate retroactively (d) no proof that the overhead of the corporate fiduciary has been fairly apportioned and the portion charged against trust department is fair and just (e) that the necessary information be obtained either by (1) a master appointed by this court or (2) appropriate legislative committee.

The case has twice been argued before us. The first argument was upon the merits. The re-argument was limited to the question whether the Act of April 10, 1945, supra, repealing section 45 of the Fiduciaries Act of June 7, 1917, supra, operated retroactively.

The learned court below accurately stated the existing law relating to compensation of fiduciaries in Pennsylvania and concerning which there is no dispute. Contradistinguished from the early English cases, in Pennsylvania, fiduciaries have always been held to be entitled to fair and just compensation for services rendered. The Legislature, by the Act of June 14, 1836 P. L. 628 sec. 29, 20 PS, 3271, enacted that the court could allow trustees compensation for their services “as shall be reasonable and just.” The amount of commissions is within the discretion of the court: Taylor’s Estate, 281 Pa. 440, 126 A. 809. This Court held in Strickler Estate, 354 Pa. 276, 277, 47 A. 2d 134: “A fiduciary’s compensation depends upon the extent and character of the labor and the responsibility involved. Fixing the amount of compensation is peculiarly within the discretion of the court below, which in most cases is better able to judge as to the reasonableness of such charges than the appellate court. Unless such discretion is clearly abused the judgment of the court below will not be disturbed.”

While as a matter of convenience the compensation of a fiduciary may be arrived at by way of percentage, the true test is always what the services were actually worth and to award a fair and just compensation therefor: Montgomery’s Appeal, 86 Pa. 230; Bosler’s Estate, 161 Pa. 457, 29 A. 57; Harrison’s Estate, 217 Pa. 207, 66 A. 354; O’Brien’s Estate, 59 Pa. Superior Ct. 19; Miller’s Estate, 132 Pa. Superior Ct. 437, 1 A. 2d 523.

While ordinarily five percent has been held to be a reasonable allowance, to such rule there must be exceptions where the amount is small, or where it is large: Pusey v. Clemson, 9 S. & R. 204; Gyger’s Appeal, 74 Pa. 48; Gilpin’s Estate, 138 Pa. 143, 20 A. 713. It has been argued that the rule of percentage may work an injustice, for example: if five per cent commissions are allowed in an estate of $100,000, but only three per cent if it exceeds that amount, a fiduciary would receive $5,000 commissions on an estate of $100,000 but only $3,150 if perchance the estate would be valued at $105,000. But, as above stated, percentage is used only as a matter of convenience as an initial guide or thumb rule. The matter rests upon the discretion of the auditing judge: 8trickier Estate, supra, and cases therein cited. See the large collection of cases in which compensation of fiduciaries has been determined: Hunter’s Commonplace Book Yol. 1 section 2 (b) p. 136 et seq.

Attempts have been made to have this Court decide that graduated commissions may be allowed to fiduciaries. We have declined to do this and have decided that there can be no graduated commissions diminishing in higher brackets: Gardner’s Estate, 323 Pa. 229, 185 A. 804 Cf. Frick’s Estate, 13 D. & C. 536 ( Gest, J.).

We have repeatedly decided that except in extraordinary or unusual circumstances a trustee is to be compensated only at the termination of the trust or at the ending of the trustee’s connection therewith: Bosler’s Estate, 161 Pa. 457, 29 A. 57; Thouron’s Estate, 182 Pa. 126, 37 A. 861; Penn-Gaskell’s Estate (No. 1), 208 Pa. 342, 57 A. 714; Snyder Estate, 346 Pa. 615, 31 A. 2d 132; Kennedy Trust, 364 Pa. 310, 72 A. 2d 124. No interim commission on principal is originally allowable under the law so declared. Where, however, extraordinary services are rendered, or unusual labor is entailed, an immediate allowance is permissible: Thouron’s Estate, 182 Pa. 126, 37 A. 861; PennGaskell’s Estate, (No. 1), 208 Pa. 342, 57 A. 714; Powers’ Estate, 58 D. & C. 379.

The Legislature by the Act of March 17, 1864 P. L. 53, provided: “That in all cases, where the same person shall, under a will, fulfill the duties of executor, and trustee, it shall not be lawful for such person to receive, or charge, more than one commission. . . .” This provision was re-enacted by section 45 of the Fiduciaries Act of June 7, 1917, P. L. 447. Such statutory provision was enforced by the appellate courts: Hill’s Estate, 250 Pa. 107, 95 A. 426; Spark’s Estate, 127 Pa. Superior Ct. 364, 193 A. 449, affirmed in 328 Pa. 384, 196 A. 48. This section of the Fiduciaries Act was repealed by the Act of April 10, 1945 P. L. 189, and which appellant contends operates retroactively upon.trusts already in operation.

In modern trust administration, professional corporate fiduciaries perform an important function. It undoubtedly would be against public interest if, because of lack of profit, corporate fiduciaries were required to discontinue their service. Yet it must not be overlooked that in fixing compensation of fiduciaries we are required to consider the situation not only of great corporations doing an enormous trust business in large cities, but also the smaller corporations in less populous areas. The same rates of compensation equally apply to individuals and corporations. It should only be if absolutely necessary and in justness and fairness, that compensation of fiduciaries in trust estates should be presently increased, especially since during the past quarter of a century, which included a tremendous financial depression and two major wars, the net return of income to trust beneficiaries has been progressively diminishing and the value of corpus is so frequently found to have greatly shrunken, and in many cases disappeared. In extreme cases, in trusts of unusual duration, the entire principal could be greatly diminished or even consumed by the annual allowance of a trustee’s commission upon principal. For example, the record in Curran’s Estate, 310 Pa. 434, 165 A. 842, discloses that, in a charitable trust, testator directed the accumulation of income until the corpus (p. 436) . . shall yield annually thirty thousand dollars. . . .” A calculation will demonstrate that testator obviously contemplated a period of approximately 100 years before such result could be attained. Solely because of the wise action of the fiduciary in entering into an extremely profitable improvement lease, only 35 years elapsed before the desired result was accomplished. Had such beneficial lease not been taken, and had the fiduciary annually received one-half of one per cent of the principal, it may readily be observed that at least fifty per cent of the principal would have been consumed by the payment of trustee’s commissions and the termination of the trust greatly retarded.

The principles relating to fixing the amount of compensation to fiduciaries as determined by this Court and the Legislature over the past 150 years, have become firmly established. It may well be that present conditions demand that the system requires general revision. If this be true, such radical change should be made by the Legislature and not by the Court. We decline to overrule the host of our decisions over such a long period. We agree with Judge Ladner that even before a change of such magnitude should be enacted by the Legislature, there should be a wide and searching investigation by a legislative committee concerning the entire subject matter, including not only the situation of all corporate fiduciaries but of individual fiduciaries as well.

Nor do the facts in the present case present an appropriate vehicle for overruling the cases hereinabove referred to even were we disposed to do so. The Act of April 10, 1945, supra, repealing section 45 of the Fiduciaries Act of 1917, supra, which prohibited the same individual from receiving commissions both as executor and trustee may not be applied retroactively. Appellant, the corporate fiduciary, accepted this trust in 1930 “under the law as it then existed. It was paid in full (except for commission thereafter received by it on income it received and distributed). Such acceptance fixed the rights, liabilities, exemptions, defenses and expectations of both life tenant and remaindermen. Their rights were vested under what necessarily is an implied contract. Such rights having vested, and appellant having been paid in full, the imposition of additional compensation under a retroactive interpretation of this statute would be unconstitutional under the Fourteenth Amendment of the United States Constitution: Farmers National Bank and Trust Company v. Berks Co. R. E. Co., 333 Pa. 390, 5 A. 2d 94; Willcox v. Penn Mutual Life Insurance Co., 357 Pa. 581, 55 A. 2d 521; Crawford Estate, 362 Pa. 458, 67 A. 2d 124; Borsch Estate, 362 Pa. 581, 67 A. 2d 119; McKean Estate, 366 Pa. 192, 77 A. 2d 447.

Appeals dismissed; decrees affirmed at the cost of appellant.

Mr. Justice Ladner, having sat in the court below, did not participate in this opinion.