This appeal, on behalf of minor remaindermen, is from a decree refusing to surcharge trustees for losses resulting from their failure to convert non-legal investments which had been received from themselves at the adjudication of their account as executors. Testator died September 13, 1930, leaving a will dated January 27, 1930, with a codicil dated June 2, 1930. After *Page 470 directing the payment of debts, disposing of household effects, giving a number of cash legacies, creating three trusts of $5,000 each for grandchildren, directing the payment of taxes and the sale of his interest in a partnership, he disposed of the residue to his executors and trustees to pay the net income to his daughter for life, then to distribute the corpus to her children and his nephews and nieces in contingencies which need not now be stated.
Among testator's investments passing to the executors were non-legals,1 of which they sold only a part. At the adjudication of the executors' account in October, 1931, they received the unconverted non-legals as trustees. In 1939, pursuant to the application of the life beneficiary, they filed their first account; at the audit, requests for surcharge were made and allowed; after argument on exceptions to the adjudication the surcharges were affirmed. Later, reargument was allowed, after which a majority of the judges sustained the exceptions to the adjudication, and refused the surcharge.
The general rule is that the trustee must exercise common prudence, common skill and common caution in the performance of his duties, or, shortly stated, due care in the circumstances.2 The field of investment defined by the statute may be enlarged by the will,3 by acquiescence4 of beneficiaries, or in certain *Page 471 cases by order of court.5 If the testator directs an investment in a particular security6 it must be made, if available. If investments become non-legal or if non-legal investments are received without authority to retain them, they must be converted into legals7 with reasonable diligence. The rule to be applied to this record was considered in Taylor's Estate,277 Pa. 518, 121 A. 310 (1923), in Brown's Estate, 287 Pa. 499,135 A. 112 (1926), and in more recent cases, among them, Nola'sEstate, 333 Pa. 106, 3 A.2d 326 (1939). In Brown's Estate, we said, at p. 501: "The rule stated in Taylor's Estate as to such securities was that a fiduciary should not hold beyond a reasonable period investments made by the decedent in unauthorized securities unless specially authorized to do so, and that when a trustee continues to hold such non-legal investments after a time when he could properly dispose of them and a loss occurs, he must be held liable for a failure to exercise due care; unless he shows that his retention of thesecurities in question represents, not a mere lack ofattention, but an honest exercise of judgment based on actualconsideration of existing conditions; in other words, he is expected to be ordinarily watchful and to exercise normal good judgment: Taylor's Estate, [277 Pa. 518] at page 528."8 This accords with the requirement of section 49 (e) 2 of the Fiduciaries' Act of 1917, P. L. 447.9 in Nola's Estate, the opinion *Page 472 stated at p. 109: "If a decedent dies leaving securities which would not be legal investments for trust funds, the fiduciary is excused from a failure to convert them if his retaining them represents 'the honest exercise of judgment based on actual consideration of existing conditions; in other words, he is expected to be ordinarily watchful and to exercise normally good judgment.' (Taylor's Estate, 277 Pa. 518, 528; Brown'sEstate, 287 Pa. 499; Curran's Estate, 312 Pa. 416, 423, 424;Reinhard's Estate, 322 Pa. 325). He is thus vested by the law with a measure of discretion and is allowed the exercise of his own judgment as to the wisdom of selling the securities under then prevailing market conditions." See, also, Restatement, Trusts, § 174.
As the trustees were not authorized to retain the non-legal investments, it was their duty to convert with reasonable diligence, which means within a reasonable time considering the circumstances; to perform that duty required them to determine what would be a reasonable time. While the dictionaries give a number of meanings for the word reasonable, in a legal sense conduct is reasonable if it is consistent with that of the prudent man in like circumstances. These trustees, then, whether advised that they should not hold the investments "beyond a reasonable period" (Taylor's Estate, 277 Pa. 518,528, 121 A. 310) or that they should "use reasonable diligence in converting" (section 49 (e) 2, Fiduciaries' Act, 1917, P. L. 516) or that they should dispose of them "within a reasonable time" (Restatement, Trusts, section 230) were bound to conform to the prudent man standard. The required conduct must be considered with respect to the necessities, as they appeared at the time of the proposed transactions; obviously, for example, if there is no market, the trustees *Page 473 cannot sell.10 If, temporarily, the appellees retained the investments, awaiting what they should consider a proper time to sell, they assumed the burden of justifying their decision; in the words of the rule, the record must show that their retention of the securities represented, not a mere lack of attention, but an honest exercise of judgment based on actual consideration of existing conditions. An examination of the record requires our concurrence in the decree appealed from.
The appellant has printed the evidence of two witnesses, John Casani, one of the trustees,11 and William H. Loesche, a trust officer of the Girard Trust Company. For present purposes it is conceded that, as executors, the appellees were justified in retaining the investments until they filed their account in 1931; the learned auditing judge said that he was "not . . . prepared to say that these securities should have been sold by the trustees before the audit of that account." As the Fiduciaries' Act, section 49 (e) 1 and 2 provided that "for reasons satisfactory to said court" securities might be awarded in kind, the distribution in kind to the trustees was properly made.12
We come, then, to the evidence offered by the trustees to show the exercise of reasonable diligence in their endeavors to ascertain whether a time for sale had come at a price which should have been taken and in concluding that it had not; or, that the temporary retention, in the words of the rule, was not the result *Page 474 of mere lack of attention but the product of the honest exercise of judgment based on actual consideration of existing conditions. Mr. Casani testified that he followed the market constantly and considered the fluctuating prices. He consulted about the investments with various persons connected with banks and brokers; he also consulted with S. Davis Wilson, then Controller of Philadelphia, with particular reference to the Union Traction Company stock, Mr. Wilson being then concerned in the Philadelphia street railway litigation. To quote only one of the instances given in the evidence, Mr. Casani testified, with respect to the investments generally: "Q. What kind of information were you getting from him? [a named broker]. A. What I was trying to get from these people all the time was that we had seen stock go below our appraisal figure. We knew it was non-legal and what we were trying to find out was if we could procure a judgment of what he would recommend us to do other than what we were doing with it. Nobody was telling us, 'You go out and sell it'; everybody was of the opinion 'These are good stocks; they will come back.' What we tried to do was to eliminate the sacrifice of assets in this estate." He said that both the trustees were following the quotations of these securities and watching them in the daily papers and investment journals.
In 1931 the trustees made an oral arrangement with the Girard Trust Company, the purport of which was thus stated by Mr. Loesche, trust officer of that company. "A. We entered into an agency agreement, where we have all the custody of the securities, collect income, and make the investments and reinvestments as they may direct. Agency service includes consultations with our trust officers concerning the assets of the estate." The trustees did not delegate power to the trust company; "everything in the handling of the trusts was done on their approval only." Among the duties performed were looking after the real estate, *Page 475 keeping accounts, collecting income and distributing it to the life tenant accompanied by appropriate statements. For this service the trust company received 3% of the 5% charged for collecting the income, each of the trustees receiving 1%. The arrangement with the Trust Company continued during the entire period covered by the account. Mr. Casani testified: "When we talked to the Girard Trust Company about the position we were in they advised us to hold these securities." Mr. Loesche said, apparently speaking as of December, 1931, of the U. G. I. stock, "I remember saying to them I thought that was rather a sound stock; it was a rather large part of the estate, and probably the market conditions did not warrant selling at that particular time." He said that he "had many discussions with them relative to this estate." Mr. Casani testified that his reason for not selling the U. G. I. stock was that "in our judgment, for us to sell that stock would be to sacrifice a considerable asset, and we also felt that if we disposed of that stock for that price, which in our judgment was too low, and we re-invested in legal investments, the only ones that we would have considered, Federal bonds, that our income would have suffered a shrinkage and so we decided, felt in our judgment the thing to do, to protect the estate and also to protect the income, was to hold the U. G. I. stock." He said substantially the same thing of the General Electric Company stock, that "at thirty-one that it was too low and we would be sacrificing an asset to have sold it, and it would have reduced the income for the life tenant." There are similar expressions of their ultimate conclusions concerning other investments. We have of course not quoted all the evidence on the subject but it shows a case within the rule; their "retention of the securities in question represents, not a mere lack of attention, but an honest exercise of judgment based on actual consideration of existing conditions." These trustees, it may be noted, *Page 476 were selected by the testator to carry out the purposes of the trust; one of them, Mr. Casani, was testator's nephew, engaged in business with him, and entitled to share in the remainder after the life estate, an interest that he would wish to protect. As the learned court has found that, in the honest exercise of judgment in conditions presented from time to time as disclosed by the record, they refrained from selling because they thought sales then would be at an unreasonable sacrifice in respect of both principal and income, they have complied with the rule.
Arguments in this and other surcharge cases at this Term appear to indicate that the decision in Seamans' Estate,13333 Pa. 358, 5 A.2d 208, has been misunderstood. In that case, as in this, the accountant had the burden of justifying his conduct; after considering his evidence, the court found "no adequate excuse for appellant's retention of the stocks ever since 1930." From that finding of fact liability followed as of course. That was the decision. The apparent misunderstanding of it appears to result from expressions selected from the opinion which certainly were not intended by the court to modify the rule14 as theretofore applied. In the opinion, the words "promptly" and "prompt" were used in referring to the general rule requiring conversion; the words "to some extent" were added in a sentence *Page 477 which, in Nola's Estate, 333 Pa. 106, 109, 3 A.2d 326, read as follows: "He is thus vested by the law with a measure of discretion and is allowed the exercise of his own judgment as to the wisdom of selling the securities under then prevailing market conditions," so that it read "and allowed to some extent to exercise his own judgment" etc. Apparently, also some of the misunderstanding results from the fact that one year after the guardian received the securities at the audit of the executor's account was fixed as the date when the replacement value of the securities should be calculated. It has been argued that the rule referred to in Taylor's Estate, Brown's Estate and Nola'sEstate, supra, was modified by the decision in Seamans' Estate. The words "promptly" at page 363, and "prompt" at page 364, used in the opinion in Seamans' Estate, and the addition of the words "to some extent" page 363, were not intended by the court to be given the effect suggested by counsel. In Dauler'sEstate, for example, 247 Pa. 356, 93 A. 511, the accountant, an executor, was not surcharged though he held the securities six years without finding a market; in Reinhard's Estate, 322 Pa. 325,185 A. 298, bank stock was held from 1930 until the bank failed in 1932; in Stewart's Appeal, 110 Pa. 410, 6 A. 321, railroad stock was held four years. While it is true that an executor should account in a year and may be required by the court to convert in a year for the purpose of then making distribution, the rule we are considering is that to be applied by a trustee after he has received the trust property at the audit of the executor's account.
The finding of the court in banc was as follows: "The record is replete with uncontradicted proof that [the trustees] consistently sought expert advice as to the wisdom of selling or retaining — always with the best interest and protection of the estate in mind. After the award to them as trustees in October, 1931, they continued this attention. In December, 1931, they entered *Page 478 into an agency agreement with one of the largest and soundest trust companies in order to 'collaborate' with experienced men; they voluntarily surrendered to that company 3% of their 5% commission for this service. Not only did the trustees constantly and continuously consult with the officers and employees of the trust company, but they consulted other bankers, brokers, and a City official — all of whom advised and evidently still advise against conversion. At no time is it apparent in the testimony that the retention by the trustee was by way of speculation, and to hold on in order to receive a better price than the securities were reasonably worth. Upon the contrary, the testimony reveals that the retention was a bona fide effort to retain until such time as a sale of the securities would realize what the Trustees deemed to be their true value. However mistaken their judgment may have proven — a hindsight which may not be substituted for foresight — there can be no question that these fiduciaries, to the best of their ability, and with the assistance of the best advice they could obtain, acted with common skill, common prudence and common caution." There is no contradiction of importance in the evidence.
Decree affirmed, costs to be paid out of principal.
Mr. Justice PARKER concurs in the result.
Mr. Justice DREW and Mr. Justice STERN dissent.
1 $6,000 4% General Consolidated Mortgage Gold Bonds, due 2003, of the Lehigh Valley Railroad Company, 50 shares General Electric Company Common, 200 shares Deposited Bank Shares, Series B. 1, 962 shares U. G. I. Common and 22 shares U. G. I. Preferred and 100 shares Union Traction Company.
2 Taylor's Estate, 277 Pa. 518, 529, 121 A. 310.
3 Detre's Estate, 273 Pa. 341, 117 A. 54; Dickinson's Estate,318 Pa. 561, 179 A. 443.
4 Stephen's Estate, 320 Pa. 97, 181 A. 559; Brown's Estate,287 Pa. 499, 135 A. 112; Curran's Estate, 312 Pa. 416, 167 A. 597;Clabby's Estate, 338 Pa. 305, 12 A.2d 71; Shipley's Estate,337 Pa. 571, 12 A.2d 343.
5 See Old's Estate, 176 Pa. 150, 34 A. 1022; Riebel's Estate,321 Pa. 145, 184 A. 118. Compare Cridland's Estate, 132 Pa. 479,19 A. 362; Catanach's Estate, 273 Pa. 368, 117 A. 178.
6 Compare Nola's Estate, 333 Pa. 106, 3 A.2d 326.
7 See, with reference to the law in a number of jurisdictions: Bogert, The Trustee's Duty with Regard to Conversion of Investments, 1 U. of Chicago L. Rev. 28; Note, 89 U. of P. L. Rev. 227.
8 See also Dempster's Estate, 308 Pa. 153, 160, 162 A. 447;Drueding v. Tradesmen's National Bank and Trust Co., 319 Pa. 144,147, 179 A. 229.
9 Amended by section 4 of the Act of 1937, P. L. 1037, 20 Pa.C.S.A. § 866, by eliminating the sentence providing for conversion with reasonable diligence; see also section 1 of the Act of 1935, P. L. 545, 560, 20 Pa.C.S.A. § 801 (19).
10 See Dauler's Estate, 247 Pa. 356, 93 A. 511; Reinhard'sEstate, 322 Pa. 325, 185 A. 298.
11 The testimony of Mr. Casani, as printed, contains what we assume is an inadvertent error; on pages 63a and 64a is printed as part of his evidence a part of the testimony of the life tenant, Mrs. Byrne, notes of testimony, pages 196, 197, 200, 201.
12 See Borell's Estate, 256 Pa. 523, 100 A. 953, affirming 25 Dist. 430. Such distribution was justified prior to the statute: Reed's Estate, 82 Pa. 428 (1876).
13 In Seamans' Estate, the accountant was not a fiduciary selected by the testator, but a guardian appointed by the court.
14 Mr. Justice STERN said at page 364 that a sale of non-legals is not required ". . . where the market is so restricted that it is reasonably impossible to sell the security; or where the offering of a large block of stock at one time would drastically break the market price; or where a security is abnormally depressed in value because of a general economic and financial collapse, so that a sale can be effected only at a sacrifice, but there is a reasonable likelihood of an early return to stable conditions which will restore the normal value. A fiduciary is not compelled to jettison seasoned investments during a temporary panic." See, also, Gardner'sEstate, 323 Pa. 229, 236, 185 A. 804.