The opinions are unanimous that "a trustee must convert non-legal securities within a reasonable time." What is a "reasonable" time always depends on circumstances. It is a question not of law but of fact. As this court said, speaking through Mr. Justice STERN, in Seamans' Est., 333 Pa. 358, 360: "There is no arbitrary or standardized formula which can be used as an inflexible measuring rod . . . to enable a fiduciary to determine his exact responsibility under various conditions." *Page 479 This being so, the fact that a trustee retained non-legal securities for two years or for eight years or any other number of years has little or no bearing on the "reasonableness" of the retention. The question still remains: Did the circumstances warrant the retention?
In the law of negligence, for example, what is reasonable conduct depends on the attendant circumstances. Driving over a railroad crossing without stopping and looking and listening is negligent because reasonable beings do not (except in moments of aberration) do that sort of thing. Even primitive men and animals will stop, look and listen in the presence of seeming danger. In myriads of other human situations the questions of what is reasonable conduct is not so categorically settled and therefore an adjudication based on the facts must take place. Such is the situation in respect to the retention by a trustee of non-legal securities.
All agree that "non-legal securities should be converted promptly in the absence of exceptional circumstances". This record, in my opinion, presents such circumstances. The testator died about eleven months after the beginning of the depression. Neither in his will made on January 27, 1930, nor in his codicil made on September 13, 1930, did he direct his executor or trustee to sell his non-legal securities at any given time. The executor's account was adjudicated in October, 1931, and the trustee then received the non-legal securities. At that time no one foresaw that the depression which began in October, 1929, would last a decade or more. Periodic depressions have always occurred in this and in all other countries and the records show that (excluding the 1929 depression) their average duration has been 5.3 years. Before 1935 none here lasted more than six years. In 1931 and 1932 the then chief magistrate of the nation announced frequently to the American people that "prosperity was *Page 480 just around the corner." There was a virtual unanimity of expert financial opinion in 1931 and 1932 that themarket value of securities was then far below their intrinsic values and that the worst of the depression was over. It is now generally agreed that "the bottom" of the depression was reached in 1932. The "era of low prices extending for eight years or more" which was not visible to the keenest foresight in 1932 is visible to the most obtuse hindsight in 1941. The prevailing view in 1930, 1931 and 1932 was that the depression was "only temporary", that it was a "panic condition", and that it was "abnormal". In the light of history that conclusion then appeared to be sound.1 Most people held on to their stocks as long as they could during the depression years (as did this testator during the eleven months of the depression which preceded his death) and millions of others in 1930 and in following years invested their money in stocks selling at prices generally considered abnormally low. In those times even the acknowledged prudence of an individual afforded him little or no protection against economic disaster. The circumstances were in that era so exceptional that this trustee in declining to sell the stocks in question at prices which he with good reason regarded as being far below their real value was, in my judgment, exercising, as the court below found, "common prudence, common skill and common caution."
In Seaman's Estate (supra) Mr. Justice STERN, speaking for this court, listed among the circumstances which "excused from the prompt sale" by a trustee of nonlegal securities the following: "Where a security is *Page 481 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." From the point of view of this trustee, those circumstances existed when he refused to sell. The investments were certainly well "seasoned" and therewas "a reasonable likelihood of an early return to stable conditions." All leaders in government and in finance were optimistic in their predictions as to the depression's early ending.
The majority opinion does not abolish the distinction between legal and non-legal securities in respect to their retention by a trustee. When a trustee retains legal securities, the presumption is that he is doing his duty and while he may be surcharged for any supine negligence in retaining even legal securities when he should sell them, those who charge him with such negligence have the burden of proving it. In such a case the trustee's discretion is wide and he will not be held liable for any losses which result from its honest and careful exercise.
If a trustee retains non-legal securities for a long period of time, he does so at his peril, for his determination of what is a reasonable time to retain the securities is subject to judicial review, and if his retention of the securities is challenged the burden of justifying it is his. All trustees of non-legal securities know this and govern their actions accordingly.
The majority opinion is not in conflict with Seamans' Estate (supra). That case, like this one, turned on a question of fact. The court below in that case held that the trustee "did not give to the management of the trust estate the care and judgment which he should have exercised" and this court in affirming (with modification) the decree said: "A reading of the record *Page 482 does not give the impression that he [the trustee] was seriously concerned with the responsibilities which his office as guardian imposed." A reading of the record in this case does give the impression that the trustee was seriously concerned with his fiduciary responsibilities.
What is said in the recent work of Scott on Trusts (1939), Vol. 2, sec. 230.2, is applicable here: "The length of time during which the trustee is justified in retaining securities depends upon a variety of factors. . . . Among the factors are . . . (5) the general state of the market, as, for example, whether the prevailing prices are generally considered unduly low in the case of a general depression or are considered unduly high."2 Scott further says: "Where the trust estate includes securities which are not proper trust investments, the trustee is not liable for failure to sell them where panic conditions prevail, even though the securities have a ready market. The trustee is not bound to jettison securities. Any delay in the sale of securities which are not proper trust investments involves, to be sure, a certain element of risk. Although the trustee may reasonably believe that the securities will rise in price, there is always the chance that they may fall. For this reason the securities are not proper securities for the trustee to purchase for the trust. It is arguable that since the purchase would be speculative the retention is equally speculative, and that the trustee should be under a duty to sell them immediately. The courts, however, have very wisely refused to take this position. In a number of cases the court has pointed out that a trustee may be justified in retaining securities already in the trust although he would not be justified in making an investment in such securities. . . . *Page 483
"If the trustee is to escape a surcharge for a loss resulting from his delay in selling or failure to sell securities which are not proper trust investments, however, he must show that he has exercised a prudent judgment, taking into consideration all the relevant circumstances. If he has done so, the mere fact that subsequent events show that he was mistaken is not enough to subject him to liability."
Except for those acts specifically declared to be unlawful, a trustee's duty in respect to the retention of non-legal securities is determinable by the conditions confronting him. He must act under these conditions with "common prudence, common skill and common caution" as those qualities of mind are generally understood. This trustee did that.
I agree that the decree of the court below should be affirmed.
1 The greatest previous depression in this country was that of 1873. When President Hayes took office on March 4, 1877, he characterized in his inaugural address "the financial condition suffered during the past three years" as one of "embarrassment and prostration". Four years later his successor declared inhis inaugural address: "The prosperity which now prevails is without parallel in our history."
2 Scott quotes that sentence from "Restatement of Trusts", sec. 231, Comment C.