Estate of Spear
Download as PDF
Download as WP3.x
Back to Opinion page

MAINE SUPREME JUDICIAL COURT				Reporter of Decisions
Decision: 1997 ME 15
Docket: KNO-96-1
Submitted on briefs September 11, 1996
Decided January 28, 1997

PANEL:  WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD, RUDMAN, DANA, and LIPEZ,
JJ.
MAJORITY:	ROBERTS, CLIFFORD, DANA and LIPEZ, JJ.  DISSENT: WATHEN, GLASSMAN,,
RUDMAN, JJ.

				


ESTATE OF ZOA J. SPEAR


LIPEZ, J.

	[¶1]  Marilyn S. Patenaude, one of five surviving beneficiaries of the
trust created by the will of her grandmother, Zoa J. Spear, appeals from the
judgment of the Knox County Probate Court (Emery, J.) approving the
transfer of certain trust properties to the trustee in his individual capacity. 
Patenaude contends that the Probate Court erred as a matter of law in
approving the transfer.  We agree and vacate the judgment.
Background
	[¶2]  In July 1970 Zoa J. Spear created a trust for the benefit of her
two children.  Pursuant to the terms of the trust, Zoa Spear's grandchildren
would share in the assets of the trust at the death of the survivor of Zoa
Spear's two children.  Ruth Spear Rich, Zoa Spear's daughter, died in 1984. 
Erwin M. Spear, Zoa Spear's son, died on February 6, 1993.  Prior to his
death, however, Erwin and his son, Everett Spear, II, who were both
surviving trustees of the trust, wrote to the five beneficiaries of the trust,
including Everett himself, proposing the purchase by Everett of three
parcels of real estate from the trust corpus.{1}  Along with the letter, the
trustees enclosed a description of each of the three properties to be
purchased, as well as a list of "required improvements" and the purchase
price for each property.
	[¶3]  All five of the trust beneficiaries, including Everett, signed and
returned to the trustees a reply letter that had been included with the
proposal.  The letter contained a provision that "[t]he undersigned approve
of the sale as set forth in the proposal to liquidate, dated June 26, 1992, and
request the Probate Court approve the sale as set forth in the proposal."  On
January 6, 1993, trustees Everett Spear, II, and Erwin Spear, Sr., executed
a short form Deed of Trustee granting the three parcels to Everett Spear, II,
for the proposed purchase price of $105,000, without obtaining the
authorization of the Probate Court for the transfer.  On February 6, 1993, the
survivor of the two original trust beneficiaries, Erwin W. Spear, died.  Under
the terms of Zoa Spear's will, the trust terminated and the remaining trust
assets were to be distributed equally among the five Zoa Spear
grandchildren.
	[¶4]  On April 12, 1994, approximately 15 months after Everett Spear,
II, purchased the three parcels in question from the trust, he petitioned the
Probate Court to "ratify and approve" the purchase pursuant to 18-A M.R.S.A.
§ 7-404(b).{2}  Of the five beneficiaries, only Marilyn Patenaude filed an
answer to the trustee's petition.  In her answer, she asked the court to
"[d]etermine the fair market value of the properties transferred from the
Zoa Spear Trust to the Petitioner" and to "[a]uthorize the sale of such
properties to the Petitioner on such terms and conditions as the Court
deems just."  Patenaude also requested that the court order "the Petitioner
to present a full and complete accounting of its trust."
	[¶5]  After a hearing on the petition for court authorization, the court
approved the sale of the three parcels to trustee Everett Spear, II, for
$105,000.  The court found that the trustee had paid a fair price for the
three parcels he purchased from the trust corpus and that he had met his
duty to disclose all relevant information pertaining to the sale.  The court
further found that Patenaude was estopped from challenging the transaction,
having voluntarily consented to the sale with full knowledge of material facts
and without any coercion or misrepresentation on the part of the trustee. 
Patenaude contended that she relied on the trustee's statement that the
court would review the transaction before any sale took place.{3}  The court
concluded that 18-A M.R.S.A. § 7-404(b) does not require a trustee to seek
judicial approval of the transaction prior to sale.  Patenaude now appeals
from the court's judgment approving the sales.
Discussion
	[¶6]  Statutory interpretation is a matter of law.  We review the court's
decision on a matter of law de novo.  Guardianship of Zachary Z., 677 A.2d
550, 552 (Me. 1996) (citations omitted).  Although the court observed that
"the trustees should have followed the prudent path outlined in 18-A
M.R.S.A. § 7-404(b) and sought Court approval prior to executing the deed
from the trustees to the trustee/buyer," the court concluded that 18-A
M.R.S.A. § 7-404(b) does not require a trustee to seek judicial approval
before transferring trust property to himself.  The Court approved the
trustee's post-sale petition because "all of the beneficiaries approved the
transaction without any inducement by the trustees and had full knowledge
of all of the pertinent facts regarding the transaction."  
	[¶7]  "The fundamental rule in statutory construction is that words
must be given their plain ordinary meaning."  Mullen v. Liberty Mutual
Insurance Co., 589 A.2d 1275, 1277 (Me. 1991).  In interpreting a statute,
we read the plain meaning of the statutory language in order to give effect to
the intent of the legislature.  Guardianship of Zachary Z., 677 A.2d 550, 552
(Me. 1996).  ". . . [W]hen the meaning of the statute is clear, there is no
need to look beyond the words, unless the result is illogical or absurd." 
Central Maine Medical Center v. Maine Health Care Finance Comm'n, 644
A.2d 1383, 1386 (Me. 1994).
	[¶8]  Title 18-A M.R.S.A. § 7-404(b) governs transactions of a trustee
when the trustee's individual interest and duty to the trust are in conflict. 
In such a case, the trustee may act "only by court authorization."  To
"authorize" is "to empower; to give a right or authority to act.  To endow
with authority or effective legal power, warrant or right.  To permit a thing
to be done in the future."  Black's Law Dictionary 133 (6th ed. 1990.) 
"Although the effect of a ratified act is essentially the same as an act that was
authorized, the distinguishing element is that ratification takes place after
the act has occurred while authorization must occur before conduct arises." 
Manning v. Twin Falls Clinic & Hospital, Inc., 830 P.2d 1185, 1192 (Idaho
1992).  By reading section 7-404(b) as permitting approval of the sale of
trust property to the trustee in his individual capacity after the transaction
has already taken place, the court misperceived the plain meaning of the
statute.  18-A M.R.S.A. § 7-404(b) requires court approval before the
transaction takes place, thereby assuring adherence to "the general duty of
the trustee to administer a trust expeditiously for the benefit of the
beneficiaries."  18-A M.R.S.A. § 7-301 (1981).  See Nasberg v. City of
Augusta, 662 A.2d 227, 229 (Me. 1995) (in interpreting a statute we will
consider "the whole statutory scheme of which the section at issue forms a
part so that a harmonious result, presumably the intent of the Legislature,
may be achieved").{4} 
	[¶9]  As this case demonstrates, the requirement of prior approval
provides safeguards that a process of subsequent ratification does not,
particularly when fifteen months pass before the ratification is sought. 
Improvements may be made to the transferred properties by the new
owner, as occurred here, because of an assumption that the court will ratify
what has already been done.{5}  The court may be disinclined to undo the new
status quo that exists after the sales and will place an evidentiary burden on
the beneficiary challenging the sales to justify such an undoing.  That is
precisely what happened here.  Instead of requiring the trustee to persuade
the court that the proposed transaction, despite the conflict of interest, was
fair to the beneficiaries of the trust, the court improperly placed the burden
on Patenaude, a trust beneficiary, to convince the court that the bargain
struck by the trustee with himself was not fair and reasonable and hence
should be undone.{6}  That burden of persuasion on the fairness and
reasonableness of the transaction should rest with the trustee who has
presented the conflict issue to the court.  The requirement of prior approval
assures the proper allocation of this burden.
	[¶10]  Since the trustee of the Zoa Spear Trust failed to seek court
authorization pursuant to 18-A M.R.S.A. § 7-404(b) prior to conveying the
trust properties to himself, the judgment approving that conveyance must
be vacated and the court should enter a new order providing for a
reconveyance of the properties to the trust, or if the trust has terminated, to
a constructive trust to be supervised by the Probate Court.  Those
properties, or the proceeds from the sale thereof, must be distributed in a
manner that is fair to the beneficiaries of the trust under current market
conditions.  Such distribution should also give just consideration to the
$105,000 purchase price paid by the trustee, the improvements to the
properties made by the trustee, the income earned by the trustee since the
conveyance of the properties, and any other equitable adjustments. 
	The entry is:
	Judgment vacated.  Remanded for the entry of a judgment
ordering a reconveyance to the trust or a court-supervised
constructive trust of the trust properties conveyed on January 6,
1993, to Everett Spear, II, and for further proceedings
consistent with the opinion herein.


Wathen, C.J., with whom Glassman, J. and Rudman, J. joins, dissenting.


	[¶11]  I respectfully dissent.  The Court's opinion is based on the
conclusion that 18-A M.R.S.A. § 7-404(b) requires a trustee to obtain judicial
approval of any transaction involving a conflict of interest before entering
into that transaction.  This statutory argument was never presented to the
Probate Court nor was it set forth in the briefs filed on appeal.  I am
unpersuaded by the Court's rationale for deciding this case on the basis of an
issue that was never presented.  I would affirm the judgment.
	[¶12]  Principles of sound appellate practice generally restrain us from
going beyond the issues raised by the parties, particularly in civil litigation. 
Legal issues not presented to the trial court and raised for the first time on
appeal are generally held to have been waived.  One obvious purpose of this
rule is to ensure that the trial court has a full opportunity to dispose finally
of the case and to make all of the factual findings needed for effective
appellate review.  Harrington v. Inhabitants of the Town of Garland, 381 A.2d
639, 643 (Me. 1978).   The need to crystalize the legal issues involved in a
case through briefing and argument at the trial level has also been
considered an important reason for this principle.  See Wellstone Partners v.
J&M Const. Co., 581 A.2d 789, 791 (Me. 1990) (parties must raise issues
before the trial court to give the court an opportunity to consider its legal
rulings in light of unnoticed legal authority).
	[¶13] Even more compelling is the principle that issues not argued in
the briefs submitted to this Court should be treated as waived.  As we stated
in Aseptic Packaging Council v. State, 637 A.2d 457 (Me. 1994):
We do not generally reach out, without the benefit of either written or
oral argument by counsel, to decide legal contentions nowhere raised
by the [parties].  Nevertheless, in order to avoid depriving [the parties]
of [their] constitutional right to a fundamentally fair trial, and for the
purpose of maintaining the basic integrity of the judicial process, we
will notice "error, if error there be, that works substantial injustice,
whether or not it is brought to the attention of the trial or appellate
court."

Id. at 463 n.4 (quoting State v. Brunette, 501 A.2d 419, 422-23 (Me. 1985)
(citations omitted)); see also Cloutier, Barrett, Et Al v. Wax, 604 A.2d 42, 45
(Me. 1992) (applying obvious error doctrine in civil context); Wellstone, 581
A.2d at 792 (same).   The Probate Court's interpretation of 18-A M.R.S.A. §
7-404(b), if erroneous, was not challenged by the parties and has not
worked a "substantial injustice." Thus, we should not vacate the judgment on
the basis of such unpreserved error.
                                                               
Attorney for appellant:

John J. Sanford, Esq.
Harmon, Jones & Sanford, LLP
P O Box 190
Camden, ME 04843-0190

Attorney for appellee:

Stephen W. Hanscom, Esq.
Crandall, Hanscom, Pease and Collins, P.A.
P O Box 664
Rockland, ME 04841-0664

FOOTNOTES******************************** {1} Written in June of 1992, the letter reads in pertinent part: The enclosed proposal creates a conflict of interest for us as trustees. Therefore, it is necessary to place this matter before the Judge of Probate, by way of petition, and seek permission for the trustees to sell the real estate. A previously approved proposal by the beneficiaries will facilitate a timely and cost effective resolve [sic] to this matter. {2} 18-A M.R.S.A. § 7-404(b) reads as follows: If the duty of the trustee and his individual interest or his interest as trustee of another trust, conflict in the exercise of a trust power, the power may be exercised only by court authorization, except as provided in section 7-402, subsection (c), paragraphs (1), (4), (6), (18) and (24), upon petition of the trustee. Under this section, personal profit or advantage to an affiliated or subsidiary company or association is personal profit to any corporate trustee. The provisions of § 7-402(c) are not at issue in this matter. {3} In 1987, trustee Everett Spear, II, proposed a similar sale of trust properties to himself. In that circumstance, the Probate Court reviewed the terms of the sale before it took place. {4} Although Patenaude did not explicitly articulate the position that 18-A M.R.S.A. § 7- 404(b) required prior approval of the sale, she did argue that the trustee had the burden to prove, and the court had to find, that the transaction was fair to the beneficiaries before the sale could be approved. That argument on the proper allocation of the burden of proof is so linked to the requirement of prior approval of the transaction by the court that we deem the statutory issue to have been raised properly by the appellant. {5} Everett Spear, II, testified that he had spent approximately $44,300 in improving the three properties purchased from the trust. {6} In denying Patenaude's petition, the court also held that she was estopped from challenging the transaction to which she consented because she "was of sound mind and had full knowledge of the facts . . .; she offered no objection or attempted further review of the supporting material sent to her prior to her signature; and because she raised her objections so long after having given her approval." These findings further reflect the court's misallocation of the burden of proof. Estoppel would never have been an issue if the trustees had sought prior approval of the sale.