Allard v. Pacific National Bank
99 Wash. 2d 394, 663 P.2d 104 (1983)
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Rule of Law:
A trustee has a fiduciary duty to inform beneficiaries of all material facts in connection with a non-routine transaction that significantly affects the trust estate prior to the transaction taking place. A trustee must also obtain the best possible price for a trust asset, which can be determined by obtaining an independent appraisal or by testing the market.
Facts:
- J. T. and Georgiana Stone established trusts in their wills for the benefit of their children, Freeman Allard and Evelyn Orkney, naming Pacific National Bank as the trustee.
- The sole asset of the trusts was a parcel of real estate in downtown Seattle, which was subject to a 99-year lease created in 1952.
- The lease, which had a fixed rental rate for its entire term, contained a right of first refusal for the lessee to purchase the property.
- In 1977, the lease interest was assigned to the City Credit Union of Seattle (Credit Union).
- In February 1978, Credit Union offered to purchase the property, and after some negotiation, Pacific Bank agreed to sell it for $200,000 in June 1978.
- Pacific Bank did not obtain an independent appraisal of the property nor did it place the property on the open market to solicit other offers.
- Pacific Bank completed the sale to Credit Union on August 17, 1978, and did not inform the beneficiaries, Allard and Orkney, until September 26, 1978.
Procedural Posture:
- Freeman Allard and Evelyn Orkney (plaintiffs) sued Pacific National Bank (defendant) in King County Superior Court (trial court) for breach of fiduciary duty.
- Plaintiffs' demand for a jury trial was struck by the trial court, which determined the action was primarily equitable in nature.
- The trial court excluded the testimony of the plaintiffs' expert witnesses regarding standards of trust administration.
- The trial court entered judgment in favor of Pacific Bank, dismissing the plaintiffs' action.
- The trial court also awarded Pacific Bank its attorney fees and costs to be paid from the trust.
- Plaintiffs appealed the trial court's judgment to the Supreme Court of Washington.
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Issue:
Does a trustee breach its fiduciary duty by selling the sole asset of a trust without first informing the beneficiaries of the sale and without obtaining an independent appraisal or otherwise testing the market to ensure the best possible price?
Opinions:
Majority - Dolliver, J.
Yes, a trustee breaches its fiduciary duty under these circumstances. A trustee's fiduciary duty includes the responsibility to fully inform beneficiaries of all material facts that would aid them in protecting their interests, especially concerning non-routine transactions like the sale of a trust's sole asset. Although the trustee had the power to sell the property without the beneficiaries' consent, the duty to inform is paramount; notice would have allowed the beneficiaries the opportunity to outbid the potential buyer. Furthermore, the trustee breached its duty of care by failing to obtain the best possible price for the property. A prudent trustee must take affirmative steps to determine fair market value, either by obtaining an independent appraisal or by 'testing the market' to see what a willing buyer would pay. Pacific Bank did neither, thus breaching its duty as a prudent manager of the trusts.
Analysis:
This case establishes a clear precedent in Washington law regarding a trustee's specific duties of communication and diligence when selling a major trust asset. It solidifies the rule that a trustee's broad discretionary powers to manage assets do not override the fundamental duties to keep beneficiaries informed of significant, non-routine transactions before they occur and to take active, verifiable steps to secure the best price. The decision shifts the burden onto trustees to demonstrate they have adequately tested the market or obtained an objective valuation, rather than merely accepting what might seem like a reasonable offer. This holding enhances beneficiary protections and raises the standard of conduct for professional trustees managing trust property.
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