In re the Estate of Pulitzer
1931 N.Y. Misc. LEXIS 1197, 249 N.Y.S. 87, 139 Misc. 575 (1931)
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Rule of Law:
A court of equity has the power to authorize a trustee to deviate from the express terms of a trust, including a direct prohibition against selling a trust asset, if unforeseen and emergent circumstances arise that threaten to destroy the trust corpus and frustrate the settlor's primary purpose.
Facts:
- Joseph Pulitzer died in 1911, leaving a will that created a trust holding the stock of the Press Publishing Company, which published 'The World' newspaper.
- A codicil to the will expressly prohibited the trustees from selling or disposing of the Press Publishing Company stock 'under any circumstances whatever.'
- The codicil also contained language enjoining Pulitzer's sons and descendants to preserve and perpetuate 'The World' newspaper as a public institution.
- Beginning in the late 1920s, the Press Publishing Company began suffering substantial and escalating financial losses, totaling nearly $2 million in 1930 alone.
- The company's financial reserves were severely depleted, and projections showed it could only continue operations for a few more months before its assets would be entirely lost, thereby destroying the main asset of the trust.
- The trustees, Pulitzer's sons, believed a sale of the newspaper assets was necessary to prevent the total loss of the trust corpus and to protect the beneficiaries.
Procedural Posture:
- The trustees of the trust created by Joseph Pulitzer's will initiated a proceeding in the Surrogate's Court for a judicial settlement of their accounts.
- As part of this proceeding, the trustees requested a construction of the will and codicils, specifically regarding the prohibition against selling stock of the Press Publishing Company.
- The trustees sought the court's advice, direction, and authorization to participate in the sale of the assets of the Press Publishing Company.
- The trustees also requested the court's specific approval of a contract for the sale of the newspaper assets dated January 31, 1931.
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Issue:
Does a court of equity have the power to authorize trustees to sell a primary trust asset, where the trust instrument expressly forbids such a sale, when an unforeseen change in circumstances threatens the complete destruction of that asset?
Opinions:
Majority - Foley, S.
Yes. A court of equity has the power to authorize trustees to sell a trust asset despite an express prohibition in the trust instrument when an unforeseen emergency threatens to destroy the trust corpus. The court's primary duty is to protect the beneficiaries of a trust from serious loss. In cases of necessity, the law reads an implied power of sale into the will to prevent the destruction of a trust asset, assuming the testator could not have intended for an asset to be held until it became worthless. Based on precedent like Mertz v. Guaranty Trust Co., a trustee has the power, if not the duty, to sell an investment that has become so changed as to no longer be a prudent holding. The catastrophic financial losses of the newspaper company constitute such an emergency, justifying the court's intervention to authorize the sale to preserve the trust. However, this equitable power is limited to granting general authority to the trustees; the court lacks jurisdiction to approve the specific terms of a corporate asset sale, as that would be an improper interference in the internal affairs of a corporation whose stock is not wholly owned by the estate.
Analysis:
This case is a foundational decision illustrating the doctrine of equitable deviation, which allows courts to modify the administrative terms of a trust when unforeseen circumstances arise. It establishes the principle that a settlor's specific directives, even an absolute prohibition, may be overridden to fulfill the settlor's broader, primary intent—in this case, the preservation of the trust fund for the beneficiaries. The decision affirms that the court's paramount duty is to protect the trust corpus and its beneficiaries from destruction, placing this goal above rigid adherence to literal terms that have become detrimental. The ruling also carefully distinguishes between the court's power over trustees and its lack of jurisdiction over the internal management of a corporation in which a trust is merely a shareholder.
