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In re Balke's Estate

Supreme Court of Arizona

November 15, 1954

In the Matter of the ESTATE of Rudolph Luis BALKE, Deceased. L. M. BYRD, individually, and as Executor of the Estate of Rudolph Luis Balke, Deceased, Appellant,
FIRST NATIONAL BANK OF ARIZONA, Phoenix, Co-Trustee under the Will of Rudolph Luis Balke, Deceased, Appellee.

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[78 Ariz. 103] James E. Flynn and John F. Connor, Phoenix, for appellant.

Neil C. Clark, William C. Eliot and Ronald Webster, Jr., Phoenix, for appellee.

STANFORD, Justice.

This is an appeal from two orders and a decree involving the closing of the estate of Rudolph Luis Balke. The executor, L. M. Byrd, challenges that part of the order of the Superior Court which (1) disallows the payment of interest on special legacies and surcharges the executor with the interest previously paid; (2) forbids the enforcement of a lien of the California property devised to Mrs. Balke; and (3) orders the payment of $4000 attorney fees to former attorneys of record.

Rudolph Luis Balke died on March 30, 1929. In his will he made seven cash bequests totaling $91,000, established three $10,000 trusts, made a specific devise of property located in California, and established a residuary trust with the income going to his wife during her life and the corpus to a nephew and two nieces at her death. Appellant Byrd and the Phoenix Savings Bank & Trust Company were appointed co-executors. The latter resigned from its position in 1942 and since then appellant has been acting as sole executor. As will appear later, the legatees were widely scattered; half of them lived in Germany or Poland.

The will as a whole was clear and welldrafted, but Article Eighteen, set forth below,[78 Ariz. 104] gave authority to the executors to keep the estate open until the Balke Building could be sold for a satisfactory price and to pay interest on the specific legacies. The property was sold after some seventeen years; but even now, twenty-five years after Balke's death, Article Eighteen remains the center of bitter controversy. It reads:

'Eighteenth: I realize that in order to pay the legacies herein provided for, it will be necessary to sell the real estate at the northeast corner of Adams and First Avenue, Phoenix, Arizona, consisting of one hundred (100) feet fronting on Adams Street and extending from Adams Street north to the alley. I do not desire said property to be sacrificed by reason of a forced sale, and I hereby direct that unless said property can be sold at a price satisfactory to my executors within one year from the date of my death, then my estate may be kept open for such longer period as may be required in order that a satisfactory sale of said property may be made. I feel that said property should bring the sum of Two Hundred and Fifty Thousand Dollars ($250,000.00), but I do not set any price at which said property shall be sold by said executors. In the event my estate is not closed within one year from the date of my death, then I direct my executors, out of the income of my estate, to pay to the legatees hereunder, interest on their respective legacies, at the rate of six per cent (6%) per annum from the expiration of one year after date of my death, to the time of the closing of my estate.'

The net book value of Balke's estate at the time of his death was approximately $220,000, but with the onset of the depression in 1930 the actual value was probably considerably less. In any event, the executors chose to hold the property mentioned in Article Eighteen and to pay interest

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on the legacies. The testator owed $22,000 to the New York Life Insurance Company; in 1930 the executors negotiated a new loan for $125,000 secured by a mortgage on the Balke Building, paid the debt, and made a partial distribution of the legacies designated in the will. This loan was paid back in fully by 1947, with a total cost to the estate of $74,799.33.

The Balke Building was finally sold in 1946 for $262,000. In July of that year appellant filed a final account and petition for distribution. The Acting Polish Consul, claiming to represent the Polish legatees, raised objections which were settled in an order filed January 25, 1947. A supplemental account was filed on September 30, 1947 with revisions in accord with the earlier order. The court approved the account and at the same time granted a claim for attorneys' fees made by the Polish Consul. Both the Polish Consul and the executor appealed from parts of the court order. The dispute was carried to this court and [78 Ariz. 105] on May 23, 1949, a decision was handed down which, among other things, disallowed the claim for attorneys' fees. In re Balke's Estate, 68 Ariz. 373, 206 P.2d 732.

In 1950, after still further litigation had come to an end, the executor prepared another final account and petition for distribution which provided for interest amounting to $67,634.40 to be paid to the special legatees, and for a residuary trust of $20,598.72. This account was objected to by the First National Bank, co-trustee and appellee, on the ground that it allowed interest to be paid on the legacies when in fact there was no income fund from which to pay the interest. A hearing was held in November of 1950 and an opinion and order handed down by the Superior Court on June 9, 1951, sustaining the objection. A final decree of distribution, prepared by attorneys for the appellee, was then filed on July 10, 1951. It provided for payment of the specific legacies without interest, surcharge of $36,635.30 on the executor for the interest paid out, and creation of a residuary trust fund of some $84,111.28. A summary of the accounting upon which this decree was based follows.

Final Decree of Distribution-1951

[78 Ariz. 106]

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The executor objected to this distribution because it did not allow interest on the specific legacies. He submitted the following report to demonstrate that an income fund did exist: (A comparison of the corpus and income deductions of the two reports will provide an insight into the present dispute.)

Final Account of Executor

(Motion for new trial 9/14/51)

On May 20, 1953, a final opinion and order was handed down by the Superior Court denying the executor's motion to vacate the order of July 10, 1951. This denial is the subject of the present appeal.

To complete the general statement of facts, a brief history of the litigation surrounding Balke's estate must be set forth. Soon after testator's death Mrs. Balke waived her right to take as a legatee and [78 Ariz. 107] attempted to have herself declared the owner of one-half of the community property of the decedent and herself. This action terminated in 1930 against Mrs. Balke. Then Mimi Wille, a niece of the testator, attempted to have the will set aside on the ground of want of testamentary capacity of the decedent. This suit was dropped in July of 1930, and a settlement was made with court approval. In a subsequent action the executors were named as parties to a fraudulent scheme in which a Mr. Paar was said to have caused Mrs. Balke to assign her interest in a note given by the testator. In a decree in 1932 the executors were absolved and the assignments were cancelled; in the same order Mrs. Balke had her rights restored as legatee under the will.

In 1942 the executor objected to the size of the fee granted to co-executor Phoenix Savings Bank and Trust Co. The fees were upheld by this court in Byrd v. Phoenix Sav. Bank & Trust Co., 62 Ariz. 474, 158 P.2d 657. The final round of major litigation ended in 1949 when this court denied

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a claim for fees by the Consul General of Poland. In re Balke's Estate, supra. More facts concerning this series of suits will be interjected as they are ...

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