## Facts

- J.L. and Pauline Hartman created a trust in 1965 for their four grandchildren; the trust corpus was a 29.26-acre tract in Albemarle County, Virginia.
- Virginia National Bank (later NationsBank of Virginia, N.A.) served as trustee; the land was described as swampy and difficult to develop.
- In 1969, the trustee leased the property for 25 years and granted an option to purchase at lease expiration for $750,000.
- In 1972, the lessee’s interest was assigned to Rio Associates Limited Partnership; the trustee entered a related agreement to subordinate the trust’s fee interest to first-lien deeds of trust securing development loans, with additional collateral arrangements.
- Rio obtained development financing (over $5 million) from The Life Insurance Company of Virginia and developed the property into a shopping center.
- Rio ultimately exercised the option; the property was conveyed in 1994–1995 for the fixed option price.
- The beneficiaries alleged the option price was far below the property’s developed value and delayed suit while seeking the trustee’s cooperation in a tax-advantaged exchange.
- The beneficiaries sued the trustee, Rio, and the lender seeking to void the conveyance and deeds of trust and to remove the trustee.
- The trial court granted partial summary judgment that the trustee lacked authority to grant the option, but after an evidentiary hearing upheld the deeds, finding ratification, acquiescence, consent, and estoppel.
- Appeals were taken by both sides; the Supreme Court of Virginia consolidated the appeals.

## Issues

1. Whether the trust instrument and Virginia law authorized the trustee to grant a long-term lease containing a purchase option and to subordinate the trust’s fee interest to development financing liens.
2. Whether the trustee’s decisions (lease-with-option, subordination, and conveyance) were prudent exercises of discretion and consistent with fiduciary duties.
3. Whether the beneficiaries were barred by ratification, acquiescence, consent, or estoppel from challenging the conveyance and deeds of trust.

## Decision

- The Supreme Court of Virginia affirmed the judgment for the trustee, Rio, and the lender.
- The Court held the trustee had authority to grant the purchase option, agree to subordination for development financing, and convey the property pursuant to those arrangements.
- The Court held the trustee acted prudently and the transactions benefitted the trust; there was no breach of trust.
- The Court rejected the trial court’s ruling that the option exceeded the trustee’s powers, while leaving intact the ultimate refusal to set aside the deeds.
- The Court did not disturb the trial court’s findings that beneficiary conduct supported ratification and estoppel, reinforcing denial of rescissionary relief.

## Legal Principles

- Broad grants of trustee powers to manage, lease, and sell trust property may authorize a lease containing an option to purchase as an incident of leasing and disposition authority.
- Trustee prudence is assessed in context, including realistic alternatives available at the time of decision, not solely by later appreciation attributable to subsequent development.
- A trustee may, when authorized and acting prudently, subordinate trust property interests to facilitate development financing where the arrangement is economically rational and structured with protections for the trust.
- Beneficiaries who knowingly accept, delay, or act consistently with a challenged transaction may be barred in equity by ratification, acquiescence, consent, or estoppel from later seeking rescission.

## Conclusion

The Supreme Court of Virginia upheld the lease-with-option, the subordination agreement, and the later conveyance, concluding the trustee acted within its powers and prudently for the trust’s benefit, and the beneficiaries were not entitled to void the conveyance or development liens.


Ward v. NationsBank of Va., N.A., 256 Va. 427, 507 S.E.2d 616 (1998)