Short v. Marcus CA2/2 ( 2014 )

Filed 10/29/14 Short v. Marcus CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
HARRIET J. SHORT et al., B246601
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BP112954)
v.
MARLENE J. MARCUS, as Trustee, etc.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los Angeles County. Mitchell
L. Beckloff, Judge. Affirmed.
Borden Law Office and Alex R. Borden for Plaintiff and Appellant, Harriet J.
Short.
Law Office of Lawrence M. Lebowsky and Lawrence M. Lebowsky for Plaintiff
and Appellant, Loretta Patakas.
Sacks, Glazier, Franklin & Lodise, Robert N. Sacks, Matthew W. McMurtrey, and
Katherine G. McKeon for Defendant and Respondent.
Harriet J. Short (Harriet) and Loretta Patakas (Loretta) (collectively “appellants”)
appeal from a final judgment (1) denying Harriet’s petition for relief under Probate Code
section 8501 concerning transfers of property by the Stanmar Trust (trust); and (2)
granting rescission of a consent agreement that Marlene Marcus (Marlene or respondent)
sought to enforce through her cross-petition.2 Appellants also challenge the trial court’s
denial of their request for attorney fees in connection with the cross-petition.
We affirm the judgment in full.
CONTENTIONS
Appellants3 contend that the trial court erred in determining that certain grant
deeds that distributed real property from the trust to Marlene were valid. First, appellants
contend that the trial court was not permitted to interpret the trust instrument or the
actions of Stanley Marcus (Stanley), who signed the deeds, absent a properly noticed
cross-petition under section 17200. Without a properly noticed cross-petition seeking
interpretation of the trust instrument, appellants argue, they were denied their due process
rights. Further, appellants contend, the trial court’s interpretation of the transfer as a
proper exercise of Stanley’s limited testamentary power over trust property was flawed.
As to the trial court’s ruling on Marlene’s cross-petition, appellants argue that the
trial court did not have the power to grant rescission of the consent agreement at issue
and therefore erred in ordering the return of Loretta’s income producing property in the
State of Washington to the trust. Further, appellants argue that the trial court erred in
1 All further statutory references are to the Probate Code unless otherwise noted.
2 Because certain of the family members discussed in this opinion share the same
last name, all family members will be referred to by his or her first name. No disrespect
to any person is intended.
3 The petition was brought by Harriet alone, not Loretta. However, Loretta is
named as a respondent in Marlene’s cross-petition. Appellants’ opening brief refers to
both appellants throughout, although the appeal from the petition technically only
involves Harriet and Marlene. Loretta is a proper appellant as to the arguments regarding
the cross-petition.
2
denying them attorney fees because they were the prevailing parties on the contract claim
raised in the cross-petition.
FACTUAL BACKGROUND
The trust
Stanley and Betty Marcus (Betty) had six children together: Norman Marcus
(Norman); Martin Marcus (Martin);4 Steven Marcus (Steven); Marlene, Harriet, and
Loretta.
Stanley and Betty established the trust in 1983.5 The trust was fully amended and
restated on February 28, 2000. It was funded with Stanley and Betty’s community
property, which retained its character as community property despite being in the trust.
Any separate property in the trust also retained its character, and Stanley and Betty
retained their individual rights to remove all or part of their respective separate property
at any time. The trust specifically provides: “Notwithstanding anything in our trust to
the contrary, when we are serving as Trustees under our trust, either of us may act for and
conduct business on behalf of our trust as a Trustee without the consent of any other
Trustee.”
In addition, Stanley and Betty each had the absolute right to remove as much of
their respective interests in the community estate as they requested in writing at any time.
Stanley and Betty also retained the right to amend or revoke the trust while they were
both alive. Any amendment or revocation was required to be in writing, signed by both
of them, and delivered to the trustee. However, the trust provided that “After the death of
one of us, this agreement shall not be subject to amendment or revocation.”
While they were both living, Betty and Stanley had “no power to direct our
Trustee to make gifts of principal or income from the community estate to a third party.”
However, the trust also provided, in the same section, “Any gift made directly by our
Trustee to a third party in violation of these provisions shall be construed as a distribution
4 Martin died on January 8, 2004.
5 Stanley and Betty are occasionally referred to as “the trustmakers.”
3
made directly to either or both of us, and then a gift from one or both of us to such third
party.”
The trust contained instructions in the event that Betty or Stanley became disabled.
It provided: “A Trustmaker shall be deemed disabled during any period when, in the
opinion of two licensed physicians, a Trustmaker is incapacitated or disabled because of
illness, age, or any other cause which results in the Trustmaker’s inability to effectively
manage his or her property or financial affairs.” During a period of time when a
trustmaker was disabled, the trustee was required to “apply the trust property, including
its income, exclusively for our benefit and for our valid obligations . . . .” Upon the
disability of Betty, Stanley was to serve as the disability trustee or continue to serve as
trustee. In addition, upon the death of Betty, Stanley was to serve as death trustee or
continue to serve as trustee. The trust provided that if any trustee became disabled, “We
may serve as the only Trustees or we may name any number of Trustees to serve with
us.” Marlene was named as successor trustee upon the death of both Stanley and Betty.
The trust provided for a specific distribution to Marlene upon the death of both
trustmakers, which included “all interest of the trust estate in all real property located on
Lincoln Boulevard, Nowita Avenue and/or Palms Boulevard in Venice, California.”
Upon the death of the first trustmaker to die, the trust was to be divided into two
separate trusts, known as the Marital Trust and the Family Trust. The Marital Trust was
to be divided into two shares: Marital Share One, consisting of the survivor’s share of
the community property and his or her separate property; and Marital Share Two,
consisting of the portion of the deceased spouse’s community and separate property
defined by a formula in the trust geared toward minimizing estate tax liability. The
Family Trust would consist of the balance of the deceased spouse’s community and
separate property (that is, whatever was not placed into Marital Share Two for tax
purposes.)
The surviving trustmaker had the right to demand all of the principal from Marital
Share One without limitation. The trust provides:
4
“Our trustee shall pay to or apply for the surviving Trustmaker’s benefit
such amounts from the principal of Marital Share One as the surviving
Trustmaker may at any time request in writing.
“No limitation shall be placed on the surviving Trustmaker as to either the
amount of or reason for such invasion of principal.”
The surviving trustmaker had a general power of appointment as to the assets in
Marital Share One:
“The surviving Trustmaker shall have the unlimited and unrestricted
general power to appoint, by a valid last will and testament or by a valid
living trust agreement, the entire principal and any accrued and
undistributed net income of Marital Share One as it exists at the surviving
Trustmaker’s death. In exercising this general power of appointment, the
surviving Trustmaker shall specifically refer to this power.
“The surviving Trustmaker shall have the sole and exclusive right to
exercise the general power of appointment.
“This general power of appointment specifically grants to the surviving
Trustmaker the right to appoint property to the surviving Trustmaker’s own
estate. It also specifically grants to the surviving Trustmaker the right to
appoint the property among persons, corporations, or other entities in equal
or unequal proportions, and on such terms and conditions, whether outright
or in trust, as the surviving Trustmaker may elect.”
Further, the surviving trustmaker had a limited testamentary power of appointment
as to the assets in Marital Share Two:
“The surviving Trustmaker shall have the limited testamentary power to
appoint to or for the benefit of our descendants, either by a valid last will
and testament or by a valid living trust agreement, all or any portion of the
principal and any accrued and undistributed net income of Marital Share
Two as it exists at the surviving Trustmaker’s death.
“The surviving Trustmaker may make distributions among our descendants
in equal or unequal amounts, and on such terms and conditions, either
outright or in trust, as the surviving Trustmaker shall determine.”
The surviving trustmaker had the same limited power, set forth in identical
language, as to the assets in the Family Trust as they existed at the trustmaker’s death.
5
Excluding the specific bequests, article 12 of the trust disinherits Norman, Martin,
and Steven, and leaves the property in three equal shares to Marlene, Harriet, and Loretta.
The first amendment
On May 11, 2001, Stanley and Betty executed the First Amendment to the
Amended and Restated Stanmar Trust Agreement (first amendment). They added the
following sentence, clarifying the specific bequest of property to Marlene found in
article 7, section 4 of the trust:
“Such real property shall include 1600 Lincoln Boulevard, 1608 Lincoln
Boulevard, 1620/1624 Lincoln Boulevard, 1628 Lincoln Boulevard, 1009
Nowita Boulevard, and 1010 Palms Boulevard, all located in Venice,
California.”
The second amendment
On February 14, 2004, two doctors confirmed that Betty was critically ill and
unable to handle her own affairs. On February 18, 2004, while Betty was incapacitated
and hospitalized, Stanley and Marlene executed a document entitled Second Amendment
to the Amended and Restated Stanmar Trust Agreement (second amendment).
The second amendment acknowledged Betty’s disability, as confirmed by two
doctors. The document then explained that Stanley was unwilling to act as disability
trustee for Betty. Thus, pursuant to the terms of the trust, Marlene became the disability
trustee for Betty.6 The second amendment provided:
“3. The following sentence shall be added to the end of Article 17,
Section 1 of the Amended and Restated Stanmar Trust Agreement; ‘Any
trustee, acting alone, shall be authorized to sign any document, note, check,
deed, lease, or any other instrument on behalf of the trust.’
6 The second amendment cites article 15, section 2(c) of the trust as authority for
Marlene’s appointment as disability trustee. However, it seems that the correct clause
was article 15, section 3(c), which provides that “If [Betty’s] disability trustee is
unwilling or unable to serve, . . . then the following shall be named as replacement
disability Trustees in the order in which their names appear: [¶] First, MARLENE J.
MARCUS.”
6
“4. In all other respects, the Amended and Restated Stanmar Trust
Agreement dated February 28, 2000, as amended by the First Amendment
thereto dated May 11, 2001, not amended hereby, shall remain unchanged,
and in full force and effect.”
Estate planning meeting
On February 18, 2004, Stanley met with Donald Fenmore (Fenmore), the attorney
who had prepared the second amendment.7 Angie Miceli, a real estate broker who had
worked with the family’s properties, was also present, and Fenmore tape recorded the
meeting.
At the meeting, Stanley presented a handwritten document to Fenmore that listed
the real properties Stanley believed to be held in the Trust and to whom Stanley and Betty
wanted those properties to go upon their deaths. Stanley wrote in the margin next to each
property which donee he wanted to benefit. With the exception of six properties (which
were to benefit Norman and Steven), Stanley wanted Marlene to receive the properties.
Stanley orally confirmed his and Betty’s intent with respect to these properties to
Fenmore at the meeting.
Execution of grant deeds
The next day, on February 19, 2004, Stanley and Marlene as trustees of the trust
executed deeds transferring the following real properties to Marlene individually: an
undivided 100 percent interest in 1600 Lincoln Boulevard, Venice; an undivided 100
percent interest in 1608 Lincoln Boulevard, Venice; 1010 Palms Boulevard, Venice;8
1624 Lincoln Boulevard, Venice; and 1009 Nowita, Venice;9 as well as a 50 percent
undivided interest in 1628 Lincoln Boulevard, Venice.
7 Donald Fenmore died in 2010, so he was not a witness at trial.
8 1608 Lincoln Boulevard and 1010 Palms Boulevard are actually the same parcel
of land. This parcel of land has two street addresses and two assessor parcel numbers.
9 1624 Lincoln Boulevard and 1009 Nowita are actually the same parcel of land.
This parcel of land has two street addresses and two assessor parcel numbers.
7
Betty’s death
On February 25, 2004, Betty died in Los Angeles.
The third amendment
On March 8, 2004, Stanley executed a document entitled Third Amendment to the
Amended and Restated Stanmar Trust Agreement (third amendment). The third
amendment provided for additional properties to be added to the specific bequests to
Marlene contained in article 7, section 4 of the trust. Specifically, Marlene was to receive
the following distributions:
“Additionally, such real property shall include 575 W. Gilman
(Banning); 1 acre Pennsylvania Avenue (Beaumont); [one-forth] acre
Pennsylvania Avenue (Beaumont); Wilson/Sunset lots & acres; 1345 &
1540 6th Street (Beaumont); rear of fire station (Beaumont); 1548 6th
Street (motorcycle shop- Beaumont); 1025 6th [Street] (Oasis-Beaumont);
1365 6th Street trailers office & back end of property (Beaumont); 601 W.
Gilman house (Banning); 870 W. Ramsey (Banning); 5702 W. Ramsey
(Banning); the trust’s 50% interest in 2929 W. Ramsey (Banning); 601 W.
Gilman Frt (Banning); any and all other real property owned by the
Trustors, the Trust, or Stanmar Partners, L.P., located in the Cities of
Banning and Beaumont, CA; 1653 Washington/Abbot Kinney--full parcel
(Venice); the full parcel located at the northeast corner of Abbott Kinney
and Venice Blvd., Venice, CA [APN 4241-036-038]; the Trust’s 50%
interest in K15 West Lancaster; 1900-12 Lincoln Blvd. (Venice); 708
Washington Street (Venice); 700 Washington Street (Venice); 19235
Ventura Blvd. shopping center (Tarzana).”
The third amendment directed that Marlene, in her sole discretion, should
distribute a portion of the net income derived from these real properties to Harriet and
Loretta. The third amendment also provided for a distribution of six properties to
Norman and Steven.
Execution of additional grant deeds
On June 24, 2004, Stanley and Marlene as trustees of the trust transferred to
themselves as trustees property located at the northeast corner of Abbot Kinney
Boulevard & Venice Boulevard. Then on June 28, 2004, Stanley, as trustee, transferred
the property to Marlene.
8
On July 20, 2004, Stanley and Marlene carried out the same procedure to
accomplish a transfer of the following two properties from the trust to Marlene: 700-706
Washington Boulevard, Marina del Rey and 708-716 Washington Boulevard, Marina del
Rey. For both transfers, Stanley and Marlene as trustees first deeded the property to
themselves, then Stanley deeded the property to Marlene.
On the same day, Stanley also transferred to Marlene the trust’s interest in 1900-
1912 Lincoln Boulevard, Venice.
The consent agreement and the Washington State property
Prior to his death, Stanley and Marlene discussed providing Harriet and Loretta
with a source of regular income. Marlene suggested that Stanley purchase an income
producing property in the State of Washington, near Loretta’s home. Marlene and
Stanley concluded that anticipated proceeds of about $750,000 from the sale of a property
in Banning, California could be used in an Internal Revenue Code section 1031 tax-
deferred exchange to buy such an income producing property to benefit Harriet and
Loretta. Prior to his death, Stanley sold the property located in Banning, California as
part of the plan. Thereafter, while residing with Loretta in her home in Washington State,
Stanley began to look for a replacement property to purchase with funds from the
exchange. Stanley planned to give this property to Harriet and Loretta. However,
Stanley died on October 7, 2004, before the exchange could be fully completed.
On the day of Stanley’s funeral, October 11, 2004, Marlene handed Harriet and
Loretta each a large envelope containing the estate planning documents for Stanley and
Betty. The envelopes contained copies of the trust and all the amendments, but did not
include copies of any grant deeds.
On October 15, 2004, Fenmore telephoned Harriet and Loretta. Fenmore had
represented Stanley in his capacity as trustee, and represented Marlene in her capacity as
trustee. In the respective telephone calls, Fenmore instructed Harriet and Loretta to sign
the documents he intended to fax them or else they would “lose everything.”
Immediately after speaking with appellants, Fenmore faxed them each a two-page
agreement entitled Consent to Stanmar Trust Documents and Actions (consent
9
agreement). The consent agreement provided that Loretta and Harriet would receive
from the trust an identified property in the State of Washington to be purchased with
$750,000 of tax-deferred exchange funds. Harriet and Loretta would receive the property
free of any estate taxes. In exchange, the consent agreement provided: “[Harriet and
Loretta] consent to the below described documents and actions, and will not, directly or
indirectly, either individually or together, seek to attack, challenge, invalidate, set-aside,
modify, or nullify” eight specified documents, including all of the amendments to the
trust, or any other documents signed or any actions taken by Stanley or Betty concerning
any of their property.
Both Harriet and Loretta signed and returned the consent agreement to Fenmore.
Marlene purchased a property in the State of Washington known as the Columbia River
Storage property. Loretta carried out the due diligence on the property prior to its
purchase. On November 4, 2004, Marlene as trustee of the trust transferred to Harriet
and Loretta in equal shares the Columbia River Storage property. Within one year,
Harriet sold her interest in the property to Loretta.
June 15, 2005 grant deed
On June 15, 2005, Marlene transferred from the trust to herself an additional
property located at 1012 Palms Boulevard, Venice, California.
PROCEDURAL HISTORY
Pretrial briefing
On October 2, 2008, Harriet filed her petition, captioned Petition for Order: 1.
Determining Validity of Second and Third Amendments; 2. Determining Title to Real
and Personal Property; 3. For Removal of Trustee and Appointment of Successor
Trustee; 4. For an Accounting; and 5. For Double Damages (petition).
In the petition, Harriet argued that the second and third amendments to the trust
were invalid because they were not executed by both Betty and Stanley; that the deeds
transferring real property from the trust to Marlene were invalid; that Marlene should be
removed as trustee for breaching the trust; and that Marlene should be compelled to file
an accounting.
10
On January 16, 2009, Marlene filed a Preliminary Response to Petition of Harriet
J. Short to Determine Validity of Trust Amendments and to Remove Marlene J Marcus as
Trustee Etc. (preliminary response). On the same day, Marlene filed her Cross-petition
for Enforcement of Consent Agreement (cross-petition).
On July 10, 2009, Marlene filed an objection and response to Harriet’s petition
(response). In the response, Marlene argued that the second amendment was valid. She
noted that the second amendment was enacted in accordance with the terms of the trust
because Marlene was named as disability trustee after Stanley declined to act as disability
trustee. As to the third amendment, Marlene argued that Stanley had the ability to
withdraw, appoint, and distribute his community and separate property by valid trust or
testamentary document, and that Stanley had certain powers to invade the trust principal.
On December 24, 2009, Harriet and Loretta filed their joint Objections to Cross-
Petition of Marlene J. Marcus for Enforcement of Consent Agreement (objections to
cross-petition).
On April 20, 2012, three days before trial, the parties filed a joint trial statement.
The parties identified 12 contested issues. Those issues included:
“2. Are the Second and Third Amendments otherwise valid as estate
planning documents by Stanley?
“3. Is the handwritten document dated February 18, 2004, a valid
holograph?
“4. Are the deeds through which various real properties transferred
to Marlene from 2004 on valid?”
Concurrently with the joint trial statement, the parties filed separate trial briefs.
In her trial brief, Harriet argued that the second and third amendments were
invalid because Stanley lacked the power to amend or revoke the trust either while Betty
was disabled or after she died. She also argued that the transfers of real property were
not authorized under the terms of the trust.
11
Marlene argued in her trial brief that Stanley had various powers of appointment
and the power to withdraw community property to make the various gifts that he made to
Marlene in the third amendment and the deeds.
Trial and judgment
Trial was held on April 23-27, April 30, and May 17, 2012, in Department 5 of the
Los Angeles Superior Court, before the Honorable Mitchell L. Beckloff.
On August 1, 2012, the court issued a minute order finding the second and third
amendments to be improper and ineffective as amendments to the trust, denying Harriet’s
request for return of property to the trust, declaring the consent agreement void, and
ordering Harriet and Loretta to return the Columbia River Storage property to the trust.
Statement of decision
On August 15, 2012, appellants filed a request for statement of decision. On
August 21, 2012, the trial court issued another minute order informing the parties that its
minute order dated August 1, 2012, “is deemed the court’s [TENTATIVE]
STATEMENT OF DECISION.” On the same date, appellants filed objections to the
proposed statement of decision.
On August 30, 2012, Marlene filed her response to the objections to the tentative
statement of decision.
On September 10, 2012, appellants filed supplementary objections to the proposed
statement of decision.
On September 11, 2012, the trial court issued its statement of decision.
Order on Harriet’s petition
As to Harriet’s petition, the court first noted that the trust demonstrated an overall
intention that Stanley and Betty maintain extensive freedom over the trust property.
Specifically, “the surviving trustor has the authority to determine the ultimate disposition
of all of the Trust property. The terms of the Trust allow for unequal distributions to
beneficiaries and on such terms and conditions as determined by the surviving trustor.”
The court further noted that under the uncontested first amendment to the trust, Marlene
was to receive “all of the Trust’s property on Lincoln Boulevard, Nowita Avenue, and
12
Palms Boulevard in Venice, California.” The court held that two of the properties that
Harriet sought to be returned to the trust, located on Lincoln Boulevard and Palms
Boulevard, were rightfully titled to Marlene pursuant to the first amendment.10
The trial court found that the second and third amendments were invalid as
amendments to the trust. The only trustor who signed these purported amendments was
Stanley, and pursuant to article 4, section 1(d) of the trust, any amendments to the trust
were required to be signed by both Stanley and Betty.
However, the court noted that the surviving trustor (Stanley) had testamentary
power of appointment rights as to Martial Share Two and the Family Trust. He also had
the right to withdraw from Marital Share One at any time and without limitation. The
trial court concluded: “Thus, he could withdraw property from Share One of the Marital
Trust in any amount and for any reason.” As to Stanley’s community property share of
the properties at issue, he had the specific authority to withdraw his interest in those
properties both before and after Betty’s death.
As to Betty’s community property interest in the properties, Stanley had the
specific testamentary authority to appoint which of his and Betty’s descendants should
receive any share of those properties in Marital Share Two. The court found that through
the invalid third amendment, Stanley exercised his limited testamentary power of
appointment to distribute Betty’s community share in those properties. The court found
10 The court indicated that it was not clear from Harriet’s petition which specific
properties Harriet sought to be returned to the trust. The trial court noted that in 2008,
the Superior Court of Los Angeles County, Local Rules, rule 10.24(b) required a notice
of hearing in a matter such as this providing a “‘description of the subject property
sufficient to provide adequate notice to any party who might be interested in the property,
and with respect to real property, the street address, or if none, description of the location
of the property.’” The court noted that Harriet’s petition failed to comply with this rule
in that it lacked the specific descriptions of the properties at issue. Based on five lis
pendens Harriet filed in connection with the petition, the court understood that Harriet
sought the return of at least five properties: (1) 1900-1912 Lincoln Boulevard; (2) 700-
706 Washington Boulevard; (3) 708-716 Washington Boulevard; (4) the Northeast corner
of Abbot Kinney and Venice Boulevard; and (5) 1012 Palms Boulevard. Appellants have
not challenged this finding, therefore it is final.
13
that the invalid third amendment was a “valid living trust agreement.” To the extent that
the limited power of appointment was not carried out pursuant to the formal requirements
of the trust, the court found, section 631 excuses such a failure. The court found that
Stanley intended to make a disposition of this property to Marlene, and that such intent
could be discerned from the audio recording of his voice that was introduced into
evidence. Specifically, the court held:
“[Stanley’s] intent was crystal clear. [Stanley] and [Betty] favored
[Marlene] over all of their other children. While [Stanley] had no authority
to transfer Marital Trust Share Two to [Marlene] during his lifetime, he did
have the complete authority to ultimately accomplish his goal of
distributing property to her in her individual capacity. As [Marlene] has
assumed all liability for the fees and costs associated with the
administration of the Trust, it would be a useless act to have her return to
the Trust property from Share Two of the Marital Trust only to have the
Trust distribute the property back to [Marlene] pursuant to [Stanley’s]
limited power of appointment.”
Based on the foregoing, the court held:
“JTD 1: The Second Amendment and the Third Amendment to the
Trust are invalid and of no effect as Trust amendments.
“JTD 2: The request that certain parcels of real property be returned
to the Trust is DENIED. (The court finds that while [Harriet] sought return
of ‘cash and other personal property assets’ to the Trust ‘according to proof
at trial’ no such property was identified during the trial and no relief as to
cash and personal property is granted.)
“JTD 3: The request to remove [Marlene] as trustee is DENIED.
The court finds no grounds for removal of [Marlene].
“JTD 4: The request to appoint [Harriet] as Successor Trustee is
DENIED.
“JTD 5: The request for bond for [Harriet] is deemed moot.
“JTD 6: [Marlene] is ordered to account. . . .
“JTD 7: The request for double damages against [Marlene] is
DENIED.
14
“JTD 8: [Marlene’s] request for costs is GRANTED pursuant to
Probate Code section 1002.”
The court addressed appellants’ objections in a footnote. The court noted that the
“thrust of the Objections is that the court ruled on matters ‘not at issue in these
proceedings,’ and/or relied on facts that were irrelevant based on the pleadings. The
Objections contend that [appellants] were ‘denied their due process rights.’” The court
responded that “‘[b]ecause this litigation involves claims that [appellants] have rights to
property and distributions from the Trust, of necessity this Court had to construe the
Trust.’. . . The issues raised by the pleadings do not exist in a vacuum and must be
considered in context. Moreover, [Marlene’s] arguments in her pleadings related to the
Trust as a whole.” The court then quoted from certain of Marlene’s pleadings, which
raised questions of Stanley’s intent and the construction of the trust as a whole.
Order on Marlene’s cross-petition
As to Marlene’s cross-petition for enforcement of the consent agreement, the trial
court agreed with appellants’ position that the agreement was voidable. The court also
agreed that it was Marlene’s burden, as trustee, to demonstrate that the transaction was
fair and that the beneficiaries had full understanding of the transaction. The court found
that Marlene “did not meet her burden of demonstrating that the transaction between her,
the trustee, and the beneficiaries was a fair one where the beneficiaries had complete
knowledge of all of the relevant facts. (While the transaction ultimately may have been a
fair one resulting in [Harriet] and [Loretta] receiving more than they would be entitled to
under the Trust, the trustee had an obligation to treat the beneficiaries with the utmost
good faith. The facts surrounding the execution of the Consent Agreement do not
support such a finding.)”
However, the court determined that whether the consent agreement was upheld or
invalidated, the Columbia River Storage property must be returned to the trust. If the
consent agreement were upheld, the breach provisions clearly provide that Harriet and
Loretta are required to immediately return to the trust any property which they have
15
acquired through the use of trust funds. If the consent agreement is declared null and
void, the trust is also entitled to return of the property.
The court ultimately held:
“JTD 1: The Consent Agreement is not valid and enforceable.
“JTD 2: [Harriet] and [Loretta] are ordered to transfer the Columbia
Storage property to [Marlene] as trustee of the Trust as well as all profits
from the property. The court orders an accounting by [Harriet] and
[Loretta] for such property. (See below.)
“JTD 3: [Marlene’s] request for attorney’s fees and costs is
DENIED as the Consent Agreement is deemed void.
“[Harriet] and [Loretta’s] request in their objections for attorney’s
fees is DENIED. [Harriet] and [Loretta’s] request for costs is GRANTED
pursuant to Probate Code section 1002.”
On October 22, 2012, the trial court issued its judgment. On November 2, 2012,
Marlene served notice of entry of judgment.
Writ petition and motion for new trial
On October 9, 2012, appellants filed a writ petition with this court, seeking an
order compelling the trial court to overturn its orders expunging the lis pendens that had
been filed on the properties. In the writ, appellants argued that the trial court’s
determinations that Stanley withdrew his community property, and exercised his power
of appointment over the trust assets, were beyond the scope of the pleadings. They also
argued, as they do here, that the court’s interpretation of the trust agreement was
incorrect, that the invalid third amendment does not meet the requirements of a valid
living trust agreement and that section 631 does not excuse its deficiencies. On this
court’s request, Marlene filed an informal opposition to the writ on October 19, 2012. On
October 30, 2012, this court denied the writ.
On November 19, 2012, appellants filed a motion for a new trial and to vacate the
trial court’s order. Marlene opposed the motion. Marlene argued that the “Court’s
16
conclusion that the issues determined by its Order were properly raised in the pleadings is
correct.”
On January 2, 2013, the trial court denied the motions for new trial and to vacate
the order.
Notice of appeal
On January 22, 2013, appellants filed their notice of appeal.
DISCUSSION
I. The court’s power to interpret the trust
Appellants’ first argument is that the trial court exceeded its powers by
determining: (1) that the grant deeds were valid exercises of Stanley’s right to withdraw
community property from Marital Share One; (2) that the third amendment was a valid
exercise of Stanley’s testamentary limited power of appointment over Marital Share Two;
and (3) that Betty’s community share of these properties would ultimately have been
distributed to Marlene through Stanley’s power of appointment, therefore it was a useless
act to have Marlene return the property to the trust.
Appellants argue that absent a properly noticed motion pursuant to section 17200,
the trial court lacked the power to issue orders that required an interpretation of
instruments and/or an interpretation of Stanley’s actions. Appellants argue that they did
not seek the relief that the court granted, and were not put on notice that the court would
consider such matters.
A. Standard of review
The parties disagree on the standard of review for this issue. Appellants argue that
the issue involves the interpretation and application of a statutory scheme to a set of facts,
which is subject to de novo review on appeal. (Community Youth Athletic Center v. City
of National City (2009) 170 Cal. App. 4th 416, 427 (Community Youth).) Respondent
argues that, given the factual determinations necessary to decide this issue, the substantial
evidence standard of review applies. Under this standard, as long as the court’s factual
determinations are supported by substantial evidence, the ruling must be affirmed.
(Winograd v. American Broadcasting Co. (1998) 68 Cal. App. 4th 624, 632 (Winograd).)
17
We find that the issue presents a mixed question of fact and law. First, we must
determine what issues were presented to, and considered by, the trial court. This is a
factual determination reviewed for substantial evidence. We must also determine what
issues were properly considered by the court under the statutory scheme. This is a pure
question of law, subject to de novo review.
B. Issues concerning interpretation of the entire trust, and interpretation of
Stanley’s actions, were raised before the trial court
We first address appellants’ contention that the trial court’s interpretation of the
trust, and interpretation of Stanley’s intent in carrying out the acts at issue, were beyond
the scope of the parties’ pleadings, were not tried, and therefore were not in the court’s
power to determine. In sum, we find that the issues of construction of the trust
agreement, and Stanley’s intent in carrying out the transfers of property before his death,
were raised and discussed before the trial court with ample notice to appellants.
In Harriet’s initial pleading, she sought a determination pursuant to section 17200,
subdivision (b)(3) that the second and third amendments were invalid due to a lack of due
execution, i.e., that Betty did not sign the amendments. In her section 850, subdivision
(a)(3)(A) claim, she sought an order determining that the grant deeds that purported to
distribute property from the trust to respondent were invalid and void.
In her response to the petition and in her trial brief, Marlene argued that Stanley
had the power of appointment, the right to withdraw community property, and other
powers pursuant to the trust. In her objection and response to Harriet’s petition, filed
July 10, 2009, Marlene argued:
“Stanley believed that he had the power to distribute certain real
property. Specifically, the Trust reserves for Stanley various powers after
Betty’s death, including the power for Stanley to withdraw, appoint, and
distribute his community and separate property by valid trust or
testamentary document. . . . [¶] . . . [¶] . . . It was Stanley’s intent to make
the distributions of property that [Harriet] now seeks to invalidate, not
Marlene’s. Stanley, as trustee, signed each of the deeds which went to
Marlene, all of which were identified in the Third Amendment (which
included the properties specifically bequeathed to Marlene under Trust,
18
Section 4, Article Seven) and it was Stanley who decided to distribute the
residual of the Trust as he saw fit, not Marlene.”
In addition, in her trial brief, filed April 20, 2012, Marlene argued: “Stanley’s
actions were proper.” Specifically, Marlene set forth the headings of her arguments as:
“The Only Real Issue Harriet Raises is Whether Stanley Had the Power to Do What He
Did” and “Stanley Had the Power to Benefit Marlene As He Did.”
In the brief, Marlene acknowledges the trust language indicating that both Stanley
and Betty had to sign any amendment or revocation of the trust. However, Marlene
points out: “Harriet is wrongly focusing only on those phrases, while ignoring the many
other provisions of the lengthy 2000 Trust instrument.” Marlene argued, “Considering
the 2000 Trust document as a whole, it is clear that the Trustors intended that the
surviving ‘Trustmaker’ (who was Stanley) would have the power to make distributions
from the Trust corpus.” With this language, Marlene defended the transfers of property
pursuant to a broader interpretation of the trust as a whole.
In addition, the parties filed a joint trial statement with a list of disputed issues
including: “1. Are the Second and Third Amendments to the Trust Agreement, as signed
by Stanley and not Betty, valid? [¶] 2. Are the Second and Third Amendments
otherwise valid as estate planning documents by Stanley?”
Finally, respondent’s attorney urged in closing argument:
“As they know and this court is well aware, you have to read every
trust as a whole to discern what the intent was. And here, the intent was
obvious that Stanley had broad powers to favor Marlene or anyone else.
. . . I’m going to briefly address the various powers that are still in the
trust. That Stanley had -- he had the power to remove property. There is
language in there that Stanley had the unrestricted right to remove separate
property and his share of community property. And he could make gifts
with it. He could keep it. Also, he could give it away to Marlene or
whoever. . . . There are a host of broad provisions in the trust, your Honor,
for powers of appointment. Stanley had powers of appointment under
every different trust share that was to be created after the death of the first
spouse. And, your Honor, there is the provision of a power of the trustee to
make gifts.”
19
No objection was made to this closing argument. Harriet’s lawyer responded to
this argument, acknowledging that such powers existed but claiming “they were not
exercised.”
The record thus reveals that these issues concerning the construction of the trust;
whether Stanley properly utilized certain powers under the trust; and Stanley’s intent in
carrying out the acts in question, were part of the proceedings and that Harriet had ample
notice of respondent’s theories. As the trial court concluded, given the claims and
defenses in this litigation, “‘of necessity’” the trial court “‘had to construe the trust.’”
Regardless of how the issues were framed in Harriet’s petition, Marlene’s “arguments in
her pleadings related to the Trust as a whole.” The trial court’s factual findings as to the
scope of the issues at trial are amply supported by the record.
C. The trial court had jurisdiction to consider these issues
Having determined that the issues at trial included construction of the trust as a
whole and Stanley’s intent, we now address the question of whether the trial court had the
power to address these issues. As set forth below, we conclude that it did.
1. Harriet’s arguments
Harriet argues that the matters forming the basis for the trial court’s decision were
beyond the scope of the issues raised by the pleadings and were not within the trial
court’s power to determine. Harriet claims that her petition served to frame and limit the
issues (citing Laabs v. City of Victorville (2008) 163 Cal. App. 4th 1242, 1258 [complaint
limits the issues to be addressed at a motion for summary judgment]). Harriet states that
the section 17200, subdivision (b)(3) claim in her petition sought a determination that the
second and third amendments to the trust are invalid due to lack of execution. Further,
she sought an order that the grant deeds that purported to transfer property from the trust
to respondent were invalid, of no effect, and void ab initio. Neither of these claims,
Harriet contends, sought an interpretation of the trust or an inquiry into Stanley’s intent.
In order for the trial court to have had the power to determine (1) the construction
of the grant deeds; (2) that the grant deeds were an exercise of a power to withdraw; (3)
the construction of the third amendment as a valid living trust agreement; and (4) that the
20
power of appointment was thereby exercised, Harriet argues, respondent would have had
to have filed a noticed petition for the construction of instruments pursuant to section
17200, subdivisions (a), (b)(1) and (b)(2). Further, when such orders are sought, Harriet
contends, notice must be given to all trustees and beneficiaries at least 30 days before the
time set for hearing on the petition. (§ 17203.) Respondent did not carry out these
procedural requirements.
Harriet claims that the trial court was not permitted to base its ruling on arguments
contained in respondent’s objection and response to the petition. Instead, the governing
statutes -- in particular, section 17200, set forth specific procedural requirements
necessary to obtain such relief.
2. Applicable law
Under section 17200, subdivision (a), a “ trustee or beneficiary of a trust may
petition the court under this chapter concerning the internal affairs of the trust or to
determine the existence of the trust.” (See also Mota v. Superior Court (2007) 156
Cal. App. 4th 351, 356, fn. 2.) Section 17200, subdivision (b), sets forth a nonexclusive
list of “internal affairs.” Included in this list are: “(1) Determining questions of
construction of a trust instrument” and “(2) Determining the existence or nonexistence of
any immunity, power, privilege, duty, or right.” (§ 17200, subd. (b)(1), (2).) Thus,
section 17200 permits a trustee or beneficiary to petition the probate court for declaratory
relief, seeking an affirmative interpretation of a trust or the powers of the trustee.
Significantly, section 17200 is a permissive statute. It provides that an individual “may”
proceed pursuant to its authority. It does not contain any language suggesting that a trial
court is precluded from construing a trust instrument, or determining the rights of a
settlor, in a proceeding brought under any other provision.
Section 17200.1 takes one category of issues out of the realm of section 17200.
Section 17200.1 specifies that any proceedings concerning the transfer of property should
be conducted under section 850. Section 17200.1 provides: “All proceedings concerning
the transfer of property of the trust shall be conducted pursuant to the provisions of Part
19 (commencing with Section 850) of Division 2.” “Section 17200.1 broadens the
21
application of section 850.” (Mota v. Superior Court, supra, 156 Cal.App.4th at p. 356.)
It dictates that any proceedings concerning the transfer of trust property shall be
conducted pursuant to section 850. There is no language creating any exception where
such proceedings involve construction of the trust or intent of the settlor. Under section
17200.1, all proceedings concerning the transfer of trust property must be conducted
under section 850. Section 17200 is an inappropriate vehicle for such issues.11
3. Respondent properly defended Harriet’s section 850 petition by
arguing that the transfers were authorized pursuant to other trust provisions
In her petition, Harriet sought an order declaring the second and third amendments
to be invalid pursuant to section 17200, subdivision (b)(3),“Determining the validity of a
trust provision.” She also sought a determination pursuant to section 850, subdivision
(a)(3)(A) that all transfers of real property from the trust to Marlene were invalid.
As set forth above, respondent opposed these two arguments on various grounds.
She argued that the second amendment was valid under the disability provisions of the
trust; and that Stanley’s broad powers under the trust permitted his actions in distributing
the trust property. She further argued that the trust document must be construed as a
11 Neither appellants nor respondent mentioned section 17200.1 in the regular
briefing filed in connection with this appeal. Therefore, we sought supplemental briefing
on the effect of section 17200.1 on appellants’ argument that respondent should have
filed a petition pursuant to section 17200. In their supplemental briefing, appellants seem
to backtrack on their argument that respondent was required to file a petition under
section 17200 where, as here, the controversy involves transfers of property out of the
trust. Instead, appellants concluded: “In order for Respondent to have claimed
entitlement to the properties in question, she would have been required to file a separate
petition, under Probate Code section 850, or otherwise, seeking an interpretation,
construction and determination as to whether there was an effective exercise of the power
of appointment or right of withdrawal. . . . Without such a separate petition and
determination, Respondent had no basis for denying the allegations of Appellant Harriet’s
Probate Code section 850 claim, or setting forth an affirmative defense to it.”
Because we conclude that respondent properly defended against Harriet’s section
850 petition by arguing that the transfers were proper under other provisions of the trust,
it is ultimately irrelevant under which section Harriet claims respondent was required to
have filed.
22
whole, and that Stanley’s intent to make the distributions should be a paramount
consideration.
Harriet argues that it was improper for the trial court to base its decision on these
arguments made by respondent. Harriet interprets the court’s order as providing
“affirmative relief” to respondent, and argues that a defendant may not seek affirmative
relief in an answer, but must raise a request for such relief in a cross-complaint (citing
49A Cal.Jur.3d (2010) Pleading, § 106, pp. 177-178; Code Civ. Proc., § 431.30, subd. (c)
[“Affirmative relief may not be claimed in the answer”]). Harriet properly describes
affirmative relief as “the allegation of new matter which in effect amounts to a
counterattack.” (Simpson v. Superior Court (1945) 68 Cal. App. 2d 821, 825.) However,
she fails to specify what new matter respondent raised through her arguments.
Harriet raised the question of whether the second and third amendments were valid
under the terms of the trust. In doing so she sought an interpretation of the trust. Harriet
admits that in support of her argument that the second and third amendments were
invalid, she presented “the provisions of the trust that explicitly set forth the procedure
for amending the trust.” However, those provisions could not be interpreted without
reference to the entire trust document. “‘In construing a trust instrument, the intent of the
trustor prevails and it must be ascertained from the whole of the trust instrument, not just
separate parts of it. [Citations.]’” (Wells Fargo Bank v. Marshall (1993) 20 Cal. App. 4th
447, 453.)
Harriet also sought the return of certain properties transferred out of the trust. By
doing so, she put the validity of those transfers at issue. Specifically, Harriet alleged that
“[t]he transfers of real property from the Trust to Marlene and or her assignees were in
direct violation of the operative terms of the Trust.” Respondent was entitled to respond
to Harriet’s arguments by pointing out provisions of the trust which suggested that
Stanley had the authority to make those transfers. Respondent’s arguments controverted
Harriet’s claims.
Harriet won her section 17200 claim. The trial court interpreted the trust and
declared that the second and third amendments were invalid as amendments to the trust.
23
However, Harriet lost on her section 850 claim. The trial court refused to transfer
the properties back to the trust. Instead, the court found that Stanley had the authority to
make those transfers pursuant to other powers granted to him by the trust. The result was
a denial of Harriet’s request for an order declaring the transfers invalid. No affirmative
relief was granted to respondent on this issue.
Having challenged the amendments and the property transfers as invalid under the
trust, Harriet may not artificially limit the scope of the court’s review to the provisions of
the trust that she finds helpful. By putting the trust at issue, Harriet put all provisions of
the trust at issue. (See, e.g., Gionfriddo v. Major League Baseball (2001) 94 Cal. App. 4th
400, 416 [plaintiffs’ complaint, claiming violation of statute, put entire statute in issue,
including subdivision not expressly named in pleadings].) In addition, respondent raised
defenses related to other powers set forth in the trust, and the court was required to
consider those defenses. “Petitioner’s contention that plaintiff’s recovery, if any, must
have been based only on the allegations of his complaint is not tenable. In determining
the issues raised, the pleadings of both parties must be considered. [Citation.]” (Estrin v.
Superior Court (1939) 14 Cal. 2d 670, 676.) Those pleadings must be “liberally
construed, with a view to substantial justice between the parties.” (Code Civ. Proc.,
§ 452). Under the circumstances of this case, there can be no doubt that the interpretation
of the entire trust document, and the powers it conferred, were properly before the court.
In addition, respondent has provided citations to law suggesting that it would have
been inappropriate for her to have filed a petition pursuant to section 17200 because the
question of the proper interpretation of the trust was already before the court pursuant to
Harriet’s petition. “The declaratory relief statute should not be used for the purpose of
anticipating and determining an issue which can be determined in the main action. The
object of the statute is to afford a new form of relief where needed and not to furnish a
litigant with a second cause of action for the determination of identical issues.” (General
of America Ins. Co. v. Lilly (1968) 258 Cal. App. 2d 465, 470-471.) Because the validity
of the second and third amendments, and the validity of the transfers of property, were
already put in issue in Harriet’s petition, it would have been inappropriate and duplicative
24
for respondent to seek declaratory relief under section 17200. Thus, even if the property
transfers could have properly been litigated under that provision -- which, pursuant to
section 17200.1, they could not -- respondent correctly declined its use.
4. The cases cited by appellants are distinguishable
Appellants cite several cases in support of their theory that the trial court went
beyond the scope of the matters raised by the pleadings. As set forth below, all of the
cases are distinguishable.
First, Harriet insists that the issues raised by a denial are limited to the allegations
of the complaint. She cites FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d
367, 383-384 (FPI)). FPI was an action on a promissory note. The defendants provided
a general denial with affirmative defenses asserted in a conclusory fashion. However, in
discovery defendants admitted that they had executed the note and had not made
payment. Plaintiffs moved for summary judgment. At the hearing on the motion, the
court ruled inadmissible based on the parol evidence rule, defendants’ asserted defense of
an oral, unmet condition. The Court of Appeal agreed, finding that such a defense was
inconsistent with the defendants’ admissions. (Id. at pp. 396-397.) Here, respondent has
not asserted a defense outside the terms of the trust. Instead, she has simply alleged that
other provisions of the same document authorized the property transfers at issue. These
allegations amounted to a denial of Harriet’s claims that the transfers were invalid.
Harriet cites Estate of Jenanyan (1982) 31 Cal. 3d 703 (Jenanyan) as an example
of a case where a probate court exceeded its jurisdiction in deciding issues not presented
by the petition. The proceeding involved an estate administrator’s petition to the court
for instructions regarding abatement where the estate had insufficient funds for the
bequests. While abatement of the petitioner’s real property bequest was not discussed at
the hearing, it was later determined that her real property bequest should abate
proportionally. The petitioner wrote to the court, objecting to this decision, to which the
court responded that the matter had already been heard and ruled upon. (Id. at pp. 707-
708.)
25
While the petitioner received notice of the petition regarding abatement, it was
insufficient to notify her that her own bequest might be subject to abatement.
Specifically, petitioner argued that it was clear from the face of the petition that the
administrator did not intend to include real property bequests in his request for abatement
instructions. (Jenanyan, supra, 31 Cal. 3d 703 at p. 709.) The Supreme Court determined
that the petitioner’s claim had merit, finding that “a court order can be challenged for lack
of notice where the order goes beyond the issues framed by the petition.” (Ibid.)
Again, this is not the situation before us. Respondent’s responses to the petition
addressed the issues raised in the petition. Respondent explained her theories as to why
the amendments were valid, as well as why the transfers of property were valid. Harriet
had ample notice of respondent’s theories and the provisions of the trust upon which she
relied for her arguments.
Similarly, in Gangwish v. Workers’ Comp. Appeals Bd. (2001) 89 Cal. App. 4th
1284, the Workers’ Compensation Appeals Board rejected the workers’ compensation
judge’s rationale in rejecting a portion of the plaintiff’s claim, instead introducing its own
rationale not raised previously in the proceedings. The Court of Appeal found that the
plaintiff’s due process rights were violated when the matter was decided “on a
completely different theory than presented by the parties, without affording a chance for
rebuttal.” (Id. at p. 1295.) Here, in contrast, Harriet had the opportunity to -- and did --
address respondent’s theories.
Harriet cites Lang v. Klinger (1973) 34 Cal. App. 3d 987 and Marsh v. Edelstein
(1970) 9 Cal. App. 3d 132, for the proposition that the court may not determine legal
documents to be other than what they purport to be on their face. In both cases, the court
refused to decree title to property on a theory of equitable conversion. No such theory is
relevant here. The trial court interpreted the trust agreement, and determined the validity
of the property transfers, as requested by Harriet.
In sum, Harriet has failed to convince this court that the trial court was precluded
from construing the trust and/or ascertaining Stanley’s intent in amending the trust and
26
transferring the properties. These issues were before the court and the court properly
considered and ruled on them.
II. The court’s interpretation of the trust
Appellants next argue that the trial court erred when it interpreted the trust and the
grant deeds and determined that Stanley exercised his powers under the trust.12
Appellants argue that the grant deeds were not valid exercises of Stanley’s right to
withdraw property, and the invalid third amendment was not an exercise of Stanley’s
limited power of appointment. Finally, appellants argue that returning the properties to
the trust was not a useless act.
A. Standard of review
Generally, “‘[t]he interpretation of a written instrument, including a
. . . declaration of trust, presents a question of law unless interpretation turns on the
competence or credibility of extrinsic evidence or a conflict therein. Accordingly, a
reviewing court is not bound by the lower court’s interpretation but must independently
construe the instrument at issue. [Citations.]’ [Citations.]” (Scharlin v. Superior Court
(1992) 9 Cal. App. 4th 162, 168 (Scharlin).) Further, “[i]n construing a trust instrument,
the intent of the trustor prevails and it must be ascertained from the whole of the trust
instrument, not just separate parts of it. [Citation.]” (Ibid.)
Our review of the court’s application of the Probate Code to undisputed facts is a
question of law which is subject to de novo review on appeal. (Community Youth, supra,
170 Cal.App.4th at p. 427.)
To the extent that the trial court made factual determinations in ascertaining the
parties’ intent, such factual rulings are reviewed under the substantial evidence test.
(Winograd, supra, 68 Cal.App.4th at p. 632.)
12 We note that appellants only challenge three grant deeds. We assume that the
Palms Boulevard and Lincoln Boulevard properties are not at issue, since those were to
become Marlene’s pursuant to the uncontested first amendment to the trust. Thus, the
properties at issue are the two properties on Washington Boulevard and the corner lot on
Abbot Kinney Boulevard and Venice Boulevard.
27
B. Stanley’s powers under the trust
In order to address appellants’ claims, we briefly review the significant terms of
the trust. As correctly noted by the trial court, the trust, overall, “demonstrates that
[Stanley] and [Betty] intended to maintain extensive freedom over the management and
control of Trust property.” The first section of the trust contains the following broad
language:
“Notwithstanding anything in our trust to the contrary, when we are serving
as Trustees under our trust, either of us may act for and conduct business on
behalf of our trust as a Trustee without the consent of any other Trustee.”
While they were both living, Stanley and Betty had the absolute right to remove as
much of their respective interests in the community property of the estate as they
requested in writing at any time. They also had the absolute right to amend or revoke the
trust. However, after the death of one of them, the trust was not subject to amendment or
revocation. While the trust contained restrictions on gifts of principal or income from the
community estate, it also contained the following exception:
“Any gift made directly by our Trustee to a third party in violation of these
provisions shall be construed as a distribution made directly to either or
both of us, and then a gift from one or both of us to such third party.”
The death of Betty triggered the following terms of the trust: the trust would split
into two separate trusts, the Marital Trust (divided into two shares) and the Family Trust.
The Marital Trust consisted of Stanley’s interest in the community portion of the
trust property, Stanley’s separate portion of the trust property, and a fractional share of
Betty’s trust property, which was to be calculated in order to take advantage of certain tax
laws. The balance of trust property was to go to the Family Trust.
Stanley’s community interest share of the trust property, as well as his separate
property, went into Marital Share One, and the balance of the property in the Marital
28
Trust (the fractional share of Betty’s interest in the trust property) went into Marital Share
Two.13
Stanley, as trustee, had “complete authority to make allocations of the deceased
Trustmaker’s trust property between the Marital and Family Trusts.” Stanley had
authority, in his “sole and absolute discretion,” to make allocations “in any proportion
. . . between the two trusts.”
After Betty’s death, Stanley had the right to withdraw from Marital Share One any
amount, at any time, as he should request in writing. “No limitation” was placed on
Stanley’s right to withdraw “as to either the amount of or reason for such invasion of
principal.”14 Stanley also had:
“the unlimited and unrestricted general power to appoint, by a valid last
will and testament or by a valid living trust agreement, the entire principal
and any accrued and undistributed net income of Marital Share One as it
exists at the surviving Trustmaker’s death.”
In exercising this general power of appointment, Stanley was required to
specifically refer to this power.
Stanley had a similar power of appointment as to Marital Share Two:
“The surviving trustmaker shall have the limited testamentary power to
appoint to or for the benefit of our descendants, either by a valid last will
and testament or by a valid living trust agreement, all or any portion of the
principal and any accrued and undistributed net income of Marital Share
Two as it exists at the surviving Trustmaker’s death.
13 However, if any allocation under the trust resulted only in the funding of Marital
Share One, the trustee was directed to administer the agreement as if Marital Share Two
did not exist. Appellants have made no effort to inform the court as to the allocation of
the trust property at the time the transfers were made.
14 Because appellants have made no effort to inform the court as to the allocation of
the trust property at the time the transfers were made, it is impossible for the court to
ascertain the value of Stanley’s interests in Marital Share One or the allocation of funding
between Marital Share One, Marital Share Two, and the Family Trust. We assume for
the purposes of this discussion that each share of the Marital Trust, as well as the Family
Trust, had certain percentage interest in the properties at issue.
29
“The surviving Trustmaker may make distributions among our descendants
in equal or unequal amounts, and on such terms and conditions, either
outright or in trust, as the surviving Trustmaker shall determine.”
Stanley’s power of appointment as to the Family Trust was identical to that of
Marital Share Two.
In addition, Stanley had the power to make distributions from the Family Trust to
his descendants, in his “sole and absolute discretion,” to the extent that he felt that such
distributions were “necessary or advisable for their education, health, maintenance, and
support.” Such distributions did not have to be fair or equal:
“Our Trustee may make distributions to or for the benefit of one or more of
the beneficiaries of the Family Trust to the complete exclusion of the other
beneficiaries. These distributions may be made to a beneficiary or
beneficiaries in equal or unequal amounts according to the respective needs
of our beneficiaries.”
The Family Trust terminated upon the death of the surviving trustmaker.
C. Stanley had the power to benefit Marlene as he did
The question before us is whether the properties at issue must be returned to the
trust. For the reasons set forth below, we find that they do not.
1. Marital Share One -- power to withdraw principal
Stanley had the power to remove from Marital Share One any amount, at any time,
as he should request in writing, without limitation. There was no limit on the amount of
property that Stanley was permitted to withdraw from Marital Share One, and there was
no limit on the reason for such a withdrawal from Marital Share One.
Appellants argue that the trust expressly states that any amounts from the principal
of Marital Share One can be paid out to the surviving trustmaker as he or she may request
in writing. Appellants protest that Stanley did not make a written request to withdraw his
community property share. Therefore, they argue, Stanley did not exercise his power of
withdrawal.
We disagree. There is no direction in the trust as to the form, content or timing of
any such writing. Therefore we interpret this provision broadly to carry out the intent of
30
the trustmakers, which was to give Stanley and Betty extensive freedom over the trust
property. (Scharlin, supra, 9 Cal.App.4th at p. 168.) Stanley notated a list of properties
in the presence of his attorney, signing and dating it on February 18, 2004. This
document exhibited his intent that the subject properties should become Marlene’s. In
addition, while the third amendment is invalid as an amendment to the trust, it also serves
as a writing expressing Stanley’s desire that the certain of the subject properties become
Marlene’s (among others).15
Appellants further argue that these were distributions from the trust, not
withdrawals. Appellants point out that pursuant to the grant deeds, the property was
distributed to respondent, not Stanley. Thus, appellants conclude, it is error to state that
Stanley was exercising his right to withdraw. Again we disagree. There is no language
mandating that withdrawals under this power must go directly to Stanley. Instead, such
withdrawals are without limit “as to either the amount of or reason for such invasion of
principal.” This broad language indicates an intent to allow Stanley to withdraw for any
reason, including to make a gift or distribution, and there is no requirement that any such
gift or distribution be first deeded to Stanley.16
Appellants further argue that the withdrawal was not for Stanley’s benefit, as
required by the trust. Specifically, the trust provides:
15 We note that the third amendment refers to two properties at “708 Washington
Street (Venice)” and “700 Washington [Street] (Venice).” We assume that the trial court
understood that Stanley meant to identify the properties at 700-706 Washington
Boulevard and 708-716 Washington Boulevard, which were deeded to Marlene on July
20, 2004. The parties have not made reference to this discrepancy. The trial court made
an implied finding that the third amendment covered the two Washington Boulevard
properties, and any objection to this finding is forfeited at this time.
16 In fact, language in the beginning of the trust document suggests that the
trustmakers did not intend for either of them to engage in any formal process in order to
do what they wanted with the trust property. While there were limits on gifts during the
trustmakers’ lifetimes, “Any gift made directly by our Trustee to a third party in violation
of these provisions shall be construed as a distribution made directly to either or both of
us, and then a gift from one or both of us to such third party.”
31
“Our trustee shall pay to or apply for the surviving Trustmaker’s benefit
such amounts from the principal of Marital Share One as the surviving
Trustmaker may at any time request in writing.
“No limitation shall be placed on the surviving Trustmaker as to either the
amount of or reason for such invasion of principal.”
Thus, while the trust provides that the trustee shall make such withdrawals for the
surviving trustmaker’s benefit, it also expressly provides that there is “no limitation” on
the reason for such invasion of principal. Interpreting these two paragraphs together, in
context with the agreement as a whole, we find that Stanley was not required to articulate
a specific benefit to himself for these withdrawals, nor does the court need to make a
finding that these withdrawals provided a specific benefit to Stanley in order to uphold
them. Stanley had the power to withdraw for any reason.17
In sum, we find that Stanley had the power to deed the properties at issue to
Marlene under his very broad power to make withdrawals from Marital Share One. Thus,
as to the percentage of the interest in the properties at issue held by Marital Share One,
we conclude that Stanley had the authority to withdraw those properties at any time, for
any reason.
2. Marital Share Two -- power of appointment
As to the percentage interest in the properties held by Marital Share Two, we find
that Stanley exercised his power of appointment and that the properties would have
properly passed to Marlene upon Stanley’s death.
The trust provided that Stanley had the “limited testamentary power to appoint to
or for the benefit of our descendants, either by a valid last will and testament or by a valid
living trust agreement, all or any portion of the principal and any accrued and
undistributed net income of Marital Share Two as it exists at the surviving Trustmaker’s
death.” We find that while the third amendment was invalid as an amendment to the
trust, it was valid as a living trust agreement.
17 One might speculate that these withdrawals benefitted Stanley by giving him
peace of mind that the property would be distributed as he wished.
32
A trust may be created where there is “[a] declaration by the owner of property
that the owner holds the property as trustee.” (§ 15200, subd. (a).) Stanley declared
himself trustee of the property in the very first paragraph of the third amendment.
Through this declaration of trust, he created a valid living trust pursuant to section 15200,
subdivision (a), and properly exercised his power of appointment for the benefit of
Marlene.18
A trust may also be created where there is “[a] transfer of property by the owner,
by will or by other instrument taking effect upon the death of the owner, to another
person as trustee.” (§ 15200, subd. (c).) Stanley captioned the third amendment as an
amendment to an existing trust, adding certain properties that were to be distributed to
Marlene upon his death. The third amendment purported to amend article 7, section 4,
which concerned specific distributions to occur on the death of the surviving trustmaker.
Thus, Stanley evidenced an intention to create an “instrument taking effect upon the
death of the owner.” (§ 15200, subd. (c).)
The document also stated:
“2. It is the desire of the Trustors that Marlene J. Marcus, in her sole
and absolute discretion, after payment of all expenses and taxes, distribute a
portion of the net income derived from the real properties which she is to
receive from the Trust described above, to the daughters of the Trustors,
Harriet Joyce Marcus and Loretta A. Patakas.
“3. It is the further desire of the Trustors that the Trust distribute to
the sons of the Trustors, Norman B. Marcus and Steven A. Marcus, after
payment of all expenses and taxes, the following real property: the San
18 Appellants protest that Stanley was not the “owner” of the property -- technically
title to the property was held by the trust. Therefore, appellants argue, the requirements
of section 15200, subdivision (a) are not met. Even if the trust technically held title to the
properties at issue, Stanley was the beneficial owner of the property at the time he
executed the third amendment. (Parkmerced Co. v. City and County of San Francisco
(1983) 149 Cal. App. 3d 1091, 1094 [entity or individual may own bare legal title to
property for the owner of its beneficial interest]; Empire Properties v. County of Los
Angeles (1996) 44 Cal. App. 4th 781, 787 [where a trust is irrevocable, “trust beneficiaries
acquire a vested and present beneficial interest in the trust property”].) Thus, he was
entitled to create a living trust as to his interest in the property.
33
Marcos Desert Hot Springs Lot; the G-4 Sierra Hwy property; the Lake Los
Angeles lot; the Salton Sea lot #525; and the 14 acre and 20 acre parcels in
Rosamond, CA.
“[¶] . . . [¶]
“5. It is intended that the real properties be distributed as set forth
above, whether title is in the name of (a) the Trustors, (b) the Trust, or (c)
Stanmar Partners, L.P.”
Stanley signed the document as trustee. It was also notarized.
By executing the third amendment, Stanley transferred his interest in the property
though an instrument taking effect upon his death, to Marlene as trustee. Specifically, in
her sole discretion, Marlene was to distribute a portion of the net income of those
properties to Harriet and Loretta. Marlene had a duty to administer the property in
accordance with the document for the benefit of Harriet and Loretta. As such, Marlene
was designated to act as a trustee of that property. (§ 16000 [“the trustee has a duty to
administer the trust according to the trust instrument”].) Thus, the requirements of
section 15200, subdivision (c) were met.
Finally, a trust may be created where there is an “exercise of a power of
appointment to another person as trustee.” (§ 15200, subd. (d).) The third amendment is
a valid living trust under this definition. Under the plain language of the trust, Stanley
had a power of appointment as to both shares of the Marital Trust and the Family Trust.
With the third amendment, he exercised this power of appointment and expressed an
intent that Marlene act as trustee of the list of properties distributed to her. Thus, the
requirements of section 15200, subdivision (d) were met.
Appellants correctly point out that section 15201 specifies that “[a] trust is created
only if the settlor properly manifests an intention to create a trust.” We find that such an
intent is communicated through the third amendment. Specifically, as set forth above,
Stanley declared himself trustee of the properties at issue. In addition, Marlene was to
act as trustee for a portion of the net income earned from the list of properties passed on
to her, and, in her sole discretion, distribute a portion of such income to Harriet and
34
Loretta. Thus, Marlene was charged with administering a portion of the income from the
properties in trust. The criteria set forth in section 15201 is met.
Appellants also argue that the requirement of section 15202 is not met. Section
15202 provides: “A trust is created only if there is trust property.” As it is with section
15201, we find that this requirement is met. The trust property at issue was listed within
the third amendment. Appellants argue that this property was already in trust, and could
not be subject to a new valid living trust. Appellants cite no authority for their position.
On the contrary, the express terms of the trust provided that Stanley could use his power
of appointment to create a new, valid living trust as to any of the property already in the
trust.
The third amendment satisfies the requirements of a valid living trust under
section 15200, subdivisions (a), (c), or (d). Pursuant to this valid living trust, any portion
of the interest in the properties at issue remaining in Marital Share Two passed to
Marlene upon Stanley’s death.
3. The Family Trust -- power to distribute and power of appointment
As to the remaining interest in the properties held by the Family Trust, Stanley had
the power to distribute this property both while he was living and through a power of
appointment upon his death.
While Stanley was alive, he had the ability to “distribute to or for the benefit of the
surviving Trustmaker and our descendants as much of the net income and principal of the
Family Trust as our Trustee, in [his] sole and absolute discretion, shall consider necessary
or advisable for their education, health, maintenance, and support.” Stanley was
permitted to exercise this power “to or for the benefit of one or more of the beneficiaries
of the Family Trust to the complete exclusion of the other beneficiaries.”
Appellants do not address Stanley’s power to make distributions under the Family
Trust. Instead, they argue that any issue of Stanley’s exercise of powers under the trust
was not raised in Harriet’s petition. As explained in section I, Harriet’s request that the
court return certain properties to the trust raised the issue of whether Stanley had the
authority to make those transfers. Under the provisions governing the Family Trust, he
35
had the authority, in his sole and complete discretion, to make the distributions of
property that he made to Marlene. Thus, as to the percentage of the interest in the
properties at issue held by the Family Trust, we conclude that Stanley had the power to
distribute such property at any time to Marlene in his sole discretion.
In addition, the trust gave Stanley a power of appointment as to the assets in the
Family Trust. The language describing this power of appointment is identical to the
language describing his power of appointment over the assets in Marital Share Two. As
explained in detail in section II.C.2 above, this power of appointment was properly
exercised through the third amendment, which constitutes a valid living trust. Thus, even
if Stanley had not had the power to distribute the assets in the Family Trust during his
lifetime, they properly passed to Marlene upon his death pursuant to the third
amendment.
D. The trial court’s “useless act” finding
Stanley had the power to transfer from Marital Share One and the Family Trust
during his lifetime, but only had the power to transfer from Marital Share Two upon his
death. The trial court determined that even though the properties at issue were
transferred in full at a time when Stanley was still living, those properties should not be
returned to the trust only to be re-distributed to Marlene pursuant to Stanley’s power of
appointment. Specifically, the court stated:
“[Stanley’s] intent was crystal clear. [Stanley] and [Betty] favored
[Marlene] over all of their other children. While [Stanley] had no authority
to transfer Marital Trust Share Two to [Marlene] during his lifetime, he did
have the complete authority to ultimately accomplish his goal of
distributing property to her in her individual capacity. As [Marlene] has
assumed all liability for the fees and costs associated with the
administration of the Trust, it would be a useless act to have her return to
the Trust property from Share Two of the Marital Trust only to have the
Trust distribute the property back to [Marlene] pursuant to [Stanley’s]
limited power of appointment.”
Appellants challenge this “useless act” finding. Appellants argue that the trial
court’s premise that the trust property would necessarily be distributed back to Marlene is
36
erroneous. Appellants point out that Marlene has been ordered by the court to provide an
accounting, which has not been filed. Appellants argue that until such time as the
accounting is filed and examined, the trial court could not be in a position to determine
that the return of the properties to the trust would be a useless act. Appellants point out
that the accounting could reveal facts constituting grounds for a surcharge against
Marlene as trustee, thereby invalidating the trial court’s useless act finding.
Appellants’ argument is essentially factual: they suggest that facts might be
revealed in the future mandating a different outcome. But the argument is based on pure
speculation. Appellants point to no evidence suggesting that Marlene will face a
surcharge.19 In addition, appellants point to no law suggesting that an appropriate
remedy for a breach of trust is return of property bequested to the trustee. These
arguments fail to convince us that the trial court erred.
The evidence supports the trial court’s determination that returning the properties
to the trust would be a useless act. Even if it was not within Stanley’s authority to
transfer the properties in full to Marlene during his lifetime, the same outcome would
have resulted had he not done so. Upon his death in October 2004, just a few months
after he executed the deeds, the properties would have passed to Marlene through
Stanley’s exercise of his power of appointment. Appellants present no specific evidence
to the contrary and their speculation as to a possible breach of trust by Marlene is
insufficient to necessitate reversal. (See California Assn of Medical Products Suppliers
v. Maxwell-Jolly (2011) 199 Cal. App. 4th 286, 308 [“‘Speculation or conjecture alone is
not substantial evidence’”].) Therefore, we find there is no basis to reverse the trial
court’s order denying Harriet’s request that the properties be returned to the trust.
19 The trial court denied Harriet’s request that Marlene be removed as trustee,
finding no grounds for such a removal. This finding suggests that there was no evidence
that Marlene had failed to administer the trust according to the trust instrument.
37
III. The trial court’s order to transfer the Columbia River Storage property back to
the trust
Appellants’ next argument involves the trial court’s ruling on Marlene’s cross-
petition to enforce the consent agreement.
A. Terms of the consent agreement
In short, the consent agreement provided that Loretta and Harriet “consented” to
certain documents and actions, and would not, “directly or indirectly, either individually,
or together, seek to attack, challenge, invalidate, set-aside, modify, or nullify” those
documents and actions. Included in the list of documents and actions were the second
amendment, the third amendment, “[a]ny other document or written directive executed by
Stanley and/or Betty Reva Marcus,” and “[a]ny action taken by Stanley and/or Betty
Reva Marcus regarding the use or disposition of any of their real or personal property
held individually, in the name of the Stanmar Trust, or in the name of Stanmar Partners,
L.P., a California limited partnership.”
As consideration for such consent, Harriet and Loretta would each receive from
the trust and/or Stanmar Partners, L.P., “a one-half tenancy in common interest . . . free
of estate taxes, the use of Stanmar’s cash balance with Asset Preservation, Inc. as is
necessary to purchase in accordance with the tax deferred exchange provisions of IRC
Sec. 1031 for $750,000 the 90+ unit Columbia River Storage” property.
Both Harriet and Loretta signed the consent agreement and returned it to
Marlene’s attorney, Fenmore. Marlene purchased the Columbia River Storage property,
and Loretta performed all due diligence concerning the purchase. On November 4, 2004,
Marlene as trustee of the trust transferred the real property to Harriet and Loretta, in equal
shares. Within one year, Harriet sold her interest in the Columbia River Storage property
to Loretta.
B. The trial court’s ruling
The trial court ruled that “the Consent Agreement is voidable as it is a transaction
between a trustee and beneficiaries.” As trustee, Marlene was “required to demonstrate
that the transaction was fair and that the beneficiaries had a full understanding of the
38
transaction.” The trial court found that Marlene rushed Harriet and Loretta and did not
advise them to seek legal counsel before signing the agreement. Thus, Marlene “did not
meet her burden of demonstrating that the transaction between her, the trustee, and the
beneficiaries was a fair one where the beneficiaries had complete knowledge of the all of
the relevant facts.” The trial court determined that the consent agreement is not valid and
enforceable, and ordered that Harriet and Loretta return the Columbia River Storage
property to Marlene as trustee. The court ordered that Harriet and Loretta provide an
accounting for such property. Because the agreement was deemed void, the parties’
requests for attorney fees were denied.
C. The trial court did not err in declaring the contract void
1. Arguments below
In her preliminary response to Harriet’s petition, Marlene pointed out to the court
that even if the consent agreement were found to be unenforceable, Harriet and Loretta
would be required to return the Columbia River Storage property:
“It bears noting that, if for any reason the Court ultimately finds the
Contract is not enforceable, Marlene would be entitled to a pro-rata
reimbursement of all the estate and gift taxes and interest she paid, plus a
host of legal, accounting and interest charges and other administrative
costs. Also, [Harriet] and Loretta would be required to return the money
they received, in addition to the return of any other assets obtained through
use of or investment of Trust funds, including any other property purchased
with the proceeds of the monies received.”
In her cross-petition, Marlene sought to enforce the consent agreement. Marlene
argued that Harriet breached the terms of the consent agreement when she filed suit
against Marlene in violation of the terms of the consent agreement. Marlene argued that
Harriet and Loretta should be required to return all consideration they received pursuant
to the agreement, together with any profits accruing to such property.
In response, appellants argued that the consent agreement cannot be enforced.
Among other things, they argued that the contract was unconscionable. Appellants
argued that the elements of oppression and surprise were present at the time that they
signed the contract. Marlene had superior bargaining power and appellants had no
39
meaningful choice. In addition, appellants were pressured into signing the document
under threat that they would lose everything if they did not. Appellants admitted, “If the
Court finds that the Consent was unconscionable at the time it was made, it may refuse to
enforce it.” In their conclusion, appellants asserted: “The Consent is not enforceable,
and should not be enforced.” In addition, in their trial brief, appellants argued that
“Marlene’s breach of fiduciary duty and conflict of interest raise a presumption of fraud
in procuring the Consent Agreement rendering it voidable, and it should not be
enforced.”
2. The trial court did not err in declaring the agreement void and
ordering return of consideration
We find that the trial court acted properly in ordering that the contract be declared
void and ordering appellants to return the property they received under the contract.
Appellants, in defending against the cross-petition, raised questions as to the
enforceability of the contract. The court was tasked with reviewing the facts surrounding
the formation of the contract to determine whether it was enforceable or not under the
applicable laws. Given the facts surrounding the execution of the consent agreement, the
court found that appellants did not have “a complete understanding of all of the facts
relevant to making an informed and voluntary decision.”
Under the circumstances, the consent agreement was voidable at the election of
the beneficiaries:
“‘[I]f a contract is entered into between a trustee and his beneficiary
through which the former gains an inequitable advantage . . . , the latter is
entitled to rescind the contract, subject to the limitations imposed by the
law governing the application of this remedy. Such contract, however, is
not void, but is voidable at the election of the beneficiary.’ [Citation.]”
(BGJ Associates v. Wilson (2004) 113 Cal. App. 4th 1217, 1229, citing Estate of
Berry (1925) 195 Cal. 354, 362.)
Where, as here, the trustee has rushed her beneficiaries into signing a contract
without advising them to seek legal counsel before acting, the contract is “‘voidable only
40
at the option of the beneficiary, who may either affirm or repudiate it.’ [Citations.]”
(BGJ Associates v. Wilson, supra, 113 Cal.App.4th at p. 1229.)
The facts of this matter show that appellants opted to void the contract. They
breached the terms of the contract by challenging the actions taken by Stanley, and they
defended against Marlene’s petition to enforce the consent agreement by arguing that the
agreement was not enforceable. These facts support the trial court’s implicit finding that
appellants chose to void the contract rather than ratify it. Under the circumstances, in
order to escape from their obligations, appellants must “‘offer to restore the consideration
received.’” (Ford v. Shearson Lehman American Express, Inc. (1986) 180 Cal. App. 3d
1011, 1028; see also Civ. Code, § 1691, subd. (b) [to effect a rescission, rescinding party
must “[r]estore to the other party everything of value which he has received from him
under the contract”].)
We also agree with the trial court that even if the consent agreement is not
considered void, appellants must still return the Columbia River Storage property to the
trust. Appellants breached the agreement when Harriet filed her petition arguing that the
second and third amendments were invalid. This action violated appellants’ promise not
to “seek to attack, challenge, invalidate, set-aside, modify, or nullify” those amendments.
Under the terms of the contract, the remedy for such a breach is that appellants must
“immediately transfer to the Stanmar Trust any property or successor property which they
acquired with the use of Stanmar’s funds . . . described above.”
3. The trial court did not improperly grant rescission
Appellants argue that Marlene did not seek rescission of the contract. Instead, she
sought to enforce it. Appellants are correct. However, appellants themselves argued that
the contract was not enforceable. Specifically, they argued that Marlene had superior
bargaining power and that appellants were pressured to sign the agreement without
consulting a lawyer. Because the consent agreement existed between a trustee and
beneficiaries of the trust, a presumption of undue influence arose, making the agreement
voidable at the election of the appellants. (BGJ Associates v. Wilson, supra, 113
Cal.App.4th at p. 1229.) Appellants repudiated the contract through their actions, and
41
were permitted to assert rescission as a defense to Marlene’s petition to enforce the
agreement. (Civ. Code, § 1692 [“When a contract has been rescinded in whole or in part,
any party to the contract may seek relief based upon such rescission by . . . (b) asserting
such rescission by way of defense or cross-complaint”].) By arguing that the contract
was unenforceable due to Marlene’s undue influence, appellants sought rescission. (Civ.
Code, § 1689, subd. (b)(1) [contract may be rescinded “[i]f the consent of the party
rescinding . . . was given by mistake, or was obtained through duress, menace, fraud, or
undue influence, exercised by or with the connivance of the party as to whom he
rescinds”].) The trial court agreed with appellants that the contract was unenforceable,
and declared it to be void. Appellants’ argument that such relief is inappropriate is
disingenuous, considering that it was appellants who sought to declare the consent
agreement unenforceable.
The cases cited by appellants do not assist their argument. Appellants first cite
Harris & Hull, Inc. v. McCarty-Vaughan-Evans Corporation (1929) 102 Cal. App. 461
(Harris). In Harris, the contract at issue was declared to be illegal and void. The court
ordered return to the plaintiff of the money paid under the contract. The case supports
the trial court’s conclusion that, where a contract is declared void, consideration must be
returned. Appellants attempt to distinguish Harris on the ground that this was an action
to enforce a contract. The distinction is ineffective, because the Harris case was an
action for specific performance on a contract. (Id. at p. 463.) As here, the answer alleged
that the contract was void. The Harris court agreed that the contract was void and thus
denied specific performance, but awarded the plaintiff return of the money that he had
paid on the contract. The Harris case thus supports the trial court’s conclusion that when
a contract is declared void, the consideration exchanged must be returned.
Appellants also cite Estate of Vokal (1953) 121 Cal. App. 2d 252, 257 (Vokal), for
the proposition that “a trustee . . . may not obtain any advantage by the slightest
misrepresentation . . . . Any violation of such duties constitutes a fraud against the
beneficiaries. [Citations.]” The Vokal case concerned a trustee’s accounting, in which it
was revealed that the trustee overcharged the trust for his services. In discussing the
42
trustee’s violations, the court set forth the obligations of a trustee to his beneficiary. The
case thus has little relevance to the matter before us. Appellants argue that because
Marlene breached her duties to appellants, she was not in a position to bring a cause of
action for rescission against appellants. Again, this is irrelevant. Marlene did not bring a
cause of action for rescission; it was appellants who argued that the consent agreement
was unenforceable.
4. Appellants were not prejudiced by delay, as it was appellants who
sought to void the agreement
Next, appellants argue that they were prejudiced due to the delay of nearly eight
years in which they relied upon their ownership of the property. We reject this argument
as well. It was Harriet who initiated this action, four years after Stanley’s death and four
years after she signed the consent agreement. Marlene raised the consent agreement as a
cross-claim to Harriet’s action. Any delay is properly attributed to appellants, not
Marlene. The cases cited by appellants do not dictate a different outcome under the facts
of this case. (Doctor v. Lakeridge Constr. Co. (1967) 252 Cal. App. 2d 715, 720-721
[party must promptly, upon discovering facts entitling him to rescind, give notice of
rescission to the party as to whom he rescinds]; Citicorp Real Estate v. Smith (9th Cir.
1998) 155 F.3d 1097, 1104 [defendants were not permitted to amend counterclaim to
seek additional remedy of rescission one year and nine months after the underlying
actions were filed].)
Appellants cite no law suggesting that they may claim prejudice based on delay
under the circumstances of this case.
5. There was no finding of unclean hands
Appellants next argue that the trial court should not have granted rescissionary
relief to Marlene because Marlene was the wrongdoing party. We reject appellants’
argument. First, the trial court ordered appellants to return the property to the trust
because appellants argued that the consent agreement was void and unenforceable. The
trial court did nothing to favor Marlene -- in fact, it ruled against her on her petition to
enforce the agreement.
43
Second, appellants point to no place in the record where the issue of unclean hands
was raised before the trial court. Application of the doctrine of unclean hands is a matter
within the sound discretion of the trial court based on the facts before it. (Lovett v.
Carrasco (1998) 63 Cal. App. 4th 48, 55.) The trial court made no findings on the issue of
unclean hands, therefore there is no decision for this court to review. If appellants did not
raise this issue before the trial court, it is forfeited on appeal. (Dietz v. Meisenheimer &
Herron (2009) 177 Cal. App. 4th 771, 799 (Deitz) [“‘In order to preserve an issue for
appeal, a party ordinarily must raise the objection in the trial court’”].)
Finally, we note that the trial court did not imply that Marlene’s actions were
substantively wrongful. The court noted, “While the transaction ultimately may have
been a fair one resulting in [Harriet] and [Loretta] receiving more than they would be
entitled to under the Trust, the trustee had an obligation to treat the beneficiaries with the
utmost good faith.” Thus, while the court voided the contract at the election of appellants
due to procedural improprieties, including Marlene’s rushing appellants into signing and
failing to advise them to consult an attorney, it appears that ultimately the trial court felt
the consent agreement was not substantively unfair to appellants. Again, the question of
whether Marlene’s actions constituted “wrongdoing” sufficient to warrant a finding of
unclean hands is a factual finding for the trial court. Such a factual finding was never
made.
6. There was no finding that Loretta was a bona fide purchaser
Appellants’ final argument is that because Loretta was a bona fide purchaser of
Harriet’s 50 percent interest in the Columbia River Storage property, Loretta should not
be required to return the property to the trust.
Appellants provide no citation to the record suggesting that the trial court
considered the question of whether Loretta was a bona fide purchaser of the Columbia
River Storage property. “The determination whether a party is a good faith purchaser
. . . for value ordinarily is a question of fact.” (Triple A Management Co. v. Frisone
(1999) 69 Cal. App. 4th 520, 536.) The trial court made no finding of fact on the question
of whether Loretta was a bona fide purchaser of Harriet’s interest in the property.
44
Without such a finding, this court has no decision to review. At this stage of the
litigation, the issue has been forfeited. (Dietz, supra, 177 Cal.App.4th at p. 799 [“‘In
order to preserve an issue for appeal, a party ordinarily must raise the objection in the
trial court’”].)
In sum, appellants have failed to convince this court that the trial court erred in
determining that appellants must return the Columbia River Storage property to the trust.
IV. Denial of appellants’ request for attorney fees
Appellants argue that the trial court erred in denying them attorney fees on their
successful defense of the only contract claim in the cross-petition. In their objections to
the cross-petition, appellants requested both costs and attorney fees. Appellants argue
that their request should have been granted pursuant to Civil Code section 1717,
subdivision (a).20
Appellants point out that the Supreme Court has declared, “when a defendant
defeats recovery by the plaintiff on the only contract claim in the action, the defendant is
the party prevailing on the contract under [Civil Code] section 1717 as a matter of law.
[Citations.]” (Hsu v. Abbara (1995) 9 Cal. 4th 863, 876 (Hsu).) Appellants argue that
respondent brought the cross-petition for enforcement of the consent agreement, and that
the trial court determined that it was not valid or enforceable. Thus, appellants argue,
they should be declared victors on this claim.
Appellants correctly note that “a party is entitled to attorney fees under [Civil
Code] section 1717 ‘even when the party prevails on grounds the contract is inapplicable,
20 Civil Code section 1717, subdivision (a), provides: “In any action on a contract,
where the contract specifically provides that attorney’s fees and costs, which are incurred
to enforce that contract, shall be awarded either to one of the parties or to the prevailing
party, then the party who is determined to be the party prevailing on the contract, whether
he or she is the party specified in the contract or not, shall be entitled to reasonable
attorney’s fees in addition to other costs.”
The consent agreement contained the following attorney fee provision: “If any
legal action or other proceeding is brought for the enforcement of this document, the
prevailing party shall be entitled to recover reasonable attorneys fees and other costs, in
addition to any other relief which the party may be entitled.”
45
invalid, unenforceable or nonexistent, if the other party would have been entitled to
attorney’s fees had it prevailed.’ [Citations.]” (Hsu, supra, 9 Cal.4th at p. 870.) “This
rule serves to effectuate the purpose underlying [Civil Code] section 1717,” which is
mutuality of remedy. (Ibid.) To carry out this purpose, “the statute generally must apply
in favor of the party prevailing on a contract claim whenever that party would have been
liable under the contract for attorney fees had the other party prevailed.” (Id. at pp. 870-
871.)
However, as explained in Hsu, Civil Code section 1717 also “vests the court with
discretion in making the prevailing party determination.” (Hsu, supra, 9 Cal.4th at p.
871.) In particular, the trial court may “determine that there is no party prevailing on the
contract for purposes of an award of attorney fees.” (Ibid.)21 A trial court’s
determination that neither party prevailed on the contract claim is reviewed for abuse of
discretion. (Nasser v. Superior Court (1984) 156 Cal. App. 3d 52, 59.) Under this
standard, the trial court is given wide discretion in making its prevailing party
determination. We will not disturb the trial court’s ruling on appeal absent a clear abuse
of this discretion. (Ibid.)
Here, the trial court denied both Marlene’s request for attorney fees and
appellants’ request for attorney fees arising out of the cross-petition. We find that this
constituted an implied finding that no party prevailed on the contract action. We further
find that under the circumstances of this case, this decision did not constitute an abuse of
discretion.
A court may find that there is no prevailing party where the judgment may be
considered “‘good news and bad news to each of the parties.’” (Hsu, supra, 9 Cal.4th at
p. 874; see also Nasser v. Superior Court, supra, 156 Cal.App.3d at p. 59 [there is no
21 Civil Code section 1717, subdivision (b)(1), provides: “The court, upon notice
and motion by a party, shall determine who is the party prevailing on the contract for
purposes of this section, whether or not the suit proceeds to final judgment. Except as
provided in paragraph (2), the party prevailing on the contract shall be the party who
recovered a greater relief in the action on the contract. The court may also determine that
there is no party prevailing on the contract for purposes of this section.”
46
duty to declare one prevailing party “in cases where the victory and loss is evenly
divided”].) In addition, “a party who is denied direct relief on a claim may nonetheless
be found to be a prevailing party if it is clear that the party has otherwise achieved its
main litigation objective. [Citations.]” (Hsu, at p. 877.)
Here, Marlene lost her petition to enforce the consent agreement. Appellants
succeeded in having the agreement declared void. However, appellants were ordered to
return the Columbia River Storage property to the trust. Enforcement of the consent
agreement would have resulted in the same outcome: return of the Columbia River
Storage property to the trust. Thus, Marlene achieved one of her main objectives in filing
the cross-petition. Under the circumstances, appellants cannot be said to have obtained
the “‘simple, unqualified win’” which mandates an award of attorney fees. (Hsu, supra,
9 Cal.4th at p. 877.)
The Hsu court confirmed a trial court’s authority to determine that there is no
party prevailing on a contract where “the opposing litigants could each legitimately claim
some success in the litigation.” (Hsu, supra, 9 Cal.4th at p. 875.) The trial court did not
abuse its discretion in determining that this is one of those cases. No error occurred.
DISPOSITION
The judgment is affirmed. Respondent is awarded costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
____________________________, J.
CHAVEZ
We concur:
__________________________, P. J.
BOREN
__________________________, J.
HOFFSTADT
47