Crocker-Citizens National Bank v. Younger , 4 Cal. 3d 202 ( 1971 )

Opinion

BURKE, J.

Defendants Marie Eckstrom (Marie) and Thomas F. Eckstrom, Jr., (Thomas) appeal from a judgment decreeing that the appointment of Marie to a trustee’s advisory committee was void, declaring that a vacancy had existed on the committee since the date of her attempted but invalid appointment, and appointing a new member to fill the vacancy. We have concluded that the judgment should be affirmed, with minor exceptions.

The trust which has given rise to this litigation was established in 1950 by Thomas P. Eckstrom, Sr., (trustor) as a revocable inter vivos trust. Crocker-Citizens National Bank, plaintiff herein, was named as sole trustee. The trust provided that during the lifetime of the trustor $200 per month was to be paid to each of his children, Thomas and Marie, and that the balance of the net income was to be paid to the trustor. If either child died during the trustor’s lifetime, the survivor was to receive- the other’s share of income, i.e., a total of $400 per month. The sum of $15,000 was set aside for the purchase of a home for Marie’s use during her life, the trustee to retain title to the property.

Upon the death of the trustor, each child was to receive a cash payment of $5,000 and the annual income payments to each were to be increased to $5,000, payable in monthly installments. Upon the death of either Thomas or Marie, the annual payments to the survivor were to be increased to $10,000.

Separate provision was made for the trust’s substantial principal. Upon the trustor’s death, 20 percent of the principal was to be distributed in equal portions to two named charities. Five years thereafter, 20 percent of the then remaining reasonable value was to be distributed as follows:

“One-half (Vz) thereof to any Boys’ Town Organization established for carrying on work with boys along the general lines developed by Father Flanagan’s Home of Boys Town, Nebraska, and the remaining one-half (Vz) thereof to any organization established to further the work of preventing, diagnosing and curing cancer along the general lines developed by the Cancer Prevention Society Clinic, Inc. of Los Angeles, California.”

Similar distributions were to be made 10, 15 and 20 years after the trustor’s death and the balance of the principal was to be distributed for the same two charitable purposes and in the same proportion after 25 years.

In order to provide a mechanism to designate the specific charitable institutions which should receive principal distributions at the stated intervals, the trust established a three-member committee. .Those initially appointed to serve on this committee were Edward Walsh (a long-time friend of the trustor), Thomas Eckstrom, Jr., (the trustor’s son) and the bank-trustee. If either of the individual members of the committee died, resigned, or was unwilling or unable to act, the remaining members were to appoint “a new member,” and if they failed to do so, the appointment was to be made by a court of competent jurisdiction. A majority vote of the committee was to be binding in all decisions and on all parties involved.¹

In May 1951, approximately six months after the trust had been created, the trustor executed an “Amendment to Declaration of Trust.” This amendment provided that if both Thomas and Marie died prior to the termination of the trust, the income should be accumulated and added to the principal. It also provided that members of the committee should receive reasonable fees for their services rendered pursuant to paragraphs 7, 8 and 9 of article IX. (See fn. 1, ante.) However, the most significant change effected by this amendment was the addition of the following paragraph:

“After the demise of the Trustor and during such time as Thomas Eckstrom Jr. and/or Mrs. Marie Hart [as Marie Eckstrom was then known] are receiving payments of income and/or principal from the trust, if said payments to which either of said beneficiaries are entitled shall be insufficient in the discretion of the Committee created under the provisions of paragraph 7 of article IX of said Declaration of Trust to provide for the reasonable support, care, and comfort of either of them, the Trustee may pay to such beneficiary, or apply for his or her benefit, so much of the principal as the Trustee may deem proper or necessary for that purpose.”

Thus, upon the trustor’s death, the committee acquired the further power, under the “distress clause” set out immediately above, to determine the need of Thomas and Marie for additional payments. Five years thereafter, the committee was required to make the first of five designations of charitable institutions to which distributions of principal should be made.

Edward Walsh, one of the original committee members, died in September 1955.² The remaining members, Thomas and the trustee, were unable to agree upon a successor. Thus in 1956 the Los Angeles County Superior Court designated Mr. Otho Lord to succeed Mr. Walsh as a committeeman. Mr. Lord served until his resignation in 1958.

In August 1958, Thomas, Marie and the trustee executed a document entitled “Nomination, Agreement and Election of Third Committeeman” by which Marie was appointed to fill the vacancy caused by Mr. Lord’s resignation, upon the terms, conditions and agreements prescribed therein. Simply stated, the nomination agreement provided that should either Marie or her brother apply for payments under the distress clause, she would be disqualified and unable to act upon the question of whether additional payments were necessary, and that upon such disqualification, there would be a temporary vacancy in the committee, to be filled by a temporary committee member upon the agreement of the two other members of the committee, and failing such agreement, by the Superior Court of Los Angeles County. Because of the central role this document plays in the resolution of the instant case, we shall set out its pertinent provisions at length in the footnote.³

Pursuant to the appointment, Marie served on the committee without incident until 1966. At that time Marie and Thomas called a meeting of the committee to consider their respective applications under the distress clause for an immediate payment to each of $50,000 and, beginning in 1968, annual payments of $20,000 to each in addition to other sums payable to them.

The trustee refused to participate in the meeting, contending that under the nomination agreement appointing her to the committee, Marie was disqualified from acting on such a request. The trustee then commenced this action against Thomas and Marie, joining as defendant the Attorney General, as representative of the as yet undesignated charities to be named as recipients of the three remaining distributions of principal.

Plaintiff trustee contended that, by reason of the pending application of the Eckstroms for payment under the distress clause, Marie was disqualified to act as a committee member under the nomination agreement. It requested that the temporary vacancy thereby occurring be filled by the court since plaintiff and Thomas were unable to agree either as to the existence of a vacancy or as to who should fill it. Finally, plaintiff argued that if for any reason the nomination agreement should be held invalid, its provisions were not severable and therefore the agreement was totally ineffective as an appointment of Marie to the committee.

The Eckstroms took the position that Marie had been validly appointed to the committee and that her functions as a committee member could not be circumscribed by any language in the nomination agreement. They thus asserted that the nomination agreement was valid and binding insofar as it appointed her to the committee but that it was invalid insofar as it imposed limitations on her authority to act and that the invalid portion should be severed. Accordingly, they contended that no vacancy existed on the committee notwithstanding their pending applications under the distress clause and that the existing committee should be permitted to consider and act upon these applications as well as the selection of the charities to receive the third distribution of principal due under the terms of the trust.

The Attorney General contended that the nomination agreement was ineffective to appoint Marie to the committee, that the attempted appointment was void ab initio and that therefore a vacancy had existed since 1958. Alternatively, he argued that if the nomination agreement had effectively appointed Marie, she was bound by its terms and hence dis-. qualified from acting on the requests for payment to herself and her brother.

The trial court’s findings of fact parallel the statement of facts set out in our opinion thus far. In addition, it found that “[t]he intention of the trustor was not to vest control of the committee in his surviving children, but rather that there should be a disinterested majority of said committee,” and that “[t]he charitable purposes of the trust were foremost in the mind of the trustor in creating the trust.” It concluded that the nomination agreement was contemplated neither by the Declaration of Trust nor by the subsequent amendment, was invalid, and represented action which the trustee and the defendants were not authorized to take. Since it was thus void ab initio the court concluded that there had been a vacancy on the committee since Mr. Lord resigned in 1958. Opportunity was given to the trustee and Thomas to fill the vacancy. Apparently, however, they were once again unable to agree and thus the court, in accordance with the Declaration of Trust, appointed Joseph W. Vickers, as successor to Mr. Lord. Defendants Thomas and Marie appeal from that judgment.

It is apparent from the trust provisions set forth above that the trust neither authorized nor contemplated that the remaining members of the committee could select an “on again, off again” co-member qualified to serve in some, but not all, trust capacities and to exercise some, but not all, trust powers. The trust instrument created a three-member committee which was to operate under the majority vote principle, with each member having equal power and athority. However, the nomination agreement in essence purported to set up a four-member committee, with Marie and the unnamed, “pro tempore” appointee sharing and alternatively exercising the powers of a single member. Although the trust does not specifically forbid such a division or diversion of trust powers, that is its necessary implication, for otherwise two members of the committee could arbitrarily allocate and divide the powers and duties of a third member among several, or more, persons rather than vesting them in “a new member” as provided in the trust.

Therefore, we conclude that the trust instrument, as amended, required that all decisions entrusted to the committee’s care were to be made by the three members named therein, or their duly appointed successors, and that the subsequent appointment of a co-member disqualified from making certain of those decisions constituted a deviation from the terms of the trust. We now discuss whether or not that deviation was unlawful, thereby rendering Marie’s appointment void.

The rules pertaining to the rights and duties of trustees generally would be broadly applicable to trust advisors or other persons holding trust powers, such as the members of the committee herein. “Trust advisers with powers of direction must be considered fiduciaries. . . . The few courts that have dealt with advisers have generally recognized their fiduciary nature by comparing them with cotrustees.” (Note, Trust Advisers, 78 Harv.L.Rev. 1230, 1231.) We have been unable to find any authority whatsoever for the position that cotrustees or other persons holding trust powers may, by private agreement between themselves, either restrict the powers which a co-member may properly exercise or divide trust powers among two or more persons. Of course, the terms of the trust may provide that certain powers shall be exercised by one trustee and other powers by another (2 Scott, Trusts (3d ed. 1967) § 185, p. 1488), and the same would be true with respect to advisory committee powers, but in the absence of express authority in the trust instrument, an appointment which purported to so restrict or allocate trust powers would be void. “A power to appoint trustees conferred by the terms of the trust can be exercised only under the circumstances and in the manner provided by the terms of the trust.” (Rest.2d Trusts, § 108, com. (f), p. 239.)

Thus, in general, trustees are bound by the terms of the trust and possess only that authority conferred upon them by the trust. (Civ. Code, §§ 2258, 2267; Rest.2d Trusts, §§ 164, 186; 2 Scott, Trusts, supra, § 164, p. 1254.) As Scott puts it, “The extent of the duties and of the powers of a trustee depends primarily upon the terms of the trust. Insofar as the trust instrument expressly or by implication imposes duties or confers powers upon the trustee, the terms of the trust determine the extent of his duties and powers except so far as the performance of the duties or the exercise of the power is or becomes impossible, or the provision is illegal, or there has been such a change of circumstances as to justify or require deviation from the terms of the trust.” (Accord, Rest. 2d Trusts, supra, §§ 164-167; Estate of Traung, 207 Cal.App.2d 818, 829-834 [24 Cal.Rptr. 872]; Stanton v. Wells Fargo Bank etc. Co., 150 Cal.App.2d 763, 770 [310 P.2d 1010]; Leonardini v. Wells Fargo Bank, 131 Cal.App.2d 9, 13 [280 P.2d 81]; Security-First Nat. Bank v. Easter, 136 Cal.App. 691, 697 [29 P.2d 422].)

Undoubtedly, unusual circumstances may arise which justify deviation from the trust. However, “the court should not permit a deviation simply because the beneficiaries request it where the main purpose of the trust is not threatened and no emergency exists or is threatened,” (Stanton, supra, at p. 770), for the power to modify a trust must be exercised “sparingly and only in the clearest of cases” (Leonardini, supra, at p. 13). Deviation is not justified merely because it would be more advantageous to the beneficiaries or would offer an expedient solution to problems of trust management. (Traung, supra, at pp. 833-834; Rest.2d Trusts, supra, § 167, com. (b).)

It has been suggested that the vacancy on the committee created a change in circumstances which necessitated Marie’s conditional appointment. However, in order for a change in circumstances to justify deviation, there must be a showing that the change was unforseen by the trustor and that compliance with the trust would defeat its main purposes. (2 Scott, Trusts, supra, § 167, p. 1268; Stanton, supra, at p. 770.) In the instant case, there is no reason to believe that Marie’s nomination to the committee was unforeseen or that her unconditional appointment would have defeated the purposes of the trust. The trust did not by its terms forbid Marie’s appointment, and no one suggests that it would have been illegal.⁴ Since any person, including a beneficiary, may serve as trustee or hold trust powers (Rest.2d Trusts, supra, § 99, subd. 1, § 185, com. (a)), the fact that Marie might have owed fiduciary obligations to the other beneficiaries would not have invalidated her appointment or rendered voidable her exercise of trust powers. Had she breached her obligations or abused her discretion, the beneficiaries would have been protected, for “A discretionary power conferred upon a trustee may be controlled by the proper court if not reasonably exercised.” (Estate of Traung, supra, 207 Cal.App.2d at p. 834; see Rest.2d Trusts, supra, § 185.) Moreover, since Crocker Bank as trustee had the ultimate authority to determine the amounts to be paid to the Eckstrom children, Marie’s standing on the committee would have given her no particular personal advantage and would have created no substantial conflict of interest. Therefore, it is apparent that the purported conditional or limited appointment was totally unnecessary and consequently constituted an unlawful deviation from the terms of the trust.

It should also be pointed out that Marie’s conditional appointment has already resulted in protracted litigation between the parties, substantial delays in administering the trust, and wasteful expenditures of trust funds for litigation expense. Moreover, it is likely that further disputes, delays and expenses would arise if the appointment remained in effect, for under the terms of the nomination agreement, every time that Thomas or Marie desire additional funds under the trust distress clause, a temporary vacancy would occur on the committee which must be filled either by agreement between the other two members or by the superior court. Judging from the inability of Thomas and the Crocker Bank on at least two prior occasions to agree upon an appropriate appointee, the parties would frequently initiate judicial proceedings to obtain a “pro tempore” member for the committee. There is no justification for requiring the parties to undergo continual litigation, delay and expense merely to obtain an assessment of financial needs which the trustee, in its sole discretion, need not accept. Surely the trustor would not have sanctioned such a procedure, which could seriously delay the payment of distress funds to his children and which could deplete the trust assets through recurring litigation expense.

Accordingly, we hold that Marie’s conditional appointment to the trust committee was void as an unlawful deviation from the terms of the trust.⁵ The trial court, having also concluded that the appointment was invalid, designated Joseph W. Vickers to serve in place of Marie, since Thomas and the trustee were unable to agree upon a suitable successor. However, Mr. Vickers’ appointment may have been premised upon the incorrect assumption that Marie was totally disqualified under the terms of the trust from serving on the committee. Since neither the trust nor general principles of law prohibit Marie from serving as a trust adviser or from holding and exercising trust powers, Marie was eligible to serve on the committee, and Thomas and the trustee should be given the opportunity to accept her as a committee member, without the restrictions imposed by the nomination agreement, through the process of a valid appointment. However, we cannot accept appellants’ contention that Marie’s appointment was valid, and that only the terms of the nomination agreement are void and unenforceable. Since the trustee’s consent to her appointment was expressly conditioned upon the restrictions set forth in the agreement, its consent must be deemed revoked by the invalidity of that agreement.

Our decision in this respect is not intended to suggest who should be appointed as the successor committeeman as that lies wholly within the discretion of the remaining committeemen and, failing to reach an agreement, then with the court.

Article VI, paragraph 4, of the Declaration of Trust provides that the trustee is entitled to reasonable compensation for any unusual or extraordinary services which it renders. The trial court found that the bank, as trustee, had rendered such services in attempting to resolve the controversy without litigation and in prosecuting this action, it found the reasonable value of these services to be $3,500 (the trustee had requested $7,500) and awarded that amount to it, plus $93.10 as reimbursement of sums which it had disbursed.

Article IV, paragraph 18 of the Declaration of Trust provides that the trustee “shall pay out of principal or income as it may elect, or partially out of each, in such shares as it may determine . . . attorneys’ fees, . . . and other expenses incurred in the administration or protection of this trust . . . .” The trial court found that counsel for the trustee had been engaged to prosecute this action in the course of the administration and protection of the trust. It found that the reasonable value of the services which they had rendered was $10,000 (the trustee had requested $12,500) and, pursuant to the provision just set forth, awarded that amount as attorneys’ fees. Thomas and Marie conceded that the trust authorized the above payments and offered no evidence on the subject of the services of the trustee and its counsel. Our review of the record indicates that there is substantial evidence to support the trial court’s findings. There is no merit in Thomas’ and Marie’s unsubstantiated complaint that the amounts awarded by the trial court were excessive.

Article II of the Amendment to the Declaration of Trust provides that the members of the committee are entitled to a reasonable compensation “for their services in carrying out the special duties which may be required of them under paragraphs 7, 8 and 9 of said Article IX” (see fn. 1, ante) of the Declaration. Thomas and Marie applied for compensation for themselves⁶ and for reimbursement, from the trust, of their attorneys’ fees. The trial court, however, refused to award them either. As to Marie, since the court had held that she was not a member of the committee, it concluded that she was not entitled to compensation for her services as a committee member. As to Thomas, the court found that he had rendered services as a committee member in determining the charities which were to receive principal distributions. It suggested that $40 per hour was a reasonable rate of compensation. It held, however, that the claim for compensation was premature since Thomas had not complied with the implicit requirement of the Declaration of Trust that he present a demand to the trustee for compensation for these services. We fully agree that such claims should be presented to the trustee before a judicial determination and award is sought. However, even though Marie’s appointment was void, she did serve upon the committee for 10 years as a de facto member, performing in good faith services to the trust for which she should be reimbursed. (90 C.J.S., Trusts, § 396, p. 721.) Accordingly, we believe that both Thomas and Marie are entitled to compensation for services as committee members pursuant to paragraphs 7, 8 and 9 of article IX and that both should submit their claims for compensation to the trustee.

Finally, the trial court found that neither the Declaration of Trust nor the subsequent amendment contained any provision for reimbursement of committee members for legal fees such as those incurred in the instant litigation. It therefore concluded that Thomas and Marie’s counsel were not entitled to compensation from the trust estate for services rendered to Thomas and Marie during the present controversy. We concur. In the light of the circumstances of this case and in the absence of an express provision in the trust documents, we do not believe that authority for the payment of such counsel fees can be reasonably implied to the end of requiring the trust (and, ultimately, the charitable beneficiaries) to bear such expense.

The judgment is affirmed insofar as it declares Marie’s appointment to be void, awards fees to the trustee and its counsel, reimburses the trustee for sums disbursed by it, and approves the actions of the trustee in distributing funds to the charitable institutions designated by the committee. The judgment is reversed to the extent it denies Thomas or Marie compensation as committee members and appoints John W. Vickers to the trust committee, and the cause is remanded to the trial court with directions to amend the findings of fact and conclusions of law and to enter judgment in accordance with the views herein expressed. The parties shall bear their own costs on appeal.

Mosk, Acting C. J., McComb, J., and Schweitzer, J.,^* concurred.

1 The above provisions are contained in paragraph 7 of article IX of the Declaration of Trust. Paragraphs 8 and 9 of this article give the committee additional powers and duties in the event the trustor transferred certain real property or a controlling bloc of corporate stock to the trust.

2 Thomas Eckstrom, Sr., the trustor, had died sometime earlier. His death occurred on a date not positively identified in the record, but apparently during 1952.

3 The agreement provides in relevant part as follows:

“Whereas Thomas F. Eckstrom, Jr. has nominated said Marie Eckstrom to fill the vacancy caused by the resignation of said Otho Lord; and

“Whereas the Trustee, the other member of the committee, is willing to join in the appointment of Marie Eckstrom providing that she agree that she would be disqualified to act whenever she or her brother . . . should seek relief under said distress clause, but said Trustee does not desire to deprive either of said beneficiaries of their respective rights to additional payments under said distress clause in the event that an impartial committee should determine that payments provided for in said Declaration of Trust are insufficient for the reasonable support, care and comfort of either of said beneficiaries, and

“Whereas Marie Eckstrom recognizes that she would be disqualified to sit or act on said committee to determine in respect to the matters set forth in said distress clause and would therefore be unable to act,

“Now, Therefore, It Is Agreed among the parties hereto as follows:

“1. Thomas F. Eckstrom, Jr.....hereby nominates Marie Eckstrom as a member of said committee, . . .

“2. Marie Eckstrom . . . admits and declares that in the event she is elected . . . and in the further event that she or said Thomas F. Eckstrom, Jr., should apply for payments under said distress clause she would be disqualified and therefore unable to act, and all parties hereto agree and declare that in such instance there would be a temporary vacancy in the committee and would then be temporarily filled by the other members of the committee, or if they be unable to agree, by the Superior Court of Los Angeles County, such temporary committee member to hold office and to act . . . only in respect to such matters as to which Marie Eckstrom is disqualified to consider, only so long as Marie Eckstrom’s said disqualification shall continue.

“3. Trustee, in consideration of the agreements of Marie Eckstrom expressed in paragraph 2 hereof, declares that its only objection to the appointment of Marie Eckstrom has been eliminated and it therefore seconds her nomination. . . .

“4. Said Trustee and said Thomas F. Eckstrom, Jr.....do hereby appoint Marie Eckstrom a member of said committee, . . . and said Marie Eckstrom hereby accepts such appointment subject to the conditions set forth in paragraph 2 hereof.

“5. It Is Understood and Agreed by and between the parties hereto that the

disqualification of Marie Eckstrom to vote or to exercise discretion in respect to relief in her behalf or in behalf of her brother . . . shall cease as soon as the committee consisting of Marie Eckstrom’s temporary successor and the other members of the committee shall have exercised their discretion under said distress clause, but Marie Eckstrom’s disqualification may occur from time to time and as often as she or her brother is asserting a claim or further claim under said distress clause.”

4 The trial court’s conclusion that the nomination agreement was void was based upon its findings that the trustor’s primary purpose in creating the trust was charitable, and that the trustor did not intend to vest control of the committee in his children, but in a disinterested majority. However, since no extrinsic evidence was admitted at trial, the trial court’s findings were necessarily based upon its interpretation of the trust instruments and accordingly are not binding upon this court. (Parsons v. Bristol Development Co., 62 Cal.2d 861, 865-866 [44 Cal.Rptr. 767, 402 P.2d 839].) Had the trustor intended to disqualify Marie from serving as a member of the committee, he could easily have so declared in the trust instrument; instead he left to the committee’s sole discretion the choice of a successor member. We conclude that the evidence fails to support the finding that the trustor intended only a disinterested majority should serve the trust .committee.

5 Our decision does not, of course, affect the status of prior charitable distributions made, or other actions taken, by the committee while Marie served as a de facto member. The trial court properly approved these distributions as valid, for although Marie’s appointment was void, her ostensible authority to act upon the committee has bound the beneficiaries and the trust estate to the same extent as were she a bona fide member thereof.

6 Although it is not entirely clear from the record, it appears that the services for which this request was made were composed, in whole or in part, of Thomas and Marie’s activities in connection with the present litigation. The trustee argued that these activities did not fall within the category of duties required by paragraphs 7, 8 or 9 of article IX and, hence, were not compensable pursuant to the Amendment to the Declaration. The trial court appears to have accepted the trustee’s contention since it limited its finding of services rendered to those which were concerned with the selection, pursuant to paragraph 7 of article IX, of specific charitable institutions as recipients of principal distributions. The trial court was clearly correct; the trust documents nowhere provide compensation for “services” such as this internecine litigation among those entrusted with the management of the trust.

* Assigned by the Chairman of the Judicial Council.