Alioto v. Manalo CA1/3

Filed 6/28/16 Alioto v. Manalo CA1/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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
FIRST APPELLATE DISTRICT
DIVISION THREE
ANTHONY J. ALIOTO, as Trustee, etc.,
Plaintiff and Respondent, A143926
v. (City & County of San Francisco
MARIA CHRISTINA MANALO, Super. Ct. No. PTR-14-298002)
Defendant and Appellant.
The probate court granted trustee Anthony J. Alioto’s petition for modification of
a trust to correct a drafting error and Maria Christina Manalo, a trust beneficiary, appeals.
Manalo contends that the trustee did not have standing to bring an action to modify the
trust; that she was wrongly denied a trial; that extrinsic evidence was wrongly admitted to
construe the trust; and that the probate court’s construction of the trust is incorrect. We
shall affirm the probate court’s order modifying the trust.
Statement of Facts
Frank Anthony Alito created a revocable living trust in 1999 and restated its terms
in 2010. He amended the restated trust twice, once in September 2011 and again in June
2012. He died in October 2012.
The beneficiaries of the trust are the trustor’s adult children, Nunzio and Jennifer;
the trustor’s former wife, Suzanne Alioto, who is entitled to alimony pursuant to a
dissolution decree; and the trustor’s long-term companion, Maria Christina Manalo. The
trustor’s brother, Anthony Joseph Alioto, is the successor trustee.
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The trust provides that some assets are to be distributed to the beneficiaries upon
the trustor’s death and other assets are to be held in two subtrusts with income to the
beneficiaries. One subtrust holds common stock in the Nunzio Corporation for the benefit
of the trustor’s children. The other subtrust holds a one-half interest in F and A
Properties, a general partnership, for the benefit of Manalo and the trustor’s ex-wife.1
Payment from the F and A Properties subtrust to the ex-wife are “specifically restricted to
those alimony payments as provided by court order of dissolution.” Payment to Manalo
“shall be made in the same manner and in accordance with the same standard of living as
[the trustor] may have provided in the past; adjusted as necessary by circumstances and
inflation” with a stated minimum annual amount, payable monthly. Any net income in
excess of the payments to the ex-wife and Manalo is paid to the children and the children
are the successor beneficiaries after payments are no longer due the ex-wife and Manalo.
The terms of the restated trust of 2010 and the amended trust of 2012 differ in the
distribution of assets and in the stated minimum amount of income allotted to Manalo
from the F and A Properties subtrust. As to the distribution of assets, the 2010 trust
instrument provided Manalo with a life estate in a California Street condominium or, if
she chose to reside elsewhere, $200,000 from the unit’s sale proceeds with the remainder
to the children. The 2012 amendment removed Manalo’s life estate option and directed
sale of the condominium with Manalo to receive $200,000 from the sale proceeds and the
remainder to the children. The 2012 amendment also provided additional assets to
Manalo. She was given all personal property not specifically bequeathed, whereas the
2010 trust distributed this property to the children. Manalo was also given the trustor’s
interest in a general partnership known as 1395 Golden Gate Avenue, an asset not
mentioned in the 2010 trust.
Concerning the F and A Properties subtrust, the 2010 trust document provided
support payments to Manalo at a minimum amount of $50,000 annually for life. The
2012 amendment changed the support payments to a minimum amount of $75,000
1
The full text of these provisions are set out later in the opinion.
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annually for five years from the date of the trustor’s death. While the 2012 amendment
changed the time period of minimum support payments from life to five years, there was
no amendment to a subsequent paragraph stating: “Upon the death of Maria Christina
Manalo and the expiration of the payment of alimony . . . all the net income shall be paid
equally to or for the benefit of my two children.” The trustee claimed that the failure to
amend the subsequent paragraph was a drafting error and that the trustor’s intent was to
pay subtrust income to Manalo for five years with all income paid to the children after
that five-year period. The trustee maintained that the trust should be modified to provide
that all net income shall be paid to the children “[f]ollowing five years from the date of
[trustor’s] death” rather than “[u]pon the death of” Manalo.
In August 2014, the trustee filed a petition to modify the trust to correct the
claimed drafting error and submitted a declaration from the attorney who drafted the
amendment. (Prob. Code, § 17200, subd. (b)(13).) The attorney declared that the trustor
“expressed his concern of the effect of Ms. Manalo receiving the income from the F and
A Properties partnership for life as his children would not receive any of its income until
Ms. Manalo’s death which could be in twenty years or more.” The trustor “wanted to
provide Ms. Manalo with $75,000 of annual income from the F and A Properties
partnership for five years as he wanted his children to receive the benefits of this
partnership with his brother in a timely fashion.”
Manalo filed a response in which she opposed admission of the attorney’s
declaration and modification of the trust. Manalo argued that the amended trust was not
ambiguous and interpreted it to provide her with lifetime support at her established
standard of living with a guaranteed minimum of $75,000 for five years. Any net income
in excess of the annual payment to Manalo was to be paid to the children but, she
maintained, the children were not to become successor beneficiaries entitled to all income
from the subtrust until Manalo’s death. Manalo also asserted that the amendment
reducing the time period of a guaranteed payment from life to five years was in
recognition of the fact that alimony payments to the trustor’s ex-wife would expire at the
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end of the five-year period so Manalo “would not need this extra protection” of a
guaranteed minimum.
The court held a hearing on the matter at which no court reporter was present and
no witnesses were called to testify. The court took the matter under submission and asked
the parties to submit proposed orders, which they did.2 The court then issued an order
granting the trustee’s request for modification of the trust. The paragraph providing
“Upon the death of Maria Christina Manalo and the expiration of the payment of alimony
. . . all the net income shall be paid equally to or for the benefit of [the trustor’s] two
children” was modified to read: “Following five years from the date of [the trustor’s]
death and the expiration of the payment of alimony . . . all the net income shall be paid
equally to or for the benefit of [the trustor’s] two children.” (Italics added.) Manalo
timely filed notice of appeal on December 16, 2014.
Discussion
Manalo raises a number of claims on appeal, both procedural and substantive. We
discuss these claims in turn.
1. Trustee’s standing to seek modification of the trust.
As an initial matter, Manalo contends that only beneficiaries, not trustees, have
standing to bring an action to modify a trust agreement. She acknowledges that a trust
agreement, like any other contract, may be reformed and revised under California Civil
Code section 3399 to correct a drafting error. She argues that the statute permits revision
on the application of “a party aggrieved,” and argues that a trustee who lacks a pecuniary
interest in the trust is not a party aggrieved. Her interpretation of the Civil Code is
2
Manalo has filed a motion to augment the record with her proposed order and cover
letter submitted to the court. (Cal. Rules of Court, rule 8.155.) The trustee opposes the
motion because the proposed order and letter were not filed in the superior court. But the
proposed order was expressly requested by the court, which received proposed orders
from both Manalo and the trustee. A record on appeal is properly augmented with “[a]ny
document filed or lodged in the case in superior court.” (Cal. Rules of Court, rule
8.155(a)(1)(A).) The motion to augment is granted.
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questionable but, in any event, there is clear authority, apart from the Civil Code,
allowing a trustee’s action to modify a trust instrument.
The Probate Code authorizes a trustee to bring a petition for an order construing a
trust instrument. (E.g. Wells Fargo Bank v. Marshall (1993) 20 Cal. App. 4th 447, 449-
450.) Probate Code section 17200, subdivision (a) expressly provides that a “trustee or
beneficiary of a trust may petition the court . . . concerning the internal affairs of the
trust.” (Italics added.) “Proceedings concerning the internal affairs of a trust include, but
are not limited to,” proceedings “[a]pproving or directing the modification or termination
of the trust.” (Prob. Code, § 17200, subd. (b)(13).) The list of “grounds for a petition
concerning the internal affairs of a trust . . . is not exclusive and is not intended to
preclude a petition for any other purpose that can be characterized as an internal affair of
the trust.” (Cal. Law Revision Com., com. (1990) Prob. Code, § 17200.) Common law
also recognizes a trustee’s right to seek construction and modification of a trust
agreement. “California courts have long had the equity power to modify the terms of a
trust where such modification is necessary to preserve the trust or to serve the original
intentions of the trustor.” (Stewart v. Towse (1988) 203 Cal. App. 3d 425, 428.) The power
to modify includes the “equitable power to reform an irrevocable trust where a drafting
error defeats the trustor’s intentions.” (Bilafer v. Bilafer (2008) 161 Cal. App. 4th 363,
369.)
2. Right to trial in probate court.
Manalo next contends, with little elaboration, that she was “entitled to a trial on
the issues raised by the pleadings.” But “[t]here is no right to a jury trial in
proceedings . . . concerning the internal affairs of trusts.” (Prob. Code, § 17006.) Nor is
an evidentiary hearing with oral testimony always required. “An affidavit or verified
petition shall be received as evidence when offered in an uncontested proceeding.” (Prob.
Code, § 1022.) While the proceeding here was contested, it was not contested on factual
matters. Manalo’s opposition to the trustee’s petition neither asserted a need for trial nor
proffered a factual issue deserving of trial. She argued that the trustee did not have
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standing to seek modification of the trust or, alternatively, that the trust is unambiguous
and should be interpreted without the use of extrinsic evidence. She claimed the
“scrivener’s declaration is inadmissible”; she did not dispute its factual allegations.
A probate court must grant a request for an evidentiary hearing on contested
factual matters. (Estate of Lensch (2009) 177 Cal. App. 4th 667, 676; Estate of Bennett
(2008) 163 Cal. App. 4th 1303, 1308-1310.) But no request was made here and no
contested factual matters were presented. Manalo failed to assert, much less demonstrate,
that there were factual matters in dispute material to the determination of the petition that
turn on the credibility of witnesses. It was not until after submission of the case, in a
letter accompanying her proposed order, that Manalo stated: “In the event that you should
rule that the [trustee] does have standing a trial will be required. I would suggest setting a
trial date which would give both parties sufficient time to interview witnesses and
complete discovery.” Manalo’s informal suggestion of a trial date — charitably
construing it as a request for an evidentiary hearing — was untimely, since the matter had
already been submitted. Moreover, the general reference to unnamed witnesses and
unspecified discovery without identifying any factual matters in dispute failed to raise an
issue warranting an evidentiary hearing.
3. Admission of extrinsic evidence.
Similarly unavailing is Manalo’s claim that the probate court improperly relied
upon extrinsic evidence—the drafting attorney’s declaration—to modify the trust. As a
preliminary matter, it is not clear from the record that the probate court actually relied
upon the attorney’s declaration. The hearing was not transcribed and the order modifies
the trust’s terms without stating whether the revision is based upon the attorney’s
declaration, a reconciliation of the trust’s terms, or both. The trustee argues that we
should presume the court sustained Manalo’s objection to the declaration and modified
the trust based upon a reading of the trust agreement alone. However, an appellate court’s
usual practice when a trial court fails to rule expressly on specific evidentiary objections,
at least as regards summary judgment motions, is to “presume[] that the objections have
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been overruled, the trial court considered the evidence in ruling on the merits of the . . .
motion, and the objections are preserved on appeal.” (Reid v. Google, Inc. (2010) 50
Cal. 4th 512, 534.) We shall follow that procedure here and consider Manalo’s contention
that the attorney’s declaration was improperly admitted.
The contention fails on the merits. “In California, extrinsic evidence is generally
admissible to correct errors in documents,” including trusts. (Estate of Duke (2015) 61
Cal. 4th 871, 887.) “In interpreting a document such as a trust, it is proper for the trial
court in the first instance and the appellate court on de novo review to consider the
circumstances under which the document was made so that the court may be placed in the
position of the testator or trustor whose language it is interpreting, in order to determine
whether the terms of the document are clear and definite, or ambiguous in some respect.
[Citation.] Thus, extrinsic evidence as to the circumstances under which a written
instrument was made is admissible to interpret the instrument, although not to give it a
meaning to which it is not reasonably susceptible.” (Wells Fargo Bank v. Marshall,
supra, 20 Cal.App.4th at p. 453.)
“An ambiguity in a written instrument exists when, in light of the circumstances
surrounding the execution of the instrument, ‘ “the written language is fairly susceptible
of two or more constructions.” ’ ” (Ike v. Doolittle (1998) 61 Cal. App. 4th 51, 74, quoting
Estate of Russell (1968) 69 Cal. 2d 200, 211.) The trust here is ambiguous. It provides
Manalo minimum support payments of $75,000 annually for five years from the date of
the trustor’s death yet also provides that the successor beneficiaries do not receive the net
income until the death of Manalo. As the trustee notes on appeal, the trust terms are
capable of several conflicting interpretations concerning disposition of subtrust income
after the fifth anniversary of the trustor’s death. Thus extrinsic evidence was properly
admitted. “Where a trust instrument contains some expression of the trustor’s intention,
but as a result of a drafting error that expression is made ambiguous, a trial court may
admit and consider extrinsic evidence, including the drafter’s testimony, to resolve the
ambiguity and give effect to the trustor’s intention as expressed in the trust instrument.”
(Ike, supra, at p. 74.)
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Manalo argues that the declaration may not be considered because it relates the
trustor’s oral declarations of intent. The Probate Code once limited extrinsic evidence to
the circumstances surrounding execution of a will, “excluding the oral declarations of the
testator as to his intentions.” (Estate of Salmonski (1951) 38 Cal. 2d 199, 214, construing
former Prob. Code, § 105.) The Probate Code no longer contains that limitation and, even
when it did, the limitation applied only “ ‘to the mere incidental fugitive utterances or
declarations of intent, as distinguished from the specific instructions as to testamentary
disposition.’ ” (Estate of Taff (1976) 63 Cal. App. 3d 319, 325.) It has always been held
that “oral declarations made by a testator to the scrivener of the will are admissible to
resolve a latent ambiguity.” (Ibid.; accord Estate of Dominici (1907) 151 Cal. 181, 185.)
4. Construction of the trust.
Manalo’s final contention is that the trust agreement was not properly construed
by the probate court. “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.” (Scharlin v. Superior Court (1992) 9 Cal. App. 4th 162, 168.) We therefore begin
with the terms of the trust, both in the original trust instrument and in the disputed
amendment.
The 2010 trust instrument provides, in relevant part: “4. I give in trust my one-half
(1/2) (50%) interest in F and A Properties . . . . [¶] a. This trust is for the benefit of Maria
Christina Manalo, my companion during my lifetime and Suzanne Alioto, my former
spouse. [¶] b. The trustee is authorized to support or continue to support the above
persons whom I have agreed to support or to whom I owe a duty of support, more
specifically Maria Christina Manalo, my companion and Suzanne Alioto, my former
spouse. Payment shall be made in the same manner and in accordance with the same
standards of living as I may have provided in the past; adjusted as necessary by
circumstances and inflation as to Maria Christina Manalo, my companion. [¶] Payments
to Maria Christina Manalo shall be a minimum of $50,000 annually, payable monthly for
the life of Maria Christina Manalo. As to Suzanne Alioto, it is specifically restricted to
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those alimony payments as provided by a court of dissolution. [¶] c. Upon the death of
Maria Christina Manalo and the expiration of the payment of alimony provided for by
that decree of distribution to Suzanne Alioto; all the net income shall be paid equally to
or for the benefit of my two children . . . . [¶] . . . [¶] d. If there remains any net income
during the payment as directed in Paragraph b herein, then said net income shall be paid
to or for the benefit of my children, Nunzio N. Alioto and Jennifer Alioto, by right of
representation.”
The 2012 amendment left untouched most of paragraph 4, deleting only
subparagraph 4b and replacing the second clause with the following provision:
“Payments to Maria Christina Manalo shall be a minimum of $75,000 annually, payable
monthly for the period of five (5) years from the date of my death. As to Suzanne Alioto,
it is specifically restricted to those alimony payments as provided by a court of
dissolution.” (Italics added.)
An ambiguity arises because the amendment revised subparagraph 4b to change
the time period of the designated payments to Manalo from her lifetime to five years but
left unchanged the original subparagraph 4c directing payment to the successor
beneficiaries only upon Manalo’s death. It is not clear what the trustee is to do with the
subtrust income after the fifth anniversary of the trustor’s death. Several possible
interpretations have been suggested by the parties: (1) Manalo receives no further income
payments and the trustor’s children receive the income; (2) the trustee retains the income
until Manalo dies, at which time the children receive the accumulated income; or
(3) Manalo receives income for the rest of her life, without a guaranteed minimum.
The probate court resolved the ambiguity in favor of the first interpretation and
modified subparagraph 4c to provide payment to the successor beneficiaries following
five years from the date of the trustor’s death. Viewing the trust instruments as a whole,
the probate court adopted the most reasonable construction of those documents. The
trustor’s intention before the 2012 amendment was clear. Manalo was to receive at least
$50,000 a year for the duration of her life and the trustor’s children would receive all the
income upon her death. In 2012, the trustor changed the trust in several ways. First, he
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increased Manalo’s minimum annual income from $50,000 to $75,000 but deleted the
words “for the life of Maria Christina Manalo” and replaced them with “for the period of
five (5) years from the date of my death.” Second, he deleted the provision giving
Manalo the option of a life estate in a condominium and, instead, directed sale of the
property with $200,000 of the proceeds to Manalo. Third, he gave Manalo additional
assets—all personal property not specifically bequeathed, whereas the 2010 trust
instrument distributed this property to the children, and the trustor’s interest in the
Golden Gate Avenue partnership, an asset not mentioned in the 2010 trust document.
These various dispositions suggest that the trustor’s intention in 2012 was to provide
sufficiently for Manalo by increasing her immediate income and providing additional
assets while also limiting the length of time she would receive income from the subtrust
to assure payments to his adult children during their lifetimes.
The drafting attorney’s declaration corroborates this interpretation. The attorney
states that the trustor, in amending the trust, was concerned that if Manalo received
subtrust income for life then “his children would not receive any of its income until Ms.
Manalo’s death which could be in twenty years or more.” However, the trustor “was also
concerned with providing sufficient funds for Ms. Manalo and again expressed his desire
to give her his interest in the Golden Gate Partnership outright on his death” as “extra
funds since she would be receiving the income from F and A Properties partnership for 5
years instead of for life.”
The probate court thus properly modified the trust amendment to clarify its terms
and to fully effectuate the trustor’s apparent intentions.
Disposition
The order is affirmed.
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_________________________
Pollak, J.
We concur:
_________________________
McGuiness, P. J.
_________________________
Jenkins, J.
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