Title Insurance & Trust Co. v. Duffill

The plaintiff, as trustee under the terms of a written agreement, brought this action for the interpretation of the trust, and sought the direction of the court as to the proper application of certain funds in its possession. Judgment was entered in accord with its contentions, and Martha Duffill, one of the defendants, and a beneficiary under the terms of the trust, appealed. On rehearing, we are satisfied with and adopt the clear and comprehensive statement of the facts prepared by Honorable Charles A. Shurtleff, a former justice of this court, on the first submission of the case:

“This action was brought by plaintiff as trustee for a decree interpreting a trust created by a certain written contract dated August 26, 1914, in which it is named as trustee, the principal beneficiaries of which trust are the defendants Harry Duffill, Martha Duffill, his divorced wife, and Albert Duffill, a minor, and only child of Harry and Martha Duffill. The contract was entered into between the defendants Harry and Martha Duffill pending an action for divorce brought by Martha against Harry, and embodied the terms of an adjustment of their property rights. The contract was made in view of the fact that orders for alimony for Martha and maintenance for Albert, the minor child, might be made in said divorce action, and was entered into subject to the approval of the court, which approval was subsequently given in and by decrees entered in said action. At the date of this contract Eugenie A. Duffill, the mother of defendant Harry Duffill, was alive and possessed a large estate, and Harry Duffill was her sole heir at law. The contract indicates that at the time of its execution the parties thereto had contemplated, indeed acted upon the assumption, that at his mother’s death Harry would come into a large part of her estate. The portions of the agreement material to this discussion are as follows: ‘The first party (Harry Duffill) covenants that in the event he shall acquire or receive from Eugenie A. Duffill (his mother), by devise, bequest, inheritance, succession, or from any trust agreement wherein the first party is the beneficiary and his beneficial estate arises after the death of said Eugenie A. Duffill, any property whatsoever, whether real or personal, of any kind and wherever situated, or any interest therein, that forthwith upon acquiring or receiving each and every of said

properties or interests, an undivided one-fourth of each and every such parcel and interest shall become the property of the Title Insurance and Trust Company (plaintiff) as trustee, in trust nevertheless for the uses and purposes hereinafter set forth. So far as is legally possible first party does hereby grant, bargain, sell, convey, assign, transfer and set over unto said trustee, an undivided one-fourth of each and every such property or interest. First party covenants that when, if and as, he shall become possessed of each and every such property or interest, or obtain the right to possession of any of the same, that forthwith and without any demand being made upon him by second party (Martha Duffill) or the trustee, and at his own proper cost and expense, he will cause title to an undivided one-fourth of each and every said such property and interest to be given, granted, conveyed, assigned and delivered to said trustee and will do all those things necessary or proper to establish the title of said trustee thereto as fully and effectually as could be done were first party seized and possessed of the same at the date of this instrument. . . . All the property, real and personal, held by Title Insurance and Trust Company as trustee hereunder shall be held by it as trustee for the uses and purposes . . . namely, . . . from time to time to sell all or any part of said property on such terms and in such manner as it may see fit and from time to time to invest and reinvest the proceeds of any such sale or sales or any principal of the trust fund in such securities as are permitted for investment by savings banks under the laws of the state of California. . . . During the natural life of second party the trustee (at stated times) . . . shall pay over to second party (Martha Duffill) for her own use, all of the net income derived from the trust properties, hut no part of the principal of said trust shall he expended or paid to second party.’ The instrument further provides, that upon the death of Martha Duffill the assets of the trust remaining in the hands of the trustee shall become the property of Albert Duffill, the son, and in the event his death shall have occurred prior to the death of Martha Duffill then such assets shall, upon her death, become the property of the lawful issue per stirpes et non per capita of Albert, living at his death, ‘and in default of such issue the party of the first part shall have an estate in remainder in said

assets, dependent upon the life estate in said assets herein and hereby created, for and during the natural life of the party of the second part. ’ It was further agreed that the trust ‘shall wholly cease and determine upon the death of second party. ’

‘‘Eugenie A. Duffill died January 7, 1916, some sixteen months subsequent to the execution of the agreement of August 26, 1914, leaving a will, which will was admitted to probate by an order of the Superior Court of the State of California in and for the County of Los Angeles, and a decree of distribution was made therein on July 17, 1918, an appeal was taken from this decree to this court (Estate of Duffill, 180 Cal. 748 [ 183 Pac. 337 ]), which resulted in an affirmance, and the same becoming final in August, 1919. The questions adjudicated and settled in that appeal are of no special moment here, and our reference to the same is for the purpose of showing the finality of such decree of distribution. Under the terms of this decree, property real and personal of large value was distributed to the Los Angeles Trust and Savings Bank, the trustee named in the will, upon the following trusts: to take, hold and have possession of the same ‘with full power to sell, lease, improve or exchange, invest, or reinvest any or all of said property, ... to invest, and reinvest and keep invested, said property . . .’ and ‘shall pay to said Albert Duffill, out of the income derived from the principal of the trust estate, the sum of three thousand dollars ($3,000) per year, at such times and in such amounts as said trustee shall deem expedient, . . . the sum of four thousand dollars ($4,000) to Harry Duffill’ (under like conditions), each of said payments to continue ‘until said Albert Duffill shall reach the age of twenty-one years, or in the event of the death of said Albert Duffill, until the date when said Albert Duffill would have attained the age of twenty-one years had he lived. ’ ‘ . . . that one-half of the balance of the income from the principal of said trust estate, after paying the aforesaid (the sums payable to Harry and Albert) and the necessary expense of administration of the estate, shall be accumulated during the minority of Albert Duffill by said trustee, for his use and benefit, . . . and . . . the other one-half of the income from the principal of said trust estate shall be paid to Harry Duffill from time to time . . . after deducting the aforesaid annuities (those specified in

the decree) and the necessary expense of administration of the said estate. . . . When said Albert Duffill shall attain the age of twenty-one years, in case said Harry Duffill shall then be living, the trustee shall segregate the corpus of said trust fund (excluding the accumulations for the benefit of Albert) into two equal parts, and shall transfer and convey one of said parts to the said Harry Duffill. ’ The decree proceeds to provide that in the event of the death of the said Harry Duffill prior to the distribution to him of said part, the trustee shall distribute all of said trust fund to said Albert Duffill upon terms and conditions not material to this inquiry, and that upon the death of Albert while there remains ‘undistributed’ to him any portion of the trust estate, the trustee shall transfer, convey and distribute such portion as follows: ‘to Martha Duffill one-fourth of the entire trust estate then in the hands of the said trustee, including any accumulated income; and the remaining three-fourths of the said trust estate’ to Harry Duffill, such distribution to said Harry Duffill to be made at the same time that the said Albert Duffill would have attained the age of twenty-one years.

“The decree of distribution further orders that ‘in the event of the death of both Harry Duffill and Albert Duffill while any portion of the trust estate remains in the hands of the said trustee and undistributed, then upon the death of the last survivor of them said trustee shall thereupon distribute said entire trust fund so undistributed ... as follows: To Martha Duffill one-fourth of the said estate, ’ and the remaining three-fourths to certain designated persons whose names need not be stated.

“The will of Eugenie A. Duffill also directed the Los Angeles Trust and Savings Bank as trustee to accumulate the surplus income from the trust property until Albert attained or would have attained majority if he lived, and at said time, to pay to Harry Duffill one-half of such accumulated income, and to transfer to him one-half of the corpus of the trust estate. This provision for the accumulation of this one-half of the surplus income was declared to be invalid, not being for the benefit of a minor, and for that reason one-half of such accumulated income was distributed directly to Harry Duffill (Estate of Duffill, supra). Pending the administration, which was prolonged by litigation,

the income accumulated in a considerable amount. Subsequent to the decree of distribution becoming final the plaintiff in an action brought against Harry Duffill for that purpose, obtained a decree directing specific performance of that portion of the contract of August 26, 1914, whereby he (Harry) obligated himself to transfer to plaintiff as trustee portions of any interests he might acquire from his mother’s estate. In obedience to this decree Harry Duffill, at the time the instant suit was commenced, had paid or transferred, or caused to be paid or transferred to the plaintiff as trustee under the contract of August 26, 1914 (and wherever herein we refer to plaintiff as trustee it has reference to trustee under said last-mentioned contract) cash and properties in lieu of cash amounting to $12,229.44, which payment represented the proportionate amount of Harry Duffill’s yearly annuity of $4,000 and one-half of said accrued income which was, as already stated, paid directly to Harry. At the same time, and upon the same date, there was also delivered to plaintiff, as such trustee, 150 shares of the common stock of the Grasselli Chemical Company, valued in said decree of distribution at $190 per share, making a total delivery of $40,729.44.”

Martha Duffill claimed that under the provisions and trusts established by the agreement of August 26, 1914, she was entitled to have all of the cash and properties which had been delivered by Harry Duffill to plaintiff as trustee paid to her as income arising from the trust established by the contract, and that any and all other income which might thereafter be paid to plaintiff under the terms of the contract, or the decree of specific performance, and shall accrue from Harry Duffill’s portion of the corpus of the estate of Eugenie A. Duffill, also constitutes income in the hands of plaintiff, distributable to her when and as the same is- received by it. The plaintiff as trustee, being in doubt as to her interpretation of the trust agreement, brought this action. The trial court sets out in its findings, in haec verba, the contract of August 26, 1914, and so much of the decree of distribution in the matter of the estate of Eugenie A. Duffill as is germane to this controversy. It also “found,” in what amounts to a misplaced conclusion of law, “that under the terms and provisions of the contract of August 26, 1914, all sums of money, and all other property which

[1] Appellant is confronted at the outset on this appeal with the contention of the respondents that she is estopped by the judgment, in the action in specific performance referred to, from asserting the claims she brings to this court in the present action. She asserts that this question was not raised nor argued in the lower court, and is for the first time advanced here. Even though that be so, we feel inclined to consider briefly the situation in which the parties were left by the decree in specific performance, for the respondents have placed much reliance upon the point, and we do not agree with them in their contention. From the judgment-roll introduced by appellant, we learn that the action referred to was brought by the plaintiff here, as trustee, Albert Duffill, the minor, by his guardian ad litem, and Martha Duffill, as plaintiffs, against Harry Duffill and the Los Angeles Trust and Savings Bank, as executor of the estate of, and trustee under the will of, Eugenie A. Duffill, deceased. The complaint sets out in full the agreement of August 26, 1914, and the decree of distribution in the estate of Eugenie A. Duffill, also the various steps in the administration of the mother’s estate, substantially as narrated in our statement of facts, and the incurring by Harry Duffill of certain fees and costs in connection with securing his share of the estate under the testamentary trust. It is then alleged that a demand was made on Harry to assign,

While the ultimate question to be considered is, What constitutes the corpus or principal of the trust estate created by the August agreement entered into by Harry and Mar

What acceptance of one or the other of these two different contentions concerning the trust created by the August agreement means to appellant is at once apparent. If her theory be the right one, and “what is income to Harry is income to Martha,” she is entitled to immediate payment by the Title Insurance and Trust Company as trustee of all that it has thus far received, or will receive, from Harry pending the termination of the testamentary trust created by his mother’s will; for, until that time, he Avill receive nothing but income from that source. If,

[2] In seeking the true construction of a declaration of trust, the guiding principle must be the intention of the settlor—his intention as expressed. Not, What did he intend to say? but, What did he intend by what he did say? must be the test. (Chater v. Carter, 238 U. S. 572 , 584 [ 59 L. Ed. 1462 , 35 Sup. Ct. Rep. 859 , see, also, Rose’s U. S. Notes].) [3] The only intention this court is authorized to declare is such as may be deduced from an interpretation of the instrument which was drawn and executed by the parties to express their intention (Welton v. Palmer, 39 Cal. 456 , 458), which must be gathered from the general purpose and scope of the agreement. (Colton v. Colton, 127 U. S. 300 , 311 [ 32 L. Ed. 138 , 8 Sup, Ct. Rep. 1164 , see, also, Rose’s U. S. Notes].) [4] If there be any doubt or uncertainty in the language of the trust it will be construed, if possible, in favor of the beneficiary and against the trustee. , (Sprague v. Edwards, 48 Cal. 239 , 247; Ringrose v. Gleadall, 17 Cal. App. 664 , 667 [ 121 Pac. 407 ].) The underlying reasons which led to the execution of the agreement of August 26, 1914, and the situation of the parties to it at that time, are clearly set forth by the parties themselves in the preamble to that instrument:

“That whereas, the first party [Harry] and second party [Martha] are at the date hereof, husband and wife, and

Albert Duffill is the only child born of their marriage and Eugenie A. Duffill is the mother of the first party; and

“Whereas, an action is now pending in the Superior Court of the State of California, in and for the County of Los Angeles, wherein second party is plaintiff and first party is defendant, being case No. B-1182, wherein the plaintiff prays, among other matters, for a decree that the bonds of matrimony between first party and second party be dissolved; and

“Whereas, there are involved in said action questions as to the respective property rights of said parties and issues of fact as to property which may be the basis of making and enforcing of orders for alimony and maintenance of second party and Albert Duffill; and

“Whereas, the parties hereto are desirous of making a settlement and agreement regarding all of the property rights and interests belonging to them and a division of said properties so that in the event an interlocutory decree of divorce shall be rendered in said action, that the property rights of the parties hereto may be settled and determined by said court in accordance with- the intent of the parties as herein expressed; and

“Whereas, this agreement is made subject to the approval of said court and subject to the rendering of said decree for the sole reason that in the event that the parties hereto are to remain husband and wife some other and different division of their respective property rights would be proper and advisable for both of them;

“Now, therefore, the first party does hereby covenant and agree with second party as follows.”

Then follow covenants and stipulations, from which it appears that Harry had deeded to Martha an undivided one-half interest in “all the real and personal property described in or referred to in” a separate declaration of trust with which we are not now concerned, and otherwise carried that agreement into execution. These clauses, designated “First” and “Second,” we may assume dispose of the rights and interests of the parties in whatever property they then possessed; but Harry’s mother was possessed of much property, and it was only reasonable to suppose that he would come into a share of her estate upon her death. The “third” provision of the agreement relates directly to

It seems improbable that the parties to such an agreement would enter into an arrangement, so far as their own acts and interests were to be governed, that would permit a situation to arise which might almost effectually defeat the scope and purpose of their contract. If a rationally fitting and proper interpretation of an instrument of this character will prevent that result, such exposition should be accepted. The instrument here calls for an exact division between Harry Duffill and his wife of whatever property Harry should acquire or receive from his mother’s estate, on the basis of three-fourths to Harry and one-fourth to Martha’s use. What each is to receive, and, we think, when each is to receive it, are stated "in plain terms. [5] A most reasonable and just construction of the agreement between Harry Duffill and his wife is to hold that it was their manifest intention, which they have clearly expressed in the contract, that just as soon as, and whenever, Harry should enter into the enjoyment of any part or portion of whatever property he should acquire or receive from his mother’s estate, Martha Duffill should, at the same time, and coincidentally with Harry’s beneficial use, enter into as full and free enjoyment of her allotted portion of that

The theory that Harry DufBll received at his mother’s death a beneficial interest in the property belonging to her, and that his subsequent receipts, therefore, are not directly from her, but are receipts from the income of his property, finds support in what we believe to be the status of the equitable interest and estate of a cestui que trust in property in this state. It is worthy of note that in the distribution of the mother’s estate in this very matter Harry Duf

[9] Respondents, it will be remembered, contend that Harry Duffill took no estate or interest in his mother’s property, but only the right to enforce the performance of the trust. Such contention is largely based on section 863 of the Civil Code, which provides that except as in the code provided “every express trust in real property, valid as such in its creation, vests the whole estate in the trustees, subject only to the execution of the trust. The beneficiaries take no estate or interest in the property, but may enforce the performance of the trust.” Aside from the fact that but little of the property held under the testamentary trust is recti property rendering the code section of but little moment in this discussion, the construction placed upon its provisions by respondents does not follow. The section was adopted as part of the Civil Code in 1872. It has been construed by this court many times, and the conclusion has been firmly established that “the estate which a trustee takes by virtue of section 863 is not necessarily a fee, but only such estate as is required for the execution of his trust.” (Keating v. Smith, 154 Cal. 186 , 192 [ 97 Pac. 300 ]; Morffew v. San Francisco etc. R. R. Co., 107 Cal. 587 , 595 [ 40 Pac. 810 ].) This rule that the trustee tabes only such an estate in the trust property as is necessary to the discharge of his trust duties refers directly to the quantity of his estate in the property, as, for instance, an estate for years, an estate for life, or an estate in fee. (Estate of Pichoir, 139 Cal. 682 , 688 [ 73 Pac. 606 ].) In Gray v. Union Trust Co., 171 Cal. 637 , 640 [ 154 Pac. 306 , 308], a substantive “equitable estate” was recognized to exist in one who had a “usufructuary interest in the whole estate during her life,” notwithstanding there was “conveyed to

It were useless, we feel, to carry this discussion to greater length, or to discuss other phases of the matter and probable lines of solution of the problem here presented. Harry Duffill was vested with an equitable estate and beneficial interest in his mother’s property immediately upon her death, with only such legal title lodged in the Los Angeles Trust and Savings Bank as is required for the execution of the testamentary trust. [10] That this interest was assignable is beyond controversy. (5 C. J., p. 854; 3 Pomeroy’s Equity Jurisprudence, 4th ed., sec. 1271. See, also, Bridge v. Kedon, 163 Cal. 493 , 500 [ 43 L. R. A. (N. S.) 404 , 126 Pac. 149 ].) Whatever may be the duration or quantity of the equitable estate vested in Harry, whether for years or for life, or in mere expectancy, he has received, and is receiving, income thereon. What condition will prevail when the testamentary trust is terminated by lapse of time or death does not now concern us. The accrued and accruing income received by Harry, including the portion paid to plaintiff, is income from Harry’s own equitable interest, and is not an interest in property arising out of the mother’s estate. It is therefore “income to Martha,” and should not be administered as corpus of the trust under the August agreement, but should be accounted for and paid direct to appellant as income.

As the relation of plaintiff to appellant in the matter of the disposition of whatever it has already received from Harry, and will continue to receive until the testamentary trust is dissolved, depends solely upon the interpretation of the agreement of August 26, 1914, there can be no occasion for another trial of the issues presented by this appeal.

Myers, J., Richards, J., pro tern., Wilbur, C. J., Lennon, J., Seawell, J., and Lawlor, J., concurred.

Rehearing denied.

All the Justices concurred.