Loring v. Town of Kingsley

George E. Loring died testate leaving the residue of his estate to trustees whom he directed to pay within five years of his death bequests aggregating $111,000. Of that amount the Town of Kingsley, Iowa, was to receive $75,000 for the construction and maintenance of a hospital; Braille Institute of America, Inc., was to receive $10,000; and the balance with the exception of a bequest of $5,000 to a stranger to his blood, was to go to nine nieces, nephews and grandnephews of the testator. Within the same period of time his sister was to receive the remainder of the trust estate and the trust was thereupon to terminate. The foregoing dispositions were incorporated in the decree of final distribution under which the trustees received assets valued at more than $150,000, and that decree became final. Less than three years thereafter and before any payment had been made by the trustees, the value of the trust estate had shrunk to approximately $55,000. The trustees therefore petitioned the probate court for instructions as to the distribution of that amount among the beneficiaries of the trust. Separate answers were filed by the Town of Kingsley, the Braille Institute and a group of beneficiaries comprising testator’s sister, one of his nieces and his two grandnephews. The latter group will hereinafter be referred to as the Lorings. The court held that the provisions of section 41 of the Probate Code restricting gifts to charities to one-third of the testator’s estate were applicable to the bequests to the Town of Kingsley and the Braille Institute and accordingly instructed the trustees to distribute to them one-third of the aggregate of the amount now available for distribution plus approximately $11,000 previously dis

The Lorings contend not only that the testator could not leave more than one-third of his estate to charities, but that he could not leave any property in this state to a municipal corporation of another state; that the decree of distribution determined neither of these issues; and that in any case the kindred of the testator should be paid in full before any payment is made either to the town or to the institute, for section 752 of the Probate Code requires legacies to nonkindred to abate before legacies to kindred abate. The town contends that the decree of distribution is res judicata as to its right to take at all under the will of a California testator, as to its right and that of the institute to take more than one-third of his estate, and as to their right to share proportionately with the other beneficiaries in the available funds, and that in any event the will of the testator expressed the intention that no preference be given to any beneficiary of the trust. The institute joins in these contentions.

It is settled, and the Lorings concede, that a decree of distribution that has become final is a conclusive determination of the terms and validity of a testamentary trust and of the rights of all parties thereunder. (Estate of Easter, 24 Cal.2d 191 , 194 [ 148 P.2d 601 ]; Cook v. Cook, 17 Cal.2d 639 , 652 [ 111 P.2d 322 ] ; McLellan v. McLellan, 17 Cal.2d 552 , 553 [ 110 P.2d 1034 ] ; Manning v. Bank of California, 216 Cal. 629 , 634 [ 15 P.2d 746 ]; Whittingham v. California Trust Co., 214 Cal. 128 , 132 [ 4 P.2d 142 ]; Luscomb v. Fintzelberg, 162 Cal. 433 , 438 [ 123 P. 247 ] ; Keating v. Smith, 154 Cal. 186 , 191 [ 97 P. 300 ] ; Matter of Trust of Trescony, 119 Cal. 568 , 570 [ 51 P. 951 ] ; Goad v. Montgomery, 119 Cal. 552 , 557-8 [ 51 P. 681 , 63 Am.St.Rep. 145 ] ; Goldtree v. Allison, 119 Cal. 344 , 345 [ 51 P. 561 ]; Crew v. Pratt, 119 Cal. 139 , 151 [ 51 P. 38 ]; Estate of Lingg, 71 Cal.App.2d 403 , 409 [ 162 P.2d 707 ] ;

The administration of a decedent’s estate involves a series of separate proceedings, each of which is intended to be final (Estate of Davis, 151 Cal. 318 , 323 [ 86 P. 183 , 90 P. 711 , 121 Am.St.Rep. 105 ]), not only as to the parties who appear therein, but also as to all persons “interested in the estate” whose rights may be affected, although they did not appear therein. In fact, it is undoubtedly because all such persons were to be bound by various orders and decrees entered in the course of the administration of the estate, that the Legislature expressly provided that they might appear and protect their rights in the proceedings that lead to such orders and decrees. (See Prob. Code, §§ 361, 370, 407, 442, 522, 584, 681, 756, 810, 831, 841, 860, 921, 922, 927, 1000, 1010, 1020, 1200.) Thus, section 1020 of the Probate Code does more than merely give, as the Lorings contend, a beneficiary an opportunity to litigate before the final distribution of the estate, the question as to his rights under the trust that he would otherwise litigate at some later date and that he remains entitled to litigate at such later date. It assumes that these rights will necessarily be adjudicated in the distribution proceedings and it is for that reason and because a beneficiary would otherwise have no opportunity to be heard, that he is given the opportunity to appear in those proceedings.

The Lorings contend that a decree of distribution is conclusive only as to the rights of heirs, devisees and legatees; that a beneficiary under a testamentary trust belongs to none of these classes; and that he should no more be bound by the decree than the creditor or assignee of an heir or legatee or the beneficiary of a constructive or resulting trust. In this-connection the Lorings rely upon a series of cases in which this court stated that, although a decree of distribution is-conclusive as to the rights of heirs, devisees and legatees, “it-is conclusive against them only as heirs, legatees, or devisees,. •—only so far as they claim in such capacities.” (Chever v. Ching Hong Poy, 82 Cal. 68 , 71 [ 22 P. 1081 ]; see, also, Kingsbury v. Ross, 217 Cal. 484 , 486 [ 19 P.2d 784 ]; Parr v. Reyman, 215 Cal. 616 , 619 [ 12 P.2d 440 ] ; Cooley v. Miller & Lux, 156 Cal. 510 , 515 [ 105 P. 981 ].) These eases all involved a situation in which an heir, devisee or legatee conveyed his share in the estate before the decree of distribution. They hold that that decree is not conclusive as between such heir, devisee or legatee and his assignee and with respect to the rights arising under the assignment, even though the assignee is also an heir, devisee or legatee of the decedent. It is settled, however, that the assignee is bound by the decree insofar as it

There is a clear distinction between the position of the beneficiary of a testamentary trust and the position of the beneficiary of a constructive trust under an agreement between a testator and his devisee that the latter will hold the property devised as trustee. The interest of the beneficiary of a constructive trust does not arise under the will or the laws of intestate succession. (Sears v. Rule, 27 Cal.2d 131 , 139 [ 163 P.2d 443 ] and cases there cited.)

If the Lorings’ contention that a beneficiary under a testamentary trust is neither an heir, nor a legatee, nor a devisee within the meaning of section 1021 of the Probate Code is now reexamined in the light of the cases holding that, although persons without the scope of testamentary or intestate succession are not bound by the decree, persons within that scope are bound thereby, the conclusion is inevitable that such beneficiary must be regarded as a legatee or devisee under that section. The Lorings point out that elsewhere in the Probate

The Lorings further contend that, although the decree of distribution is conclusive as to the rights of the beneficiaries of a testamentary trust, it is conclusive only as to those rights that were necessarily in issue in the distribution proceedings, and that none of the rights now being asserted are such as were or must be deemed to have been in issue therein. They concede, as they must, that if the trust provisions of the will were either entirely valid or entirely void, the decree distributing the trust estate to the trustee would, once final, conclusively establish the validity of the trust, for there can be no distribution to the trustee unless the trust is valid. Similarly, if the trust were of such a nature that in case of its partial invalidity the trust estate would be reduced and the property involved would go to others than the trustee, a distribution of the whole to the trustee would be conclusive. The Lorings contend, however, that in the present case the provisions of the trust were such that the entire trust estate would have been distributed to the trustees, regardless of the invalidity of the bequests to the town and the institute, so that there was no need for the probate court to pass upon their validity in the distribution proceedings. It is true that a determination by the probate court of the partial or total invalidity of the charitable provisions of the trust would simply have increased the share of the residuary beneficiary. It would have increased

The Lorings rely upon Estate of Campbell, 175 Cal. 345 [ 165 P. 931 ]. In that case this court reversed a decree of partial distribution that gave the heir at law of the testator two-thirds of her estate on the ground that her will was invalid to that extent. The will provided for a trust for the life of a certain beneficiary with remainder to charities under certain contingencies. This court held first that, since the charitable provisions were not part of the trust, the heir at law could in no case receive two-thirds of the estate free of that.

The Lorings contend that the issues in the present case arose after the decree and because of a change in circumstances unforeseen at the time it was rendered; that these issues are cognizable in equity only; and that the probate court has no equity jurisdiction, save the limited jurisdiction that it can exercise after distribution under the provisions of section 1120 of the Probate Code. They further contend that it is that limited jurisdiction that the court should now exercise and that to hold that the decree of distribution is res judicata as to the issues in the present ease would render section 1120 meaningless, for it would give the court no jurisdiction except to “rubber-stamp” the decree of distribution. It must be conceded that circumstances now are different from those at the time of the decree and that the probate court has jurisdiction to determine in the light of the changed circumstances how to divide the trust estate among the beneficiaries. It cannot make that determination, however, by reopening issues that were conclusively passed upon in the distribution proceedings. Section 112.0- itself contemplates that the exercise of the court’s, equity jurisdiction is so limited, for it provides that the court may determine' to whom the property shall pass upon the- termination of the trust, ‘ ‘to the extent that such' determination is not concluded by the' decree of' distribution.’’'

It is further contended" that since the assets of the trust estate are insufficient to pay all the beneficiaries of the trust in full, preference in such payment must be given to the kindred of the testator under Probate Code section 752. The Lorings rely on Estate of Wever ( 12 Cal.App.2d 237 , 243.

Aside from the question of the finality of the decree of distribution, it is contended that the gift to the town was intended primarily to establish a memorial to the testator and that since only a smaller sum is now available for building, furnishing, and maintaining the hospital, it would be an erroneous application of the ey pres doctrine to uphold the gift to the town. This contention is based on the fact that the decree of distribution, in the terms of the will, provides that the hospital will be known as the “George E. Loring Hospital.” It is contended that, because a memorial as elaborate as that anticipated by the testator cannot be constructed, the gift must fail. The fact that, in making a gift to establish an institution that is otherwise charitable, the donor provides that the institution shall be named for him or some other party does not indicate a lack of charitable intent. (Parsons v. Childs, 345 Mo. 689 , 698 [ 136 S.W.2d 327 ] ; Noel v. Olds, 138 F.2d 581 , 585, and cases there collected.) Such a requirement is regarded as part of the scheme of administration rather than the inducement for the gift. (Village of Hinsdale v. Chicago City Missionary Society, 375 Ill. 220 , 234 [ 30 N.E.2d 657 ].)

A further issue arising from the insufficiency of the trust assets to carry out completely the express provisions of the decree of distribution remains for decision. The Lorings contend that the testator had no general charitable intention, which is normally considered a requisite to the judicial application of the cy pres doctrine (see, cases collected, 74 A.L.R. 671 ; 39 Col.L. Rev. 1358), that his intention was specific, and that since it cannot be literally carried out, the lack of a general charitable intention precludes any modification of the trust. This contention is based primarily on the provision in the decree of distribution, following the language of the will, that, if within two years after notification by the trustees that the specified sums were available, the town fails to secure the required site for the hospital, “then this bequest shall absolutely lapse and the said sum of $75,000 provided for and not applied according to this trust for said hospital and heating plant, shall thereupon pass under the residuary clause of decedent’s will.” Since the funds are not to be applied to a different charitable purpose, if the town fails to secure a site as required by the decree, it is reasonable to construe this provision as precluding their application to a different charitable purpose, if for other reasons the particular purpose of

The cy pres doctrine has meant many things to many courts and its limits have rarely been defined. (See 2 Bogert, Trusts and Trustees, 1295 et seq.; 3 Scott on Trusts 2104.) The Restatement limits the doctrine to the rule that a court of equity will carry out the general charitable intention of the donor, when his specific purpose becomes impossible or impractical of fulfillment, by directing the application of the property to some charitable purpose that closely approximates his general charitable intention. (Rest. Trusts, § 399; see Bogert, Op. cit. supra at 1287.) If the doctrine is confined within these limits, it follows that, if the charitable intention of the donor is specific and it becomes impossible or impracticable to fulfill it, a provision in the trust for a gift over in the event of the failure of the particular charitable purpose prevents the application of the cy pres doctrine.

The specific charitable purpose does not become impossible or impractical of fulfillment, however, simply because it cannot be carried out in the exact terms of the gift. Many eases recognize that, independently of the cy pres doctrine, a court of equity has the power to modify the terms of a trust in order substantially to carry out the intention of the testator. This rule applies both to private trusts (Adams v. Cook, 15 Cal.2d 352 , 361 [ 101 P.2d 484 ]; Rest. Trusts, §167; 3 Scott on Trusts, § 167), and to charitable trusts. (Rest. Trusts, § 381, and comment (a) thereunder.) Thus, where the doctrine of cy pres is confined within the limits defined above, the equitable power of a court to modify the trust has been applied to carry out the specific charitable intention of the donor. (Allen v. Nasson Institute, 107 Me. 120 , 124 [ 77 A. 638 ] ; Manufacturers Nat. Bank v. Woodward, 141 Me. 28 [ 38 A.2d 657 , 658] ; South Kingstown v. Wakefield Trust Co., 48 R.I. 27 , 32 [ 134 A. 815 , 48 A.L.R. 1122 ].) A substantially similar doctrine is recognized in jurisdictions in which the cy pres doctrine is said not to apply. (National Bank of Greece v. Savarika, 167 Miss. 571 , 593 [ 148 So. 649 ] ; Noble v. First National Bank, 236 Ala. 499 [ 183 So. 393 , 396]; Dunn v. Ellisor, 225 Ala. 15 [ 141 So. 700 , 701].) Even in those jurisdictions in which the definition of the cy pres doctrine appears

The trust assets available for distribution will amount to approximately $55,000 plus an undetermined refund of federal estate taxes if the Town of Kingsley takes its pro rata share, whereas the gifts under the trust total $111,000. If the trust assets are pro rated among the beneficiaries and the town’s share is divided in accordance with the decree of distribution, between $15,000 and $18,000 will remain for the building of a hospital instead of the $30,000 provided for this purpose in the decree. Proportionally smaller sums will be available for furnishings and for the maintenance fund; if a smaller hospital is built, however, less will be needed for these purposes. The question as to the failure of the gift to the town may thus be determined on the basis of the construction fund alone.

The evidence presented at the trial shows that the population of Kingsley, Iowa was 1,145 according to the 1940 census and that there had been no appreciable increase therein at the time of the trial. There was testimony that, because of the low construction costs and other advantages in the town, a hospital adequate for its normal needs could be built for about $15,000. The court found that there was no hospital in Kingsley, Iowa at the time of the death of the testator or at any time since. Although there was no express finding of fact as to whether this sum would be adequate, the trial court ordered that a lesser amount, based on the one-third limitations applied to charitable gifts, be made available to the town for this purpose. On full consideration of these facts, it must be concluded that the building of a smaller structure would substantially carry out the testator’s intention. It is a reasonable modification of the trust to enforce the gift for a smaller hospital rather than to allow the testator’s intention to provide a hospital in the town to fail entirely. (See Estate of Peabody, 154 Cal. 173 ,178 [ 97 P. 184 ] ; Allen v. Nasson Institute, supra at p. 125; Jones’ Unknown Heirs v. Dorchester

The order instructing trustees provides that the town shall have one year from the date that the order determining the amount distributable to the town shall have become final within which to acquire a site for the hospital and heating plant and “if it fails within said time to secure such site, then the bequest to it shall absolutely lapse and shall thereupon pass under the residuary clause of decedent’s will.” The decree of distribution provides in part that when all the bequests have been made the trust shall cease and all the rest, residue and remainder of the trust estate shall thereupon be given absolutely to Sarah M. Loring, the residuary beneficiary. The Braille Institute has raised the question as to how the funds are to be distributed in the event the town should fail to comply with the terms of the order. Although there is some ambiguity, the proper construction of the decree of distribution is that there is no remainder or residue until all the money gifts have been paid in full. (See cases collected in 118 A.L.B. 352.) In its memorandum opinion, the trial court so construed the decree when it held that, if the share of the town should become part of the residue, the Braille Institute should take its full gift. The same problem exists, however, with respect to the other beneficiaries. That part of the order instructing trustees is, therefore, modified by inserting the following provision: In the event the Town of Kingsley fails to take its share of the trust assets or fails to comply with this order within the time specified, the pro rata share of the Town of Kingsley shall be applied first to satisfy the money gifts to the other beneficiaries in full; any sum remaining after these gifts have been satisfied, shall be distributed to the residuary beneficiary, Sarah M. Loring.

The order instructing trustees is further modified, in accordance with this opinion, to delete therefrom the paragraph limiting the gifts to the Town of Kingsley and to the Braille Institute to one-third of the estate and providing that “. . . the bequests of specific sums to individuals should be paid in full and the balance or residue distributed to Sara M. Loring.” In its place, is substituted the following provision:

The order appealed from as modified herein is affirmed.

Gibson, C. J., Shenk, J., Edmonds, J., Carter, J., Sehauer, J., and Spence, J., concurred.