Opinion
Hearing Granted November 26, 1969.
Kadison, Pfaelzer, Woodard & Quinn, Stuart L. Kadison, Jorge A. Uribe, Los Angeles, for respondent Crocker-Citizens National Bank.
Larwill & Wolfe, Los Angeles, for appellants.
Thomas C. Lynch, Atty. Gen., Carl Boronkay, Deputy Atty. Gen., for respondent Attorney General.
ROTH, Presiding Justice.
On November 25, 1950, Thomas F. Eckstrom, deceased (Trustor) did, during his lifetime, establish a revocable inter vivos trust. Crocker-Citizens National Bank (Bank or Trustee) was named as Trustee. A Committee designated in the Trust Instrument had limited powers and is treated infra. The Trust provides primarily for payment of the income thereof to Trustor during his lifetime, less monthly payments for their lives to Marie and Tom, daughter and son respectively of Trustor. A fixed sum was set aside to purchase a home for Marie and provisions were made whereby, if the son or daughter died, the other or the children of the deceased child would receive certain benefits. After Trustor's death, the payments to son and daughter were more than doubled and insofar as pertinent to the issue before us, the Trust Instrument provided:
"Five (5) years after the demise of the Trustor, one-fifth ( 1/5th of the then remaining reasonable value of the Trust Estate as determined by the Trustee, shall be distributed as follows:
"One-half ( 1/2) 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 ( 1/2) 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 distribution was to be made on the 10th, 15th, 20th and 25th years after Trustor's death.
In Paragraph Seven the original Trust further provided:
"7. In order to provide a means of determining the specific charitable institutions which will receive the distributions from time to time as provided under the terms of paragraph 6 above, a committee is hereby appointed consisting of the following persons to decide this question:
"(1) EDWARD J. WALSH, a long time friend * * *.
"(2) THOMAS F. ECKSTROM, JR., son of the Trustor, * * *.
"(3) The TRUSTEE herein. "In the event any of said individual members should die, resign or for any reason refuse or be unable to act, the remaining members of said committee shall appoint a new member, in the event they fail to act a court of competent jurisdiction shall make the appointment. A majority vote of said members shall be binding in all of its decisions and upon all parties concerned."
On May 16, 1951, approximately six months after the Trust was created, it was amended to provide that if, after Trustor's demise, the regular monthly payments to Marie and Tom were in the opinion of the Committee, insufficient to "provide for the reasonable support, care and comfort of either of [Marie or Tom] * * * 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." The amendment also provided for reasonable fees to the Committeemen for services rendered by them as required by paragraphs 7, 8 and 9 of Article IX of the original Trust Instrument.
Paragraph 7, as shown by the excerpt of "7" quoted above, gave the Committee the powers to select charitable institutions and appoint successors. Paragraphs 8 and 9 of Article IX gave the Committeemen powers respectively as to the retention of certain corporate stock and the sale or exchange of described real property. So far as the record shows, these powers of the Committeemen were never called into being. This opinion is therefore written as if the powers in paragraph 8 and 9 were not existent.
An analysis of the Trust Instruments as amended makes it clear that, except for certain limited powers granted to Trustee, Trustor, during his lifetime, retained all the powers of the Trust, including the right to revoke it altogether. Upon Trustor's death, Trustee succeeded to all the Trust powers for the life of the Trust without supervision.
The Committee appointed had no power during Trustor's life except to appoint successor members. Upon Trustor's death, the Committee immediately became vested with the power to determine need, if any, of Tom and Marie for payments, in addition to those fixed by the Trust, but did not, until five years after Trustor's death, become vested with one of its original functions, to wit: deciding to which charitable institution meeting the standards set forth by the Trustor, donations should be made.
On September 8, 1955, Edward J. Walsh died. The remaining Committee members, to wit: Tom and Trustee thereafter appointed a new member who acted and served in that capacity until July 1958, when he resigned.
On August 20, 1959, Trustee and Tom appointed Marie, sister of Tom, the daughter of Trustor and like Tom, one of the beneficiaries of the Trust.
All parties agree that under the clear unambiguous terms of the Trust, Tom and Trustee had the power to appoint Marie. No writing was required. The appointment was nevertheless made by means of a document entitled "Nomination, Agreement and Election of third Committeeman * * for Trust * * *." (Nomination).
The nomination provided that Trustee was willing to join with Tom in the nomination of Marie if whenever she or her brother sought relief under the distress clause, Marie would disqualify herself from acting " * * * all parties * * * agree * * * that in such instance there would be a temporary vacancy * * * [to] be temporarily filled by the other members of the committee, or if they be unable to agree by the Superior Court * * *, such temporary committee member to * * * act * * * only in respect to such matters as to which Marie * * * is disqualified to consider, * * * so long as Marie['s] * * * disqualification shall continue."
The nomination then continues:
"3. Trustee, in consideration of the Agreements of Marie * * *, declares that its only objection to the appointment of Marie * * * has been eliminated Pursuant to the nomination, Marie acted continuously as a member of the Committee without question until the year 1966, when Marie and Tom respectively called a meeting of the Committee to consider their respective applications under the distress clause for an immediate payment to each of the sum of $50,000 and, in addition, annual payments of $20,000 to each, commencing with the year 1968.
Trustee, as one of the three Committeemen, refused to participate in the Committee meeting, taking the position that the Nomination which appointed Marie as a member of the Committee, disqualified her from acting upon such a request.
Trustee then brought this action against Tom and Marie, joining the Attorney General as a defendant, in which it sought to have the court declare Marie's disqualification and requested that a new Committee member be appointed temporarily in place of Marie as per the Nomination.
Trustee also requested the court to grant fees to it and its attorneys for services respectively rendered by each in their effort to settle the controversy between the Committeemen and for prosecuting this action.
Tom and Marie answered and requested the court to determine that Marie was legally appointed to the Committee, that her functions as a Committee member could not be circumscribed by any language in the Nomination. They also asked for fees as Committee members and for fees for their attorney, for services respectively rendered by each in connection with this controversy.
The Attorney General, representing the undesignated charities, took the position that the Nomination was an invalid appointment of Marie to the Committee and was void ab initio. He argues "[h]owever laudable may have been the motives of the parties thereto it cannot affect the fact that in attempting to create these on-again off-again members, the bank and Thomas Eckstrom were not acting within the authority of the trust instruments but, rather, contrary thereto."
On the question of payments from the Trust to either or both Marie and Tom, if the Trust Committee determined there was a need, Trustee's uncontested position as stated in the trial court, was as follows:
"If the Committee determines there is distress, the bank * * * is bound to accept their determination of distress. The bank then has a discretion * * * as to how to respond to the distress in monetary terms.
" * * *.
"THE COURT: In other words, the committee determines the fact but the bank determines the quantum.
"MR. KADISON: That is correct, your Honor."
All parties agree that there was no ambiguity in the Trust instruments or the Nomination and that no evidence was necessary or admissable with respect to the construction of any of the documents involved. No evidence was introduced, except on the issue of fees.
The court found "(a) 'The 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. The charitable purposes of the trust were foremost in the mind of the Trustor in creating the trust.' " Commenting on Marie as a member of the Committee, the trial court said:
A fair reading of the Trust Instrument almost demonstrates the contrary. Aside from the Trust provisions quoted herein Article XV immunized the beneficiaries from claims of creditors and prevented any alienation and Article XVI provided:
" * * * The nominee may not be Marie, because it seems to me that if it had been the Trustor's intent to put the management and control of the Trustee or of the Committee in the hands of the family, he would have done so at the outset and would have installed Marie at the same time he installed her brother."
The trial court then decreed that the Nomination was null and void ab initio and that there had been from the date of Marie's appointment, and is a vacancy on the Committee.
Opportunity was given the Committee members Tom and Trustee to fill said vacancy. They apparently could not agree and made no nomination. The court appointed Joseph Vickers as the third member of the Committee.
The only evidence in the case, to wit: the documents above enumerated, does not support the comment or the finding of the trial court or the judgment. Since no extrinsic evidence was introduced, this court has the right to determine any disputed provisions of the Trust Instrument and the Nomination as a matter of law.
It is settled that: "In construing a contract the court should strive to ascertain its object as reflected in the provisions thereof; should be guided by the intention of the parties as disclosed by those provisions (citations); should endeavor to effect the intention and object thus ascertained (citations); should adopt that construction which will make the contract reasonable, fair and just (citations); should give it such interpretation 'as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties' (citations); should avoid an interpretation which will make the contract unusual, extraordinary, harsh, unjust or inequitable (citations), or which would result in an absurdity (citations); should reject language which is wholly inconsistent with its object (citations); should consider the contract as a whole, using each clause thereof as a help to interpret the others (citations); should give effect to every part thereof if reasonably practicable (citations); and, if this is impossible, to favor an 'interpretation which gives effect to the main apparent purpose of the contract' (citations)." (Harris v. Klure, 205 Cal.App.2d 574, 577-578, 23 Cal.Rptr. 313, 315.)
Nothing in the record supports the trial court's statement that " * * * the nominee may not be Marie * * * if it had been trustor's intent to put the management and control of the trust * * * in the hands of the family he would have done so at the outset * * * ". There is nothing in the Committee's powers which in any way detracts from the powers of the Trustee, or which in any way controls the objectives of the Trust. Insofar as pertinent to this case, the Committee had only three functions: (a) to select charitable institutions for donations; (b) to declare the need or distress of Tom and/or Marie and (c) to provide for successor Committeemen. The Trustee, as member of the Committee, participated in each of these.
All parties to this controversy agree that Tom and Trustee could appoint Marie as a member of the Committee. They did. Any attempt to add or detract from that power as given to them in the Trust Instrument, Trustee had no power to make a conditional appointment. It did have the power to join in making an appointment. The joint appointment by Trustee and Tom of Marie was valid. Its validity could not be destroyed by an invalid condition or covenant.
" * * * [I]f the contract has several distinct objectives of which at least one is lawful, the contract is valid and enforceable as to the lawful objective, provided that this is clearly severable from the rest." (Witkin, Summary of Calif.Law, Vol. I, p. 161, Par. 152; Keene v. Harling (1964) 61 Cal.2d 318, 320-322, 38 Cal.Rptr. 513, 392 P.2d 273.)
The unauthorized surplusage in the Nomination creating a covenant or condition, or both, and whether the surplusage should be ignored or severed creates an elusive question. None of the parties have supplied compelling authority to sustain their respective positions. We have employed the analogous reasoning of Professor Page:
A perusal of the original Trust Instrument demonstrates that contrary to the trial court's finding the Trustor's primary interest was in providing for himself for his lifetime and for his children for at least 25 years after he died. Originally he provided for the depletion of the Trust Estate by charitable contributions to be made by the Committee at periodic intervals five years apart, and made no provisions for distress payments to either child. However, within six months after the original instrument was executed, Trustor took a second look. He had undoubtedly reasoned that if during his lifetime the fixed payments provided by the Trust for Tom and Marie were inadequate, he could supply the difference. He probably also reasoned that the fixed payments he had made for his children during that 25-year period after his death might be inadequate and that his children might survive him for more than 25 years. It is fair to assume that he determined that each should be adequately provided for for the balance of his or her life by adding the distress provision which was omitted in the original instrument. The added distress clause was not dissimilar to a life estate with power of consumption, with a remainder to other heirs or to designated charities, a provision not infrequently made in wills. It would strain logic to argue that the Trustor, by adding the distress clause in the amendment to the Trust, did not know the provisions he had made for charitable purposes could be substantially diminished.
It seems clear, too, that the Trustor was not concerned about the fact that Tom, named as one of the members of the Committee which determined the existence of distress, was one of the recipients of distress payments. The fact that Trustor named a close friend of his rather than his daughter Marie as a Committeeman, is no evidence that Trustor would object to his daughter becoming a member of the Committee when the named friend would cease to act. If the Trustor had any feeling that either of his children should not be members of the Committee, he would would not in the first instance have nominated Tom, and he could easily have provided that in no event should Marie become a member of the Committee or that Marie should become a member of the Committee only in the event that Tom, for some reason, became disqualified. It would be logical, too, to assume that he would eliminate from possible appointment the spouse or other close relatives of each. It is worth noting, too, that although the Nomination disqualifies Marie, nothing in it prevents Tom from voting a status of distress for himself or his sister. It is no answer to say that Tom was appointed by the Trustor and his powers as a Committeeman fixed by the Trust Instrument. So are the powers of the Committee and the Trustee. Bank had no power as Trustee to join in the Nomination of Marie. Its sole power to do so flowed from the fact that it was a member of the Committee. It could resign its Committee position and still be Trustee. If Bank as Trustee had the power to impose a condition on the Nomination of Marie, Bank as Trustee had the same power to say to Tom, as it did to Marie, we will consent to Marie's appointment only on the condition that you, Tom, will also disqualify yourself from voting on distress payments to yourself or your sister. If, by contract, Trustee can limit the power of one Committeeman, it can limit the power of another.
The Trustee had the admitted power to control the quantum of payments to either Tom or Marie, even if the Committee decided that Tom and/or Marie were in need of payments. If the Trustee as a member of the Committee or in its overall supervisory capacity as Trustee, was not satisfied with the good faith of such a determination, it could undoubtedly require Marie and Tom or either, to justify as fiduciaries the determination each voted. This action does not question the decision of the Committee--it questions the right of the Committee because of its inclusion of Marie to make it.
It is difficult, too, to understand what crucial conflict is created if both children of Trustor are members of the Committee. If the appointment of a Committee had been omitted, and if the Trust Instrument gave to the Trustee a discretion to use income or corpus and income in excess of an allotted amount to a beneficiary in a case of need or distress, the Trustee in such a situation would usually be notified by the beneficiary in need. When so notified, the Trustee within its discretion, makes a determination of whether there is a need and how much is necessary to meet the need.
On the conceded facts the situation at bench is different only in that, when the Committee determines in good faith there is a need, the Trustee accepts that finding as the fact. However, it is undisputed at bench that Trustee alone has discretion to determine how much is required to satisfy the need.
A Trustee has no such protection in the usual case when called upon by a distressed beneficiary. In the usual case the Trustee has the sole responsibility to determine need and the amount required to satisfy need.
At bench, therefore, since the members of the Committee act in a fiduciary capacity, Trustee has the added protection of a determination of need by a majority of the Committee. The law recognizes that a beneficiary of a trust may also serve as a trustee. (Nellis v. Richard, 133 Cal. 617, 66 P. 32.)
Since all parties to the controversy agree that Trustee had a complete check on the quantum of distress payments to be made, it seems clear to us that the implicit obligations which the law imposes on the acts of all fiduciaries, plus the undoubted check upon the quantum of payment held by the Trustee, was all that Trustor wanted or expected as a check upon distress demands that might be made by his children or either of them.
Bank claimed and the trial court allowed fees to Bank in its capacity as Trustee for extraordinary services and separately to its counsel for services rendered to Trustee. Tom and Marie were denied fees on the theory that they could claim fees only as Committeemen. The fee applications of Tom and Marie, the trial court held, were premature and should in the first instance have been presented to Bank in its capacity as Trustee. If Trustee refused payment, then recourse could be had to the courts. Fees were denied to the attorneys for Tom We believe that there is a basic defect in the trial court's analysis of the Trust as amended. Trustor made Bank a member of the Committee. He might have named some other individual or some other corporate entity exercising trust functions. In fact, Bank could at any time have resigned as Committeeman and a third person would have been appointed by the remaining two.
The evidence submitted by Bank admits that the Committee alone could appoint successors and that the Committee alone determined the need of distress payments and that Bank alone in its capacity as Trustee determined the quantum of such payments. These admissions demonstrate that Bank is only incidentally involved in this action in its capacity as Trustee.
Bank as Trustee does not become involved in the legal status of Marie as a member of the Committee or the validity of the Committee's actions as to Tom or Marie until Bank acts or fails to act upon a decision or purported decision of the Committee. Bank, as Trustee may take the position that the decision of the Committee is not valid because no legal majority voted it or that it was not made in good faith and refuse to act in response thereto, or Bank, as Trustee, having accepted the Committee's decision as to status of Tom and Marie, may become involved by failing to remit amounts deemed adequate by the beneficiaries. None of these situations is before this court.
Bank plaintiff has sued in its capacity of Trustee but the allegations of its complaint and the proof in the action show the primary controversy to be between Bank, in its capacity as Committeeman, and the other Committeemen. As an incident to that controversy, although an important one, Bank seeks a clarification of its duties in its capacity as Trustee with relation to the Committee, its actions and the members thereof.
The fees allowed to Bank were allowed to Bank as Trustee for extraordinary services, and the fees allowed to its attorneys were for services to the Trustee, yet on its own admission, Bank other then as Committeeman, was required to and did by their action, render no service as a Trustee to the Trust except as it might by judgment in this action obtain a clarification of its duties as a Committeeman and as a Trustee.
Article II of the Amendment to the original Trust provides in pertinent part:
"The members of the committee * * * shall be entitled to receive a reasonable compensation for their services in carrying out special duties which may be required of them * * *."
There is no provision made, as pointed out by the trial court, for fees for counsel employed by the Committee or members thereof. Actually there is no specific provision in the original Trust Instrument which directly authorizes even the Trustee to employ counsel. There is, however, in paragraph 18 of Article IV of the Trust a provision for manner of payment of counsel fees and Trustee fees. We assume, however, that even without paragraph 18 of Article IV, Trustee would have the implicit power to employ and pay counsel.
We assume, too, that Committeemen have the duty of maintaining and perpetuating the Committee and functioning within the powers delegated to the Committee and in furtherance thereof are implicitly authorized to render all services ordinary or extraordinary necessary and to employ counsel to assist them in maintaining the Committee and in effectuating Committee purposes.
Bank as Trustee is by contract with Trustor paid for ordinary services at a fixed percentage and for extraordinary services at reasonable value. Bank as Trustee therefore is entitled to reasonable fees for any extraordinary services which it can prove it has rendered in the matter at bench, and is entitled to an allowance of fees for counsel. Bank as a Committeeman If Tom and Marie, as Committeemen are, as the trial court concluded, required to submit their fees for services and for services of their counsel to the Trustee for approval, it would seem only proper that the same rule should be applied to Bank in its capacity of Committeeman.
If the trial court is correct in its position, and we believe it to be sound, then what is sauce for the goose is sauce for the gander.
The entire matter of fees, therefore, to all parties and their respective counsel, should be reconsidered. Evidence should be taken to determine first whether Bank as Trustee insists upon presentation of all claims for the services of Committeemen and their respective counsel to it in the first instance. It may be that the parties may waive such condition and that all Committeemen and the Bank as Trustee, are satisfied to have their respective claims determined by the court without presentation to the Trustee, or it may be stipulated that claims have been presented and rejected. Thereafter, evidence should be taken to determine the service rendered by Tom and Marie and Bank in their capacity as Committeemen and Bank in its capacity as Trustee, and their respective counsel. In fixing fees for the services of the Committeemen, the court should have in mind that although Committeemen have the undoubted right to preserve the status of the Committee and to effectuate what they deem to be functions of the Committee and employ counsel to assist them, the several Committeemen should not be paid for duplicating the services of counsel whom they employ. The same observation applies to the Trustee and counsel employed by it.
The judgment is reversed. The trial court is directed to proceed in accordance with this opinion on the question of fees for Committeemen and their attorneys and for Trustee and its attorneys, and if evidence is submitted, fix the reasonable value of the services of each and in any event to find and adjudge that Marie was lawfully appointed a member of the Committee and has been continuously since the date of her appointment and is now a duly appointed member thereof.
FLEMING and WRIGHT, JJ., concur.
"It is an express condition of the Trust herein created, which shall take precedence over any and all other provisions herein relative to the distribution of the Trust Estate, that the Trustee is authorized and empowered and may, in its sole and absolute discretion, although it is not obligated so to do, from the net income of the Trust Estate, or from the principal thereof, or both, and in such manner as to it may seem equitable and just, pay a reasonable sum toward defraying either in whole or in part, the expense of the last illness and of the funeral of Trustor or any specifically named or contingent beneficiary or beneficiaries under said trust."
The foregoing is a clear precatory instruction to the Trustee to ignore the charitable provisions of the Trust and, if necessary, to effectuate the purposes expressed.
Tom and Marie also made an offer of proof that Trustor's primary objective was their support and well-being. The objection to the offer of proof was sustained.
"If the donee of the power makes the appointment and subsequently makes a bargain or covenant with the appointee, it has been held that the exercise of the power is valid, although the covenant is unenforceable." (Page On Wills, § 45.19, commencing at page 547.)