Opinion
Page __
__ Cal.App.2d __ 317 P.2d 147 In the Matter of the ESTATE of Joseph Vincent DE LAVEAGA, also known as J. V. de Laveaga, Deceased. Juanita Valerie de Laveaga SOMAVIA, remainderman-beneficiary of the trust created by the last will and testament of Joseph Vincent de Laveaga, Deceased, Appellant, v. Margaret Broyer BETTS, as executrix of the last will and testament of Gertrude C. de Laveaga, Deceased, Objector and Respondent. Civ. 17365. California Court of Appeals, First District, First Division Nov. 5, 1957Rehearing Denied Dec. 5, 1957.
Hearing Granted Dec. 30, 1957.
[317 P.2d 148] Burnham Enersen, Robert Edmondson, Katherine M. Griffin, McCutchen, Thomas, Matthew, Griffiths & Greene, San Francisco, for appellant Juanita de Laveaga Somavia.
Richard I. McCarthy, C. J. Goodell, Ralph Bancroft, San Francisco, for objector and respondent Margaret Broyer Betts, as executrix of the Last Will and Testament of Gertrude C. de Laveaga, Dec'd.
PETERS, Presiding Justice.
The remainderman of a testamentary trust appeals from a judgment directing the trustee to pay from the assets of the trust to the executrix of the life tenant the sum of $26,240, plus interest, such sum being the amount of income earned during probate administration of the trust and distributed to the trustee, who, for many years, treated it as principal.
The facts are not in dispute. Joseph Vincent de Laveaga died testate on October 2, 1931. He left a large estate. He was survived by a daughter of his first marriage, Juanita de Laveaga Somavia, and by his second wife, Gertrude C. de Laveaga. The will devised two-thirds of the residue of estate to the daughter, appellant herein, and one-third in trust to the Wells Fargo Bank & Union Trust Co. with directions that the income should be paid to his wife for life or until her remarriage, and upon her death or remarriage the trust was to terminate and the principal paid over to his daughter. One-third of the residuum amounted to about $450,000.
About a year after the testator's death the executor, also the Wells Fargo Bank, filed its first and final account. This account contained a detailed itemized account of receipts and disbursements, and contained a summary showing that the total receipts exceeded total disbursements by $145,024.12. The statement of decedent's assets in the account listed the $145,024.12 as 'Cash' in its first item. This account was settled, approved and allowed as rendered, and the estate was distributed as provided in the will on October 20, 1932. The distribution to the trustee was made without any segregation or designation as to the portions representing the original estate assets or the portions that were income [317 P.2d 149] earned by the assets during the period of probate. The decree of distribution distributed to the trustee, among other things, cash in the sum of $77,894.24, 'being one-third (1/3) of the cash residue available for distribution.' Included in this amount was income earned during the period of administration, which the litigants stipulate was $26,240. Notice of the filing of the executor's first account and of the petition for distribution, and notice of the time and place of hearing were properly given, and special notice was given to the life tenant. The life tenant made no objection to the account or to the petition and did not appeal from the decree approving the account and distributing the estate to the trustee.
In December, 1933, the trustee filed its first account and report and petition for settlement for the period November 10, 1932, to October 20, 1933. The account carefully and in detail designated as 'principal' all of the assets distributed under the terms of the decree of distribution without allocating to 'income' any portion of this amount. The item of 'principal' included the whole of the predistribution income. The account shows that the trustee had invested the total amount of cash received under the decree of distribution (except for a small amount), together with other trust principal, in stocks and bonds which were listed as 'assets' of the trust. The account also clearly disclosed that the trustee had paid to Mrs. de Laveaga all of the income earned from the date of distribution but had paid no income earned prior to that date. Notice of the filing of this account and the time and place of hearing were given, and a special notice was given to the life tenant. No appeal was taken from the order settling this first account of the trustee. Between 1933 until the death of the life tenant in 1953 ten consecutive accounts were rendered, and approved, all with notice given and no objections filed. No appeals were taken. None of these accounts paid to the life tenant or designated or segregated as a separate part of the trust corpus the predistribution income.
On January 23, 1953, the life tenant died. On July 15, 1953, the trustee filed its final account and petition for a decree declaring the trust terminated. Respondent, as the executrix of the life tenant, filed objections to this account, and for the first time claimed that the predistribution income should now be paid to the estate of the life tenant. The trial court agreed and ordered that $26,240, the amount of the predistribution income, plus interest, should be paid to the estate of the life tenant. The remainderman appeals.
Appellant's basic contention is that the decree of distribution to the trustee, and the trustee's first and subsequent accounts are conclusive on the issue as to whether the life tenant was entitled to any predistribution income. It is urged that the decree of distribution to the trustee effectively determined that all the property distributed was corpus, and that when that order became final the life beneficiary's only right was to the income therefrom. Thus, so it is claimed, the life tenant's right to predistribution income was foreclosed by the decree and annual accounts. Respondent maintains that the issue as to whether the life beneficiary was entitled to this income was not raised or presented to the court in the prior proceedings, and that there never has been an adjudication of this question.
The problem presented is not a simple one. It is now settled law, at least since the 1942 decision in the In re Estate of Platt, 21 Cal.2d 343, 131 P.2d 825, that where the will or trust is silent on the subject, the right of the life beneficiary to income accrues from the date of the testator's death and not from the date of distribution. That case, and others In re Estate of Dasher, 53 Cal.App.2d 721, 128 P.2d 380, and In re Estate of Schiffmann, 86 Cal.App.2d 638, 195 P.2d 484 also hold that the issue of the right to such income may properly be presented and litigated at the time of distribution.
It is also well settled, of course, that all issues actually litigated and passed [317 P.2d 150] upon and properly before the court at the time of distribution, when that decree becomes final, are res judicata and may not be relitigated when the trustee files his periodical accounts or at the time of final distribution. That principle is too well settled to require citation of authority. In this connection, and with particular reference to the problem here presented, section 1021 of the Probate Code provides: 'In its decree, the court must name the persons and the proportions or parts to which each is entitled, and such persons may demand, sue for, and recover their respective shares from the executor or administrator, or any person having the same in possession. Such order or decree, when it becomes final, is conclusive as to the rights of heirs, devisees and legatees.'
Under these rules there is no doubt but that when the executor's account and the petition for distribution to the trustee were filed, or at the time of the trustee's first account, the issue as to the life tenant's right to predistribution income could have been presented and passed upon. If it was so presented at either such time, then such determination is res judicata and cannot be relitigated at the time of final distribution. Respondent concedes this to be the law.
The cases have also held that, where, at the time of distribution by the executor, no issue is presented as to the right of the life tenant to predistribution income or as to the date from which it should be paid, the issue is not concluded by the decree of distribution. In such a case the life tenant is not precluded by the decree of distribution, and may seek the predistribution income to which he is entitled at the time of the first or later accounting by the trustee. That was the precise ruling in Re Estate of Dare, 196 Cal. 29, 235 P. 725 heavily relied on by respondent. See also In re Estate of Marré, 18 Cal.2d 184, 114 P.2d 586. Thus the rule is that, if at the time of distribution or upon the approval of trustee's first and subsequent accounts, an issue is not raised, approval of such accounts is not res judicata as to any matters omitted from such accounts, and such matters may be raised at the time of final distribution. In re Estate of Adams, 131 Cal. 415, 63 P. 838; In re Estate of Ross, 179 Cal. 358, 182 P. 303; In re Estate of Hovland, 38 Cal.App.2d 439, 101 P.2d 500. In the Adams case the questioned item was never included in any prior account, and never had been passed upon. In the Ross case the court, in settling the first account, expressly reserved decision on the question involved, so that that issue never was passed upon and could be litigated later. The Hovland case is closer in point, but also distinguishable from the instant case. The court there pointed out that in none of the current accounts had the title to the $4,000 item involved been put in issue or determined, although it had been inventoried as an asset or the estate. It should as an asset of the estate. It should involved title to money which the executor held as trustee for a third person and not for a legatee.
Along with the rule of these cases, and probably as a corollary to them, has grown up the rule that where a clear mutual mistake has been made in treating a sum as corpus and not income, or vice versa, such mistake may be corrected at the time of final distribution in spite of court approval of prior accounts. The leading case is In re Estate of Eilert, 131 Cal.App. 409, 21 P.2d 630, relied upon by the trial court in holding that it had the power on final distribution to award the life tenant the predistribution income. In that case, the trustee erroneously paid to the life tenant earnings which actually represented increase in value of the corpus of the trust under the mistaken belief, shared by all involved, that such earnings were income. The mistake was not discovered until the trustee filed his fifth annual account. It was held that on the hearing of that account, which alleged the discovery of the mistake and requested instructions, the probate court had the power to rectify the mistake even though the orders approving the previous accounts were final. It was held that the mistake made was 'extraneous and collateral to the merely formal inquiry made by the court [317 P.2d 151] upon the hearing.' 131 Cal.App. at page 415, 21 P.2d at page 633; see also In re Estate of Hill, 149 Cal.App.2d 779, 309 P.2d 39.
These rules are not entirely consistent one with the other, and are difficult to apply to a particular factual situation. The basic test, implied or expressed in these cases, is whether, on distribution or on the prior hearings, the issue involved was, in a real and fundamental sense, passed upon. If so, the orders made on the prior proceedings are res judicata. But if the issue was not, in a real and fundamental sense, passed upon on the prior hearings, it may be raised later and up until the time of final distribution. In such a case the decree of distribution to the trustee and the orders approving prior trustee accounts, are not res judicata.
How do these rules apply to the present case? Appellant claims that the decree of distribution effectively determined that all property distributed to the trustee was corpus, and that the life tenant's only right was to income from that corpus. It is therefore urged that the life tenant's right to predistribution income was foreclosed by that decree that became final over 20 years ago. Respondent urges that the issue as to whether the life tenant was entitled to predistribution income was not raised or presented or passed upon by the court at the time. Thus, the question presented is whether the decree of distribution, or the court in passing upon the trustee's petition for approval of its first account, actually passed upon the life tenant's right to predistribution income.
What does the order distributing the estate to the trustee actually provide? It provides:
'It is further ordered, adjudged and decreed that there be and there is hereby distributed unto Wells Fargo Bank & Union Trust Co., as trustee upon the trusts hereinafter set forth and declared for the benefit of Gertrude C. de Laveaga, the following described personal property, to-wit: cash in the sum of ..... ($77,894.24), being one-third (1/3) of the cash residue available for distribution * * *
'It is further ordered, adjudged and decreed that all the rest, residue and remainder of the estate of said Joseph Vincent de Laveaga, deceased, and any other property not now known or discovered which may belong to said estate, or in which the said estate may have any interest, be and the same is hereby distributed as follows:
'Two-thirds (2/3) thereof unto Juanita Valerie de Laveaga Somavia;
'One-third (1/3) thereof unto Wells Fargo Bank & Union Trust Co., in trust, nevertheless, for the following uses and purposes, to-wit:
'To use, manage and control the same and to collect the rents, issues and profits therefrom and to pay all necessary and proper charges and expenses incurred in the management and conduct thereof and to pay over monthly, as the same shall come in, the net rents, issues and profits derived therefrom after the payment of all necessary and proper charges thereof including a just and reasonable compensation for the services of the Trustee and its attorneys, to Gertrude C. de Laveaga, widow of said decedent, * * * until she dies or remarries. At the time of the death of said Gertrude C. de Laveaga, or at her remarriage, if she should remarry, said trust shall absolutely cease, and terminate and the trust shall vest in and be paid and delivered to Juanita Valerie de Laveaga Somavia.'
It will be noted that the decree expressly states that the trustee shall pay to the life tenant the income 'as the same shall come in' from the sum distributed to it. The language used is not ambiguous. No one reading the decree or the petition and report filed with it can reasonably doubt that the court was presented with the problem, and actually decided, that all the property distributed to the trustee was corpus and that the life tenant's only right was income from that corpus. While it is true that the decree does not specifically refer to predistribution income, the specific direction that one-third [317 P.2d 152] of the residue be distributed to the trustee necessarily determined that all of the property distributed was corpus and no part of it was income. Thus, the decree is res judicata on the issue.
If any doubt existed as to whether the court passed on the issue at the time of distribution to the trustee, such doubt was set at rest by the orders approving the first and subsequent accounts of the trustee. Neither the first nor any subsequent account showed any entry relating to predistribution income. Those accounts clearly and unequivocally told the court and the life tenant that the life tenant was being paid all the income from the estate distributed to the trustee, which included predistribution income, and was not being paid any predistribution income. The accounts clearly show that everything distributed to the trustee was being treated as corpus, and that the trustee was treating it as corpus, and paying income on it to the life tenant only from the date of distribution. As already pointed out, the first account opens with the receipt by the trustee of $75,216.84 from the executor on November 10, 1932, pursuant to the decree of distribution. This is the only money received by the trustee from the executor, and the accounts clearly show this. The trustee placed this cash item in the 'principal' column. The account also shows that subsequently the trustee invested as a 'principal disbursement' in stocks and bonds all of the principal receipts, including all but a small amount of the $75,216.84, rather than distributing any portion to the life tenant as an 'income disbursement.' The investments are clearly designated as 'assets' of the trust.
Thus it would appear that, at the time of distribution and at the time the first account of the trustee was approved, the action taken by the court necessarily included a determination that everything distributed was corpus and that there was no predistribution income.
In all material respects the problem here presented is identical with that involved in Re Estate of Tynan, 129 Cal.App.2d 364, 276 P.2d 809, decided by this court in December of 1954. We there held that the life tenant was bound by the decree of distribution which designated all predistribution income as part of the corpus. That is precisely this case. In the Tynan case, as here, the decree of distribution expressly distributed the whole of the residue of the estate, using the following language (129 Cal.App.2d at page 365, 276 P.2d at page 810):
'* * * to Lester M. Tynan, as trustee, in trust, upon the following terms and conditions, and for the following uses, trust and purposes, to wit:
'That by the terms of said trust, said trustee shall divide the same into two equal shares for the benefit of decedent's husband, Clarence Tynan, during his lifetime, and upon his death, one share for the benefit of each of the decedent's grandchildren, * * *, and to hold the said equal shares in trust for the following purposes and uses:
'(a) To collect, recover and receive the rents, issues, profits, dividends, interest and income of said separate trusts and after deducting all proper charges arising out of the administration thereof, to pay the balance as follows:
'(1) During the life of decedent's husband, Clarence Tynan, to pay over to him the entire net income of each deparate trust.
'(2) Upon the death of said Clarence Tynan, and during the term of said trust, to pay over so much of the net income of each separate trust to the grandchild for whom said share shall have been set apart, as decedent's said trustee shall in his or her uncontrolled discretion determine, so as to permit such grandchild to live in the circumstances and have the comforts to which said grandchild shall be accustomed, and to accumulate the balance of the net income of each separate trust and add the same to the principal of such trust.'
The decree concluded with a specific description of the residue. At the time the trustee filed his first account the life tenant made his claim for predistribution income. The probate court held that the decree of [317 P.2d 153] distribution was conclusive on the issue and this court, stating that the decree had directed distribution of all property as corpus in plain and unambiguous terms, affirmed the order of the trial court. In so holding this court distinguished cases like Estate of Dare, 196 Cal. 29, 235 P. 725, and the others cited, in the following language (129 Cal.App.2d at page 367, 276 P.2d at page 812): 'There have been cases in which the decree of distribution did not determine the issue of income received during probate, leaving that open, hence not precluding later litigation concerning it. * * * Such are the cases which appellant invokes. They are not this case.'
In holding that the life income beneficiary came within the scope of Probate Code section 1021, supra, and was conclusively bound by the decree of distribution, this court stated (129 Cal.App.2d at page 366, 276 P.2d at page 811): 'It is true, as appellant contends, that he was not entitled to compel payment of income during probate. The executor was under no duty to make payments and the trustee could not be compelled to do so prior to the receipt of the trust property by him. During probate administration appellant's remedy (which he did not pursue) was confined to asking the probate court to distribute a portion of the trust fund to the trustee to be used for appellant's support. In re Estate of Marré, 18 Cal.2d 184, 190, 114 P.2d 586. That did not preclude the probate court from determining, in its decree of distribution, what was corpus and what was not, under its duty to 'name the persons and the proportions or parts to which each is entitled.' Prob.Code,§ 1021. Appellant was a 'person interested in the estate' and as such entitled to appear and 'resist the application' for distribution. Prob.Code, § 1020. He was one of the 'heirs, devisees and legatees' and to whose 'rights' the decree became conclusive. Prob.Code, § 1021. Thus, it has been held that an issue concerning income which accrued during probate administration may be raised upon appeal from a decree of distribution. In re Estate of Platt, 21 Cal.2d 343, 131 P.2d 825; In re Estate of Dasher, 53 Cal.App.2d 721, 128 P.2d 380; In re Estate of Schiffmann, 86 Cal.App.2d 638, 195 P.2d 484. Instances in which belated claims for interest were precluded by decrees of distribution which had become final are furnished by In re Estate of Schmierer, 168 Cal. 747, 145 P. 99; In re Estate of McLellan, 8 Cal.2d 49, 52, 63 P.2d 1120; McLellan v. McLellan, 17 Cal.2d 552, 110 P.2d 1034; In re Estate of McLellan, 14 Cal.App.2d 271, 57 P.2d 1338.'
The case is on all fours with the instant one, and would clearly by conclusive were it not for an even later decision of another appellate court rendered in April of 1957--In re Estate of Hill, 149 Cal.App.2d 779, 309 P.2d 39. This case was decided after the briefs herein were prepared, and was called to our attention at the time of oral argument.
In the Hill case the court held that when the trustee of a testamentary trust has paid to one beneficiary that which should have been held for or paid to another, the probate court has the power to compel the one that was overpaid either personally to repay the amount or to require the trustee to withhold such amount from the share of the overpaid beneficiary, unless such beneficiary has so changed his position as to make it inequitable to compel restitution. In that case, the principal life tenant, who was also executor and trustee, had treated income earned during probate as principal Upon his death his executrix filed the trustee's 14th trustee account, allocating the predistribution income for the first time to the income account of the trust. The court held that the decree of distribution and the approval of the prior accounts did not amount to a binding adjudication of the problem. In this connection the court stated (149 Cal.App.2d 784, 309 P.2d at page 42): 'The decree of distribution did not determine the issue. The decree should not do so, for the allocation is to be made by the trustee, not the executor, even though they be the same person. In re Estate of Dare, 196 Cal. 29, 35, 235 P. 725. * * * Even if there had been acquiescence on the part of Hill, the original [317 P.2d 154] trustee, it would not be binding on the subsequent income beneficiaries or the charities or on the remaindermen. Inasmuch as the will does not provide to the contrary, the rule in Re Estate of Platt, [supra] must be followed and the instant order must be corrected so that the income beneficiaries may be awarded the income derived during the period of probate. The decree of distribution did not make an allocation between the corpus and the income. It merely distributed the probate income and other property to the trustee as an aggregate. Thereupon the trustee became obligated to make the appropriate allocation. In re Estate of Dare, supra, 196 Cal. 29, 36, 235 P. 725; In re Estate of Marré, 18 Cal.2d 184, 190, 114 P.2d 586.' (Emphasis added.)
In discussing the legal effect of approving the prior accounts the court, on the same page, stated: 'All the accounts of the trustee, except the sixth [the trustee had learned of his mistake by this time and requested instructions as to proper disposition to be made of the probate income, but after the remainderman filed an answer arguing that the court was without jurisdiction to hear the petition, the petition was denied 'for lack jurisdiction'], treated the probate income as corpus and made no distribution to anyone. The contention that the orders settling those accounts are res judicata finds no support in law. So to contend raises an issue between the income beneficiaries on the one hand and the remaindermen on the other which is not present upon a trustee's accounting. In re Estate of Charters, 46 Cal.2d 227, 236, 293 P.2d 778; In re Estate of Roberts, 27 Cal.2d 70, 79, 162 P.2d 461; Church v. Security-First Nat. Bank, 40 Cal.App.2d 529, 538, 105 P.2d 148; Landis v. Grimes, 38 Cal.App.2d 324, 327, 100 P.2d 1089; In re Estate of Blake, 157 Cal. 448, 456, 108 P. 287.'
On its face the opinion appears to fall within the rule that when the petition for distribution or prior accounts do not raise or pass upon an issue, the orders approving are not res judicata on that issue. The court was careful to point out that 'The decree of distribution did not make an allocation between the corpus and the income.' The opinion does not quote the pertinent language of the decree of distribution or the pertinent sections of the trustee's first account. The opinion simply states that the executor's final and supplemental accounts and petition for distribution make no sepcific reference to probate income. Thus, on its face, the case seems to fall within the rule of the Eilert, Dare and Marre cases, heretofore cited. If this is the correct interpretation of the case it is not in conflict with the Tynan case, which, incidentally, it does not discuss or cite. If we are correct in our holding that in the instant case the decree of distribution and the order approving the first account passed upon the issue of the disposal of predistribution income, then the instant case is clearly distinguishable from the Hill case. But there are perplexing and difficult questions raised by some of the language in the Hill case. The court emphasized that in the decree of distribution there was 'no specific reference to probate income.' If that statement implies that a specific reference to probate income in the decree is essential before it can become res judicata, it is directly contrary to the Tynan case, and other cases cited. The Hill case also states that not only did the decree of distribution not determine the issue as to who was entitled to the predistribution income, but such 'decree should not do so.' A similar statement is made as to the trustee's annual accounts. This seems to imply that, even though the issue were presented in prior proceedings, a determination made at such time would not be res judicata in future proceedings. If this is the meaning of the language then the Hill case is not only contrary to the Tynan case but also to the other cases cited on this issue.
It is always unfortunate where a trustee pays money over to a person not entitled, or fails to pay such money to a person entitled. But that issue, like other issues, must be determined at some time in the proceedings, and once determined should be binding on the parties. In the instant case we think that the issue was passed upon in [317 P.2d 155] the decree of distribution and at the time of approving the first account of the trustee. If there is any conflict in theory between the Hill and Tynan cases, and we believe that there is, we think the rule heretofore announced in the Tynan case is sound and should be followed. Under the rules of that case the trial court was bound by the prior determinations that there was no distributable income payable to the life tenant.
The judgment appealed from is reversed.
BRAY and FRED B. WOOD, JJ., concur.