Opinion
Hearing Granted June 14, 1961.
Opinion vacated 17 Cal.Rptr. 158, 366 P.2d 510.
Eric A. Rose and Pray, Price & Williams, Long Beach, for appellant.
Johnson & Johnson, Long Beach, for respondent.
FOURT, Acting Presiding Justice.
This appeal is from an order denying appellant's motion for the removal and substitution of respondent trustee. Appellant is the son of the deceased, and is, among other things, the sole income beneficiary of a testamentary trust.
A resume of some of the facts is as follows:
On December 6, 1957, an 'Order Settling Final Account, Allowing Executor's Commissions for Extraordinary Services, and Decree of Distribution Under Will' was filed. Thereby, the Superior Court distributed to respondent, in trust, real and personal property which had been appraised at $251,984.65. The aforesaid decree incorporated verbatim pertinent provisions from decedent's will which required the distribution of the entire trust income to appellant during his lifetime. The most of the real property included in the trust estate consists of an undivided one-half interest in certain parcels, the remaining one-half of which is owned outright by appellant. The trustee has discretion to invade the corpus of the trust if the income is inadequate The pertinent trust provisions as set forth in the decree provide in part as follows:
'B. Powers of the Trustee
'To carry out the purposes of this trust and subject to any limitations elsewhere in this will, the trustee is vested with the following powers, in addition to those now or hereafter conferred by law, affecting the trust and the trust estate;
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'C. Compensation of Trustee 'The Trustee shall receive the following compensation for its services:
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'(3)* * *'D. General Provisions '(1) The Trustee shall not maintain in any one bank or branch thereof a cash balance of more than the maximum balance insured by the Federal Deposit Insurance Corporation, but shall distribute trust funds among as many banks as necessary to secure full protection against loss through bank failure. '(2) Decedent's said son, Joseph Louis Gilmaker, is appointed as Consultant, and the Trustee shall not sell, lease, exchange, hypothecate, or improve any property which is a part of the trust estate, or invest or reinvest any trust estate funds until it has first notified said Consultant in writing of its intention so to act and received from said Consultant his written approval of the action so proposed. Notices given pursuant to this requirement shall be addressed to the Consultant at his last known address and deposited in the United States mail registered, postage prepaid. If thirty days from the date of mailing of such notice no written reply has been received from the Consultant the Trustee shall mail a duplicate notice and if no written reply has been received from the Consultant within ten days from the date of mailing of such duplicate, the Trustee may construe Consultant's silence as approval of the proposed action and proceed accordingly; provided, however, that in the event the Consultant shall have notified said Trustee in writing of his intention to be absent from the Continental United States, said Trustee shall at the expiration of sixty days from the mailing of such notice mail a duplicate notice, and if no written reply shall have been received from the Consultant within thirty days from the mailing of such duplicate notice the Trustee may construe Consultant's silence as approval as to the proposed action and proceed accordingly. Upon receipt of written approval of any proposed action the Trustee may proceed immediately with the action concerning which such notice has been given, but in the event the Trustee shall receive written disapproval from the Consultant of any such intended action within the time provided for herein, the Trustee shall have no power to take such action. The Consultant shall be provided semi-annually with an itemized statement setting out income and expense for each parcel of improved real estate in the trust estate, and shall be consulted regarding the amount of fire and other insurance carried on each parcel. (Emphasis added.)
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'(8)* * *'First Codicil 'First: The Trustee in depositing trust funds pursuant to Paragraph D. (1), of Article Fifth, on Page 6, of said Will, shall accept and comply with any instructions of decedent's said son, Joseph Louis Gilmaker, relating to the selection of banks in which such deposits are to be made. Such instructions shall be given to the Trustee in writing by decedent's said son in order to be effective. 'Second: The itemized statement with which the Trustee is required to furnish Consultant semi-annually, by the terms of Paragraph D. (2), of Article Fifth, on Page 7, of said will, shall set out income and expense for all assets of the trust estate, including promissory notes, bonds, preferred and common stocks, as well as improved parcels of real estate.' Respondent trustee received approximately $30,000 in principal cash upon distribution of the estate. On May 1, 1958, with appellant's approval, respondent sold an improved parcel of real property to appellant for $18,500. As of the date of trial respondent had approximately $49,000 of trust funds in a savings account, along with U.S. Government Bonds, preferred stocks, common stocks and interests in real property. The record discloses that there has been no investment of the cash. The trustee's proposed investment in U.S. Government, tax-exempt municipal and corporate bonds has repeatedly been disapproved by appellant. Respondent's proposed investment in first trust deeds was also rejected on the ground that they were too well-seasoned. On the other hand, the trustee has allegedly refused to consider other investment suggestions proposed by appellant. The net result in any event has been some friction and perhaps even a stalemate. The appellant (life income beneficiary) gave notice of a motion to remove and substitute the trustee because, as he stated, the alleged hostile and unfriendly relationship between appellant and the trustee was detrimental to the trust and to the life income beneficiary. Each party filed extensive affidavits; appellant and his wife testified in his behalf and an officer of the trustee testified in its behalf. Numerous letters also were introduced into evidence. There was an extended argument by each counsel and the matter was submitted for decision on January 19, 1960. On January 22, 1960, the court denied the motion to remove the trustee and substitute in lieu thereof another trustee. A minute entry records the action of the judge. No findings were made. The appeal is from the order so entered in the minutes of January 22, 1960. The sole issue is whether the trial court abused its discretion in denying appellant's motion for the removal and substitution of the trustee. The removal of a trustee is a matter largely entrusted to the sound discretion of the trial court. Estate of Keyston, 102 Cal.App.2d 223, 227 P.2d 17; Estate of Baird, 135 Cal.App.2d 343, 348, 287 P.2d 372; Jones v. Stubbs, 136 Cal.App.2d 490, 500-502, 288 P.2d 939; Estate of Bixby, Cal.App., 8 Cal.Rptr. 812, 816. The particular circumstances of each case must be examined in order to make the determination. Estate of Brown, 22 Cal.App.2d 480, 486, 71 P.2d 345. The authority of a trial court to remove a trustee where hostility exists is established in this state. As stated in Overell v. Overell, 78 Cal.App. 251, at pages 258-259, 248 P. 310, at page 312: 'In May v. May, 167 U.S. 310, 17 S.Ct. 824, 42 L.Ed 179, the court said: ' The power of a court of equity to remove a trustee, and to substitute another in his place, is incidental to its paramount duty to see that trusts are properly executed; and may properly be exercised whenever such a state of mutual ill-feeling, growing 'Also, in McPherson v. Cox, 96 U.S. 404, 419 [24 L.Ed. 746], it is said, 'Where a trustee is charged with an active trust, which gives him some discretionary power over the rights of the cestui que trust, and which brings him into constant personal intercourse with the latter, it may be conceded that the mere existence of strong mutual ill feeling between the parties will, under some circumstances, justify a change by the court.' (Emphasis added.) out of his behavior, exists between the trustees, or between the trustee in question and the beneficiaries, that his continuance in office would be detrimental to the execution of the trust, even if for no other reason than that human infirmity would prevent the co-trustee or the beneficiaries from working in harmony with him, and although charges of misconduct against him are either not made out, or are greatly exagerated. (Citing authorities.)' (Emphasis added.) 'In the instant case the trustee has discretionary power over the termination of the trust, and the declaration of dividends, which constitute the income from the estate. The trustee and beneficiaries are brought into constant personal contact because of the employment by the same corporation. (Emphasis added.) 'We quote further from Gartside v. Gartside, supra [113 Mo. 348, 20 S.W. 669]: 'The second reason why the defendant should be removed from the trusteeship mentioned is the unfriendly and even hostile relations that exist between him and the cestui que trusts. Hostility between the trustee and the cestui que trust is not of itself a sufficient ground of removal, unless it appears that the action of the former is probably controlled or might be controlled by it. * * *'' (Emphasis added.) See, Annotation 63 A.L.R.2d 523. In the case at bar, appellant is not only the sole income beneficiary but he is also a 'consultant.' An examination of the trust instrument leaves no doubt that it was contemplated that a close working relationship would and should exist between the trustee and appellant in order to effect the trust purposes. Respondent in its 'Memorandum of Points and Authorities in Opposition to Motion for Removal and Substitution of Trustee' sets forth among other things at pages 10-11: 'The bank is under no legal obligation to cooperate with the son. Nevertheless, it has gone to great lengths to attempt to cooperate with him with little thanks or appreciation. The bank's legal obligation is to manage and administer the trust in accordance with the law and to abide by the wishes, not of the son, but of his father, the decedent. It is plainly obligated to submit to the son, as consultant, sound, wellconsidered proposals for the management of trust assets and investment and re-investment of trust funds. This it has repeatedly done. * * * * * * '* * * There has been no detriment to the trust or any of the beneficiaries, excepting only the son, who has paid for his obstructive tactics with a loss of income from the trust. * * *' (Emphasis added.) The crux and basis of the hostility, if any, apparently arises out of the variance in position of the respective parties concerning the true function of appellant as 'consultant.' The trustee takes the position that appellant has a veto to override the trustee's suggestions, while appellant takes the position that as consultant he has the authority to inaugurate, initiate, and to advise and consult with the trustee, and that he is not limited to a simple veto While the trust instrument vests extensive powers in the trustee concerning investments, this power was not made absolute. As stated in Bogert, 'Trusts & Trustees,' Second Edition, Section 681: 'The settlor has the power to make provisions regarding the trust investments which shall be binding on the trustee. For example, he may direct or merely permit the trustree to invest in particular securities; may direct the trustee not to invest in In re Erwin's Estate, Sur., 19 N.Y.S.2d 863, the court had occasion to determine the effect of a trust provision wherein the trustee was required to consult with a daughter of a deceased concerning investments and at page 864 stated: named securities; may direct or permit the trustee to invest according to his discretion and free from any statute or court rules; may direct or permit the retention of securities placed in the trust by the settlor; may direct or permit the trustee to convert named investments into purchases of another type, or may provide that the trust investments are to be selected by another than the trustee, as for example, the settlor himself, a third party, or the court, or may require changes to be approved by the cestuis.' (Emphasis added.) 'The court holds further that in so far as the provisions of paragraph eighth request the trustee to consult the daughter of deceased and follow her wishes with respect to investments 'wherever possible' they are mandatory on the trustee if a compliance with the daughter's wishes respecting investments would not result otherwise in a violation of the terms of the will.' (Emphasis added.) The term 'consultant' has been defined with reference to the Fiduciaries Wartime Substitution Law in Code of Civil Procedure, Section 1700.6 as follows:
"Consultant'means a person not a trustee designated in a trust toadvise or direct the trustee in respect of any mattersor things connected with the trust, or whose consent orapproval is required to purchases, sales, exchanges, orother transactions on the part of the trustee. Itincludes a trustor who reserves any such powers ofdirection or control.' (Emphasis added.)As heretofore set forth 'Decedent's said son, Joseph Louis Gilmaker, is appointed as Consultant, and the Trustee shall not * * * until it has first notified said Consultant in writing of its intention so to act and received from said Consultant his written approval of the action so proposed.' (Emphasis added.) Appellant seems to insist that a consultant 'means a person not a trustee designated in a trust to advise or direct the trustee in respect of any matters or things connected with the trust. * * *' Respondent seems to insist that a consultant could 'mean[s] a person not a trustee designated in a trust * * * whose consent or approval is required to purchases, sales, exchanges, or other transactions on the part of the trustee.' It is apparent that in effect the trial court adopted the latter interpretation and perhaps the provisions of the will and the decree of distribution so closely resemble the phrasing of the latter part of the quoted code section that the judge might well have assumed that the trustor had such a provision in mind. An examination of the record clearly evidences some friction between appellant and respondent trustee. The difficulty this court has, however, even if it were so minded to reverse the order, is that the trial judge heard the witnesses and had some of the affiants before him. There was a question of fact to be determined and the judge obviously believed the witnesses for the trustee and must have disbelieved, in some respects, the income beneficiary and his witness. That determination having been made by the proper tribunal is, we think, final under the circumstances. Contrary to the express provisions of the trust, respondent trustee has maintained some $48,000 in a savings account. It is set forth in the trust instrument and codicil: 'The Trustee shall not maintain in any one bank or branch thereof a cash balance of more than the maximum balance insured by the Federal Deposit Insurance Corporation, but shall distribute trust funds among as many banks as necessary to secure full protection against loss through bank failure. 'First: The Trustee in depositing trust funds pursuant to Paragraph D. (1), of Article Fifth, * * * of said Will, shall accept and comply with any instructions of decedent's said son, Joseph Louis Gilmaker, relating to the selection of banks in which such deposits are to be made. Such instructions shall be given to the Trustee in writing by decedent's said son in order to be effective.' (Emphasis added.) Title 12 United States Code Annotated, § 1817, provides in pertinent part: 'Insurance of trust funds '(i) Trust funds held by an insured bank in a fiduciary capacity whether held in its trust or deposited in any other department or in another bank shall be insured in an amount not to exceed $10,000 for each trust estate, * * *' Respondent trustee defends its failure to comply with the trust mandate on the ground that appellant has failed to give it written instructions relating to the selection of banks (i. e., appellant's instructions related to savings and loan associations and not banks). There can be no doubt that the settlor intended that no more than $10,000 be kept in any one bank. The fact that appellant could, if he provided the trustee with written instructions relating to the selection of banks, select particular banks did not relieve the trustee from its obligation to carry out the settlor's intention in the event the appellant failed to exercise his power. An annotation appearing in 63 A.L.R.2d 523 deals specifically with 'Removal of Trustee--Hostility.' Therein is set forth a number of factors which have been utilized in order to determine whether a trustee should be removed. The factors set forth at pages 526-528 are as follows: 'Whether the hostility is such as to interfere with the proper administration of the trust * * * and the conclusion as to removal, may depend upon or be affected by various considerations, such as the nature of the trust, the powers and duties of the trustee, and the necessity or desirability of collaboration between the parties, the origin of or responsibility for the hostility, whether it is mutual or unilateral, the number of beneficiaries or trustees participating in or affected by the hostility, and whether the trustee was appointed by deed or will or by the court. (Emphasis added.) * * * * * * 'The nature or extent of the duties or powers of the trustee may be an important factor in determining the question of his removal because of hostility between him and a beneficiary. Thus, subject to certain qualifications in respect of the origin thereof or responsibility therefor, such hostility may be a sufficient ground for removal where the trust is an active one, under which the trustee is invested with some discretion in respect of the rights or benefits of the beneficiary, or where some personal contact or collaboration between the trustee and beneficiary is necessary or desirable in the administration of the trust. * * * (Emphasis added.) '* * * [T]he fact that the trustee was designated by the settlor is not important where it appears that the hostility grew out of conditions arising subsequently thereto and which were presumably not contemplated by the settlor.' We think that the trial judge could very well have granted the motion upon the evidence which was before him; but there was evidence, which if believed, makes his action one of complete propriety. Under the circumstances it was, we think, a question of fact and the determination was against the appellant. We have no power to reverse such a determination. The order is affirmed. LILLIE, J., and DRAPEAU, Justice pro tem., concur.