Opinion
Rehearing Denied Sept. 28, 1928.
Hearing Granted by Supreme Court Oct. 29, 1928.
Appeal from Superior Court, Los Angeles County; Charles S. Crail, Judge.
Action by Burtis L. Hutchins, as administrator with the will annexed of the estate of Caroline L. Hutchins, deceased, against the Security Trust & Savings Bank and others. From the judgment, both parties appeal. Reversed.
COUNSEL
W. W. Middlecoff and Milton K. Young, both of Los Angeles, for plaintiff.
Lucius K. Chase, of Los Angeles (Alan Nichols, of Los Angeles, of counsel), for defendant Security Trust & Savings Bank.
OPINION
CAMPBELL, Justice pro tem.
In this action there are cross-appeals, included in one record, prepared under the alternative method. The plaintiff recovered judgment for one-half of the property sued for, and defendant Security Trust & Savings Bank, the only real defendant in this action, has appealed from this judgment in favor of plaintiff, while plaintiff has appealed from the part of the judgment in favor of defendant, and from the order of the court refusing to give plaintiff possession of the other half of the property. The action is one in which plaintiff seeks to quiet title to a one-half interest in certain real property, to recover possession thereof, and to obtain an injunction restraining defendant Security Trust & Savings Bank from asserting any claim to the real property in question, and for equitable relief.
The complaint alleges that Caroline L. Hutchins died testate in the county of Los Angeles on June 26, 1923, and letters of administration with the will annexed were issued to Burtis L. Hutchins; that at the time of her death Caroline L. Hutchins was the owner and entitled to the possession of an undivided one-half interest in certain real property described in the complaint, and referred to as the "Hotel Spokane property," and, as against defendant Security Trust & Savings Bank, was entitled to the possession thereof; that the estate of Caroline L. Hutchins is still the owner of such undivided one-half interest in the real property; that Security Trust & Savings Bank is in the exclusive possession thereof, and claims an estate therein adverse to the estate of Caroline L. Hutchins; and alleging that the claim of defendant Security Trust & Savings Bank is without any right whatever. The answer denies ownership in plaintiff, puts in issue the material allegations of the complaint, admits that it is in the exclusive possession of the real property, and claims ownership of the whole thereof under and by virtue of a deed of trust, dated December 24, 1913, executed by Caroline L. Hutchins and John S. Hutchins, her husband, whereby and whereunder it holds the property in trust. A copy of the deed of trust is set out in the answer, which is duly verified.
The case was tried before a jury. When the case was called, defendant objected to a trial by jury, contending that the case was one of equitable cognizance, and that it was entitled to findings by the court on the issues raised by the pleadings. The objection of defendant was overruled, and the case was determined by the jury.
Counsel for plaintiff offered in evidence a deed executed March 30, 1905, by which the property in question was acquired by John S. Hutchins, being then the husband of Caroline L. Hutchins, and proved that John S. Hutchins and Caroline L. Hutchins moved to California in 1886, and lived in California ever since that time until the death of John S. Hutchins on May 7, 1919, and that at the time the deed of trust was signed they had surviving three children, Day Hutchins, Ray Hutchins, and Burtis L. Hutchins, and that the property was community property. Plaintiff’s counsel then stated that he would claim in rebuttal, as a defense to the deed of trust set up in the answer, that it was obtained from Caroline L. Hutchins by the undue influence of her husband, John S. Hutchins, and was signed by her through mistake and without adequate consideration; that on account of being the wife, and of the fiduciary relationship existing, the deed of trust was invalid and subject to rescission; and that she had served upon the defendant trustee a written rescission and offer to restore.
Defendant moved for a nonsuit, contending that the genuineness and due execution of the deed of trust were admitted by the pleadings, by reason of plaintiff having failed to file his affidavit under section 448 of the Code of Civil Procedure; that J. S. Hutchins and Caroline L. Hutchins had conveyed the entire fee to defendant bank. The motion for nonsuit was denied, and thereupon defendant introduced in evidence the deed of trust, by the terms of which John S. Hutchins and Caroline L. Hutchins conveyed to the defendant bank the Spokane Hotel property, reserving, however, to the grantors during their joint lives, and to John S. Hutchins in case he should survive his wife, the possession, occupation, rents, and profits of the aforesaid premises, such conveyance being in trust, nevertheless, for the purposes set forth in the deed.
The deed of trust in substance provides that the bank shall have the custody, control, and management of the property conveyed, shall lease and release the property and collect all rents, issues, profits, and income accruing therefrom, and from such income shall first pay all costs and charges of administration of the trust, and thereafter apply the net income as follows: Unto Caroline L. Hutchins, if still living, quarterly on the 1st day of January, April, July, and October of each year, to and until the end or termination of the trust, or until her death, whichever shall happen first, the sum of $900, or such lesser sum as she may by writing delivered to the trustee elect to accept, and the balance of the net income at the end of such quarters shall be applied and paid as rapidly as allowable in discharge and satisfaction, in whole or in part, of any and all mortgages or like incumbrances affecting such trust estate. After the discharge of the incumbrances and the demise of Caroline L. Hutchins, the whole quarterly income shall be by the trustee paid to their sons in the following parts or shares: Day S. Hutchins five-twentieths, Ray Hutchins eight-twentieths, Burtis L. Hutchins six-twentieths, and to their grandson, Reason D. Hutchins, one-twentieth. The trust deed further contains the provision for the distribution of the property at the termination of the trust to the grandchildren of Caroline L. Hutchins, the termination thereof to take place at the death of the last survivor of the grantors’ three sons.
It was then shown by defendant, and not contradicted, that Mr. and Mrs. Hutchins signed a written authorization for the delivery of the deed of trust; that John S. Hutchins paid out of his personal funds $5,000 on the note secured by mortgage on the Spokane Hotel property; that subsequent to the execution of the deed of trust Mrs. Hutchins joined with her husband in a joint account at the Security Trust & Savings Bank; that she joined with him in a declaration, dated June 14, 1916, stating that all deeds of trust to the defendant bank had been voluntarily executed; joined with him in the letter of April 2, 1919, in which the bank was directed during the remainder of his lifetime to pay to her all the rentals from the trust property, and that she accepted such rentals; that subsequent to the death of her husband on May 7, 1919, until the time of her death, June 26, 1923, a period of four years, she accepted the entire fruits of the trust; that at various times in writing she directed the bank as to the manner and method in which it should pay the moneys payable to her under the trust; that after the notice of rescission was served upon defendant bank she accepted the entire fruits of the trust, and continued to do so up to the time of her death.
In rebuttal plaintiff read in evidence the deposition of Caroline L. Hutchins, in which she testified that she signed the deed of trust with her husband, John S. Hutchins, because he threatened that, if she did not do so, he would sell the property, give her one-half of the proceeds thereof, and give the balance to charity; that her husband made her life so miserable that she did not care what became of the property; that she did not deserve to be treated the way she was treated; that when she signed the ratification on January 14, 1916, she was sick in bed, and she had gotten to a pass where she did not care; that the ratification was all lies, but she signed it, and said she was signing it of her own accord and without any compulsion on the part of her husband.
The jury rendered a general verdict in favor of plaintiff, and in response to special interrogatories the jury found that Caroline L. Hutchins, under the document of April 2, 1919, received from defendant the balance of the funds remaining in its hands; that under the letter of August 1, 1919, she received from defendant $150 a month from the trust; that under the letter of June 8, 1921, she received $250 a month from the trust; that under the letter of November 25, 1922, she received $300 a month from the trust; but also found that she did not execute these respective letters "without coercion or fraud practiced upon her."
Defendant urges a number of objections, several of which present serious questions; but, as the determination of assignments 6 and 7, "Assuming the evidence of undue influence, the deed of trust was not void, but merely voidable," and "The undisputed evidence shows that subsequent to the execution of the deed of trust it was confirmed and ratified," is determinative of defendant’s appeal, we deem it unnecessary to discuss the other points urged by it.
Assuming that plaintiff’s contention is correct, and that the execution of the deed of trust by Caroline L. Hutchins was procured by the coercion and undue influence of her husband, John S. Hutchins, and that he continued his coercion of and undue influence over her until the day of his death, there is no evidence in the record that any coercion or undue influence, or any influence of any character, was exercised over her during the four years that intervened between her husband’s death and her passing, or that the acceptance of the entire fruits of the trust during that period was other than free and voluntary on her part. Plaintiff has directed our attention to no evidence of coercion or undue influence during such period, nor have we by a perusal of the entire record found any. On the contrary, the record shows that, subsequent to the death of her husband, Caroline L. Hutchins accepted the entire fruits of the trust, covering the entire fee, for four years, receiving the sum of $10,895.68; that she accepted these payments, even after she had consulted an attorney and served the notice of rescission prepared for her, and up to the time of her death.
The deed of trust, if not executed freely, is nevertheless not absolutely void, and was subject to rescission by the parties (Civ. Code, § 1566), and was also subject to ratification. Mrs. Hutchins not only did not rescind within the time and in the manner prescribed by the chapter of the Code on rescission, but she waived the alleged fraud or undue influence and ratified the trust by treating the consent as existing and binding. The acceptance of the fruits of the trust and benefits thereunder, after all coercion and undue influence ceased, constituted a waiver and ratification of the written consent. Bancroft v. Woodward, 183 Cal. 99, 190 P. 445; Harrington v. Paterson, 124 Cal. 542, 57 P. 476; Nounnan v. Sutter Land Co., 81 Cal. 7, 22 P. 515, 6 L. R. A. 219; Marten v. Burns Wine Co., 99 Cal. 355, 33 P. 1107. Acts evincive of an intent to abide by the contract, with knowledge of its invalidity, constitute an affirmance thereof, and a waiver of the right of rescission (Matteson v. Wagoner, 147 Cal. 739, 82 P. 436; Montgomery v. McLaury, 143 Cal. 83, 76 P. 964; Ruhl v. Mott, 120 Cal. 668, 53 P. 304); as, for instance, where a party, after discovering the facts which give the right to rescind, proceeds to deal with the property involved as if the contract were valid (4 Cal.Jur. 803; Greene v. Locke-Paddon Co., 36 Cal.App. 372, 172 P. 168).
The disposal of this point renders discussion of the remaining points urged by defendant unnecessary.
The objection urged by plaintiff on his cross-appeal that the trust for the receipt of rents and the payment thereof upon the mortgage indebtedness was in violation of the law forbidding accumulations, and therefore void, presents an important question, not only as it affects this particular case, but from the standpoint of public policy. While the question seems to be one of first impression, in this state the statute concerning accumulations is clear, and the laws concerning accumulations, perpetuities, and suspension of the power of alienation of property have been before the courts in numerous cases, and the public policy on these questions is well established.
It appears from the face of the deed of trust that it was executed December 24, 1913, and from the uncontradicted evidence it appears that at such time the defendant Security Trust & Savings Bank was the holder of a mortgage on the property described in the deed of trust for the sum of $21,000, dated December 31, 1912, due in ten years; that when the deed of trust was executed $19,000 remained unpaid; that the three sons of the testator were then all over the age of majority, in fact, over 40 years of age, and that the trustee, according to the deed, was to apply the rents on the payment of this mortgage, after the death of the trustors, until it was fully paid, before payment of any of the income to the beneficiaries. John S. Hutchins died in May, 1919, and Caroline L. Hutchins died in June, 1923, and the evidence shows that at the time of the death of John S. Hutchins there was still unpaid on the mortgage $14,000, and at the death of Caroline L. Hutchins there was $12,000 unpaid. By the payment of this mortgage out of the income to accrue after the death of the trustors, the trust estate out of which the beneficiaries were to be paid was to be established. The trust estate would then consist of the original real property, augmented by and mingled with the accumulated income to the extent of the amount paid on the mortgage.
Section 723 of the Civil Code provides:
"All directions for the accumulation of the income of property, except such as are allowed by this title, are void."
Section 724 of the same Code declares:
"An accumulation of the income of property, for the benefit of one or more persons, may be directed by any will or transfer in writing sufficient to pass the property out of which the fund is to arise, as follows: 1. If such accumulation is directed to commence on the creation of the interest out of which the income is to arise, it must be made for the benefit of one or more minors then in being, and terminate at the expiration of their minority; or, 2. If such accumulation is directed to commence at any time subsequent to the creation of the interest out of which the income is to arise, it must commence within the time in this title permitted for the vesting of future interests, and during the minority of the beneficiaries, and terminate at the expiration of such minority."
Rents and profits of real property are income. Civ. Code, § 748; Estate of Whitney, 176 Cal. 12, 167 P. 399. A trust to receive rents and profits and apply them on the payment of a mortgage, other than during the minority of the beneficiary, violates the provisions of the statute, and is void. Hascall v. King, 162 N.Y. 134, 56 N.E. 515, 76 Am. St. Rep. 302; Mann-Vynne v. Equitable Trust Co., 201 A.D. 149, 194 N.Y.S. 52; In re Lutz Estate, 27 Wkly. Notes Cas. (Pa.) 403; Pray v. Hegeman, 92 N.Y. 508; Hawley v. James, 5 Paige [N.Y.] 318. The law relating to trusts was never intended to permit accumulations forbidden by the Code. Minnesota Loan & Trust Co. v. Douglas, 135 Minn. 413, 161 N.W. 158.
In Hascall v. King, supra, the leading New York case, in which this question is exhaustively discussed and all previously decided cases reviewed, from Hawley v. James, 16 Wend. 62, the first case decided after the adoption of the New York statute (which statute formed the basis of our own statute and from which our statute is practically copied), the court says:
"Since 1828 the Revised Statutes have in terms prohibited the accumulation of the rents and profits of real estate and of the income of personal property, except during the minority and for the sole benefit of minors. 1 Rev. St. § § 37, 38, p. 726. The last sentence of section 38 establishes the penalty to be visited upon all attempts to offend against these provisions, and reads as follows: ‘And all directions for the accumulation of the rents and profits of real estate, except such as are herein allowed, shall be void.’ The revisers, in their report, assigned as a reason for limiting the power of accumulation to one of the three cases specified in St. 39 and 40 George III, c. 98, namely, ‘during the minority of any person or persons who, under the deed or will directing the accumulation, would, if then of full age, be entitled to such rents and profits,’ that ‘it is to the period last indicated that the revisers propose to confine the power of accumulation, conceiving that this restriction furnishes the most effectual means of guarding against the abuses to which directions of this nature are admitted to be liable, and believing that it embraces the only case in which the purpose of the accumulation is such as ought to be sanctioned, namely, for the benefit of infants entitled to the next eventual estate.’ *** ‘The general policy of our law favors the greatest freedom of alienation of property consistent with the necessities of families, and the making of reasonable provision for the various contingencies which may be expected to arise, requiring the postponement of the vesting of estates, and the suspense of the power of alienating the corpus of property is permitted only within narrow limits. But the right to direct the accumulation of the fruits and profits of property is much more restricted than the right to control the property itself. It is permitted only in a single case and for a single purpose, viz., during minority, and for the benefit of the minor during whose minority the accumulation is directed."’
In Re Lutz’s Estate, supra, the court makes use of this illustration:
"The estate which a testator has the power to give away, without restriction, consists only of what remains after payment of his debts. If, for example, the gross value of his assets is $100,000, and his liabilities $25,000, the sum available for the purposes of his will is $75,000, and if he should give legacies amounting to $100,000, it is apparent there would have to be an abatement of 25 per cent. But if the estate can be withheld from distribution until the debts have been paid with income, say for ten years, it will then be large enough to pay the legacies in full. Thus, rents and income might be withheld from beneficial enjoyment and made to do the duty of principal for a period measured only by the rule against perpetuities; and the owner of an estate worth $1,000,000 desiring to increase it for posterity to $2,000,000, need only borrow $500,000, on mortgage or collaterals, and leave everything to his executors in trust, during any number of well-selected lives in being at the time of his death, to apply the rents and income to the payment of debts and incumbrances, and then to sell and distribute the proceeds among such of his descendants as might have the good fortune to be living when that has been accomplished. If this can be done, the enactments regulating and restraining accumulations have been to very little purpose."
In Re Dolan, 79 Cal. 65, 21 P. 545, cited by appellant, touches on this question; and while it is true that in that case the court says:
"As we read the will, it gave the property to Michael Dolan in trust to collect and receive the rents and profits thereof, and to use them (1) to pay the mortgage on the property; (2) to pay the legacies to Celia Jordan and Margaret Platt; (3) to pay the legacy to Sister Frances McEnnis; and (4) to pay all the residue thereof to James Dolan during his natural life. This was an express trust, and was authorized by law,"
-the question here presented was not before the court, and therefore not adjudicated. In the briefs on appeal and in the decision in that case it is said:
"From this decree Michael Dolan has appealed, and the only questions presented relate to that part of the decree which gives to his brother, James P., a life estate in and a right to the possession of the said property." And with respect to this question the court held that there existed an express trust as authorized by section 857 of the Civil Code, subdivision 3:
"To receive the rents and profits of real property, and pay them to or apply them to the use of any person, whether ascertained at the time of the creation of the trust or not, for himself or for his family during the life of such person, or for any shorter term, subject to the rules of title 2 of this chapter."
Defendant contends that, at the time of the adoption of the Codes in California, it was the law of New York that a trust to lease lands and apply the proceeds of the rents in the payment of the principal of a mortgage then upon the property was valid, and cites us to Parks v. Parks, 9 Paige Ch. (N.Y.) 111, as so holding, and to Estate of Potter, 188 Cal. 68, 204 P. 826, as holding that, when a statute is borrowed from another state, it is to be given the construction placed upon it at the time it is borrowed, and that hence the subsequent authorities overruling Parks v. Parks do not concern us. It was some eight years after the case of Hawley v. James, supra, was decided that the chancellor in the Parks Case, without reference to the Hawley Case, held that the authority of a trustee to pay the interest of the incumbrances out of the rents and profits of lots of lands in the first place, and to apply so much of those rents and profits as might be spared from the support of cestui que trust to the payment of the incumbrance, was valid and should be carried into effect according to the intention of the testator. In commenting upon the Parks Case in Hascall v. King, supra, the court says:
"The subject was not otherwise considered, and, in view of the elaborate discussion of the question when it was before the court in Hawley v. James, 16 Wend. 62, it would seem as if that question had not been the subject of debate by the counsel who appeared before the chancellor and that his disposition of it was one of first impression. *** In Cowen v. Rinaldo, 82 Hun, 479-485 [31 N.Y.S. 554] the very question now before us was under consideration, and the court, upon the authority of Hawley v. James, 16 Wend. 62, and in a very careful opinion by the presiding justice of the court, holds that a trust providing for the collection of rents, income, and profits of real estate, and, after the payment of certain legacies and the interest on mortgages, the applying of the remainder of the rents, together with the income and principal of the personal estate, to the paying off and discharging of the principal of mortgages on the real estate, was void."
In the present case the first object in paying off the mortgage is to increase the trust estate, then the income so created is to be paid to adult sons except one-twentieth, which is payable to the minor grandson, Reason D. Hutchins, not during his minority, but until the termination of the trust, which occurs at the death of the last survivor of the three sons, irrespective of the age then of the now minor grandson. As the trusts in the deed of trust, subsequent to the trust to pay off the mortgage, are wholly dependent upon its full performance, and could not be carried out until that trust has been performed, they are void, and, at least from the death of Caroline L. Hutchins, the trust became extinguished and ceased to exist. Furthermore:
"It is a familiar principle, that if several trusts are so inextricably interwoven, so mutually interdependent, that the destruction of one mutilates and maims in essential particulars the trust scheme, the whole must fall." Carpenter v. Cook, 132 Cal. 621, 625, 64 P. 997, 999 (84 Am. St. Rep. 118).
The intention of the trustors was to make a complete scheme of trust. There is no declaration in the instrument that any part of it is to survive, if other parts were destroyed. If the complete scheme cannot be carried out, according to the intent of the trustors as expressed in the deed of trust, then the whole trust fails. Estate of Maltman, 195 Cal. 643, 234 P. 898.
The deed of trust here is different from the one considered in Sacramento Bank v. Alcorn, 121 Cal. 379, 53 P. 813, cited, and cases where the contract involves good faith and value. This trust is testamentary in character, and neither the trustee nor any of the beneficiaries are purchasers or incumbranches for value, nor has the rule become-as contended by defendant-a rule of property involving the application of the doctrine of stare decisis.
The judgment is reversed. Appellant in each appeal prevailing, each is entitled to costs.
We concur: TYLER, P. J.; KNIGHT, J.