Opinion
A120972
7-9-2009
DOUGLAS B. SHEARS et al. Cross-complainants and Respondents, v. CAROL L. HINDLEY, Individually and as Successor Trustee, etc., Cross-defendant and Appellant.
Not to be Published in Official Reports
INTRODUCTION
Cross-defendant and appellant Carol Hindley, individually and as successor trustee of the "Trust Agreement of Robert McKeown and Bernice McKeown," (McKeown Trust) appeals from a judgment of the Humboldt County Superior Court in favor of respondents Douglas B. Shears, Ulla M. Nielsen, Steven B. Town and Velma Town (respondents) arising from the sale of certain property sold by the McKeown Trust to respondents. The property was purportedly benefitted with a deeded easement over neighboring lands owned by A.F. "Butch" Reeves and Sherry Reeves. In the underlying quiet title and trespass action by the Reeveses against respondents, the trial court found the Reeveses land was not subject to respondents deeded easement and quieted title in favor of the Reeveses. (See Reeves v. Shears (filed Oct. 15, 2004, A101730) [nonpub. opn.], 2004 WL 2320358.) In Reeves v. Shears, respondents filed a cross-complaint against the Reeveses and against appellant, seeking damages from appellant for the diminution in value of the property they had purchased from the McKeown Trust, in the event respondents were unsuccessful in securing their right to the easement in the Reeveses action.
In this appeal of the trial courts award of such damages, appellant contends that she had no liability under any cause of action alleged or pursued at trial. She further contends the court erred in allowing evidence relevant to a breach of contract claim where there was no basis for a breach of contract cause of action; any negligence claim was precluded by the statute of limitations (former Code Civ. Proc., § 340(3)); and respondents waived any defects in title by accepting the deed after receiving notice of defective access from the preliminary title report. Finally, she contends she cannot be held personally liable for actions in her capacity as trustee. (Prob. Code, § 18002.)
We shall conclude that only this last contention has merit.
BACKGROUND
The facts are generally undisputed. John and Janet Donohue (JED Land Company) subdivided certain property owned by them located north of Highway 36, along the Mad River in rural Humboldt County. In 1980, Donohue sold part of the property to Dolores Lear, reserving easements over existing roads. The deed from Donohue to Lear included the right to convey the reserved easement rights to others, appurtenant or in gross. Lear thereafter deeded the parcel to Walker, who thereafter deeded it to the Reeveses.
The facts are taken in large part from the trial courts decision on the cross-complaint, which contains an accurate summary.
In 1991, as part of a larger transaction, the reserved easement rights across the Reeveses parcel were conveyed by Donohue to the McKeown Trust via a deed drafted by attorney Jim Morrison, as attorney for the trust. The deed was recorded. In July 2000, appellant, as successor trustee of the McKeown Trust, conveyed 160 acres to respondents, along with the easement rights across the Reeveses property. Both the deed drafted by Morrison from Donohue to the successor trustee of the McKeown Trust and the deed from appellant to respondents specifically state that the easement runs from the easterly boundary of the property purchased by respondents, across Reeveses parcel to Snow Ridge Road. The easement is the only contiguous deeded access for ingress and egress to and from respondents property to Snow Ridge Road, the private road that eventually provides access to Highway 36, after going though U.S. Forest Service property. The servient tenement is the Reeveses parcel and the dominant tenement is the 160-acre parcel sold by the McKeown Trust to respondents.
Appellant disputes the finding that the property is landlocked. (See discussion, p. 12, post.)
Respondent Shears testified about the negotiation and purchase of the property from the trust. Appellants husband, Ken Hindley, mentioned to Shears that the 160-acre parcel was for sale and that Shears should contact attorney Dan Cooper. Shears did so and was told to make an offer. Respondents submitted a $50,000 offer on January 31, 2000. Part of that offer stated that: "THIS OFFER IS CONTINGENT ON THERE BEING A USABLE EASEMENT TO SAID PROPERTY." In response, Shears received a seven-page fax, that included a map of the location of the easement, and a draft copy of the deed from JED Land Company and Donohue individually to the successor trustee of the McKeown Trust. (The successor trustee named in the "Easement Deed" was "Bernice S. McKeown, Successor Trustee.") A conformed, recorded copy of the deed was admitted into evidence below. The legal description of the easement in the deed, specifically describes an easement crossing the Reeveses property. Respondents reviewed attorney Coopers seven-page response regarding the "usable" easement and were satisfied that the contingency had been removed based on the specific representation that the easement ran from the easterly boundary of the property to Snow Ridge Road and out to Highway 36; that it came from Donohue; that it was broad in its scope; and that it was unambiguous as to its location, insofar as there was no other road through the Reeveses parcel that could be confused with the one drawn by Cooper. Based on the Cooper fax and, after discussing the matter with Town, Shears raised the offer to $85,000. Thereafter, escrow was opened and the title documents were prepared, approved, and signed.
Exhibit "A" to the deed, containing the legal description of the easement, specifically states: "THIS EASEMENT COMMENCES ON THE EAST BOUNDARY OF THE APPURTENANT PROPERTY AND RUNS IN A GENERAL EASTERLY DIRECTION TO THE UNITED STATES FOREST SERVICE ROAD THAT RUNS FROM HIGHWAY 36 NEAR MAD RIVER TO THE TOP OF 8 MILE RIDGE IN SECTION 26, TOWNSHIP 2 NORTH, RANCH 5 EAST, HUMBOLDT MERIDIAN."
In October 2000, shortly after purchasing the 160-acre parcel from the McKeown Trust, respondents attempted to make minor repairs to the easement at its boundary with the Reeveses parcel, at a location described to them by Cooper. Those improvements precipitated the underlying trespass and quiet title action against respondents by the Reeveses. Aerial photographs did not demonstrate that a road existed that intersected the common boundary at the time of the reservation of the easement by Donohue in 1980. Whether a later road existed in 1991, at the time of the conveyance from Donohue to the trustee of the McKeown Trust, was therefore immaterial. The underlying quiet title action resulted in a determination that respondents did not have a deeded easement through the Reeveses parcel and title was quieted in favor of the Reeveses. On August 8, 2002, the court entered judgment quieting title in favor of the Reeveses (see Reeves v. Shears, supra, 2004 WL 2320358 at p. *1) and finding the Reeveses land in question was not subject to respondents deeded easement. The court found a trespass by respondents, which it enjoined, and awarded the Reeveses emotional distress damages in the sum of $1,000 plus costs of suit. (Ibid.) It filed an amended judgment on January 9, 2003, specifying the amount of costs awarded and it denied attorney fees to the Reeveses. (Ibid.) The Reeveses appealed the denial of attorney fees. We affirmed in a nonpublished opinion on October 15, 2004. (Id. at p. *5.)
In the underlying action, respondents cross-complained against the Reeveses to quiet title, and also against appellant for damages, depending on the outcome of the Reeveses suit. As against appellant, the first amended cross-complaint contained a fourth cause of action for breach of the covenant of merchantability; a fifth cause of action denominated "Equitable, Implied and Express Indemnity"; and a sixth cause of action for declaratory relief. In their cross-complaint against appellant, respondents alleged: "If, upon trial of this matter, cross-complainants are held legally responsible to plaintiffs for the injuries and damages alleged in the underlying Complaint, and are not successful in quieting title to said easements in their favor, cross-complainants will have been damaged as a proximate result of the acts and omissions of cross-defendants, . . . for diminution in value of the real property purchased from cross-defendant Hindley, as trustee as a result of losing said easements."
A second amended cross-complaint was filed, but was never served on appellant. The bifurcated trial against appellant proceeded on the first amended cross-complaint.
At the November 14, 2005 bifurcated trial of the first amended cross-complaint against appellant, respondents did not pursue the fourth cause of action for breach of the covenant of merchantability. Rather, they sought damages for the diminution in value of the real property, and attorney fees and costs incurred in the defending the underlying Reeveses action. Appellant argued that respondents claims were improperly pleaded, that there was no cognizable breach of contract or negligence action, and that the statute of limitations precluded any cause of action for negligence. The trial court found that "the Cross-Complaint reasonably and sufficiently advises Cross-Defendant of the claims against her, the basis for the claims, and the damages sought." It also found the statute of limitations was no bar to recovery. It awarded damages to respondents of $42,500, plus interest from the date of recordation of the conveyance for a period not exceeding five years for diminution in value of the purchased property, and $77,487.12 for attorney fees and costs incurred by respondents in their defense of the Reeveses action.
Appellant moved for a new trial, which the trial court denied by order filed on April 4, 2006. The trial courts ruling denying the motion for new trial states that respondents, "as the law allows, choose to proceed instead, on negligence." The court also explained that the negligence alleged was not the acts occurring in 1991 and 1992, when Morrison prepared the deed that erroneously included the easement. "Rather, the negligence is alleged to have occurred in 2000 when [appellant] sold the property to [respondents] with an easement that she did not own." The court also concluded that respondents "could have alternatively proceeded on contract or quasi-contract." On December 17, 2007, judgment was entered in favor of respondents against appellant, individually and as successor trustee. Appellant filed a timely notice of appeal.
DISCUSSION
I.
Appellant spends considerable time arguing that she has no liability under the causes of action pleaded in the first amended cross-complaint. These arguments are irrelevant to our resolution of this appeal. It is clear that the court based its judgment on a finding that appellant was negligent in conveying the property to respondents with an easement that the trust did not own. Appellant does not contend that the evidence at trial did not provide substantial evidence of negligence. Rather, she argues that she repeatedly objected to all evidence and argument concerning issues of contract damages and negligence at trial. She further contends that there was "no alleged nor cognizable negligence action."
At the conclusion of trial, the parties disagreed whether the pleadings included a claim of negligent misrepresentation. In its decision, the trial court acknowledged appellants claim that no breach of contract nor negligence claims had been pleaded, but also observed that it could find facts according to the evidence where any variance between the pleading and proof at trial was not material and did not affect the substantial rights of the parties. (Code Civ. Proc., §§ 470, 475.) The trial court found that "the Cross-Complaint reasonably and sufficiently advises Cross-Defendant of the claims against her, the basis for the claims, and the damages sought." We agree.
As Witkin describes: "`There is in this State but one form of civil actions for the enforcement or protection of private rights and the redress or prevention of private wrongs. ([Code Civ. Proc., §] 307.) This is the fundamental provision on which code pleading is based. [Citations.] It departs from the former system in the following two important ways: [¶] (1) The procedural distinctions between actions at law and suits in equity are abolished. [Citation.] [¶] (2) The common law forms of action are abolished. Hence, the plaintiffs mistaken choice of an erroneous `theory of the pleading does not prevent recovery on an appropriate theory. [Citation.]" (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 30, p. 95.)
"As a result of the abolition of forms of action [citation], in one action any relief may be granted that is consistent with the facts stated in the complaint, whether equitable or legal, and all the relief to which the plaintiff is entitled, both legal and equitable, may be given in one action. `Legal and equitable relief are administered in the same forum, and according to the same general plan. A party cannot be sent out of Court, merely because his facts do not entitle him to relief at law, or merely because he is not entitled to relief in equity, as the case may be. He can be sent out of Court only when, upon his facts, he is entitled to no relief, either at law or in equity." [Citations.]" (4 Witkin, Cal. Procedure, supra, § 31, pp. 95-96.)
"In Bank of America v. Gillett (1940) 36 [Cal.App.]2d 453, plaintiff, to toll the statute of limitations, sued on a secured promissory note without exhausting the security. The trial judge gave judgment for plaintiff subject to the requirement of first exhausting the security. Held, the judgment was proper as a judicial declaration of the rights and obligations of the parties, which plaintiff might have obtained if his complaint had sought declaratory relief (equitable action) under [Code of Civil Procedure, section] 1060. `But forms of pleading are of no importance if the pleading in substance states the facts showing the relief to which the pleader is entitled. In such a case the pleader may have the relief which the facts established justify, though that relief may not be exactly what he thought he was entitled to. [(Bank of America v. Gillett, at p. 455.)]" (4 Witkin, Cal. Procedure, supra, § 31, p. 96.)
"`The statute makes no distinction in matters of form between actions of contract and those of tort, and relief is administered without reference to the technical and artificial rules of the common law upon this subject. . . . Every action under our practice may be properly termed an action on the case. [Citations.] `Does the complaint state in ordinary and concise language facts sufficient to constitute a cause of action? That is the question . . . . [Citation.]" (4 Witkin, Cal. Procedure, supra, § 32, p. 96.)
"`The subject matter of an action and the issues involved are determinable from the facts alleged rather than from the title of the pleading or the character of damage recovery suggested in connection with the prayer for relief. In defining the relief that may be awarded to a plaintiff where an answer in the action has been filed, [Code of Civil Procedure, section] 580 provides that the court may grant the plaintiff any relief consistent with the case made by the complaint and embraced within the issues. [Citation.]" (4 Witkin, Cal. Procedure, supra, § 32, p. 96.)
"The distinction between tort and contract `is well grounded in common law, and divergent objectives underlie the remedies created in the two areas. . . . However, the same act may be both a breach of contract and a tort. Even where there is a contractual relationship between parties, a cause of action in tort may sometimes arise out of the negligent manner in which the contractual duty is performed, a failure to perform the duty, or an intentional act causing injury to an interest created by the contract. [Citation.]" (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 [Cal.]4th 503, 511.) The importance of the distinction is that, although forms of action are abolished so far as pleading is concerned, a number of substantive and procedural issues turn on the nature of the action, e.g., statute of limitations, venue, attachment, damages, and bankruptcy. [Citations.]" (5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 2, pp. 44-45.)
The trial court did not abuse its discretion in concluding that respondents had adequately maintained a cause of action for negligence under California law, despite the labels used in their first amended cross-complaint. Such discretion in a civil action is expressly permitted by the Code of Civil Procedure: "No variance between the allegation in a pleading and the proof is to be deemed material, unless it has actually misled the adverse party to his prejudice in maintaining his action or defense upon the merits. Whenever it appears that a party has been so misled, the Court may order the pleading to be amended upon such terms as may be just." (Code Civ. Proc., § 469.) "Where the variance is not material, as provided in [section 469], the court may direct the fact to be found according to the evidence, or may order an immediate amendment, without costs." (Code Civ. Proc., § 470.) "The court must, in every stage of an action, disregard any error, improper ruling, instruction, or defect, in the pleadings or proceedings which, in the opinion of said court, does not affect the substantial rights of the parties. No judgment, decision, or decree shall be reversed or affected by reason of any error, ruling, instruction, or defect, unless it shall appear from the record that such error, ruling, instruction, or defect was prejudicial, and also that by reason of such error, ruling, instruction, or defect, the said party complaining or appealing sustained and suffered substantial injury, and that a different result would have been probable if such error, ruling, instruction, or defect had not occurred or existed. There shall be no presumption that error is prejudicial, or that injury was done if error is shown." (Code Civ. Proc., § 475.)
Finally, appellant has failed to show that the courts consideration of a negligence claim in the circumstances resulted in a miscarriage of justice. Article VI, section 13, of the California Constitution provides: "No judgment shall be set aside, or new trial granted, in any cause, on the ground of misdirection of the jury, or of the improper admission or rejection of evidence, or for any error as to any matter of pleading, or for any error as to any matter of procedure, unless, after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice." Appellant does not assert that there was any additional evidence that she would have presented or any defense she would have raised that was not explored below, had the negligence claim been explicitly labeled as such.
As the court concluded, appellant did not dispute that as successor trustee, she sold property to respondents with an easement that did not exist. The cross-complaint adequately advised her of the claims against her, the bases for the claims, and the damages sought. There were no surprises at trial. Respondents consistently maintained, as reflected in the first amended cross-complaint, that if the Reeveses quieted title to the easement against them, respondents would be damaged by the diminution in value of their property and the attorney fees they incurred in defending the quiet title action.
II.
Appellant contends that former Code of Civil Procedure, section 340(3), the one-year statute of limitations applicable when the cross-complaint was initially filed in 2000, precluded any action for negligence against her. She identifies the negligent action as occurring in 1991 and 1992, when the deed and related map were prepared by attorney Morrison and the deed was recorded. (Of course, in 1991 and 1992 respondents would have had no cause of action against anyone, as they had not yet purchased the property and had not suffered any damages.)
Appellant does not address respondents assertion or the trial courts finding that the negligence claim asserted against appellant was her negligence in selling the property to respondents in 2000 with an easement that did not exist. Consequently, appellant has waived any challenge to this finding. (Eisenberg et al., Civil Appeals and Writs (The Rutter Group 2008) ¶ 9:21, p. 9-6.) In any event, by failing to address the courts finding that the negligence occurred in 2000, at the time of the sale to respondents, she has failed to demonstrate any error.
III.
Appellant next contends the preliminary title reports exclusion of any claim for lack of access to the property from title insurance coverage, precludes any claims by respondents related to defective title. We reject the contention.
Appellant relies on a single case, Easton v. Montgomery (1891) 90 Cal. 307, 313, for the proposition that it is the buyers duty to examine title to their satisfaction and having made the decision to go forward with the transaction, despite the preliminary title reports exclusion, the buyer has waived any and all claims related to the lack of access defect. Easton is clearly distinguishable. There, the question was whether a buyer could later disaffirm the land sales contract and recover his deposit because of the sellers inability to provide a good title at the time the contract was entered, where the seller did not then own the property. The seller was the equitable owner of the property and had the right to call for legal title by the time of sale and the purchaser was fully informed as to the situation. (Id. at pp. 315-317.) The purchaser sought to disaffirm the sale or recover his deposit without specifying the defect in title and without having fully performed. The court held the purchaser could not use the defect in title at the time of the contract to disaffirm the sale and recover his deposit where it was contemplated in the contract for sale that the purchaser would examine the title; the purchaser apparently never examined the title; and the purchaser never brought any purported defect to the sellers attention to provide the seller an opportunity to remedy it. (Id. at pp. 312-315.) Easton is inapposite here.
In urging that respondents waived any defect in title by proceeding with the purchase despite the preliminary title reports exclusion, appellant apparently misunderstands the purpose of a preliminary title report. "The law is now clear that a preliminary report is not an abstract of title, and therefore does not carry rights, duties, or responsibilities associated with the preparation and issuance of such a document; the preliminary report is now deemed nothing more than an offer to issue a title policy. (Ins. Code, §§ 12340.10, 12340.11; [citations].)" (Herbert A. Crocker & Co. v. Transamerica Title Ins. Co. (1994) 27 Cal.App.4th 1722, 1727, fn. 6.)
As Miller and Starr explain: "A title insurance policy is merely a contract to indemnify. A title policy is not a representation that the record title is as reported; it is merely an agreement by the insurer that it will indemnify the insured against losses resulting from recorded and certain unrecorded defects in the title that are within the coverage provisions of the policy and not excepted from policy coverage. The insurer has the right to determine the terms, conditions, or limitations of any policy it issues, and it can refuse to issue a policy, or it may issue a policy subject to whatever conditions and exceptions it wishes to impose. [¶] The policy may except questionable defects. In many cases, matters appear in the public records that may or may not affect the insured title. Because of possible exposure to liability for a questionable defect in the title, an insurer will often expressly exclude matters from coverage that are a possible defect on the title but are then determined to be unenforceable against the property in subsequent litigation. An insurer is not liable for slander of title merely by listing a questionable defect or lien, even though it is later proven that the excepted matter does not affect the title." (3 Miller and Starr, Cal. Real Estate (3d ed. 2008) Title Insurance, § 7:224, pp. 7-522 to 7-523, italics added, fns. omitted.) In California, a title insurance policy is a less expensive substitute for an abstract of title. (Id. at§ 7:28, p. 7-61, fn. omitted.) Miller and Starr warn that after 1982,"[n]o reliance should ever be placed on a preliminary report to show the condition of title." (Ibid., italics added, fn. omitted.)
Moreover, a title insurance policy is written to cover only the named insured—usually the seller. The purchaser or transferee from the insured is not covered. (3 Miller and Starr, Cal. Real Estate, supra, Title Insurance, § 7:44, p. 7-104.) However, most policies continue to protect the insured after conveyance from any liability that may be incurred as a result of any covenant or warranty contained in the conveyance of the property, if it is not excluded from the policy. (Ibid.) Appellant would have received the same preliminary title report. Only she, arguably, through her agents and attorneys, could have known that the easement language of the deed had been added by the trusts attorney in 1991. To the extent we may construe her argument as urging the comparative negligence of cross-complainants, the trial court resolved the contention against her in that the damages were not reduced by reason of any negligence by respondents.
As part of her argument on waiver, appellant, somewhat inexplicably, asserts that "[t]here are at least two additional easements providing some type of access to the property identified in the title report and the Grant Deed from [appellant] to Shears. The property is not landlocked." (Fn. omitted.) Whether or not the property is "effectively landlocked," as found by the trial court, was a factual determination to be made by the trial court. It could only be relevant here to the amount of damages found by the court, but appellant does not challenge on this appeal the amount of damages awarded.
IV.
The court entered judgment against appellant both individually and in her representative capacity as successor trustee. However, it made no express finding that she was "personally at fault."
Appellant contends the court erred in entering judgment against her individually where she was acting solely in her representative capacity as successor trustee in selling the property. She relies upon Probate Code sections 18000, 18001 and 18002, in arguing that she cannot be personally liable on any contract properly entered into in her fiduciary capacity in the course of administration where disclosures were made in accordance with Probate Code section 18000, and that she cannot be personally liable for torts committed in the course of administration where she was not "personally at fault" as required by Probate Code section 18002.
Probate Code section 18000 provides: "(a) Unless otherwise provided in the contract or in this chapter, a trustee is not personally liable on a contract properly entered into in the trustees fiduciary capacity in the course of administration of the trust unless the trustee fails to reveal the trustees representative capacity or identify the trust in the contract. [¶] (b) The personal liability of a trustee on a contract entered into before July 1, 1987, is governed by prior law and not by this section."
Probate Code section 18001 provides: "A trustee is personally liable for obligations arising from ownership or control of trust property only if the trustee is personally at fault." (Italics added.)
Probate Code section 18002 provides: "A trustee is personally liable for torts committed in the course of administration of the trust only if the trustee is personally at fault." (Italics added.)
Probate Code section 18004 provides: "A claim based on a contract entered into by a trustee in the trustees representative capacity, on an obligation arising from ownership or control of trust property, or on a tort committed in the course of administration of the trust may be asserted against the trust by proceeding against the trustee in the trustees representative capacity, whether or not the trustee is personally liable on the claim."
Probate Code section 18005 provides: "The question of liability as between the trust estate and the trustee personally may be determined in a proceeding under Section 17200."
Appellant points to testimony by Shears that he never spoke with appellant about the sale of the property and testimony of Town that he spoke only with Shears regarding the purchase negotiations. There is no showing that appellant, rather than her predecessor, was the trustee at the time attorney Morrison apparently inserted the language into the deed. Indeed, the 1991 "Easement Deed" from Donohue names "Bernice S. McKeown, Successor Trustee" of the McKeown Trust. Moreover, at trial, although arguing that appellant was derivatively liable for the negligence of her agents and for her act of conveying the property, counsel for respondents stated he was "not aware of any input she had into this whole process. . . . She signed the deed to my clients. But other than that, Im not aware of any evidence that would make her an active participant in the events that occurred here. Essentially, it was anything that was done was through her agents." Counsel also stated with respect to appellant and her attorneys, "Were not saying anything was done intentional. I think people have acted in good faith and as best they thought they were within their legal rights, but there just does not appear to be a factual basis for that language that Mr. Morrison added to the deed." At the close of trial, respondents counsel again stated, "in deference to Carol Hindley, I really understand her situation here. She was not a[n] active participant. She had agents working for her."
Respondents counter that appellant was "personally at fault" as the knowledge and/or negligence of her attorneys and agents must be imputed to her and because she ratified the conduct of these agents by not firing them and disavowing their actions when she discovered that the easement language had been added to the deed.
Probate Code section 18002 provides: "A trustee is personally liable for torts committed in the course of administration of the trust only if the trustee is personally at fault." (Italics added.) The relevant portion of the Law Revision Commission comment that accompanies section 18002 provides that "[a] trustee is `personally at fault when the trustee commits a tort either intentionally or negligently." (Cal. Law Revision Com. com., 54A Wests Ann. Prob. Code (1991 ed.) foll. § 18002, p. 237, italics added.)
"A trustee thus cannot be held personally liable under section 18001 for any obligation arising from his ownership or control of trust property, nor can he [or she] be held personally liable under section 18002 for any torts committed in the course of his [or her] administration of the trust, unless the party seeking to impose such personal liability on the trustee demonstrates that the trustee intentionally or negligently acted or failed to act in a manner that establishes personal fault. (§§ 18001, 18002; Cal. Law Revision Com. com., 54A Wests Ann. Prob. Code, supra, foll. §§ 18001 & 18002, p. 237.)" (Haskett v. Villas at Desert Falls (2001) 90 Cal.App.4th 864, 877-878 (Haskett), second italics added.) Mere control of the trust is insufficient. (Haskett, at p. 878.)
In Haskett, supra, 90 Cal.App.4th 864, a lawsuit against defendants by a trustee on behalf of the trust had been dismissed for failure to prosecute. A judgment for attorney fees was entered against Haskett in his representative capacity as trustee. The defendants sought a ruling that Haskett was personally liable for the fees. The appellate court rejected the defendants attempt to recover their attorney fee award from the trustees personal assets because, under section 18001, "[t]he imposition of such personal liability must . . . rest on a finding of personal fault supported by a sufficient showing that the trustees conduct was intentional or negligent. [Citations.]" (Id. at p. 878, italics added.) The defendants had failed to show that the dismissal of the lawsuit resulted from conduct by the trustee that was either intentional or negligent as the only facts presented were that the action was dismissed for failure to prosecute and not the circumstances behind the dismissal. (Id. at p. 878.) "Defendants argued that section 18004 provided for a trustees liability even in the absence of such evidence. The court held that since section 18004s words `plainly state that the enumerated types of claims "may be asserted against the trust by proceeding against the trustee in the trustees representative capacity, whether or not the trustee is personally liable on the claim," its language `plainly confers a right to proceed against the assets of the trust and `does not confer an absolute right to proceed against the trustees personal assets. (Id. at p. 880.)" (Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1349 (Galdjie).)
The appellate court in Galdjie, supra, 113 Cal.App.4th 1331, also recognized that "the proper procedure for one who wishes to ensure that trust property will be available to satisfy a judgment, whether for damages for breach of contract or for specific performance, [is to] sue the trustee in his or her representative capacity." (Id. at p. 1349.) However, in the particular circumstances, although the judgment against the individual trustees did not give plaintiffs the right to attach property owned by defendants as individuals, it was enforceable against the trust. The signatures of the trustees as individuals on the title deed, as required by the judgment, was sufficient to convey good title from the trust. (Id. at p. 1350.)
The Haskett court also noted that "the concept of `fault is a tort concept," requiring the third party to establish the trustee owed a duty of care to the third party. (Haskett, supra, 90 Cal.App.4th at p. 878.) Even if the trustee had intentionally or negligently failed bring the case to trial within five years, the defendants "failed to cite any legal authority demonstrating that [the trustee] owed a duty of care to [them]." (Ibid.)
Here, it is clear appellant owed respondent purchasers a duty of care in connection with the conveyance of the property. The real question is what does the term "personally at fault" mean as used in Probate Code section 18002.
A brief discussion of common law as it relates to suits involving trusts and trustees and the change wrought by Probate Code sections 18000 through 18005 is helpful in answering this question. "Unlike a corporation, a trust is not a legal entity. Legal title to property owned by a trust is held by the trustee, and common law viewed the trustee as the owner of the trusts property. . . . When an authorized contract was breached, or when a tort was committed against the trust, the trustee was considered the holder of the chose in action with the right to bring suit. [Citations.] . . . [¶] Similarly, where a tort was committed or a contract breached in the administration of trust duties, third parties were expected to sue the trustee individually, not in his or her representative capacity as trustee." (Galdjie, supra, 113 Cal.App.4th at pp. 1343-1344.)
As described in the California Law Revision Commission Reports recommending the statutory changes that became Probate Code sections 18000 through 18005, "[t]he basic rule of the common law is that the trustee is personally liable for obligations incurred in administration of the trust to the same extent as if the trustee held the property free of the trust. Where the trustee is liable, the common law generally permits the trustee to be indemnified out of the trust estate for obligations properly incurred in administration of the trust. The modern trend of trust law is to provide more protection to trustees by treating them in a representative capacity, not unlike corporate officers." (18 Cal. L. Revision Commn. Reports (1986), Recommendation proposing The Trust Law (Dec. 1985) p. 587, fns. omitted.) "The proposed law adopts the concept of personal fault drawn from the Uniform Probate Code. A trustee may be liable for obligations arising out of ownership of property only if the trustee personally was either intentional or negligent in acting or failing to act. This rule is preferable to the common law since it makes the trustee liable only in circumstances where the trustee was in a position to control its liability. The concept of liability based on personal fault is consistent with California law in a closely related area—the right of reimbursement of a trustee or executor for a tort committed by an agent." (Id. at pp. 588-589, italics added, fns. omitted.)
In explaining its recommended change in the law, as embodied in Probate Code section 18002, the California Law Revision Commission explained: "Like the liability for ownership of property, the trustees liability under the common law for torts committed in the course of administration of the trust is determined just as if the trustee held the property free of the trust. The common law rule applies regardless of whether the trustee committed the tort intentionally, negligently, or without fault, regardless of whether the trustees conduct consisted of action or failure to act, and regardless of whether the trustee violated the duties under the trust.
"Nearly half of the states have adopted statutes modifying the common law rules to permit an action against the trust, in the form of a suit against the trustee in a representative capacity. The proposed law adopts this scheme. As in the case of liability for ownership of property, this scheme is supported by the principle that the trustee should be personally liable only for actions or inaction in situations where the trustee has control." (18 Cal. L. Revision Commn. Reports, supra, p. 589, fns. omitted, italics added.)
"Even though the common law makes the trustee personally liable in a variety of circumstances, the right of the trustee to indemnification from the trust is also recognized. Hence, if the trustee properly incurred liability in the administration of the trust, the trustee is entitled to exoneration or reimbursement." (18 Cal. L. Revision Commn. Reports, supra, pp. 589-590, fns. omitted.) "The question of reimbursement for tort liability arises much less often, but it appears that a trustee may be allowed reimbursement for an agents tort committed in the course of administration of the trust unless the trustee is personally at fault." (Id. at p. 591.) At this point, the California Law Revision Commission Report cites to Johnston v. Long (1947) 30 Cal.2d 54, in support of its conclusion that California law allows the trustee to be reimbursed for an agents tort where the trustee is not personally at fault, noting "Cf. Johnston v. Long, [supra] 30 Cal.2d 54 . . . (executor operating business personally liable for negligence of agents and entitled to reimbursement, citing Restatement of Trusts §§ 247, 368). A dissent in Johnston urged the view that the executor should be held liable only in a representative capacity. 30 Cal.2d at 81 (Schauer, J. dissenting)." (18 Cal. L. Revision Commn. Reports, supra, p. 591, fn. 358.)
In Johnston v. Long, supra, 30 Cal.2d 54, the executor was carrying on the decedents automobile agency as authorized. Consistent with the common law rule, the trustee was held to be personally liable for injuries caused to a third person by the negligence of the companys employees in repairing a garage door, or in failing to discover the dangerous condition of the door under the theory of respondeat superior. "Under the doctrine of respondeat superior, except where the rule may have been changed by statute, torts committed by employees of a trustee in the course of administration of the trust estate subject the trustee to personal liability. [Citations.]" (Id. at p. 61.) The same rules were applied to determine the executors liability in the estate administration. (Id. at pp. 61-62.) However, the court recognized that the executor would have a right to reimbursement against the estates assets, where he was "personally without fault. [Citations.]" (Id. at p. 62, italics added; see 28 ALR3d 1191.) The Supreme Court rejected the argument that the doctrine of respondeat superior should apply against the executor in his representative capacity only and should not subject him to personal liability when he was without fault. (Johnston v Long, at p. 63.) The court distinguished liabilities of corporate officers, recognizing that "an officer of a corporation is not liable under the doctrine of respondeat superior for the torts of corporate employees except where the officer is at fault." (Id. at p. 63.) "Under the general rule that the executor is personally liable for the torts committed by him or his agents in the course of administration, the plaintiff may recover a judgment against the executor personally and the question of the executors fault is determined in the probate court, where the interest of the heirs may properly be protected. [Citation.]" (Id. at p. 64.)
Probate Code sections 18000 through 18005 were added in 1986, as recommended by the California Law Revision Commission and were continued without change in 1990 upon repeal of the Probate Code. (Added by Stats. 1986, ch. 820, § 40; Stats. 1990, ch. 79, § 14, operative July 1, 1991; see Cal. Law Revision Com. coms., 54A Wests Ann. Prob. Code, supra, foll. §§ 18000-18005, pp. 236-240.) These provisions expressly allow suits against the trust to be asserted by proceeding against the trustee in the trustees representative capacity (§ 18004) and as the Law Revision Commission had recommended, sections 18000, 18001 and 18002 "provide[d] more protection to trustees by treating them in a representative capacity, not unlike corporate officers." (18 Cal. L. Revision Commn. Reports, supra, p. 587, fn. omitted.)
Against this statutory background, we read "personally at fault" in Probate Code section 18002 more narrowly than was the case under the common law, i.e., to require more than derivative liability through the negligence of an employee or agent. This is consistent with the treatment of reimbursement of the trustee from the trust for acts of agents and employees where the trustee has been held liable through theories of respondeat superior for the torts of the trustees employees or agents, but is not personally at fault. Nor do we see a significant difference between the derivative liability theories of respondeat superior and the imputation to the trustee of an agents knowledge in assessing whether the trustee is personally at fault.
As the trustees right to reimbursement for an agents tort in the course of trust administration hinges on whether the trustee is "personally at fault" (18 Cal. L. Revision Commn. Reports, supra, at p. 591) so, too, the phrase should have the same meaning in Probate Code section 18002.
It may be argued that a plaintiff should be able to pursue the trustee both individually and in a representative capacity without having to show personal fault and that the determination whether the trustee was personally at fault should be a matter for a reimbursement proceeding between the trust and the trustee. Nevertheless, the Probate Code uses the phrase "personally at fault" as the test for a trustees personal liability. Moreover, the Probate Code provisions at issue anticipate that the third party will pursue the trustee in his or her representative capacity, rather than individually. Thus, the statutory scheme solves the dilemma historically presented under the common law of whom to pursue on what theory in order to recover against trust property, by allowing the contract or tort creditor to proceed against the trustee in a representative capacity. (18 Cal. L. Revision Commn. Reports, supra, p. 591, fns. omitted.) "The third person should not have to be concerned with the source of the fund that will be used to pay the claim. The proposed law adopts this position. Hence, a third person with a claim against the trust or trustee may assert the claim against the trust by bringing an action against the trustee in the trustees representative capacity. The question of ultimate liability as between the trust estate and the trustee may then be determined in proceedings concerning the internal affairs of the trust or may be settled informally among the parties to the trust." (18 Cal. L. Revision Commn. Reports, supra, p. 592, fns. omitted.)
The Law Revision Commission comment to Probate Code section 18005 appears to endorse this approach in stating in pertinent part: "Under this section, ultimate liability as between the estate and the trustee need not be determined before the third persons claim can be satisfied. It is permissible, and may be preferable, for judgment to be entered against the trust without determining the trustees ultimate liability until later. Where judgment is entered against the trustee individually, the question of the trustees right of reimbursement may be settled informally with the beneficiaries or in a separate proceeding in the probate court. . . ." (Cal. Law Revision Com. com., 54A Wests Ann. Prob. Code, supra, foll. § 18005, p. 240.) This observation seems inconsistent with the specific language of Probate Code sections 18001 and 18002, which allow personal liability of the trustee "only if the trustee is personally at fault."
The appellate court in Galdjie, supra, 113 Cal.App.4th 1331, also recognized that "the proper procedure for one who wishes to ensure that trust property will be available to satisfy a judgment, whether for damages for breach of contract or for specific performance, [is to] sue the trustee in his or her representative capacity." (Id. at p. 1349.)
There is no evidence here that appellant trustee was "personally at fault." There is no evidence that she knew or should have known in the circumstances that the easement described in the deed did not exist. The burden is upon respondents to demonstrate that the trustee was personally at fault in order to establish personal, rather than representative, liability. We do not believe they carried that burden on this record.
DISPOSITION
The judgment is reversed insofar as it holds appellant individually liable. In all other respects, including holding her liable in her representative capacity, the judgment is affirmed. Each party to bear its own costs on appeal.
We concur:
Haerle, J.
Lambden, J.