IN RE: ALDRICH'S ESTATE.

Reset A A Font size: Print

District Court of Appeal, First District, Division 1, California.

IN RE: ALDRICH'S ESTATE. ALDRICH v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N et al.

Civ. 13694.

Decided: May 24, 1949

Augustin C. Keane, San Francisco, for appellant. Donahue, Richards & Hamlin, Oakland, Donahue, Richards, Rowell & Gallagher, Oakland, Leicester & Leicester, San Francisco, Samuel B. Stewart, Jr., San Francisco, Geo. D. Schilling, San Francisco, Orlando J. Bowman, Oakland, for respondent. Ernest J. Torregano, San Francisco, for Rees.

This is an appeal from a decree settling the thirty-sixth and final account and supplement thereto of the Bank of America as successor trustee of a portion of the trust created by the will of William A. Aldrich, determining to whom the trust estate passed upon termination of the trust, overruling appellant's objections to the account, and ratifying, approving and confirming the various acts of the trustee as set forth in its petition. The appellant is William Arnold Aldrich, grandson of the testator. The bank, and Claude Rees, trustee in bankruptcy of appellant, are respondents.

William A. Aldrich died in 1892 and his estate was distributed in 1893. The decree of final distribution established two trusts. One-fourth of the residue of the estate was distributed in trust for William Holt Aldrich, son of the testator and father of appellant, and another one-fourth of the residue was distributed in trust for another son of the testator, George Albert Aldrich.

The trust now directly before the court is the one created for William Holt Aldrich. It provided that the income of the trust estate should go to William Holt Aldrich for life, and then to his wife, Minnie C. Aldrich, if she survived him and remained unmarried. The trust was to terminate when there was no longer any one designated to receive the income. Upon termination, the trust estate was to be divided equally among the children of William Holt Aldrich, descendants of any deceased child to take their deceased parents' share. William Holt Aldrich died in 1897. He was survived by his wife Minnie, and by their five children, one of whom is appellant. Minnie C. Aldrich remained unmarried until her death in May of 1946, and until that date received the income of the Holt trust. She was survived by three of the five children, and by some issue of the two deceased children. Admittedly, upon her death, the corpus of the trust became distributable in five equal shares. Among the three surviving children of Minnie were appellant and Swinton D. Aldrich, who was once a partner of William Arnold Aldrich, the appellant.

The other trust established by William A. Aldrich in 1892 was for another of his sons, George Albert Aldrich, and it is also involved in the present controversy. This trust directed that the income should be paid to George for life, and upon his death that the remainder should go to the heirs of William A. Aldrich then living, according to the succession laws of California then in force. George died November 17, 1918, without issue. He was the last survivor of the five children of William A. and Minnie Aldrich. There were then living eight grandchildren of William A. Aldrich, including appellant. A dispute arose as to whether these grandchildren succeeded per stirpes or per capita. Appellant claimed a one-eighth interest in the property. In June of 1920 the property in this trust was distributed in eight equal shares.

In 1919 the appellant and his brother Swinton became partners in a company dealing in steel and known as The United American Trading Company. During that year they borrowed certain sums from the Banca Popolare Fugazi in San Francisco and gave to that bank an assigment, the proper interpretation of which is one of the focal points on this appeal. It was written on the letterhead of The United American Trading Company, and reads as follows:

“In the Matter of the Trust Estate

of

William A. Aldrich,

Deceased.

“For and as security and credit for The United American Trading Co., (having its principal place of business in the City and County of San Francisco, State of California), we the undersigned William A. Aldrich and Swinton D. Aldrich, beneficiaries in the Trust Estate above mentioned to the extent of an equal one-eighth part each, (Said Estate being assessed and valued at $310,000.00) do hereby assign and set over to The Banca Popolare Fugazi all our right title and interest in and to said Estate. We hereby give The Banca Popolare Fugazi the right, should The United American Trading Co. fail at any time to meet the obligations or payments due from it to said Bank, to collect any money due directly from The Oakland Bank of Savings, in which Bank the Trust Funds are now held, awaiting final distribution. Further we will instruct The Oakland Bank of Savings to pay any sums due from said Estate directly to the Banca Popolare Fugazi, that the Banca Popolare Fugazi will be secured at all times for credits given The United American Trading Co.

“Wm. Arnold Aldrich

“S.D. Aldrich”

At the same time the two brothers signed a letter dated November 21, 1919, and written on the letterhead of the Fugazi Bank addressed to the Oakland Bank of Savings, trustee of the trust, which reads, in part, as follows:

“We hereby direct you to pay to Banca Popolare Fugazi * any sum or sums due or to become due and payable to us or either of us, as beneficiaries In the Matter of the Trust Estate of William A. Aldrich, deceased, as said funds are or shall become available for distribution.

“You may take the receipt of said Banca Popolare Fugazi as a full acquittance for all sums so paid on account of this authority, *”

Appellant testified, and there was no testimony to the contrary, that both of these documents were drafted by officers of the Fugazi Bank. He also testified that the Fugazi Bank had full knowledge of all of the facts relating to the two trusts, and that the assignment was intended to cover only the existing loan, no future loans being contemplated. The problem of interpetation involved is whether this November, 1919, assignment covered appellant's interest in both the George Albert trust, the funds of which were awaiting distribution at the time of the assignment, and the Holt trust, in which appellant acquired no distributable interest until the death of his mother in May, 1946, or whether it only included appellant's interest in the George Albert trust. Appellant contends that the parties intended, and that the assignment properly interpreted only provided, that the then distributable interest in the George Albert trust was assigned. The bank, as successor assignee, contends that the interests in both trusts were covered by the assignment, and the probate court so found.

In 1920 and 1921 The United American Trading Company got into financial difficulties, and in 1921 the appellant was declared a bankrupt. Although appellant has been discharged, the administration of his bankrupt estate is still pending, and Claude Rees, one of the respondents, is the trustee in bankruptcy. The bankruptcy records are admittedly quite incomplete, and it is difficult to ascertain just what, if anything, has ever been decided by the bankruptcy court in relation to the present controversy. Many of the pertinent records have been lost or misplaced. We do know that the Fugazi Bank filed a claim in the bankruptcy proceedings in 1921 and that the records pertaining thereto were lost, and that the Bank of America had the record restored in 1937, but the records introduced into evidence fail to disclose that the bankruptcy court ever determined that the assignment covered the interests of appellant in both trusts, although that court has, apparently, determined that the bank's claim is a “secured” claim.

In November, 1930, by a series of sales and consolidation, the Bank of America became the owner of the business and assets of the Fugazi Bank. Admittedly, the Fugazi Bank, while still in existence, and in 1922 or 1923, and apparently at the direction of the bank examiners, and after it had collected its portion of the George Albert trust under the 1919 assignment, had “written off” as “bad and doubtful” a material portion of the balance of the debt due from appellant.

In February, 1933, the Bank of America purchased the assets of the trust department of the Oakland Bank of Savings, that bank, at the time of the purchase, being the trustee of the trusts created by William A. Aldrich. In this fashion, the respondent bank became trustee of that trust, which in 1933 consisted only of the property in the Holt trust. Thus, by these transactions, respondent bank became the holder of the 1919 assignment, of the debt owed by appellant, and became trustee of the Holt trust in which appellant was named as one of the beneficiaries if he survived his mother, the life tenant. In July of 1946, after the Holt trust had terminated, Minnie Aldrich having died in May of that year, the respondent bank set aside for itself two-fifths of the Holt trust property, claiming as successor pledgee of the Fugazi Bank. Then, in November, 1946, it filed its petition and report as trustee fully disclosing all the facts, and, among other things, requesting approval of its act in setting two-fifths of the Holt trust aside for itself. This was the first official notice that the probate court had, so far as the record discloses, that the bank was both trustee of the Holt trust and a beneficiary, by assignment, of a portion of that trust. As already pointed out, the probate court confirmed and approved all of the acts of the bank as trustee as disclosed in its petition and report.

At the threshold of this appeal we are met with the contention made by respondents that appellant has not the legal capacity to maintain this action because, in July of 1921, he was adjudicated a bankrupt and, therefore, on that date, his entire interest in his then estate, vested or contingent, passed to his trustee in bankruptcy. There can be no doubt that, under the terms of the Bankruptcy Act, 11 U.S.C.A. § 110, sub. a(5), the entire assignable estate of a bankrupt passes to the trustee. There can be no doubt that appellant's interests in both the Holt and George Albert trusts passed to the assignee in bankruptcy in 1921, and this is so whether or not his interest in the Holt trust was then vested, subject to being divested if he did not survive his mother, or contingent. In this state future interests, vested or contingent, are assignable. Sections 693 and 699, Civil Code; Sinclair v. Crabtree, 211 Cal. 524, 296 P. 79; Gray v. Union Trust Co., 171 Cal. 637, 154 P. 306. It is, of course, the general rule that a bankrupt has no legal right to maintain an action in regard to property passing to the trustee. See, for example, Meyer v. Fleming, 327 U.S. 161, 66 S.Ct. 382, 90 L.Ed. 595; Porter v. Sabin, 149 U.S. 473, 13 S.Ct. 1008, 37 L.Ed. 815; Simpson v. Miller, 7 Cal.App. 248, 94 P. 252; Heffron v. Rosenberg, 51 Cal.App.2d 156, 124 P.2d 74; Dean v. Shingle, 198 Cal. 652, 246 P. 1049, 46 A.L.R. 1156; see cases collected 6 Am.Jur. p. 733, § 342. There also can be no doubt that there are certain exceptions to this general rule. Thus, where a suit is pending by or against a person at the time of the adjudication, and the trustee does not elect to intervene, the bankrupt may continue as a party. 6 Am.Jur. p. 732, § 341. The rule, amply supported by authority, is thus stated in 8 C.J.S., Bankruptcy, § 489 page 1362: “* where the trustee renounces the claim or fails or declines to take it up and proceed with it,” the bankrupt may do so. A good case on this subject, typical of many that could be cited, is Lancey v. Foss, 88 Me. 215, 33 A. 1071. There plaintiff brought an action against certain of his debtors. He was then adjudicated a bankrupt. After his discharge he attempted to continue these actions, the trustee having failed to do so. The defendants raised the defense that the causes of action were the property of the trustee and not of the plaintiff bankrupt. The Court, in disposing of the defense, stated 33 A. at page 1072:

“* But all such property of a bankrupt is not cast upon the assignee [[[[trustee in bankruptcy] nolens volens, like the personal property of a deceased intestate upon the administrator. In the latter case the title cannot remain with the deceased, but must fall on his successor. The assignee of a living bankrupt, however, may decline to take or interfere with such property as he deems onerous or worthless. The property so rejected by the assignee does not thereby become derelict, to vest in the first appropriator. The rights and obligations which the assignee declines to enforce or notice do not thereby vanish into nothingness.

“Such items of estate, corporeal or incorporeal, as the assignee declines to appropriate or utilize, remain the property of the bankrupt, subject, always, to the superior right and title of the assignee. Notwithstanding the adjudications and assignment under the bankrupt act, there is left in the bankrupt a right which makes a title good against all the world except his assignee and creditors. These may appropriate the entire title and interest, and so divest the bankrupt completely; but what they decline to appropriate remains with the bankrupt. The title does not fall to the ground between the two. If the assignee or creditors will not take it, no one else can appropriate it. The bankrupt can defend or enforce it against all others.” See, also, Woods v. Berry, 111 Cal.App. 675, 296 P. 332; Fahlstrom v. Denk, 143 Or. 514, 21 P.2d 1093, 23 P.2d 325.

Respondents contend that the exception only applies where suits are pending at the time of the adjudication in bankruptcy, and has no application to causes of action that arise thereafter. The exception, however, is not so limited but extends to cases of abandonment by the trustee. In the nature of things, this must be so. If the trustee refuses to pursue an asset of the bankrupt, or refuses to oppose questionable claims, certainly the bankrupt is not required to step aside and see this asset lost. The proper rule is thus stated in 4 Remington on Bankruptcy, p. 95, § 1407: “It is also the law that, if a trustee ‘abandons' a cause of action or other legal right that the bankrupt owned at the time of the filing of the petition, by refusing or neglecting to take action thereon, the bankrupt may prosecute such right, etc., in his own name.”

In Dushane v. Beall, 161 U.S. 513, at page 516, 16 S.Ct. 637, at page 639, 40 L.Ed. 791, it is said: “If with knowledge of the facts, or being so situated as to be chargeable with such knowledge, an assignee [in bankruptcy], by definite declaration or distinct action, or forbearance to act, indicates, in view of the particular circumstances, his choice not to take certain property or if, in the language of Ware, J., in Smith v. Gordon, [22 Fed.Cas.No.13,052], he, with such knowledge, ‘stands by without asserting his claim for a lapse of time, and allows third persons, in the prosecution of their legal rights, to acquire an interest in the property,’ then he may be held to have waived the assertion of his claim thereto.” See, also, In re Malcom, D.C., 48 F.Supp. 675.

Now how do these principles apply to the present case? No express finding on the issue of abandonment was made. The court did find that “by reason of said bankruptcy proceeding all of the interest of William Arnold Aldrich in and to all of the trust estate of William A. Aldrich, deceased, vested in said trustee in bankruptcy,” subject to the rights of respondent bank, as assignee, and that “the interest of the said William Arnold Aldrich in said trust estate is subordinate to the right, title and interest of Claude Rees, trustee in bankruptcy.” If these findings were intended to be findings to the effect that the asset here involved has not been “abandoned” by the trustee they are totally unsupported. The attorney for the trustee has consistently taken the position that the assignment owned by respondent bank covers appellant's interest in the Holt trust. He has appeared to protect the bankrupt's estate only in any residual interest appellant may have after the bank is fully paid. At no time during this proceeding has he ever contended that the assignment did not cover appellant's interest in the Holt trust. It seems to be his view that because the bankruptcy court decided that the bank's claim was secured, that such finding is conclusive upon him. On the records before us we cannot say that the bankruptcy court ever determined that the assignment involved covered appellant's interest in the Holt trust. This is conceded by the attorney for respondent bank. At the oral argument held on August 23, 1948, the court asked Mr. Stewart, counsel for respondent bank, if the record showed that the bankruptcy court had ever decided that the bank's claim was even a “secured claim,” and counsel replied that: “It is in the record inferentially only, as I read the transcript of the proceedings which recites the Order of the Bankruptcy Court. I was not able to find it in the record.” If the bank or the trustee is relying on the doctrine of res judicata, or upon any such similar doctrine, the burden is on one of them to establish that defense. This, neither has done. So far as the record is concerned, we are presented with a case where the attorney for the trustee, in utmost good faith, contends that the assignment, as a matter of law, covers appellant's interest in the Holt trust, while the bankrupt, equally sincerely, contends that it does not. The problem has arisen in a probate court where it must be decided. If the determination of the trustee, even though made in the utmost good faith, were binding on the bankrupt, a grave miscarriage of justice would occur. Certainly, if neither the trustee nor the creditors raise a debatable legal or factual question that directly affects the bankrupt, he should be permitted to do so. Any other rule would be logically and legally indefensible. We, therefore, hold that, in view of the fact that the trustee has refused to contest the claim of the respondent bank, and has in fact acquiesced in it, the trustee has sufficiently abandoned this asset so that the bankrupt has the legal capacity to appear as a party and contest the claim.

This brings us to the points raised by appellant on the merits of this appeal. Most of his points may be disposed of quickly. He first contends that the petition, report and final account of the respondent bank as trustee show, on their face, that the trustee improperly usurped the jurisdiction of the court in paying itself as assignee two-fifths of the estate before the probate court had determined that it was so entitled. Such actions, it is claimed, violated § 1120 of the Probate Code. This question as to the proper procedure to be followed by a trustee in such cases need not be decided in this case. If it be assumed that the trustee acted improperly (and on this question we express no opinion), appellant was not prejudiced. After a full disclosure of all the facts the probate court ratified and confirmed the acts of the trustee. If the probate court properly so held, appellant was not prejudiced by the trustee's failure to ask for an order prior to the division. If the probate court acted improperly, we will correct it in this opinion.

Equally unsound is appellant's contention that we should reverse the action of the probate court in approving the petition of respondent bank and in confirming its prior actions because, so it is claimed, the trustee's account discloses, on its face, that the trustee violated its obligations in that, by paying itself first, it gained an advantage over the other beneficiaries of the Holt trust who have not yet been paid. This was largely the fault of appellant. The bank as trustee wanted to pay all sums due the other beneficiaries of the Holt trust, but appellant objected. Moreover, appellant is in no legal position to raise points that could only be raised by other beneficiaries, when such other beneficiaries do not object.

A more serious contention of appellant is that the record shows a violation of the trustee's obligations in that it did not notify the probate court in 1933, when it became trustee, that it claimed an interest in the trust. In this connection he quotes Civil Code, § 2233, which provides that if a trustee gains an interest adverse to the beneficiary of a trust, he must inform the beneficiary at once, and may be removed. That is undoubtedly a sound rule. It undoubtedly would have been better practice for the trustee bank to have taken the steps set forth in § 2233. But its failure to do so does not deprive it of its claim, if valid. Appellant knew of his debt owed to the Fugazi Bank, probably knew of the 1930 consolidation, but at any rate knew in 1937, when the bank filed its claim in the bankruptcy proceedings, that the assets of the Fugazi Bank were now owned by respondent bank. Appellant, nevertheless, made no objection until the present proceeding was filed. He is clearly estopped at this late date from now objecting.

Moreover, if the assignment covered appellant's interest in the Holt trust, respondent bank became a beneficiary of that trust in 1930. It became trustee in 1933. Thus, it would seem to be in the position (if its claim is sound) of one who is trustee and one of several beneficiaries. According to the majority rule, approved in this state, such is permissible. Nellis v. Rickard, 133 Cal. 617, 66 P. 32, 85 Am.St.Rep. 227; Tyler v. Mayre, 95 Cal. 160, 27 P. 160, 30 P. 196; Colton v. Stanford, 82 Cal. 351, 23 P. 16, 16 Am.St.Rep. 137.

The contention that the probate court had no jurisdiction to determine this type of controversy was determined adversely to appellant in Re Estate of Henshaw, 68 Cal.App.2d 627, 157 P.2d 390. See, also, In re Estate of Cazaurang, 75 Cal.App.2d 217, 170 P.2d 694, and In re Estate of Butler, 29 Cal.2d 644, 177 P.2d 16, 171 A.L.R. 343.

The only other point necessary to consider is appellant's contention that the assignment and letter of 1919 only assigned appellant's interest in the George Albert trust, and did not cover his interest in the Holt trust. This is the pivotal question involved.

Of course, the trial court has interpreted the assignment to cover appellant's interests in both trusts. If this interpretation was based upon the instruments alone, or upon uncontradicted evidence, the question becomes one of law and the appellate court is not bound by the trial court's interpretation of the documents, even though reasonable, if it believes another interpretation is more reasonable. In re Estate of Platt, 21 Cal.2d 343, 131 P.2d 825; Moore v. Wood, 26 Cal.2d 621, 160 P.2d 772; Western Coal & Mining Co. v. Jones, 27 Cal.2d 819, 167 P.2d 719, 164 A.L.R. 685; In re Estate of Wunderle, 30 Cal.2d 274, 181 P.2d 874; Trubowitch v. Riverbank Canning Co., 30 Cal.2d 335, 182 P.2d 182; In re Estate of Fleming, 31 Cal.2d 514, 190 P.2d 611. Many of the same cases establish the rule to be that, where the trial court properly admits extrinsic evidence, the question of construction is one of fact and the trial court's determination is conclusive if the extrinsic evidence is conflicting and the determination is supported by the evidence. In addition to the cases cited, supra, see Woodbine v. Van Horn, 29 Cal.2d 95, 173 P.2d 17; Stevenson v. County of San Diego, 26 Cal.2d 842, 161 P.2d 553.

It first must be determined whether the assignment and letter are ambiguous. We think, read alone, they must be construed to cover only appellant's interest in the George Albert trust. The assignment describes appellant and his brother as beneficiaries in the William A. Aldrich trust “to the extent of an equal one-eighth part each.” The authorization conferred upon the Fugazi Bank was to collect from the trustee, the Oakland Bank of Savings, “the trust funds * now held, awaiting final distribution.” At that time (1919) the only funds held awaiting distribution were those from the George Albert trust. George Albert had died in 1918. In 1919, when the assignment was executed, appellant was contending for a one-eighth interest in that trust, and in 1920 his view prevailed and a one-eighth interest was distributed to him. In 1919 there was no way at all to ascertain what appellant's interest might be in the Holt trust. He would receive nothing if he did not survive his mother, and, if he did survive her, his share would depend upon the number of grandchildren then alive. The statement in the assignment that it applied to the one-eighth interest of appellant could only apply to appellant's interest in the George Albert trust.

Respondents rely upon the fact that the assignment was entitled “In the Matter of the Trust Estate of William A. Aldrich.” This title is not helpful on the issue of interpretation. The title would be the same whether one or both interests were being assigned, because both trusts were set up in the trust estate of William A. Aldrich. Respondent bank places great reliance upon the phrase “do hereby assign * all our right title and interest in and to said Estate,” but, although that phrase would cover both interests if it stood alone, it does not stand alone. It was immediately preceded by a description of what “right title and interest” was intended—i.e., a one-eighth interest—and was followed by the further designation of the interest, i.e., “awaiting final distribution.” These could only refer to the George Albert trust.

Thus, if the instrument and the surrounding facts admitted by both parties be considered, it, as a matter of law, would have to be interpreted as assigning only appellant's interest in the George Albert trust. The real question is, whether the evidence introduced supports the trial court's contrary interpretation.

It will be noted that immediately after describing the brothers as owners of a one-eighth interest in the trust, there is a phrase in the assignment in parenthesis which states “(Said Estate being assessed and valued at $310,000.00.)” This was apparently an exaggeration in any event. An assistant trust officer of the respondent bank testified that in May, 1919, the total value of the properties in the William A. Aldrich trusts was $380,000 and that in that month a partial distribution of $88,000 was had, leaving a balance of $292,000. Thus, the figure set forth in the assignment is of little value in ascertaining just what was intended to be assigned. Respondent bank also introduced evidence that in 1917 appellant had assigned his interests in both trusts, then both contingent, to secure a small loan, which he subsequently repaid. Although this demonstrates that appellant must have known in 1919 that he could assign interests that were contingent, it is of little help in ascertaining what was in fact assigned by the agreement of 1919.

Appellant's own testimony was clear on the point. He testified that he intended to assign, and the Fugazi Bank knew it was getting, an assignment of his interest, then awaiting distribution, in the George Albert trust only; that a Mr. Furey was then trust officer of the Fugazi Bank with whom the deal was negotiated; that Furey communicated with the Oakland Bank of Savings, the trustee, before the assignment was executed and had full knowledge of the status of appellant's interests in the William A. Aldrich trusts; that Furey knew that appellant's then prospective interest in the Holt trust was not covered by the assignment; that Furey had prepared the form of assignment and the form for the covering letter. This last evidence is most important. The Fugazi Bank prepared the assignment and letter after having full knowledge of the existence of the two trusts, and of appellant's interests in them. With such knowledge, the bank prepared documents which, to say the least, are ambiguous. Under such circumstances, the salutary rule embodied in § 1654 of the Civil Code, that contracts are to be construed against the party who caused the uncertainty to exist, is clearly applicable.

Of course, appellant's testimony, if true, determines that the parties did not intend the assignment to cover appellant's interest in the Holt trust. In support of his testimony appellant offered a portion of the transcript of the bankruptcy proceeding purporting to show that Furey, while the Fugazi Bank still owned the assignment, had testified that the assignment did not cover appellant's interest in the Holt trust. This was excluded on respondent bank's objection that it was hearsay and not properly authenticated. We do not find it necessary to determine whether this was error or not. In our opinion, the construction of the instruments involved in this case was a question of law, and we are of the view that, as a matter of law, they were improperly interpreted by the trial court. This, of course, requires a reversal. It is our conclusion that, properly interpreted, the assignment does not cover appellant's interest in the Holt trust, and that appellant's interest therein should not have been distributed to the bank as a pledgee. Its debt is not secured by the assignment.

We intentionally refrain from determining whether appellant's interest in the Holt trust should be distributed to him or to respondent trustee in bankruptcy. That is a matter which should be passed upon by either the probate court or the bankruptcy court, and should not be determined on this appeal.

The decree appealed from is reversed.

PETERS, Presiding Justice.

WARD and BRAY, JJ., concur.