KENNY v. CITIZENS NAT. TRUST & SAVINGS BANK OF LOS ANGELES et al.
Defendants' demurrers to plaintiff's first amended complaint were sustained without leave to amend. Plaintiff appeals from the ensuing judgment.
George W. Walker had a daughter, Ethelwyn, who married William N. Jarnagin (hereinafter referred to as William), in November, 1927. This marriage relationship continued until the death of Ethelwyn, on January 2, 1951. Mr. Walker passed away in May, 1943. His will was admitted to probate, and defendant bank, Robert W. Kenney and Ethelwyn were appointed co-executors in accordance with its direction. The will created a trust naming as co-trustees the same parties who were named and appointed co-executors. In November, 1946, pursuant to a decree of partial distribution, assets valued in excess of $1,150,000 were distributed to these trustees. The bank thereafter acted as the managing trustee during the entire period of administration of the testamentary trust and defendant Ivey, as executive vice president of the bank, was actively in charge of all matters relating thereto.
Ethelwyn was not only a co-trustee of this trust but she was also a life beneficiary. After payment of a small annuity to one Minnie Van Ness, who passed away in November, 1947, the balance of the income (but not less than $40,000 per year, even if recourse to the corpus were necessary) went to Ethelwyn. Additionally, Ethelwyn was given a power of appointment to be exercised ‘by will or instrument in the nature of a will’ over the residue of the trust. In default of her exercise of the power of appointment, Mr. Walker's will provided that the trustees should distribute such residue to the person or persons entitled to succeed to Ethelwyn's estate ‘in accordance with the laws of intestate succession of the place of her residence as of the date of her death, and in effect as of that date.’
During the period of the administration of the Walker trust and until the death of Ethelwyn it is alleged that the Bank and Ivey, as its executive vice president, ‘in their capacity as trustee for William N. Jarnagin’ under the Walker trust, ‘used their position to obtain an advantage from William N. Jarnagin, their beneficiary, in that by reason of their position as trustee and executive vice president of said Bank, and the influence that resulted therefrom, they pursued a course of conduct of ingratiating themselves with Ethelwyn Gertrude Jarnagin to such an extent that defendant Ivey became her confidential, financial and business advisor and confident, and advised and directed her with relation to all business matters that pertained in any way’ to the Walker trust and any other business affairs of her own; and that ‘at the suggestion, advice and under the direction, dictation and control of said defendants, and as a result of the influence defendants' trustee position under the Walker trust gave them,’ Ethelwyn signed an holographic will, in December, 1947, by which she gave her husband, William, $3,500 a month ‘during his lifetime only,’ provided for other annuities, made a gift of $10,000 to her friend Sarah Kenny, and gave the residue of her own estate and her father's estate over which she had power of appointment to defendant Ivey. A trust was created, with the bank as trustee, to take care of the annuities, and the Bank and Ivey were named as executors.
In February, 1948, Ivey borrowed $72,500 from Ethelwyn without interest. In the following March defendants, it is alleged, ‘advised, and by persuasion and the influence given them by their trustee position under the Walker trust, caused’ Ethelwyn to execute a more elaborate, witnessed will. This will was filed for probate in January, 1951, and admitted to probate the following February. By its terms Ethelwyn made a specific bequest of a sapphire ring to Sarah Kenny, devised her home to Ivey and forgave any indebtedness owing by him to her at her death which, it is alleged, aggregated $83,500 without interest. The will made bequests to 20 friends, relatives and employees in the aggregate sum of $184,500, and bequests to 16 charities totaling $294,000. The residue of her estate, including the property in the Walker trust over which she had power of appointment, Ethelwyn bequeathed to the Bank and Ivey, in trust, to pay the income to her husband but not to exceed $40,000 per year, unless the trustees determined that a sum in excess of that amount was necessary for William's welfare. If the income from the trust were insufficient, the trustees were directed to make up the difference from the corpus. The trustees were directed to pay Ivey the balance of the income and, in the event it was less than $30,000 in any calendar year they were authorized and directed to take recourse to the principal of the trust for the deficiency. Upon the death of William the trust terminated and the trustees were directed to distribute the corpus thereof to Ivey, or, if he were dead, to his daughter, or, if she were dead, to her issue. The will also provided that if any heir or beneficiary thereunder challenged the will or any provision thereof such person would be cut off with $1 and the share or interest that would have gone to such person went to Ivey. The Bank and Ivey were named as executors.
During all the period of the administration of the Walker trust, William was crippled by arthritis, and was a bed-ridden patient in a sanitarium and not living at the family home. The Bank and Ivey knew of this situation, and, it is alleged, ‘took advantage of it’ and ‘were thus enabled to ingratiate themselves' with Ethelwyn. William and plaintiff learned of this conduct of the defendants when Ethelwyn's witnessed will was filed for probate in January, 1951.
Ethelwyn was a resident of California when she passed away, and under the laws of this state, her husband, William, was her sole heir. The assets of the Walker trust as to which Ethelwyn had power of appointment then had an appraised value in excess of $2,200,000 and her own estate was valued at approximately $2,150,000. Plaintiff alleges that upon Ethelwyn's death William would have inherited both of these estates had she not executed either of these wills.
In February, 1952, the remaining assets of the Walker trust were distributed to the Bank and Ivey as the executors of Ethelwyn's will pursuant to the power of appointment which she exercised therein.
William passed away in February, 1953, and plaintiff was appointed executor of his will. He thus survived his wife by a little more than two years. During that period he received $84,300 pursuant to the provisions of her will. No portion of this amount has been repaid or tendered to her estate.
In June, 1951, following Ethelwyn's demise the previous January, a petition was filed seeking an appointment of a guardian for William. Defendants, ‘as friends of the court,’ objected to such appointment. A guardian was, nevertheless, appointed. The guardian then brought on for hearing in July, which was within six months after the admission of Ethelwyn's will to probate, a petition for instructions as to whether he should, on behalf of William, take steps to revoke the probate of her will. At this hearing defendants objected to the court's giving the guardian any instructions to file a petition to revoke the probate of Ethelwyn's will. Defendants urged, according to the amended complaint, that because of William's sick and destitute condition, and because the litigation would be prolonged and Ivey would not loan or advance William any funds pending such litigation, and even though William won the contest of the witnessed will he would still have to contest the holographic will, and because of the forfeiture clause in the witnessed will, he could not afford to petition for the revocation of its probate. The court thereupon instructed the guardian not to file such petition. Thereafter the Bank and Ivey ‘sponsored the distribution of the Walker trust * * * assets' to themselves as executors under Ethelwyn's probated will.
The amended complaint contains six alleged causes of action. The first, third and fifth relate only to the Walker trust estate. The second, fourth and sixth also include Ethelwyn's estate. Plaintiff now concedes that the demurrers to counts three and four are well taken.
In count one, plaintiff seeks damages for breach of a fiduciary duty alleged to have been owed William by the defendants in relation to the Walker trust. In the second count damages are sought upon the same grounds but Ethelwyn's estate is also included. The fifth count seeks to impose a trust upon all the property that came into the possession of defendants from the Walker estate. Count six seeks to impose a trust on the property obtained from Ethelwyn's estate.
The basic theory of plaintiff's complaint is that the Bank, as trustee, and Ivey, as its executive vice president in charge of the administration of the Walker trust, used the influence which their position as trustee gave them with Ethelwyn—a life beneficiary with power of appointment—to obtain an advantage over William—also a beneficiary under the trust. To put it another way, plaintiff charges defendants with a violation of their fiduciary duty to William in their conduct and dealings with Ethelwyn, with whom they were also in a fiduciary relation. In this connection it should be pointed out that during the course of this appeal plaintiff has conceded the validity of Ethelwyn's will.
Counts Two and Six
We shall first consider counts two and six which relate to Ethelwyn's own property (i. e., exclusive of the Walker trust assets). With respect to this property there was no fiduciary relationship between defendants and William; consequently there could be no breach of a fiduciary duty. Furthermore, since it is now admitted that her will is valid, and hence a contest would have been futile, no cause of action based on extrinsic fraud, insofar as this property is concerned, could arise from the alleged adverse pressure in the guardianship hearing wherein William's guardian sought instructions relative to filing a petition to revoke the probate of Ethelwyn's will. Therefore, as to Ethelwyn's property, William is simply in the position of a disappointed heir and not entitled to any relief, either legal or equitable.
Counts One and Five
The first and fifth causes of action, which grow out of the Walker trust, present problems of a different character. In this connection, the fundamental and decisive question presented relates to William's status under the Walker trust. For if the interest of a remainderman was thereby created in him, William would obviously occupy the position of a cestui que trust, or one having a beneficial interest in the trust res. So far as it is here pertinent, the Walker trust provided that upon Ethelwyn's death the trustees should convey, pay over and distribute ‘the entire remainder of the residue trust’ to the persons appointed by Ethelwyn by will or instrument in the nature of a will; and in the event of her default in exercising the power of appointment, then ‘to the person or persons entitled to succeed to the estate of Ethelwyn Gertrude Jarnagin in accordance with the laws of intestate succession of the place of her residence as of the date of her death, and in effect as of that date.’
William a Contingent Beneficiary
Defendants assert that they owed no fiduciary duty to William, since he was not a beneficiary of the Walker trust. For this proposition they rely on Bixby v. California Trust Co., 33 Cal.2d 495, 202 P.2d 1018. There is no merit to their argument and the Bixby case does not apply. In that decision the plaintiff was the settlor of an irrevocable spendthrift trust, with the income payable to himself for life, and providing that upon his death, the remainder of the trust estate should be distributed to his ‘heirs at law in accordance with the laws of succession of the state of California then in effect.’ The settlor brought an action to terminate the trust. The trustee opposed the action on the ground that a remainder had been created in the heirs, and the trust could not be revoked since said heirs were not before the court. In deciding that termination of the trust should be ordered, the Supreme Court held that the trust instrument disclosed an intent not to create remainder interests in the heirs, thus making the settlor the sole beneficiary, and retaining in himself a reversionary interest in the corpus. An analysis of the holding in the case plainly establishes that the court was applying the rule of construction in support of the policy favoring the free alienability of property, which presumes, absent a showing to the contrary, that the settlor of a trust who reserves a life interest in himself and provides that on his death the corpus should go to his own heirs, does not intend to create remainder interests in his own heirs. This is patent from the following language, 33 Cal.2d at page 498, 202 P.2d at page 1019: ‘It is said that where a person creates a life estate in himself with a gift over to his heirs he ordinarily intends the same thing as if he had given the property to his estate; that he does not intend to make a gift to any particular person but indicates only that upon his death the residue of the trust property shall be distributed according to the general laws governing succession; and that he does not intend to create in any persons an interest which would prevent him from exercising control over the beneficial interest.’ The decision in the Bixby case is in harmony with the view prevailing in the majority of American courts which, under the rule of construction known as the ‘worthier title doctrine,’ hold that unless an intent to the contrary appears, no remainder interests are deemed created by a trust under which the trustor reserves for himself a life estate and provides that on his death the corpus should go to his own heirs. Note, 22 So.Calif.L.Rev. 497, 498–9; 47 Mich.L.Rev. 1022, 1023. But the rationale of the Bixby case, where the purported ‘remainder’ to the heirs of the settlor-life-beneficiary of the trust was declared to be a nullity, is not germane with respect to an ascertainment of the interest created in William under the Walker trust. For under the terms of this trust, it was not the settlor but his daughter, Ethelwyn, who was the life beneficiary, as well as the donee of a general power of appointment. Furthermore, and of controlling significance in the present context, Mr. Walker provided for a gift over in default of the exercise of the power of appointment to the person or persons entitled to succeed to Ethelwyn's estate in accordance with the laws of intestate succession in effect at the place of her residence at the date of her death.
It is immediately apparent that this terminology is the equivalent of a gift over to Ethelwyn's ‘heirs at law’ should she fail to exercise her power of appointment. The cardinal rule of construction with respect to a will or decree embodying a testamentary instrument is that it is to be construed according to the expressed intention of the testator, and this intention must be given effect as far as possible. In re Estate of Lawrence, 17 Cal.2d 1, 6, 108 P.2d 893. It thus unmistakably appears that it was Mr. Walker's intention to provide for a future interest in those persons who would qualify as Ethelwyn's ‘heirs at law’ at the time and place indicated should she fail to exercise her power of appointment. The interest so created in the heirs at law of the life tenant is a remainder. Akley v. Bassett, 68 Cal.App. 270, 282–283, 228 P. 1057; County of Los Angeles v. Winans, 13 Cal.App. 234, 243, 109 P. 640; Roberts v. Michigan Trust Co., 273 Mich. 91, 262 N.W. 744, 748; 2 Rest. of Law of Real Property, sec. 157. As Ethelwyn's husband, William, one of her possible heirs at law, was clearly embraced within the class or category of persons described as having such a remainder interest. In re Shoemake, 211 Cal. 457, 295 P. 830; In re Estate of Washburn, 11 Cal.App. 735, 106 P. 415; Hall v. Wright, 17 Cal.App. 502, 506, 120 P. 429. Such a remainder, of course, was rendered contingent by the uncertainty as to whether the right to its enjoyment would vest in William. In re Estate of Lawrence, supra; County of Los Angeles v. Winans, supra. It is settled that the interest of a contingent remainderman is not a mere possibility, such as the expectancy of an heir apparent, but an estate in the property. Akley v. Bassett, supra; County of Los Angeles v. Winans, 13 Cal.App. 257, 260, 109 P. 650; Hall v. Wright, supra. So substantial is the equitable interest of the contingent remainderman of a trust, that many jurisdictions allow the maintenance of various types of actions and proceedings by a contingent beneficiary against a trustee, for good cause shown, in order to have his possible eventual interest properly secured and protected. Roberts v. Michigan Trust Co., 273 Mich. 91, 262 N.W. 744, 748; Northwestern Nat. Bank & Trust Co. v. Pirich, 215 Minn. 313, 9 N.W.2d 773; In re Clarke's Will, 198 Md. 266, 81 A.2d 640, 643; Haldeman v. Openheimer, Tex.Civ.App., 119 S.W. 1158, 1162; Mudd v. Lanier, 247 Ala. 363, 24 So.2d 550, 561; Cannon v. Barry, 59 Miss. 289, 302–305; Hall v. M. B. O'Reilly Realty & Investment Co., 306 Mo. 182, 267 S.W. 407, 411; Johnson v. Superior Court, 68 Ariz. 68, 199 P.2d 827, 829; Grodsky v. Sipe, D.C., 30 F.Supp. 656, 662; 2 Scott on Trusts, sec. 200. This rule is stated as follows: “And generally a cestui que trust, who can allege an existing interest, however minute or remote, may, upon reasonable cause shown, apply to the court to have his interest properly secured.” Roberts v. Michigan Trust Co., supra [273 Mich. 91, 262 N.W. 749]; Johnson v. Superior Court, supra; Lewin, Trusts (13th ed.) p. 874.
From what has been said respecting the nature of the interest of a contingent beneficiary of a trust, the rule logically follows, as stated in Shaw v. Weisz, 339 Ill.App. 630, 91 N.E.2d 81, 87, ‘that a trustee owes the same fiduciary duty to a contingent beneficiary as to one with a vested interest in so far as necessary for the protection of the contingent beneficiary's rights in the trust property. Restatement of the Law of Trusts, sec. 214(1) and comment a; Grodsky v. Sipe, D.C., 30 F.Supp. 656.’ The duty so cast upon the trustee with relation to the beneficiary is that of uberrima fides, or utmost fidelity. It received classic expression by Judge Cardozo in Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546, 62 A.L.R. 1: ‘Many forms of conduct, permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate * * *. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.’ The exacting standard of probity and invicible loyalty to the interests of the cestui que trust which is required of the trustee throughout the administration of the trust, and his obligation to abstain from the exploration of opportunities for selfish gain engendered by his trust position, arise from ‘the well-known inability of human beings to serve two masters at once or to act satisfactorily when faced with conflicting interests.’ 2 Bogert, Trusts & Trustees, sec. 543.
These fundamental precepts have been accorded legislative recognition by their embodiment in the Civil Code. Section 2228 requires that ‘* * * a trustee is bound to act in the highest good faith toward his beneficiary’. Section 2231 reads: ‘A trustee may not use the influence which his position gives him to obtain any advantage from his beneficiary.’ (Italics added.) Section 2234 states that every violation of the preceding sections ‘is a fraud against the beneficiary of a trust.’ Section 2235 provides: ‘All transactions between a trustee and his beneficiary during the existence of the trust, or while the influence acquired by the trustee remains, by which he obtains any advantage from his beneficiary, are presumed to be entered into by the latter without sufficient consideration, and under undue influence.’ Section 2224 states: ‘One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.’ (Italics added.) These sections disclose a comprehensive legislative design to inhibit the temptation of a trustee to use his fiduciary position for personal gain and to protect the beneficiary from any unwholesome influence the trustee might wield to obtain an advantage over him. Their practical effect is to place upon a fiduciary the burden of overcoming the presumption of fraud and undue influence which arises by operation of law when, by his conduct in connection with the fulfillment of his trust obligations, he has received a seeming advantage over a beneficiary of the trust. Civ.Code, sec. 2235; Highland Park Inv. Co. v. List, 27 Cal.App. 761, 763, 151 P. 162; 12 Cal.Jur., sec. 71, pp. 818–9. The explicit language, as well as the underlying purpose, of these sections is broad enough to encompass not only individual transactions between a trustee and beneficiary or misappropriations of the trust property for the trustee's own purposes, but also other forms of activity or patterns of behavior during the stewardship of the trust which bespeak an attitude adverse to the beneficiary's interests. Civ.Code, secs. 2230, 2231, 2235; McClure v. Donovan, 82 Cal.App.2d 664, 666, 186 P.2d 718.
Mindful of these basic principles (it having been established that the Bank and Ivey, its executive officer, occupied a fiduciary relation to William as well as to Ethelwyn), and bound by the rule that all well-pleaded allegations must be taken as true, we come to a consideration of the averments of the first and fifth causes of action insofar as they purport to plead a violation of a fiduciary duty. It is here alleged that from the time of Mr. Walker's death in 1943 until Ethelwyn's death in 1951, a period coextensive with the administration of the Walker trust, the Bank and Ivey used the influence of their trustee position to obtain an advantage over William, whom they knew to be crippled by arthritis and a bedridden patient in a sanitarium. Using their trustee status and the influence naturally arising therefrom they pursued a course of conduct which ingratiated them with Ethelwyn to such an extent that Ivey became her ‘confidential, financial and business advisor and confidant, and advised and directed her with relation to all business matters that pertained in any way to the * * * Walker trust.’ Ivey called frequently at Ethelwyn's home, and so cemented his relationship with her, that the attorneys for the Walker trust forwarded all communications, checks and other documents for Ivey's approval before they were received by Ethelwyn. It is alleged that defendants ‘advised, and by persuasion and the influence given them by their trustee position under the Walker trust, caused Ethelwyn * * * to execute a more formal will’ than her holographic will. Ethelwyn, on March 19, 1948, executed such a will, duly witnessed, which was admitted to probate as the last will and testament of Ethelwyn.
The complaint recites that Ivey used his position to persuade Ethelwyn to loan him $72,500 without interest. Later, Ivey borrowed an additional $30,000 without interest, and was indebted to Ethelwyn in the sum of $83,500 when she died. By the terms of Ethelwyn's formal will any indebtedness owned by Ivey to her at the date of her death was cancelled. In addition to the cancellation of Ivey's debts to Ethelwyn the will which was admitted to probate provided that in the event William were alive at Ethelwyn's death and should survive distribution, all of the residue of her estate, including that over which she had a power of appointment, was to go to defendant Bank and Ivey in trust. After making provision for William during his lifetime, the will provided that Ivey was to receive at least $30,000 per year from this trust. Upon William's death, the entire corpus of the trust was to be immediately distributed to Ivey as his sole property, or should Ivey predecease William, then to Ivey's daughter, if living, or to her issue.
Plaintiff asserts that Ethelwyn would not have executed either her holographic will or the will admitted to probate had it not been for the influence which the Bank and Ivey commanded by reason of their trustee position, and which they used continuously until Ethelwyn's death to William's disadvantage. Plaintiff alleges that had the said wills not been executed, all of the assets of the Walker trust would have been distributed by the trustees thereof to William, instead of to Ivey and the Bank as co-executors of Ethelwyn's will. The appraised value of these assets on January 2, 1951, was $2,203,046.69. Part of these assets consisted of approximately 9211 shares of stock of defendant Bank, which are alleged to ‘represent a substantial balance of power in keeping voting control for the management of defendant Bank. Defendant Bank and defendant Ivey at all times here involved were anxious to keep such control and further to obtain the ownership and control of such stock,’ and were thus motivated in obtaining the execution of the aforesaid wills. Plaintiff alleges that as a National Banking Association, defendant Bank, in transferring the assets of the Walker trust to itself and Ivey, acted in violation of Regulation ‘F’ of the Board of Governors of the Federal Reserve System which provides in section 11(b) that trust assets shall not be transferred ‘to the national bank, to its directors, officers, or employees, or their interests.’
Plaintiff's first cause of action is for damages based on fraud arising from a violation of defendants' fiduciary obligation to William. The fifth cause of action, which incorporates the allegations above summarized and also includes the allegations of the events occurring subsequent to Ethelwyn's death to which we have previously alluded, seeks to hold defendants as constructive trustees of the assets of the Walker trust. According to the allegations of the amended complaint defendants have violated the fundamental obligation of their trusteeship—the inexorable requirement that a trustee may not obtain any advantage over his cestui que trust. Blair v. Mahon, 104 Cal.App.2d 44, 50, 230 P.2d 832. The facts pleaded show that Ivey acted without regard to the elemental principles of equity and engaged in conduct incompatible with his status as a fiduciary in using his trustee influence to insinuate himself into Ethelwyn's confidence in order to obtain for himself an advantage over William.
The Damage to William
Accepting, as we must, the truth of the allegations, we are confronted with a situation wherein a trustee, animated by cupidity, betrayed the trust imposed upon him by embarking on a course of dealing with Ethelwyn calculated to undermine William's rights as a contingent remainderman under the trust and to divert to himself the principal part of the trust corpus. That the fruition of this conduct resulted in gain to defendants and detriment to William is strikingly evident. It need only be pointed up that Ivey became the principal beneficiary of Ethelwyn's power of appointment under the Walker trust, while the Bank, in addition to becoming a co-trustee of the proceeds from the Walker trust, was able to retain for its management voting control of the Bank stock. The consequent hurt to William as a contingent remainderman needs no further elaboration; the details of the complaint which we have set forth amply reveal the extent of the injury to him. Suffice it to say that a prima facie case of overreaching, conflict of interest, and subordination of the cestui's interest to their own by those occupying a trustee position is sufficiently pleaded in the complaint to bring into play the presumption of fraud which the law implies. Civ.Code, sec. 2235; Blair v. Mahon, 104 Cal.App.2d 44, 50, 230 P.2d 832; Highland Park Inv. Co. v. List, 27 Cal.App. 761, 151 P. 162; In re Estate of Kromrey, 98 Cal.App.2d 639, 646, 220 P.2d 805.
The Trustee's Duty
Undivided loyalty is the very essence of the trust relationship. The code of behavior which governs the conduct of a trustee with those to whom he is bound by fiduciary ties is stricter than that of the market place. ‘Not honesty alone’ is its measure, ‘but the punctilio of an honor the most sensitive.’ Measured by these standards, defendants were derelict in their duty. Defendant Bank cannot shield itself on the ground that it is not responsible for Ivey's acts, since a corporate trustee must accept responsibility for the acts of its officers done in the course of the administration of a trust. French v. Orange County Inv. Corp., 125 Cal.App. 587, 592, 13 P.2d 1046; Rest. of Trusts, sec. 225, comment (b), p. 640. And Ivey, though not personally a trustee of the Walker trust, was subject to the same disabilities as to wrongful use of his trustee influence as the Bank of which he was the executive officer and for whom he acted in the administration of the trust. Crenshaw v. Roy C. Seeley Co., 129 Cal.App. 627, 632, 19 P.2d 50. See In re Filardo, 221 Wis. 589, 267 N.W. 312, 105 A.L.R. 438; In re Lewisohn, 294 N.Y. 596, 63 N.E.2d 589. Where trustees have acquired property by virtue of a breach of their fiduciary duty of loyalty to a beneficiary, the latter may proceed against them personally to recover damages for the fraud or may charge them as constructive trustees of the property for his own benefit as rightful owner. Civ.Code, secs. 2234, 2224; McElroy v. McElroy, 32 Cal.2d 828, 831, 198 P.2d 683; Fields v. Michael, 91 Cal.App.2d 443, 448, 205 P.2d 402. Under the first cause of action, the allegations are sufficient to state a cause of action for damages against defendants. The fifth cause of action states facts sufficient to constitute Ivey a constructive trustee of the assets he received from the Walker trust as distributee under Ethelwyn's will; the Bank is likewise so chargeable to the extent it may still hold undistributed assets of the Walker trust.
Defendants assert that if any influence by which a trustee gains an advantage over a beneficiary is ‘undue influence,’ then plaintiff's case must be defeated by the fact that the order admitting Ethelwyn's will to probate is an adjudication that no undue influence has been exerted, used or exercised. This proposition might have some merit if the showing of undue influence required to invalidate a will were of the same order as the influence which the law deems to be undue when exercised by a trustee to obtain an advantage over one to whom he owes the loyalty of a fiduciary. But that is not so. “What constitutes undue influence is a question depending upon the circumstances of each particular case. It is a species of constructive fraud which the courts will not undertake to define by any fixed principles, lest the very definition itself furnish a finger-board pointing out the path by which it may be evaded.” Longmire v. Kruger, 80 Cal.App. 230, 239, 251 P. 692, 696. Mere persuasion or advice or the influence of affection is not an improper influence in securing the execution of a will. In re Estate of Arnold, 16 Cal.2d 573, 577, 107 P.2d 25; In re Estate of Tribbey, 58 Cal.App.2d 100, 135 P.2d 603. The influence which justifies the setting aside of a will must be such as deprives the testator of his free agency, destroys the freedom of his purpose, and renders the testamentary instrument an expression of the will of another rather than his own; and it must operate at the time the will is made. In re Estate of Higgins, 156 Cal. 257, 262, 104 P. 6; In re Estate of Arnold, supra. Advice or persuasion will not vitiate a will freely and understandingly made. In re Estate of Doty, 89 Cal.App.2d 747, 755, 201 P.2d 823; In re Estate of Carson, 74 Cal.App. 48, 239 P. 364. The mere existence of a confidential relationship between a testator and a beneficiary under the will, without more, does not raise a presumption of undue influence or shift to the beneficiary the burden of proving that the will was not executed by undue influence on his part. In re Estate of Wellauer, 107 Cal.App.2d 268, 272, 236 P.2d 906; In re Estate of Carson, supra, 74 Cal.App. at page 61, 239 P. at page 370. A different situation prevails where a fiduciary uses the influence flowing from his trust position to secure an advantage over a cestui que trust. It is unnecessary to show that the trustee overmastered the will of the cestui and substituted his own. The relationship having been established and the advantage shown, the law raises the presumption of fraud and requires the fiduciary to satisfactorily explain his conduct in order to overcome the presumption. Copeland v. Rabing, 110 Cal.App.2d 631, 637, 243 P.2d 119; In re Estate of Kromrey, supra, 98 Cal.App.2d at page 646, 220 P.2d at page 810. This distinction is clearly expressed in Longmire v. Kruger, supra, where the court set aside an inter vivos gift between persons standing in a confidential relation. In language appropriate to the present discussion, the court stated: “In equity, persons standing in certain relations to one another * * * are subject to certain presumptions when transactions between them are brought in question; and if a gift or contract made in favor of him who holds the position of influence is impeached by him who is subject to that influence, the courts of equity cast upon the former the burden of proving that transaction was fairly conducted as though between strangers, * * *.
“The influence which is undue in the case of gifts inter vivos, is very different from that which is required to set aside a will. In the case of gifts inter vivos, it is considered by the courts of equity that the natural influence which such relations as those in question involve, exerted by those who possess it to obtain a benefit for themselves, is an undue influence. Gifts or contracts brought about by it are therefore set aside, unless the party benefited can show affirmatively that the other party to the transaction was placed in such a position as would enable him to form an absolutely free and unfettered judgment. The law regarding wills is very different.” Similarly, it may be fully conceded that Ivey's ingratiating conduct toward and influence upon Ethelwyn could not be deemed undue influence in a contest over Ethelwyn's will. Nonetheless, when Ivey used the influence of his trust position for the purpose of ultimately acquiring for himself the bulk of the trust estate by creating a situation by which he profited at William's expense, the presumption of undue influence and fraud which flows from his fiduciary relationship to William came into being.
The cases cited by defendants, O'Brien v. Markham, 37 Cal.App.2d 381, 99 P.2d 583, and Tracy v. Muir, 151 Cal. 363, 90 P. 832, are of no assistance. In those cases it was held that a disappointed heir could not collaterally attack a decree admitting a will to probate when there was no showing that a contest of the will had been prevented by extrinsic fraud. The vital different here is that William is not a disappointed heir, but a defrauded beneficiary under the Walker trust; the gravamen of the present action against defendants is breach of an independent duty to him arising from a fiduciary relation, see Tracy v. Muir, supra, 151 Cal. at page 371, 90 P. at pages 834, 835, rather than a collateral attack upon a probate decree. See Aldrich v. Barton, 138 Cal. 220, 71 P. 169; Silva v. Santos, 138 Cal. 536, 71 P. 703; Sohler v. Sohler, 135 Cal. 323, 67 P. 282.
Res Judicata Inapplicable
There is likewise no merit in defendants' contention that the final order of the probate court settling and approving the fifth and final accounting in the Walker testamentary trust coupled with the distribution of the entire corpus by the trustees pursuant to such order constituted a conclusive adjudication that there was no act committed by the trustee which was a breach of its duties as a trustee or which resulted in any damage for which the relief plaintiff seeks may be given. Neither that proceeding nor that forum was appropriate for the determination of the issues here presented. See Sears v. Rule, 27 Cal.2d 131, 139–140, 163 P.2d 443; In re Estate of Morelli, 102 Cal.App.2d 39, 42–43, 226 P.2d 716. Immediately upon the death of Ethelwyn on January 2, 1951, title to the corpus of the Walker trust vested in her appointees, the Bank and Ivey, and William's contingent interest as a remainderman was extinguished. In re Estate of Lefranc, 38 Cal.2d 289, 297, 239 P.2d 617; Mears v. Jeffry, 80 Cal.App.2d 610, 617, 182 P.2d 294. The title which an appointee acquires from the donee of a power of appointment derives from the original donor of the power, the donee being merely a conduit through whom the title passes. Oglesby v. Springfield Marine Bank, 385 Ill. 414, 52 N.E.2d 1000, 1007; Wyeth v. Safe Deposit & Trust Co. of Baltimore, 176 Md. 369, 4 A.2d 753, 756; Com. v. Davis' Estate, 345 Pa. 284, 26 A.2d 915, 917; In re Morgan's Will, 227 Wis. 288, 277 N.W. 650, 652, 278 N.W. 859. A decree of distribution of the estate of the original donor to the appointees under a valid exercise of the power operates merely to confirm such title as was vested in them at the donee's death. In re Estate of Lefranc, supra; Mears v. Jeffry, supra. Thus at the time of Ethelwyn's death, the relationship between William and the Bank as trustee and beneficiary under the Walker trust was terminated and William henceforth became a stranger to that estate. In settling the final accounts of the testamentary trustees and decreeing distribution of the Walker estate in accordance with Ethelwyn's will in the proceeding of February 7, 1952, the court was engaged in the exercise of its special and limited probate jurisdiction. In re Estate of McLellan, 8 Cal.2d 49, 55–56, 63 P.2d 120; Texas Co. v. Bank of America, etc., Ass'n, 5 Cal.2d 35, 53 P.2d 127. Although section 1120 of the Probate Code1 undoubtedly confers an enlarged jurisdiction upon the probate court in the resolution of controversies relating to testamentary trusts, it still remains without jurisdiction to try the question of title to disputed property between a representative or beneficiary of the estate and a stranger to the estate. See Wilkerson v. Seib, 20 Cal.2d 556, 562–563, 127 P.2d 904; In re Haas' Estate, 97 Cal. 232, 31 P. 893, 32 P. 327. It is also without power to grant a personal judgment against the trustees. In re Estate of McLellan, supra; Costa v. Superior Court, 137 Cal. 79, 69 P. 840. The theory of plaintiff's action is based fundamentally on the breach of an alleged fiduciary relationship existing between William and Ivey and the Bank for which he is entitled to damages or the impressment of a constructive trust on the property distributed to defendants under the Walker trust. It should be borne in mind that plaintiff is not seeking to challenge the accuracy of the accounts, nor does he claim that the executor or trustee should be charged with property belonging to the estate which was being wrongfully withheld, see Bauer v. Bauer, 201 Cal. 267, 256 P. 820; In re Estate of Roach, 208 Cal. 394, 281 P. 607, nor is this a controversy between trustee and beneficiary ‘where the method of operation or the good and sound judgment of the trustee’ in the administration of the estate is involved, In re Estate of De la Montanya, 83 Cal.App.2d 322, 328, 188 P.2d 494, 498, nor one in which the conflicting claims of rival beneficiaries under a testamentary trust is to be determined. It is an action by a stranger to the final accounting and decree of distribution in the Walker estate to seek redress for a fraud upon him personally, and it is independent of the will and probate proceedings. The issues raised in such a situation are not within the jurisdiction of the probate court, but must be enforced in a separate proceeding in equity without any attack on the probate proceedings. See Sears v. Rule, 27 Cal.2d 131, 139–140, 163 P.2d 443; In re Estate of Morelli, 102 Cal.App.2d 39, 41, 42–43, 226 P.2d 716; In re Sharp's Estate, 17 Cal.App. 634, 120 P. 1079; In re Estate of Cecala, 104 Cal.App.2d 526, 535, 232 P.2d 48. The final accounting being in order and ready for settlement, and the admission of Ethelwyn's will to probate having determined the manner of distribution of the remaining assets of the Walker trust, William could not have resisted the distribution proceedings in the Walker estate, to which he was a stranger. His proper course of action for the vindication of his rights was the institution of the present suit. The doctrine of res judicata, therefore, has no application here.
Defendant Ivey relies on Willson v. Security-First Nat. Bank, 21 Cal.2d 705, 134 P.2d 800, and Keyston v. Keyston, 96 Cal.App.2d 550, 215 P.2d 754, in support of his argument that plaintiff is estopped and barred by res judicata from maintaining this action. Neither of these cases presents problems analogous to the situation here involved. In the Willson case, the bank, as trustee of a testamentary trust, sold trust property for $10,000 which it invested in a participation certificate issued by it without securing a permit from the commissioner of corporations. Plaintiff, who was the sole beneficiary of the trust, challenged the transaction in an independent suit on the ground that the participation certificate was void and valueless and that she was therefore entitled to recover the amount paid therefor. In the meantime, the purchase of this certificate had been reported by the trustee in its account to the probate court. Subsequent accounts listed the certificate as an asset of the trust. No objection to these accounts was filed by the beneficiary. Obviously the ‘liability of the trustee by reason of that transaction * * * was involved in and concluded by the accounting decree’ since ‘the purchase of the participation certificate * * * was a trust transaction.’ 21 Cal.2d at page 713, 134 P.2d at page 805. Consequently, the beneficiary was not entitled to maintain an independent action based on that same transaction. Here, however, the problem is not one relating to the handling of a particular item of the trust estate and therefore ‘a trust transaction’ which was reported to and approved by the probate court. Rather, its relates to Ivey's alleged violation of his fiduciary duty to William, outside of the administration of the trust, which was not reported to and approved by the probate court.
In the Keyston case, supra, there was a controversy between the beneficiaries and the trustee as to the proper management of the trust estate. Clearly this was a matter for the probate court to adjudicate on a petition ‘for instructions or to construe’ the trust. No comparable situation is here presented.
Defendants assert an estoppel against plaintiff upon two grounds: (1) The order of the probate court instructing William's guardian not to contest Ethelwyn's will, and his acquiescence therein; and (2) the acceptance of benefits under her will. There is no merit in either of these contentions. The answer to the first is that the instruction pertained to bringing a will contest; or, more specifically, a petition to revoke the probate of the will which had been admitted to probate less than six months previously. Neither plaintiff's first nor fifth causes of action assets any ground for invalidating Ethelwyn's will. They proceed upon the theory that its execution represented a free and voluntary act on her part. Plaintiff is not seeking relief either under her will or because of its invalidity. Rather, he seeks to recover from the defendants for their breach of the fiduciary duty to William which was reflected in the provisions of a valid will made by Ethelwyn whereby she exercised her power of appointment in the Walker trust so as to prefer Ivey over her husband.
The second ground for estoppel is based on the theory that by accepting benefits under Ethelwyn's will William elected to take under the will and therefore he cannot now take a position adverse to it. The answer to this proposition is that William's representative is not attacking Ethelwyn's will in counts one and five with which we are here solely concerned. He asserts its validity. He seeks no relief against her estate. His action is against the defendants because of their alleged violation of a fiduciary duty which they owed William, resulting in their gain and William's loss.
Defendants also argue that plaintiff is barred from maintaining this action because he has neither returned nor tendered the $84,300 which William received under his wife's will. The answer to this argument is simple. The $84,300 paid to William was rightfully paid him pursuant to the terms of his wife's will which, by judicial decree, is a valid testamentary document. Since plaintiff is neither attacking the validity of Ethelwyn's will nor the probate thereof and is not suing the estate, there is no reason whatever for the return of this money, which was not only legally paid to him, or for his benefit, but the ownership of which is not here in dispute.
There is no merit in defendants' claim that plaintiff's causes of action were personal to William and abated with the latter's death. The first and fifth causes of action for the recovery of damages and the imposition of a constructive trust, stem from defendants' fraudulent invasion of William's interest in the Walker trust, a right in property, and survive his death. Wikstrom v. Yolo Fliers Club, 206 Cal. 461, 464, 274 P. 959; Auslen v. Thompson, 38 Cal.App.2d 204, 214, 101 P.2d 136.
In their numerous briefs and the supplements thereto the parties have argued some additional questions. In view of our conclusions, it is unnecessary, however, for us to pass upon them.
The judgment is reversed with instructions to overrule the demurrers to the first and fifth causes of action in the amended complaint and allow the defendants a reasonable time within which to file their respective answers. In other respects the judgment is affirmed.
I concur in the foregoing order and opinion insofar as it affirms the judgment of the trial court. I dissent from the portion thereof reversing the order of the trial court which sustained the demurrer to the first and fifth causes of action. As to such causes of action I would affirm the trial judge's ruling.
1. Section 1120, Probate Code, reads in part: ‘When a trust created by a will continues after distribution, the superior court shall not lose jurisdiction of the estate by final distribution, but shall retain jurisdiction for the purpose of determining to whom the property shall pass and be delivered upon final or partial termination of the trust, to the extent that such determination is not concluded by the decree of distribution, of settling the accounts and passing upon the acts of the trustee and for the other purposes hereinafter set forth. * * *’
MOORE, P. J., concurs.