IN RE: ESTATE of Seth G. BEACH, also known as Seth Beach, Deceased. The BANK OF CALIFORNIA, as Executor, Petitioner and Respondent, v. Joette Beach CARTER et al., Contestants and Appellants.
This appeal requires inquiry into the standard of care governing a trust company in handling investments of the estate during the company's tenure as executor.1
The will named The Bank of California as executor and as trustee of a number of testamentary trusts. Included in the estate were 27,700 shares of common stock of Reserve Oil and Gas Company. In August 1968, when the testator died, this stock was valued at $391,262.50, or about $14.10 per share. In June 1969 the bank, as executor, sold 3,000 shares of this stock at approximately $16 per share to help defray expenses of administration. By September 1970, at the conclusion of probate, the remaining 24,700 shares had a market value of about $6 a share.
The executor filed its final account and petition for distribution. Beneficiaries of the estate filed exceptions and a contest, seeking to surcharge the executor for damages suffered through negligent failure to sell the entire holding of Reserve Oil and Gas stock. After taking evidence and making findings of fact, the probate court rejected the contest and awarded the bank and its attorneys fees for extraordinary services. The contestants appeal.
In summary, the probate court found that Reserve Oil and Gas Company had not been in a deteriorating condition; that the bank had made inquiries and had so determined in deciding whether to sell or retain the stock; that the bank had been acting as executor and not as a trustee; that the bank's decision to retain the stock was careful and prudent according to standards prevailing in California for the executors of estates in probate.
The appeal briefs center on two issues: (1) whether in measuring the bank's conduct the probate court applied the appropriate standard of care; (2) whether the finding of care is supported by substantial evidence.
In debating the standard of care governing its investment decisions, the bank points out that it was an executor whose primary duty was to collect and preserve the estate; that it was not yet a trustee charged with long-term duties of management and investment. The contestants rely on cases holding that a testamentary trustee gets title immediately upon the testator's death, merely awaiting confirmation of title by the decree of distribution. (See Estate of Lefranc, 38 Cal.2d 289, 297, 239 P.2d 617.)
The contrast between the comparative obligations of executor and testamentary trustee represents a false issue here. According to convention, the executor conserves, the trustee manages and the decree of distribution sharply marks a transition from one function to the other.2 However suitable to the quiet past, this dogma is unfit for the urgencies of the contemporary marketplace. In real life, business management problems do not await the switch of hats from executorship to trusteeship. They often exist at the testator's death, demand prompt attention by the executor and persist into trusteeship. Cash coming into the executor's hands may and should be invested. (See Prob.Code, §§ 584–586.1, 920.3.) Market fluctuations call for early review of the decedent's investment portfolio. The desideratum is continuity of management among the decedent, the executor and trustee, not sharp breaks. There is little realism in legal generalizations which tolerate a comparatively depressed standard of management during probate administration. It is said that the executor of an estate has the obligation to collect, preserve and protect the assets. (Prob.Code, § 571; Estate of Turino, 8 Cal.App.3d 642, 647, 87 Cal.Rptr. 581.) That sort of description expresses only a minimum set of expectations. To say that an executor must conserve but need not manage is unrealistic. The present case may not be decided in terms of the contrast between executorship and trusteeship.
The contestants' claim of surcharge is essentially a suit to recover for negligent damage to property. In negligence actions the defendant is generally held to the standard of ordinary care exercised by a reasonably prudent person under the circumstances. (Warner v. Santa Catalina Island Co., 44 Cal.2d 310, 317, 282 P.2d 12; Rest. of Torts (2d) § 283; Prosser on Torts (4th ed.) p. 150.) When the duty of care arises from a relationship in which the actor exercises special knowledge and skill, he will be held to conduct consistent with that knowledge and skill. (Rest. of Torts (2d) § 289; Prosser on Torts (4th ed.) p. 161.) ‘The services of experts are sought because of their special skill. They have a duty to exercise the ordinary skill and competence of members of their profession, and a failure to discharge that duty will subject them to liability for negligence.’ (Gagne v. Bertran, 43 Cal.2d 481, 489, 275 P.2d 15.)
Probate Code section 920 declares that an executor shall not suffer loss by the decrease or destruction of the estate without his fault. The general standard of an executor's care in handling assets of the estate is phrased as ‘that degree of prudence and diligence which a man of ordinary judgment would be expected to bestow upon his own affairs of a like nature.’ (In re Moore, 96 Cal. 522, 525, 31 P. 584; see also, Estate of Guiol, 28 Cal.App.3d 818, 824–825, 105 Cal.Rptr. 35; Estate of Barbikas, 171 Cal.App.2d 452, 457–458, 341 P.2d 32.)
The present executor, The Bank of California, was something other than ‘a man of ordinary judgment.’ The bank is a trust company, a professional in its field. Trust companies solicit business through advertisements and invitations in which they claim greater expertise than individuals. They employ staffs of trust officers, securities analysts, property managers, accountants and attorneys. (See Estate of Gilmaker, 57 Cal.2d 627, 632–633, 21 Cal.Rptr. 585, 371 P.2d 321; Coberly v. Superior Court, 231 Cal.App.2d 685, 689, 42 Cal.Rptr. 64.) A rule of care phrased for individual executors is inappropriate for measuring the conduct of trust companies in their executorship role. The matter was succinctly put in Coberly v. Superior Court, supra, 231 Cal.App.2d at p. 689, 42 Cal.Rptr. at p. 67: ‘A banker, a doctor, a lawyer, may not gain business as a specialist and defend mistakes as a layman.’
A parallel distinction occurs in the rules of care governing individual trustees, on the one hand, and professional or corporate trustees, on the other. In most states, either by decisional law or a codification of decisional law, a trustee's investment decisions are governed by the ‘prudent man’ standard. (See Civ.Code, § 2261.) The courts of some states have adopted a rule consistent with the Restatement of Trusts,3 holding that a trustee who procures his appointment by professing greater managerial and investment skill than the ordinary man, is under a duty to use such skill. (See cases collected, Nossaman & Wyatt, Trust Administration and Taxation (2d ed.) vol. 1–A, § 27.21, pp. 27–58, note 4; Bogert, Trusts and Trustees (2d ed.) § 541, pp. 453–455; 2 Scott, Trusts (2d ed.) § 174.1, pp. 1298–1302; Rest. Trusts (2d) § 227, comment on clause (a), pp. 530–536; see also, 25 Hast.L.J. 417, 427.)
Transported into the present context, these considerations result in a rule which may be articulated thusly: By accepting employment as the executor of an estate, a trust company undertakes to use such skill, prudence and diligence as trust companies ordinarily possess and exercise in the performance of their tasks as executors.4
In this case the trial court did not expressly spell out the standard of care guiding its decision. Its findings declare that the bank acted ‘according to the standard of care prevailing in the State of California for executors of probate estates'; that its investment decisions ‘deviated from no applicable investment standard existing in California’; that it ‘acted in the capacity as an executor of a probate estate, and not as a trustee.’ The trial court filed a memorandum opinion which aids in interpreting its findings. In its opinion the court distinguished between an executor and trustee; observed that the duty of the former was to conserve, not invest; that the problem was one of probate administration and ‘not a trust problem.’
Inferentially, the trial court's decision was based upon two principal factors: first, the fact that in handling the Reserve Oil and Gas stock the bank was only the executor and not yet acting as testamentary trustee; second, its conclusion of law that the bank was not yet bound by the ‘prudent investor’ rule (Civ.Code § 2261) governing California trustees. The court's findings and opinion preclude the inference that it gave weight to the factor which we view as vital—the particularized standard of care which distinguishes between two kinds of executors: one, the ‘reasonably prudent’ layman, the other the corporate trustee professing special competence to administer estates in probate. The court's failure to apply the proper standard of care was error which requires reversal.
In view of the error, the appeal's determination does not require resolution of the evidentiary issue. At this point we disavow any implication that the bank did or did not conform to the appropriate standard of conduct. Upon receiving the estate in August 1968, officials of The Bank of California investigated Reserve Oil and Gas Company, concluded that it was not a deteriorating company and decided there was no need for early sale of the stock. A few months later the bank's trust investment committee reviewed the matter and decided not to sell. The need for cash caused the sale of 3,000 shares in June 1969. At the hearing of the contest, expert witnesses called by the contestants criticized the bank's failure to sell; others, called by the defense, declared the decision a prudent one. Similar testimony at a future hearing will present the fact-finder with the question whether the bank's conduct was negligent under the circumstances.
The contestants' claim to a jury trial on the negligence issue raises a question surviving reversal on appeal. Before the hearing of the contest, the contestants requested a jury trial and the court denied the request.
Entitlement to a jury trial in probate proceedings is not always clear. The right exists only when granted by statute. (Estate of Van Deusen, 30 Cal.2d 285, 291, 182 P.2d 565.) Entitlement to a jury trial in probate depends upon specific statutory authority or upon a statute expressly authorizing formation of an issue of fact in the particular proceeding. (E. g., Estate of Perkins, 21 Cal.2d 561, 567, 134 P.2d 231; Estate of Baird, 173 Cal. 617, 622, 160 P. 1078; Carter v. Waste, 159 Cal. 23, 27–28, 112 P. 727. In re Moore, 72 Cal. 335, 340, 13 P. 880; Budde v. Superior Court, 97 Cal.App.2d 615, 617–620, 218 P.2d 103; see Prob.Code, § 1230.) The present proceeding arose under Probate Code section 927, which permits an interested person to file exceptions and a contest to an executor's or administrator's account. Section 928 declares that upon the contest of an allowed claim, both the contestant and the objector are entitled to a jury. These statutes are silent as to jury trials in other account contests; neither do they provide expressly for the formation of an issue of fact. Thus the decisions declare that there is no entitlement to a jury trial or new trial in a contest of the executor's account or, by parity of reasoning, of the account of a testamentary trustee. (Estate of Smead, 12 Cal.2d 20, 24, 82 P.2d 182, Estate of England, 214 Cal. 298, 300, 5 P.2d 428; In re Sanderson, 74 Cal. 199, 208, 15 P. 753; In re Moore, supra, 72 Cal. 340, 13 P. 880; see also, Estate of Van Deusen, supra, 30 Cal.2d at p. 292, 182 P.2d 565.)5
The contestants implicitly concede lack of an absolute right to a jury, for they charge the court with abuse of discretion in rejecting their demand for a jury trial. In re Moore, supra, denies the contestant a fixed right to jury determination of a contested account but adverts to the probate court's power to impanel a jury for an advisory verdict if the account is not long and complex.
Issues of fact joined in probate proceedings must be tried according to the rules of practice in civil cations. (Prob.Code, § 1230.) When neither party to a civil action has a right to a jury, grant or refusal of a jury trial is discretionary with the court and, if the jury is allowed, its verdict is only advisory. (Bettencourt v. Bank of Italy, etc. Assn., 216 Cal. 174, 179, 13 P.2d 659; Cutter Laboratories v. R. W. Ogle & Co., 151 Cal.App.2d 410, 418, 311 P.2d 627.) The present contest did not involve lengthy or complex accounting problems. It turned upon a unitary issue which the law generally describes as one of fact and which is commonly decided by juries negligent? (See Weiner, The Civil Jury Trial and the Law-Fact Distinction, 54 Cal.L.Rev. 1867, 1876–1880.) That factor gravitated toward a jury trial. Other factors, however debatable, were available to support denial of a jury trial. The historical facts were hardly in dispute. The case did not involve the standard of the ‘ordinary purdent man,’ a standard best left in the hands of the jury as a cross-section of the community. Rather, it invoked a standard of conduct esoteric to a relatively small and specialized segment of the business world, a segment whose approach and practices might be best described by expert witnesses and applied to the individual facts by one experienced in business and legal matters. Moreover, were the judge dissatisfied with the jury's value judgment, he had power to reject the verdict, for it would have been advisory only. Under these circumstances, denial of an advisory jury had a rational basis and was not an abuse of discretion.
At the conclusion of the contest the court awarded the bank $2,500 and its attorney $14,500 for extraordinary services in defense of the contest, payable out of the contestants' share of the estate. (Some of the beneficiaries had abstained from the contest.) Contestants object to the award, contending that the bank was only defending its own interests against the attempt to surcharge it. The contest challenged the executor's stewardship of the estate; the defense of the executor's final account constituted extra service for which compensation was allowable. (Estate of Beirach, 240 Cal.App.2d 864, 867–868, 50 Cal.Rptr. 5; Estate of Raphael, 128 Cal.App.2d 92, 97, 274 P.2d 880.) In the exercise of its probate jurisdiction the court could frame its judgment to achieve an equitable allocation of burdens among the distributive share of the estate. (In re Moore, supra, 96 Cal. 522, 528, 31 P. 584.) It was equitable to shield the other beneficiaries from the expense of the contestants' litigation by charging the fee awards against the latters' share only. (See Estate of McSweeney, 107 Cal.App.2d 140, 145–147, 236 P.2d 846.)
Contestants claim that the $2,500 fee awarded the bank has no evidentiary support. In claiming lack of substantial evidence to support a finding, an appellant must set forth all the material evidence on the point (unfavorable as well as favorable), supported by references to the record. (Foreman & Clark Corp. v. Fallon, 3 Cal.3d 875, 881, 92 Cal.Rptr. 162, 479 P.2d 362; Cal.Rules of Court, Rule 15, subd. (a)). Contestants have not fulfilled this demand. The contest occasioned numerous conferences involving bank officials, depositions of these officials and their attendance and testimony at the trial. Prima facie the contest imposed expenses upon the executor beyond the routine expense of probate administration.
Contestants contend that the $14,500 award to the executor's attorneys for extraordinary services is excessive. The allowance may be disturbed only for abuse of discretion. (Estate of Turino, supra, 8 Cal.App.3d at 648, 87 Cal.Rptr. 581.) In announcing its decision of the contest, the court had fixed an attorney fee of $7,500, but had not taken evidence on the subject. Before entry of judgment, the attorneys for the executor petitioned for $23,655 rather than $7,500 and were allowed to present evidence supporting the request.
The attorneys for the executor were a San Francisco law firm whose principal representatives in the contest were a partner and an associate. Both the partner and the associate had been constant participants in the trial, which took place in Placerville and lasted six days. The contest had been preceded by the usual array of legal preliminaries, conferences and depositions. The firm submitted time sheets showing hours expended by the partner, the associate and research clerks. In computing his request the partner utilized an hourly rate factor of $70 for himself, $40 for the associate and $15 for the research clerks. On a straight time basis the fee calculation aggregated $27,392.50, including some expenses.
In passing upon the fee request the probate court appropriately noted the various criteria governing allowance of extraordinary fees. (See Estate of Walker, 221 Cal.App.2d 792, 795, 34 Cal.Rptr. 832.) It observed that the statutory fee of the executor's attorney had been more than $28,000, and that there had been an extra fee of $4,815 in another connection. It noted that administration of the estate by a corporate executor had reduced the ordinary legal services to a minimum. Accordingly, it fixed the legal fee for defending the contest at $14,500.
In attacking the award, contestants point out that the litigation did not profit the estate. As we have observed, defense of the executor's account was a lawful occasion for the award of extra compensation. The contestants had forced the estate's personal representative to defend its stewardship. To deny the executor and its attorney fair compensation would effectually require them to subsidize the contestants' lawsuit. Contrary to contestants' contention, defense against the suit was no more a ‘risk’ of the trust business than of an individual executor. Even though successful defense of the contest (up to that point) had not increased the value of the estate, the services of the executor and its attorney were bona fide and called for fair compensation.
Contestants attack the accuracy of the law firm's time sheets. Credibility was a question for the trial court. Contestants argue that the court erred in accepting rates charged by San Francisco attorneys and should have applied prevailing rates in El Dorado County. The court does not appear to have indulged in that action. The contestants produced no opinion evidence relative to the value of the extraordinary services. They did produce a document which appears to be a fee schedule issued by the El Dorado County Bar Association, recommending a $250 per diem fee for superior court actions. Doubtless the rates used as a basis for fee formulations are higher in metropolitan cities, lower in small communities. The court did not fix the fee by the measure of the $70 hourly rate claimed for partners and the $40 rate claimed for associates; rather, it ordered a sharp reduction from the time-basis computation. In the light of the time spent on the case by several lawyers, the amount in suit and the result obtained (up to that time), the amount was within the range of judicial discretion.
We sustain contestants' objection to an award to the attorneys for the executor of $1,955.17, representing interest on deferred fee awards. In September 1970 the court had made orders awarding attorneys for the executor a partial fee on account of their statutory allowance and a partial fee for extraordinary services, payment to be withheld until conclusion of the contest. In August 1972, at the conclusion of the contest, the court awarded the attorneys interest on these deferred fees calculated at the legal rate.
A probate court may make interim fee allowances to the estate's personal representative and attorney and may, in its discretion, order immediate or deferred payment as justified by the condition of the estate. (Prob.Code, §§ 904, 911; Estate of Algee, 158 Cal.App.2d 691, 692–696, 323 P.2d 221.) That sort of award or payment, nevertheless, is only an advance against the fully allowable fee, which can be determined only at final accounting. (Estate of Heck, 160 Cal.App.2d 162, 165, 324 P.2d 733.) The order fixing partial fees and deferring payment created no debt, no arrearage and no judgment before occurrence of the time fixed for actual payment. Accordingly, there was no entitlement to interest at the legal rate or any other rate. Respondents cite no authority for the interest award. We view it as error.
We have discussed the fee problems because they will survive remand. Nonetheless, in view of the reversal on appeal, the award of extraordinary fees should be set aside as premature and held in abeyance pending final resolution of the contest. The commissions and fees of a personal representative and his attorney are not fully determinable until the final accounting. (Estate of Heck, supra, 160 Cal.App.2d at p. 165, 324 P.2d 733.) The institution of a timely appeal prevented finality of the order settling the executor's final account. Reversal on appeal will eventuate in a new trial of the contest. The order for extraordinary fees was made on the assumption that the executor and his attorney had achieved a successful result. That assumption has now been erased. Only after remand and after future resolution of the contest will a final accounting occur. At that time fees for extraordinary services may be reconsidered as a unitary problem in the light of a fully concluded contest.
Finally, contestants allege that they expended costs of litigation aggregating $3,014.30 in the face of a cost bill and judgment awarding only $774.47. Contestants make no particular point of these expenditures (which are not reflected in the record) except to protest them. This aspect of the appeal is not adequately developed in contestants' brief and we do not pass upon it.
1. A ‘trust company’ is a corporation or the trust department of a bank which is authorized by the State Superintendent of Banks to engage in the trust business. (Fin.Code, §§ 107, 1500.) ‘Trust business' includes acting as executor, administrator, guardian or conservator of estates. (Fin.Code, § 106.) An authorized trust company may be appointed to act as executor, administrator, guardian or conservator of an estate in like manner as an individual. (Prob.Code, § 480.) Its breach of duty in any of these capacities subjects it to ‘the same penalties for such failure as would be applicable to an individual.’ (Fin.Code, § 1587.)
2. A typical contrast between the duties of executor and trustee occurs in the following excerpt from Estate of Smith, 112 Cal.App. 680, 685, 297 P. 927, 930. ‘An executor serves in a fiduciary capacity and his powers, duties, and obligations are in many respects the same as those of a trustee. [Citations.] However, unlike a trustee whose duty it is to invest all trust funds as soon as possible [citation], the primary duty of an executor is simply to preserve the estate until distribution. [Citation.] He is placed under no statutory obligation to invest money belonging to the estate, but investment in securities of the United States or of this state is permitted under prior order of court upon good cause shown therefor. [Citation.] Ordinarily there is no investment in the ordinary sense of that term of the funds coming into the hands of an executor, but it is customary and proper for him to deposit those funds in either a commercial or savings department of a responsible bank.’(See also Bogert, Trusts and Trustees, § 12, p. 47.)
3. Restatement of Trusts Second, section 174, declares: ‘The trustee is under a duty to the beneficiary in administering the trust to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property; and if the trustee has or procures his appointment as trustee by representing that he has greater skill than that of a man of ordinary prudence, he is under a duty to exercise such skill.’
4. At this point we have paraphrased the standard of care governing malpractice actions against attorneys, another professional category characterized by special skill and expertise. (See Lucas v. Hamm, 56 Cal.2d 583, 591.)The imprecision and elasticity of verbalized rules of care in malpractice (i. e., specialized negligence) actions generates a sense of dissatisfaction. The dissatisfaction is ameliorated by recognition that the fact-finder usually receives the assistance of expert witnesses.
5. The case law is not entirely consistent. Carter v. Waste, supra, 159 Cal. at pages 27–28, 112 P. 727, holds that the statutes governing a particular probate proceeding effectively call for the formation of a fact issue when they authorize written objections and provide for the hearing and determination of those objections. Relative to the account of an executor or administrator, Probate Code section 927 calls for written exceptions (i. e., objections) and settlement by the court following a hearing. The rationale of Carter v. Waste would seemingly justify entitlement to jury trial in account contests. Nevertheless, the cases cited, supra, specifically deny that entitlement.
FRIEDMAN, Acting Presiding Justice.
REGAN and JANES, JJ., concur.