TAYLOR v. CROCKER NATIONAL BANK (1988)

These cross-appeals stem from an action brought by Heather Taylor (Taylor), beneficiary of a trust, against Crocker National Bank (Crocker), the trustee, for selling certain trust holdings in violation of restrictions imposed by the trust.

Taylor challenges the formula used by the trial court in awarding her damages for Crocker's breach of trust, including the failure to award her appreciation and loss of dividend income damages.   Crocker contends there is no substantial evidence to support the trial court's decision it breached its duty to the trust.   For the reasons which follow, we affirm the judgment as to liability for breach of trust, but reverse the denial of appreciation damages and remand with directions to recalculate damages.

I

FACTUAL AND PROCEDURAL BACKGROUNDThe Globe Trust

Taylor was the spouse of Van Ness Taylor, deceased, who was the grandson of General Charles H. Taylor, the founder of a trust to hold stock in the Boston Globe Newspaper for his descendants.   In 1964, Van Ness Taylor established the Van Ness Taylor Globe Trust (Globe Trust), to hold his share of the newspaper stock.   The Globe Trust provided that upon the trustor's death the trustees were required to place a designated portion of the Globe Trust property into a trust named the Marital Trust, for Taylor's benefit.   The balance of the Globe Trust property was to be placed into a trust named the Family Trust for other beneficiaries.   Taylor was to receive the income from both trusts for life and upon her death, the Marital Trust assets were to be distributed to her named beneficiary, and the Family Trust was to be distributed to certain nieces and nephews.   Taylor had no power to invade the principal in either trust, but the trustees could do so on her behalf if necessary for her health, comfort, or support.

At Van Ness Taylor's death, the only Globe Trust asset was a voting trust certificate for 35,664 shares of stock in Affiliated Publications, Inc. (Affiliated), the company which publishes the Boston Globe Newspaper (hereafter Affiliated stock or voting trust certificate).¹

The voting trust certificate in the Globe Trust was subject to the provisions of the Taylor Voting Trust, an agreement reached in 1954 between the descendants of General Charles H. Taylor who held voting trust certificates.   The Taylor Voting Trust required that before the stock could be sold, it was to be offered to other Taylor descendants holding voting trust certificates.   The Taylor Voting Trust also provided that only 20 percent of the stock could be sold in any calendar year, except that in the event of the certificate holder's death, amounts necessary to pay estate taxes and expenses could be sold.

The Globe Trust specifically empowered the trustees to:

“Retain any investments, including stock in Affiliated Publications, Inc., for such period of time as they shall deem advisable, and invest and reinvest in any kind of real or personal property whatsoever (including mutual funds and any common trust fund of which a trustee hereunder may be a trustee) without giving notice to any beneficiary, notwithstanding the fact that any or all thereof is of a character or size which, but for this express authority, would not normally be considered a proper investment for trustees to make;  except that my Trustees shall, upon the written request of my wife, sell and reinvest the proceeds or any property retained or acquired by them as trustees of The Marital Trust.”  (Italics added.)

Additional Globe Trust provisions conferred broad powers on the trustees regarding trust property management, including, inter alia, the power to sell real or personal property, and required an annual accounting of the administration of the trusts.   They indicated a preference that at least one trustee be a descendant of the trustor's grandfather and be active in the management of the Boston Globe Newspaper, and gave the power of appointment of successor trustees to Taylor, stating:

“Any trustee hereunder may resign by an instrument in writing delivered or mailed to me during my lifetime and, thereafter, to my wife.   I do not require that there shall always be more than one trustee serving hereunder but I do require that, to the extent possible, at least one of the trustees so serving shall be a descendant of my grandfather, General Charles H. Taylor, who is active in the management of The Globe Newspaper Company.   If a successor trustee is required by the terms hereof, such trustee shall be appointed by me during my lifetime and thereafter by my wife.”

Sale of Affiliated stock

When Van Ness Taylor died in 1975, his brother, John I. Taylor, president of Affiliated, who had been a trustee of the Globe Trust, resigned as trustee.   Crocker was appointed successor trustee and Stephen Newnham was chosen as the attorney to handle the probate estate.   Taylor was the executrix of her husband's will.

On August 25, 1975, Crocker's trust officer, Garet Clark, wrote a letter to Taylor informing her they had received the certificate representing the 35,664 shares of Affiliated stock, and were in the process of analyzing the restrictions on the sale of the stock to determine the amount they could sell and the procedure for doing so.

Taylor was in San Diego from April 1975 until the summer of 1976.   She testified that during that period of time neither Clark nor Newnham told her Crocker was planning to sell most or all of the Affiliated stock in the Globe Trust, and she did not think Crocker could sell it all.   She knew some stock had to be sold to cover taxes and estate expenses, but it was her understanding that was all that could be sold, and that no more than 20 percent of the shares could ever be sold.   As evidenced by a letter she wrote Newnham on August 4, 1975, Clark had told her “he was getting information from Boston about what we can do with the shares so that they could possibly be partially sold to bring in a large income.”   She never told Clark not to sell all the shares, because she never thought he would sell a large amount because of the restrictions applied to the sale of the stock.

Clark contradicted Taylor, stating Crocker preferred to sell all the stock if it could liquidate the certificate at a reasonable price, and he discussed this possibility with Taylor by phone and in person.   The reason Crocker wanted to sell as much of the stock as possible was that normally a trustee does not want to have all assets invested in one type of holding, nor one that is not liquid.   Crocker asked Newnham to research how best to market the certificate and to analyze the restrictions on the certificate.   When Taylor came to Crocker from time to time and inquired about the status of the account, Clark advised her Newnham was looking into how to remove the restrictions regarding the sale of Affiliated stock, to permit possibly selling all shares.   Clark stated he told Taylor he preferred selling all the stock to increase her income by making other investments, explaining it would be better to diversify than to hold all assets in one security, and it was preferable to make the investment liquid.

Clark testified neither Taylor nor Newnham objected to the sale of the stock;  however, if Taylor had objected he would have communicated this to Crocker's investment committee.   Although Clark believed Taylor had no power to control Crocker's decision, it would have taken her wishes into account.   According to Clark, although Crocker knew Taylor did not need funds, it was concerned the stock could not be quickly liquidated if a disaster occurred and she needed immediate access to the principal.

Taylor had a $42,000 creditor's claim against her husband's estate.   According to a January 5, 1976 memorandum written by Newnham, Crocker was considering paying the debt with Affiliated stock, until it learned a capital gains tax would be incurred with such a transfer.   Taylor testified Newnham knew she preferred to have the debt paid off in Affiliated stock.   In the summer of 1976, she asked Newnham when they were going to settle the estate because she wanted to go to Europe, and he said nothing was going to happen, it was going to take a long time.   Because of this reassurance, Taylor went to Europe.

Meanwhile, Robert Bissell, a close-held analyst at Crocker, was reviewing the Affiliated stock investment.   On March 10, 1976, Bissell made a presentation to the investment committee, which committee then authorized the sale of all Affiliated stock.

After offering the stock to holders of Taylor voting trust certificates and engaging in several other unsatisfactory negotiations for the sale of the stock, Crocker offered the stock to Affiliated on July 27, 1976.   Affiliated purchased all the stock on August 28, 1976 for $8 per share, which was approximately a 15.9 percent discount from the $9.50 per share market price of the stock trading on the American Stock Exchange.²

Events after the sale

Taylor, in Europe at the time of the sale, only received notice of the sale upon her return in October 1976, by letter dated September 8, 1976.   She was angry and immediately called Clark, voiced her objection, and demanded Crocker replace the shares.   Clark refused and advised her by letter that under the terms of the trust she had the power to direct, in writing, the sale and reinvestment of the property in the Marital Trust;  that at the time of the sale of the Affiliated stock, the Marital Trust had not yet been funded;  and even if it had been funded, in the absence of a written directive from her, it was Crocker's duty to exercise their best judgment in the composition of the trust.   The letter stated Clark recalled telling her, prior to her departure, Crocker was investigating the possibility of selling the stock;  outlined the reasons why Crocker determined it was prudent to sell all the stock;  stated that since she was unhappy with Crocker's proposal for reinvestment, it was necessary for them to mutually agree as to how the funds should be reinvested;  and requested that she provide them with a written expression of her wishes so as to properly document their files.

In December 1976, Taylor met with Crocker's representatives and, according to Clark, agreed to an investment portfolio.   Clark believed her objection regarding the sale of the Affiliated stock had been resolved.   However, Taylor stated she did not remember discussing what Crocker was going to do with the money from the sale of the stock.   She testified that at the meeting she was trying to get them to purchase her condominium for the trust and she planned to use the cash to invest in raw land.   Although Crocker initially approved having the trust purchase her condominium, it later cancelled the purchase since Crocker's appraisal was lower than her selling price.   However, Crocker did agree to have the trust take back a first trust deed on the sale of her condominium to a third party;  thus, the Marital Trust gave her $33,600.   In mid–1977 she requested the trust purchase a condominium for her to live in for $49,000, but for various reasons the purchase was not accomplished.   In January 1978, she requested the trust purchase a condominium for her to live in for $42,950, but Crocker cancelled the purchase in a letter dated January 19, 1978, since again Crocker's appraisal was lower than the selling price.

In a letter dated January 23, 1978, Taylor made her first written request that Crocker, at its expense, repurchase the Affiliated stock.   She testified she continuously orally importuned Crocker to recover the shares ever since she was told of the sale, and she saw no need to write a letter earlier since the bank was her fiduciary and she was continuously going in there and asking them.   Clark testified Taylor made her first request Crocker repurchase the Affiliated stock in January 1978 after the purchase of the condominiums fell through, but acknowledged she had complained about the sale long before.   According to both Clark and Taylor, she wanted Crocker to repurchase the shares for the trust at Crocker's own expense, and not with trust funds.

Newnham's testimony

Newnham recalled discussing with Taylor the question of whether it was prudent to have such a large holding of the same stock with a lack of marketability, but he could not recall her reaction.   He did not remember her objecting to the sale of the stock during those discussions.   He did not recall ever telling her Crocker proposed to sell all of the shares, but did recall discussing a sale or the potential for a sale in the context of paying taxes and her creditor's claim.

In a letter dated January 23, 1976, Newnham wrote Clark it would be advisable to liquidate any shares they could and to even consider a discount.   In a letter to Clark dated March 29, 1976, Newnham stated his concerns as to there being no immediate cash in the estate to meet the taxes and Taylor's $42,000 creditor's claim.

According to Newnham, Taylor had indicated her only concern was that he determine the wishes of the Taylor family regarding the sale of the stock.³  In a letter dated March 29, 1976, Newnham wrote John Taylor, stating that in his opinion it would be prudent to sell most if not all of the Affiliated stock, but also indicating Heather Taylor wanted to know and follow the wishes of the Taylor family.   John Taylor responded in a letter dated April 12, 1976, stating that although the family would like to retain as many shares as possible, the decision should be based on Heather Taylor's best interest, but advising “[b]efore deciding to unload all the trust's Affiliated holdings, however, I would suggest that a close look at our operation be taken, since in my view this should turn out to be a pretty good investment.”   Newnham told Clark about the contents of John Taylor's letter.

Newnham did not know Taylor had any objection to the sale because he assumed she and Crocker were in agreement.   Newnham testified Crocker should have obtained the written direction or approval of Taylor before selling the shares.

Crocker's investigation of the value of the stock—Bissell's testimony

Affiliated was a “hybrid” investment—with 16 percent of the stock traded on the American Stock Exchange and 84 percent of the stock privately held by members of the Taylor family.   Crocker's analyst, Bissell, concluded that although the dividends per share showed an upward trend, there was an erratic pattern to the net earnings per share;  and although Affiliated was attempting to diversify by purchasing radio stations, there was no way of knowing whether the diversification would be successful.   Bissell was not concerned about Affiliated's financial stability, but considered it had a volatile, rather than a preferred stable net earnings per share pattern.

Bissell's evaluation essentially focused on earnings per share data for Affiliated.   He did not make detailed calculations or compilations of various indicators of financial value (i.e., return on equity, return on assets, debt to equity ratio, debt to total capital ratio, increases in working capital, examination of the plant's facilities, projections of the price earnings ratio), although many of these could have been made from the financial data he had before him.   He explained it was not necessary to make such detailed calculations or compile such information since it was obvious from the data that the company was in a strong financial position, had a strong share of the market, had very little long term debt and strong retained earnings, and there was no concern that it would fail.   Rather, the focus of his inquiry was whether all the trust's fortunes should be in one newspaper investment, which he determined had an erratic earnings pattern.

Bissell knew the book value (i.e., equity per share) was $11.07 per share, whereas the stock was sold for $8 per share, and stated it was not uncommon to sell below book value, book value was only one of several ways to measure value, and the earnings per share trend was more important.   Bissell did not obtain annual reports from Affiliated.   He could observe from the financial data that Affiliated's management was conservative and cautious, but it was taking steps to diversify.   Although he spoke to Affiliated's management about overcoming the technical problems arising from the language of the Globe Trust, he did not discuss Affiliated's operations or its plans for the future.

Although he used his intuitive knowledge of other companies, he did not do a detailed study comparing Affiliated to other publishing companies.   He stated such a study is necessary when evaluating a closely held company without publicly traded stock.   Here, since Affiliated did have publicly traded stock, he felt the market value was the better indicator of value, and there was no need to come up with a theoretical value.   He stated the “intrinsic value” approach (discussed below) is one school of thought for valuing stock, which can be used to obtain higher or lower values depending on your purpose, but the numbers are forced and theoretical and were not necessary in this case since there was a public market for the stock.

Crocker's investigation—Taylor's experts

Taylor's two expert witnesses, business appraisers John Miskimen and James Schilt, stated Crocker's investigation of the value of the stock was inadequate.

Particularly when stock is thinly traded, the current market value is not necessarily reflective of fair market value.   Crocker should have determined the intrinsic value of the stock before deciding to sell it.   Intrinsic value is designed to measure the fair market value of assets that may be undervalued on the immediate market place but for various reasons actually have a higher value.   Intrinsic value is measured by comparing the prices of stock of similar companies in relation to such factors as their earnings, book value, dividends, returns on equity, growth rates, debt-to-equity ratios, etc.   The analyst looks at the total financial picture and the historical data for each company to see the earnings growth, the operating profit margins, and the return on capital, and determines if the stock of the company it is appraising is overvalued, undervalued, or fairly valued in comparison to the rest of the industry.   Crocker should have also obtained annual reports and spoken with management about the operation of the newspaper.

Such considerations as diversification, being thinly traded, and tax requirements are relevant considerations in portfolio decisions, but are not reasons to sell a security, particularly an entire holding in a thinly-traded security.   Instead of investigating investment merits of Affiliated, it appeared almost as if Crocker wanted to get rid of the security regardless of its investment merits simply because it was not on their approved investment list.   If a sale is contemplated that is below book value, this should serve as a red flag that more investigation is needed.

Taylor's expert determined the market price for the thinly-traded Affiliated stock at the time of the sale was not reflective of its fair market value, and any competent analyst who had done his homework would have determined the stock was a “strong hold” —i.e., it should not have been sold.   Taylor's expert also contradicted Bissell's conclusion regarding Affiliated's earnings, stating they were not volatile and showed a clear upward trend.

Taylor's expert calculated, based on a comparative study with comparable companies, Affiliated stock had a per unit value under various formulas as follows:  Earnings per share method—$17.85;  dividend or yield per share method—$20.87;  book value method—$33.54;  discounted future earnings projection—$16.28.

Interpretation of the trust—Crocker's experts

Harlan Harmsen, a probate attorney, and Jerold Lewis, a trust manager for San Diego Trust and Savings, testified as experts for Crocker that in their opinion the clause referring to Taylor's powers was probably intended to meet the requirements of the marital tax deduction under the Internal Revenue Code, which requires the spouse to have the right to require the trustee to dispose of unproductive property.   However, since the clause did not limit her power to sell to unproductive property, Harmsen testified that Taylor's power may be a bit broader, also covering the power to sell productive property.   Harmsen did not think the clause gave her the power to direct investments, since the trustee had been given that power;  it made no sense for both the beneficiary and the trustee to have that power;  and the trustor could have expressly given her such powers as veto, consultation, or direction of investment if that had been his intention.

Interpretation of the trust—Taylor's experts

In contrast, various experts for Taylor testified the clause gave her broad power to direct the investment composition of the Marital Trust.   Newnham testified that although the clause was designed to comply with the marital tax deduction requirements, its language was not limited to the power required by the Internal Revenue Code, and could not be so interpreted.⁴

William Schmidt, an attorney specializing in estate planning and administration, agreed with Newnham's conclusion, stating that the language of the clause was so broad, giving her power over every single asset in the trust not just unproductive assets, that he interpreted it as giving her the power to control investment composition.   Schmidt further explained that the clause gave her a continuing right to direct reinvestment, which ultimately gave her the right to control the composition of the marital trust.   That is, if the trustee sold and purchased stock she did not want them to, she could direct them to sell and purchase the stock she wanted.   Under Schmidt's interpretation, she had the right to specify the specific reinvestment that she wanted, and since she also had the power to initiate investment, she had more than a veto power.   Moreover, looking at the trust instrument as a whole—i.e., the trustor's intent to retain the stock that had been in the family for close to a hundred years, and Taylor as the primary beneficiary of the stock—it seemed “to cry out” that Crocker had a duty to substantially confer with Taylor before selling all of the stock.

James Bell, a retired manager of Security Pacific National Bank's trust office, testified this was an unusual trust, involving an asset that had been in the family for years, and Crocker should have been very careful, especially since the beneficiary had the right to direct investment.   Bell explained that since under the trust provisions theoretically Taylor could direct Crocker to buy the stock back right after Crocker sold it, it is obvious Crocker had a duty to consult with her since they would otherwise have wasted a lot of time, money, and effort.

II

THE TRIAL COURT'S DECISION

The trial court concluded Crocker was liable since it “took an imperious attitude toward its beneficiary under the trust, failed in its duty to advise and confer with its beneficiary, failed to properly investigate the intrinsic value of stock that it could have held and should have held.   The Bank determined to sell the stock in furtherance of its diversification policy without having any real conception of the value or potential of the stock in question.”   The court further found it was the intent of the trustor to maintain ownership of most of the stock in the Taylor family, and the newspaper was a sound investment.

On the issue of damages, the trial court found Crocker's conduct was not fraudulent nor did it benefit by its breach of trust, and thus it was not responsible for the difference between the price at which the stock was sold and the value of the stock at the time of trial.   Instead, the trial court valued damages as the difference between the amount received from the sale and the value of the stock at the time of the breach.   The trial court further limited the damages to the Marital Trust, finding that Crocker violated no duty in connection with the Family Trust.   Finally, the trial court found Taylor could have mitigated her damages as of January 1978, when she knew Crocker would not repurchase the stock and she had the ability to purchase them herself.

The trial court found the intrinsic value of the stock at the time of the sale was $17 per share, and $17.625 per share when Taylor demanded Crocker restore the stock to the trust.   Because Crocker sold the stock for $8 per share, the trial court awarded Taylor the difference between the $8 and $17.625 per share.   The trial court found that the Marital Trust should have been funded in the amount of $128,625, which would amount to 16,078 shares at a price of $8 a share.   The trial court calculated the damages to be $154,764.75, based on 16,078 shares with an intrinsic value of $17.625 a share.

III

CROCKER'S APPEALSubstantial evidence

 Based on the testimony of Taylor's expert witnesses, there is sufficient evidence to support a finding Crocker breached its duty by failing to properly investigate the value of the stock and selling it at a time when its intrinsic value was significantly greater than its current market value.   Bissell admitted he did not use the intrinsic value approach, but rather, relied on market value as the best indicator of value.   It was within the trial court's discretion to credit Taylor's experts that the intrinsic value approach should have been used and would have shown the stock was currently undervalued on the market place, and the stock should not have been sold.

 Further, there is sufficient evidence to support the trial court's additional finding Crocker breached its obligation to advise and confer with its income beneficiary before the sale and that Taylor did not waive her rights to notice and approval.

 Regarding Taylor's right to participate in the decision to sell, the extrinsic evidence interpreting the trust was conflicting, and the trial court's interpretation based on the evidence presented by Taylor's experts was reasonable and thus must be upheld.⁵  (In re Marriage of Fonstein (1976) 17 Cal.3d 738, 746–747, 131 Cal.Rptr. 873, 552 P.2d 1169.)   Regarding Crocker's assertion Taylor waived her rights to participate, there is no evidence Taylor was ever told Crocker had decided to sell all of the shares, thus she never had an opportunity to object.   Further, her later request that the trust purchase condominiums at most may have indicated a willingness that some of the stock be sold, but does not establish she wanted all of the stock sold, nor does it excuse Crocker's failure to give her notice and an opportunity to confer.

The measure of damages

 To measure damages, the trial court used the difference between what it found was the intrinsic value of the shares ($17.625 per share) and the price for which the shares were sold.

Crocker asserts that intrinsic value is not a reliable indicator of market value, and that no one would have paid more for the nontradeable, illiquid voting trust units than the price of freely-tradeable shares.   Crocker contends if the sale was improper, Taylor's damages should be based on the difference between the $8 sales price and the $9.50 price for which the shares were selling on the market the date of the sale.

The trial court's formula is apparently based on the value of the trust had the sale not been accomplished.   We have determined there is substantial evidence Crocker breached its duty by failing to investigate the intrinsic value and selling the shares, and selling the shares without conferring with Taylor.   Thus, the measure of damages is properly based on the value of the stock if unsold.   Even assuming arguendo that the voting trust certificate could not have sold for more than the freely-tradeable shares, it was proper to determine that the value of the unsold shares should be measured by a method which considers their underlying value, not yet recognized in the market, rather than their immediate market value.   In any event, we hold, infra, that the case should be remanded for a recalculation of damages based on their appreciated value.

IV

TAYLOR'S APPEALAppreciation and loss of income damages

Taylor contends the trial court erred in failing to award her damages based on the appreciation value of the stock—i.e., the value of the stock at the time of trial—and the loss of dividend income.   The trial court's award was based on the difference between the amount received from the sale and the value of the stock at the time of the breach.⁶  The trial court found Crocker's conduct was not fraudulent and was not activated for its personal benefit, and thus, it should not be liable for appreciation and loss of dividend income damages.   We conclude the court's determination was erroneous.

 We hold that, absent equitable considerations justifying otherwise, appreciation and loss of dividend income damages are appropriate when property is sold in violation of a trustee's duties, even when the trustee does not act in “bad faith” or to personally benefit itself.

Former Civil Code ⁷ section 2238, subdivision (a) states:

“A trustee who uses or disposes of the trust property in any manner not authorized by the trust, but in good faith, and with intent to serve the interests of the beneficiary, is liable only to make good whatever is lost to the beneficiary by his or her error.”  (Emphasis added.)

By way of comparison, former section 2237 provides for damages for profits made by a trustee when it breaches the trust by using the property for its own profit.⁸

Crocker argues that appreciation damages are prohibited against a trustee unless it is shown the trustee acted for his own profit or for a purpose unconnected to the trust.   This proposition is overbroad.

While it is true the word “profits” is only used in former section 2237, that section applies to trustees who have used or disposed of trust property for their own profit.   It does not follow that when a trustee disposes of property in good faith, but in a manner not authorized by the trust, that the beneficiary should not recover, under former section 2238, the loss of profits which would otherwise have accrued, which section states such trustees are liable to make good whatever is lost to the beneficiary by the trustee's error.

 In other words, under former section 2237, where a trustee has misappropriated trust property and used it to make a personal profit for its own benefit, it may be forced to disgorge that profit and give it to the beneficiary even though by doing so the beneficiary obtains damages in excess of the income or profit that would have been earned had the property remained in the trust.   On the other hand, former section 2238 makes a trustee who acts in good faith liable to compensate the beneficiary merely for all actual losses arising from the breach of trust.   In an income-producing trust, this most certainly encompasses lost income.   Further, to the extent the value of the trust would have appreciated by inflation or other passive factors merely by retaining the assets in the trust, clearly the loss of the appreciated value of the trust corpus is as much an actual “loss” as any other.

 Crocker improvidently relies on language contained in Estate of Talbot (1956) 141 Cal.App.2d 309, 326–327, 296 P.2d 848.   There the court addressed a fact situation significantly different than the one with which we are concerned.   In Talbot, a trustee sold stock at the request of the trustor, and was found to have breached its general fiduciary obligation to exercise independent judgment.   Under those circumstances, where there was no failure to notify, advise or confer with anyone with whom the trustee had a fiduciary relationship, and in fact the trustee merely acceded to the request of a trustor who was independently knowledgeable in the stock market and securities transactions, the court of appeal found it inequitable to impose appreciation damages when damages based on the actual loss to the estate as of the date of transaction plus interest sufficiently redressed the trustee's minimal moral lapse.   However, the court made it clear it agreed with the proposition that liability for all lost profits were available wherever there was a breach of loyalty or a breach of the duty to retain or acquire specific assets.  (Id. at pp. 323, 325–326, 296 P.2d 848.)   The court reviewed the Restatement of Trusts, sections 205–208 ⁹ and determined the mere breach of a general duty to exercise independent judgment was not one included in those provisions of the Restatement which would allow the beneficiary to recover lost profits.   The Talbot decision was justified on the ground its breach “was not of the duty to retain the stocks, but of the duty to exercise an independent judgment” and “[t]he two duties are obviously separate and distinct.”  (Id. at p. 326, 296 P.2d 848;  see discussion in Estate of Anderson (1983) 149 Cal.App.3d 336, 355, 196 Cal.Rptr. 782.)

In contrast to Talbot 's facts, here the court found the trustor's intent was to retain maximum ownership of Affiliated shares in the hands of the Taylor family as evidenced by the name of the trust, a restriction on disposal of shares of stock, and Taylor's rights to require sale and reinvestment of trust property.   Further, the court found Crocker was specifically obligated to fully inform and confer with Taylor before any sale of stock took place.   Finally, Crocker was found to have breached its duty under the terms of the trust by not giving Taylor adequate and proper notice.   These breaches are of duties arising from the terms of the trust document just as much as any other restraint on the trustee's power to sell assets.   They are undeniably a “breach of loyalty” in the sense Talbot uses the term, and they place this case outside Talbot ' s consideration of the good faith failure to exercise a general duty of independent judgment, the issue with which it was concerned.

Here, the trial court also found Crocker's decision to sell all Affiliated stock was arrived at without adequate investigation of the need to sale and of the intrinsic value of the stock.   Arguably, Crocker's negligence in this regard, standing alone, would make it inequitable to impose appreciation damages under Taylor's rationale.   However, Crocker did not merely sell at an inadequate price.   Unlike the situation referred to in Talbot, here Crocker was charged with knowing the income beneficiary had the legal right to participate in the decision to sell, and the trustor had evidenced a strong intent to keep the stock in the family as long as economically feasible.   Crocker's negligence regarding the timing and terms of the sale merely made inevitable the loss to Crocker's income beneficiary, which sale occurred as a direct result of its other breaches of duty, including the duty to notify, advise and confer with Taylor.

To summarize, the trial court stated it was not going to award Taylor the full value of the loss because Crocker's “conduct ․ was not such as to require that it be responsible for the difference between the price at which the stock was sold and its present value, as would be the case if the conduct of Crocker had been fraudulent or it had benefitted by a breach of trust.”   However, this reflects a misunderstanding of the then-existing statutory and decisional law.   Fraud and personal benefit are concerns which permit more than “make whole” damages pursuant to former section 2237;  they are not necessary predicates to requiring a trustee to reimburse a beneficiary for actual losses caused by a breach of the specific terms of a trust.   Unless justified by exceptional considerations, none of which we perceive here, we believe the measure of damages for violating terms of an entrustment should be full reimbursement of the beneficiary's loss caused by the fiduciary breach.   In this case, the economic loss based on appreciation and lost profits is substantial.   That fact, however, should not permit Crocker to redress less than the entire loss it caused by acting in violation of trust obligations it undertook for compensation.   Fraud or moral reprehensiveness of the nature to justify imposing punitive sanctions need not be shown before requiring a trustor to make full recompense to the beneficiary it has ill-served.   Non-fiduciary negligent tort feasors cannot escape liability for total damages they inflict on innocent victims by showing their conduct is not so egregious as to require societal satisfaction by way of exemplary damages.   Even less so should one entrusted with managing another's property under express agreements, be justified in failing to entirely satisfy the losses it causes its beneficiary.¹⁰

Mitigation of damages

 Finally, we hold it was error to find Taylor failed to mitigate her damages.   Taylor asserts there is no authority to impose a duty to mitigate on a beneficiary suing trustees for breach of duty;  there is no evidence she was financially able to buy the stock in January 1978;  and, in any event, the issue of mitigation was waived by Crocker's failure to raise it to the trial court.

Assuming that in some circumstances a beneficiary may have a duty to mitigate damages and the trial court may consider the issue even if not requested by the trustee (see generally, Redke v. Silvertrust (1971) 6 Cal.3d 94, 108, 98 Cal.Rptr. 293, 490 P.2d 805 [court sitting in equity has the power to adjust all the differences between the parties whether requested or not] ), on these facts it was inappropriate for the trial court to conclude that Taylor could have mitigated her damages.

The damages awarded by the trial court are to be paid into the Marital Trust, not to Taylor directly.   It follows that it was the trust which was damaged by Crocker's breach, not Taylor individually.   Since Taylor had no duty to purchase the shares on her own and place them in the trust, she was not required to mitigate the trust's damages in this fashion.¹¹

Nor can the trial court's mitigation finding be sustained on a theory that Taylor could have necessarily mitigated the trust's damages by requesting that Crocker repurchase the shares back at the trust's, not Crocker's, expense.   Although Crocker emphasized during trial that Taylor made such a request, it failed to prove she had the power to direct the trustees to repurchase the shares.   Rather, Clark testified that although Crocker would allow her to make investment requests, Crocker had final approval of the investment decisions.   Under these circumstances, it is not appropriate to reduce damages based on speculation that Crocker might have honored a request to repurchase at the trust's expense.   This is especially true here, where the issue of mitigation of damages was not specifically raised by the pleadings, and was never argued nor litigated.

In light of our holding, we remand this case to the trial court for computation of appreciation damages and loss of dividend income to the date of trial.   This computation should include, if the court finds it relevant based on express findings, consideration of Crocker's claim for credits, including but not limited to its claimed partial fundings of the marital trust.

DISPOSITION

The judgment is affirmed as to liability and reversed as to damages.   The case is remanded for a recalculation of damages in a manner consistent with this opinion.   Costs of appeal awarded to Taylor.

FOOTNOTES

1.   Upon Van Ness Taylor's death, the Globe Trust was also to receive a percentage of the assets in another trust (Leah Gaskill Taylor Trust) which had been set up to pay alimony to Van Ness Taylor's former wife.   In 1983, Affiliated stock from the Leah Gaskill Taylor Trust was received and added to the Globe Trust.   The balance of the assets (Affiliated stock) in the Leah Gaskill Taylor Trust was to pour over into the Globe Trust upon Leah Gaskill Taylor's death, which occurred in 1985.

2.   The 20 percent restriction on the sale of stock in the Taylor Voting Trust was apparently overcome by selling the stock subject to the terms of the Taylor Voting Trust.

3.   Taylor testified she did not tell Newnham to check with John Taylor to see what the family's wishes were, explaining that she spoke with John about once a week and she would have asked him herself.

4.   Newnham also testified as to sample language normally used to protect the marital tax deduction—i.e., “the trustees shall convert nonincome-producing property to income-producing property whenever requested to do so by the Settler's said wife”;  or “[i]f at any time unproductive property is held in any marital trust or reserves from the income thereof which have been established, the trustee shall, within a reasonable time, dispose of such unproductive property and discontinue such reserves as my said wife may request in writing.”

5.   We are not persuaded by Crocker's argument that the trial court erred in denying its request to depose in Boston, for a second time, the attorney who drafted the Globe Trust, Colin Marshall, who was unwilling to testify at trial.   Marshall's deposition testimony was ambiguous as to the meaning of the trust, and any further testimony could not undermine the reasonableness of Taylor's experts' interpretation.

6.   The trial court valued the shares at $17.625 per share as of January 1978, which for the 16,078 shares totaled $154,764.75.   Taylor claims the trial court should have awarded $1,700,225 for the December 1984 value of the shares, plus $144,062 for loss of dividend income, less $340,283 for the December 1984 value of the Marital Trust totaling $1,504,004.   Alternatively, she claims the trial court should have ordered Crocker to purchase the 16,078 shares in the open market.

7.   All subsequent statutory references are to the Civil Code unless otherwise specified.

8.   Former section 2237 states:  “A trustee who uses or disposes of the trust property, contrary to Section 2229, may, at the option of the beneficiary, be required to account for all profits so made, or to pay the value of its use, and, if he has disposed thereof, to replace it, with its fruits, or to account for its proceeds, with interest.”   Former section 2229 provides:  “A trustee may not use or deal with the trust property for his own profit, or for any other purpose unconnected with the trust, in any manner.”Former sections 2237 and 2238 have been superseded by Probate Code section 16440, effective date July 1, 1987 and thus not applicable to the 1985 trial here.  (See Cal.Law Revision Com.Rep., 54A West's Ann.Prob.Code (1988 pocket supp.) § 16440, p. 564.)  Probate Code section 16440, subdivision (a) provides that a trustee who commits a breach of trust is chargeable, as appropriate under the circumstances, with loss or depreciation in value of the trust estate, any profit made by the trustee, and any profit that would have accrued.  Probate Code section 16440, subdivision (b) provides, however, that if the trustee has acted reasonably and in good faith, the court in its discretion may excuse the trustee in whole or in part from liability under subdivision (a) if it would be equitable to do so.

9.   Now see Restatement Second of Trusts, sections 205–208.

10.   As indicated earlier, Probate Code section 16440, operative July 1, 1987, encompasses the provisions of both former sections 2237 and 2238.   It gives a court broad latitude in imposing damages found to be “appropriate under the circumstances” including loss or depreciation in value of the trust estate, profit made by the trustee through the breach of trust, and appreciation damages resulting from the breach of trust.   There is no restriction on the type of breach required before the court may impose any of these measures of damage.   Thus, the Legislature has done away with the express distinction between fraudulent and negligent, bad faith and good faith, classifications of former sections 2237 and 2238.   However, in Probate Code, section 16440, subdivision (b), the Legislature has codified a good faith exception contained in Restatement Second of Trusts section 205, comment g, in what has been described as an expansion of the rule of the Estate of Talbot.  (See Cal.Law Revision Com. com., 54A West's Ann.Prob. Code, § 16440 (1988 pocket supp.) p. 564.)   This permits a court to excuse a trustee in whole or in part from liability if it is equitable to do so where the trustee has been found to have acted reasonably and in good faith under the circumstances as known to the trustee.   At our request the parties have submitted briefing regarding the effect of the successive statutes to former sections 2237 and 2238.   While we are satisfied they in effect have no legal relevance, the express findings that Crocker acted unreasonably in light of its clear obligations to Taylor, would arguably preclude any excuse under Probate Code section 16440, subdivision (b) even if applied.

11.   Given this holding, we need not decide whether there is substantial evidence that Taylor could have afforded to purchase the shares for herself.

WORK, Associate Justice.

WIENER, Acting P.J., and BENKE, J., concur.