IN RE: LORING'S ESTATE. (1946)

The beneficiaries of a testamentary trust severally appeal from an order directing the trustees with reference to the distribution of the trust estate. Two of the beneficiaries are charities, the others are in the main heirs at law of the testator and will be referred to collectively as ‘Loring.’ The significance of the issues will appear after the facts have been intimately disclosed.

George E. Loring, having by his last will and three attached codicils directed the establishment of a trust for the temporary management and ultimate distribution of his estate, departed this life on November 18, 1939. His will was dated August 4, 1933, and the last of his codicils bore date of March 14, 1939. His estate, consisting of his spearate property, was appraised at $172,477.65. Costs of probate, expense of administration, debts, taxes and bequests paid and distributed aggregated $20,169.04, leaving $153,308.61 which was by order finally settling the account of the executors distributed to the trustees named in the will. The only bequests other than to the trustees were $1,000 to his widow, Ida L. Loring, and $1,000 to his sister Sarah M. Loring. He disinherited all heirs not specifically mentioned in his will. The beneficiaries of the trust were as follows: City or Town of Kingsley, Plymouth County, Iowa, herein referred to as Town; Braille Institute; Luella Bergstrasser, a niece, and her two sons; three nephews and four nieces. By the decree of distribution the trustees were required to give out of the earnings or corpus of the trust estate to Braille $10,000 and to Town $75,000. They were also directed to pay within five years out of the earnings or corpus to the several nieces and nephews a total of $21,000, and to Jane Loretta Johnston, a stranger to the blood, $5,000. After payment of all of the bequests above specified, the trustees were directed to give the residue and remainder of the trust estate to the sister Sarah M. Loring to have and to hold the same forever and thereupon to abolish the trust. The decree concludes with specific directions to Town as to the investment of its bequest. Such directions are not material to this discussion.

Some two weeks prior to the execution of his original will decedent effected a property settlement with his wife whereby she waived all rights to his property and acquitted it of all claims as an heir at law. After his death she made an agreement with the executors with the court's approval whereby she received property of the value of $34,232 and executed a ‘complete satisfaction in full and receipt in full and waiver of all her right, title and interest in and to the estate. * * *’

Less than three years after receiving the trust estate the trustees, on November 12, 1943, filed a petition for instructions in which they alleged that while the bequests aggregated $111,000 the total sum in the possession of the trustees was $56,807.38, and that no other funds would be received; that it would therefore be impossible to pay the bequests unless Town should not accept its gift under the conditions specified in the order of distribution, but that there were sufficient funds in the trust to make payment in full of all other bequests. They set forth the statutory provisions of Iowa pertaining to gifts to towns of that state for the purpose of establishing hospitals, but such statutes are without significance in view of our conclusions.

Separate answers were filed by (1) Town, (2) Braille, and (3) Loring. After a hearing on the petition and answers the court made findings and conclusions and entered its order directing that the two charities be paid ‘an amount equal to one third of the aggregate of the amount now available for distribution (less any future administration expenses) plus $11,123.06, which sum had been distributed during probate plus the amount, if any, of overpayment of Federal estate tax;’ that of such distributable amount Town should receive 15/171517 and Braille 2/17217, but that from the sum distributable to Town ‘there should be deducted a sum equal to the California inheritance tax computed on the amount distributable to the Town of Kingsley, Iowa; the bequests of specific sums to individuals should be paid in full and the balance or residue distributed to Sarah M. Loring.’ The order concludes with specific directions to Town as to the fractional portions of its bequest to be applied to construction, furnishing and endowment.

Was the Decree of Distribution Final?

The charities contend that their bequests, having been fixed by the decree of distribution, cannot be reduced; that such decree having adjudicated the persons to whom the trust estate should be payable and the amounts payable to each, had become final long prior to the filing of the petition for instructions; that notwithstanding section 41, Probate Code, restricting charitable bequests to one third of testator's estate as against a spouse, sister, niece or nephew, it established the validity of the trust even though it might have been reversible on a timely appeal. In support of such contention they cite numerous California decisions: McGavin v. San Francisco Protestant Orphan Asylum Society, 34 Cal.App. 168, 167 P. 182; Estate of Scrimger, 188 Cal. 158, 206 P. 65; Goad v. Montgomery, 119 Cal. 552, 51 P. 681, 63 Am.St.Rep. 145; Crew v. Pratt, 119 Cal. 139; Estate of Easter, 24 Cal.2d 191, 148, P.2d 601; Cook v. Cook, 17 Cal.2d 639, 51 P. 38; McLellan v. McLellan, 17 Cal.2d 552, 110 P.2d 1034; Estate of White, 69 Cal.App.2d 749, 160 P.2d 204; Estate of Lingg, Cal.App., 162 P.2d 707; Society of California Pioneers v. McElroy, 63 Cal.App.2d 332, 146 P.2d 962. These authorities hold that the decree of distribution supersedes the will and is conclusive as an ascertainment and adjudication of the terms of the trust and of the rights of all parties claiming any legal or equitable interest under the will (Estate of Easter, supra); that such decree is a judgment in rem and although erroneous is as conclusive against one who fails to appear having the opportunity so to do, as it is against a party whose fault produced the error (McGavin v. San Francisco etc., supra, 34 Cal.App. at page 173, 167 P. at page 184); that it is conclusive as to the interpretation of the will and the rights of its legatees (Estate of White, supra); and that ‘as necessary to distribution, it is within the province of the probate court to define the rights of all who have legally or equitably any interest in the property of the estate derived from the will.’ Estate of Scrimger, supra, 188 Cal. at page 165, 206 P. at page 68.

In view of such explicit declarations, it would at first blush appear that the decree of distribution has forever disposed of the rights of all of the beneficiaries of the Loring trust and of the amounts payable to each of them by the trustees. But it is to be observed that section 1021 of the Probate Code provides that the decree of distribution must ‘name the persons and the proportions or parts to which each is entitled * * *.’ The quoted language clearly refers to those who are entitled to the assets of the estate under the decree of distribution. In the instant case the creation of the testamentary trust required the distribution to the trustees and to none other. This conclusion is emphasized by the language of the quoted section to the effect that the distributees may sue for and recover their respective shares from the executor. Certainly the beneficiaries of the testamentary trust could not have sued the executor. Therefore, they were not parties to the proceeding on the hearing of the final account of the executor and of his petition for distribution. This being so that decree is not res judicata of the claims asserted by the Loring answer whereby they for the first time raised the question of the validity of the trust and of their priority and precedence over the charities in the matter of receiving their full benefits under the trust. The decree of distribution is conclusive as to the rights of the heirs, legatees and devisees only to the extent that they claim in those capacities. It affects only parties legitimately before the court. It merely declares the title which accrues under the laws of succession or under the will. Chever v. Ching Hong Poy, 82 Cal. 68, 70, 22 P. 1081; Kingsbury v. Ross, 217 Cal. 484, 486, 19 P.2d 784; Parr v. Reyman, 215 Cal. 616, 619, 12 P.2d 440.

It remains that only under one possible theory were the beneficiaries parties to the distribution proceedings, to wit, that the trustees represented them at the time. But such cannot be successfully maintained in view of the principle that a trustee does not represent any faction among his beneficiaries. Hutchins v. Security Trust & Savings Bank, 208 Cal. 463, 467, 281 P. 1026, 65 A.L.R. 1059. The charities contend that a proceeding for a decree of distribution is in rem and therefore binds all the world. The answer to such contention is found in sections 1021 and 1120 of the Probate Code and in the language of the supreme court in Martinovich v. Marsicano, 137 Cal. 354, 359, 70 P. 459, 461. The latter case holds that the probate court in the proceedings for distribution has jurisdiction to distribute only the estate of which the decedent was possessed at the time of his death; that it can exercise such jurisdiction only over ‘the persons to whom the estate is to be distributed’ and that it is ‘only these persons who can be affected by the notice, or required to give it any attention.’ Section 1021 declares that the decree of distribution ‘is conclusive as to the rights of heirs, devisees and legatees.’ Section 1120 provides that when a testamentary trust continues after distribution the superior court ‘shall retain jurisdiction for the purpose of determining to whom the property shall pass * * * upon * * * termination of the trust, to the extent that such determination is not concluded by the decree of distribution * * *.’

It follows that the beneficiary of a testamentary trust may not petition for distribution, may not demand his benefits from the executor, and may not sue him. He is therefore not bound by the decree of distribution. The beneficiary under the trust gains no advantage and can receive no benefits until the estate is transferred by the decree of distribution to the trustee. His rights thereafter are limited to compelling the execution of the trust by the trustee. Civil Code, § 863. Having become a beneficiary under the testamentary trust he is thereupon entitled to appear in his own right before the court in the exercise of its equitable jurisdiction and assert his rights as ‘to whom the property shall pass * * *.’ From the language of section 1120 the legislature must have intended that if conditions within the trust estate itself should justify the interposition of its equitable powers the court will make such determination as ‘to whom the property shall pass.’ In the present action the changed circumstances dominate the entire arena. Not only had the value of the trust estate dwindled during administration to less than half of its appraised value, but the industry of the individual beneficiaries brought to light that under section 41 of the Probate Code the charitable bequests cannot ‘collectively exceed one-third of the testator's estate as against his * * * sister, nephew, niece * * * who would otherwise * * * have taken the excess over one-third * * *.’ Without such discovery it is not likely that a contest would have arisen. Also, it is a reasonable interpretation of section 1120 that it was intended that the decree of distribution finally determines the terms and provisions of the trust as of the moment of its creation, but that it is in no sense conclusive as to contests which might subsequently arise among beneficaries with reference to changed circumstances as to which no bearing had been had.

The Loring heirs cannot by virtue of the decree of distribution be estopped from demanding instructions to the trustees. They were not parties to the proceeding prior to distribution. They created this controversy to enforce the proper distribution of the trust estate after the trustees had disclosed its intrinsic deterioration. Having no right to object to the creation of the trust or to the decree of distribution they cannot be considered to have been parties thereto. The parties to two proceedings are ‘deemed to be the same when those between whom the evidence is offered were on opposite sides in the former case * * *.’ Code Civ.Proc. sec. 1910. Moreover, the subject matter of the instant proceeding was not ‘actually and necessarily included’ in or necessary to the distribution proceeding. Code Civil Proc. sec. 1911. A former judgment ‘is, in respect to the matter directly adjudged, conclusive between the parties and their successors in interest * * * litigating for the same thing under the same title and in the same capacity * * *.’ Code Civil Proc. sec. 1908. The distinction between the instant proceeding and one in which the decree of distribution might have been successfully pleaded as a complete bar lies in this, that the essential purpose of this proceeding was to nullify the trust as to a beneficiary who is not authorized to take under a California will. Servente v. Murray, 10 Cal.App.2d 355, 359, 52 P.2d 270. The Loring legatees could not have made such demand at the distribution because they were not parties. The trustees could not have done so because they were non-partisan. Inasmuch as the identity of the issue and its determination are of paramount importance to the consideration of a plea of res judicata (Servente v. Murray, supra, 10 Cal.App.2d at page 361, 52 P.2d at page 273), it must follow that such plea in this proceeding is unavailing since the issue decided here contrary to the decree of distribution was not involved there. See English v. English, 9 Cal.2d 358, 364, 70 P.2d 625, 128 A.L.R. 467; Freeman v. Barnum, 131 Cal. 386, 63 P. 691, 82 Am.St.Rep. 355. In truth such equitable issue could not have been considered by the court sitting in probate, which has no equity jurisdiction aside from that granted by section 1120, Probate Code.

Town's Authorities.

The authorities cited by the charities with reference to the application of the doctrine of res judicata are thus distinguished: They expound the principle of the finality of a decree of distribution but they refer to situations where the devises who attacked the decree were parties to the precedent proceeding and no concealment of facts had caused the probate court to eliminate the possible reversionary interest designated in the will. See Miller v. Pitman, 180 Cal. 540, 182 P. 50. In none of them is found a situation in which a testamentary trust estate underwent revolutionary intrinsic change prior to its dissolution. For instance, the McGavin case, 34 Cal.App. 168, 167 P. 182, was a direct action in equity to vacate the final decree of distribution on the ground of excusable neglect, whereas it was clearly not excusable. The action brought by the Society of California Pioneers, 63 Cal.App.2d 332, 146 P.2d 962, was for the purpose of impeaching the decree of distribution by reference to the will. Of course it is fundamental that the will is merged into the decree. The McLellan case, 17 Cal.2d 552, 110 P.2d 1034, raised the question as to whether the beneficiary was entitled to interest from the date of the death to the date of distribution. There the decree was held to be final with reference to facts which had occurred prior to the decree.

The Estate of Lingg, Cal.App., 162 P.2d 707, is the most recent expression upon the subject but it adds nothing to the doctrines announced in the other cited cases. A settlement was agreed upon before distribution to which the widow and the residuary devisees and the beneficiaries were parties. They were estopped by the doctrine that when the court has incorporated a method of distribution by consent of heirs and devisees in its decree the consenting parties cannot complain on appeal that the decree ignored the terms of the will. Mrs. Lingg having consented to the decree was not permitted thereafter to object to it; and if she could not object to it her heirs were likewise estopped. That decision is not an authority making it obligatory upon Loring to have requested the court at the hearing of the executors' final account to reserve final distribution until the termination of the trust. Such reservation is made by the provisions of section 1120, so that any question arising from intrinsic changes in the trust estate may be equitably resolved at a subsequent date. Neither is it authority for the finality of the decree distributing the residue to the trustees. In the first place, it merely holds that such decree is ‘valid’; secondly, the discussion of that subject is outside of the issue presented by the appeal, to wit, whether a devisee may upset a decree to which she consented.

A Town in Iowa May Not Take Under a California Will.

Having demonstrated that the decree of distribution was not a limitation upon the power of the court in the exercise of its equitable jurisdiction to determine to whom the property shall pass and be delivered upon the termination of the trust, Probate Code, sec. 1120, we now advert to the Loring contention that the trial court erred in directing the payment of any funds to Town. There is no statutory provision for a testamentary devise to any state other than California. Section 27, Probate Code, provides that a testamentary disposition may be made ‘to the state, to counties, to municipal corporations, to natural persons capable by law of taking the property, to unincorporated religious, benevolent or fraternal societies or associations * * *. No other corporation can take under a will unless expressly authorized by statute.’ If Town can take under the will of decedent it must take as a municipal corporation. That it cannot do so is rendered clear by a close scrutiny of the quoted section and its companion provisions. If ‘the state’ refers to California, as clearly it must, then the municipal corporations mentioned in the section must refer to the municipal corporations of California. The legislature could not reasonably have intended by the phrase ‘the state’ to mean ‘a state,’ for the latter phrase might be reasonably construed to mean any established government on earth. It is unthinkable that the lawmakers would have thus legislated. If then the language of section 27 implies an inhibition against a bequest to another state it would be unreasonable to conclude that a bequest might be made to a political subdivision of another state. Such interpretation of a statute must be given as will be consistent with reason and with practical, common sense. Civil Code, sec. 3542; Kipp v. Billingham, 217 Cal. 527, 530, 20 P.2d 318; Martin v. Gibson, 48 Cal.App.2d 449, 451, 119 P.2d 1012.

Another guide to the interpretation of the statute is the rule of noscitur a sociis. That rule requires that the meaning of a doubtful word is to be ascertained from the words which surround it. Fox v. Hale & Norcross Silver Mining Company, 108 Cal. 369, 426, 41 P. 308. In view of the fact that a state is territorially composed of counties and municipal corporations the reference in section 27 to municipal corporations must mean those existing within the state of California. Under the rule of ejusdem generis the general words ‘municipal corporations' following the words state must refer to things of the same kind—that is to say, cities within the state of California—and not to a city of any other state or country.

These constructions are supported by the legislative history of section 27. It was first enacted in 1872 as section 1275 of the Civil Code. At that time no corporation was permitted to take from a California testator unless especially authorized by statute so to do. In 1873 the section was amended so that corporations ‘formed for scientific, literary or solely educational purposes' might take under such will. (Amendments to the Codes, 1873–74, p. 275.) In 1881 a separate statute was enacted authorizing the ‘several counties, cities and counties, cities and towns of this state to accept * * * any gift, bequest and devise. * * *’ Stat. 1881, p. 2.) In 1903 section 1275 was amended to permit corporations formed for ‘hospital purposes' also to take under a California will. Stats. 1903, p. 258. In 1905 the section was further amended to permit counties and municipal corporations to take under a California will, subject to the provisions of section 1313, the antecedent of section 41, Probate Code. Stats. 1905, p. 605. Neither statutory provision nor court decision has been suggested that would indicate whether the counties and municipal corporations added by the amendment of 1905 referred to those of California alone or to those of other states. But the Loring heirs have suggested that the code commissioner's note to the amendment of 1905 was that the legislature intended the municipal corporations included by the amendment of that year to refer to those of California only. Such suggestion rises to the dignity of an argument in the light of the fact that the code commissioner in submitting section 27 of the Probate Code to the legislature of 1931 directed that body's attention to the commissioner's note of 1905 for a construction of the newly proposed section. While it does not necessarily follow that the note of a code commissioner has the potency or effectiveness of a statute, at the same time the fact that the attention of the legislature was called to such construction lends force to the deduction that it was their intention to permit or authorize bequests to municipal corporations of the state of California only and not to those of another state. It was not until the Probate Code was adopted in 1931 that ‘the state’ was added to the list of entities privileged to take under a California will. So far as has been shown, the practical effect of the addition of ‘the state’ in the statute was to emphasize the construction which was theretofore reasonably deductible, to wit: that only the municipal corporations of California might take under a California will. It cannot be gainsaid that the right of this state to take under a California will was ever open to question, for being all-powerful in its domestic concerns its right and its power to receive a bequest could be questioned by no one. See Kubach Co. v. McGuire, 199 Cal. 215, 217, 248 P. 676.

The foregoing leads us to observe that the interpretation herein placed upon section 27 is further fortified by the inherent indisposition of any sovereign state through its lawmaking agencies to authorize the transfer of its wealth to the coffers of another state or government. Its needs and its own selfish interests impel it to conserve and perpetuate the wealth that is developed within its borders, and they also forbid an interpretation of section 27 to the effect that neither a sovereign power outside of California nor any of its constituent subdivisions may take from a California testator.

Town cites effective authorities (Estate of Yule, 57 Cal.App.2d 652, 135 P.2d 386; Estate of Halm, 196 Cal. 778, 239 P. 307; Estate of Sloane, 171 Cal. 248, 152 P. 540; Estate of Robinson, 63 Cal. 620; Estate of Coleman, 167 Cal. 212, 138 P. 992, Ann.Cas.1915C, 682) and contends that they furnish precedents for the validity of the bequests to it. But with the exception of the Robinson case each of them involved a charitable bequest to a charitable institution. In Estate of Robinson a bequest of $40,000 had been made to ‘the Mayor, Common Council and Commonalty of the City of San Francisco’ in trust to be used for the destitute women and children of that city. By the decree of distribution the money was distributed to the trustees named by the testator although they were designated in the amended decree as ‘the mayor and Board of Supervisors of said City and County.’ Town argues that Robinson made a bequest to a municipality prior to the amendment which allowed bequests to political subdivisions. The record of that case discloses that there was in fact no gift to the city but, on the contrary, to its executive and legislative officers as trustees for the destitute class named in the will. The court did ‘not understand appellants [residuary legatees] to claim that the court below erred in substituting the legal appellation of the municipality in question for that employed by the testator, but their claim is that the bequest itself is void because prohibited by statute.’ In fact the name of the city was not substituted for that of the testamentary trustees. While the city was not named as trustee either by the will or by the amended decree of distribution, the Supreme Court was evidently drawn into a discussion of the right of a city to take under a will by the learned brief of the residuary legatees, who maintained that ‘the city of San Francisco was expressly prohibited by statute from receiving a legacy or bequest.’ They traced the law supporting their thesis to England's Statutes of Mortmain, to the Magna Charta, and to other celebrated statutes of England of later periods on the hypothesis that the bequest had been made to the city. But the authorities were not pertinent and the argument was irrelevant. The selection of the ‘mayor and common council’ as trustees of the fund for charity was clearly not a gift to the city but merely the designation of trustees who would remain under the jurisdiction of the California courts and whose whereabouts could always be promptly ascertained. The court's discourse upon the constitutionality of trusts ‘for perpetual charitable uses' was not related to the issue of the validity of the trust and should have been omitted.

Were the superior court to distribute money or other personalty of this state to a town of Iowa as trustee of a charitable bequest what control would the court have over a faithless or neglectful trustee? The question illustrates a distinguishing feature of the Loring will as contrasted with that of Robinson. However severe in its practice of honesty and fair dealing the town of Kingsley might be, and of that no doubt is entertained, section 27 in effect inhibits a testamentary disposition to a town outside of this state and that spells finis for the bequest to Town.

Beneficiaries Not Disinherited by This Contest.

Town contends that by reason of their appearances in this proceeding the heirs forfeited their rights under the will. It is true that the testator provided that any heir of a legatee who shall seek to establish ‘any claims to my estate or any part thereof, excepting under this will * * * I give and bequeath to such person or persons the sum of One Dollar and no more. * * *’ But such stricture is not applicable. No one attacked the will. The trustees asked for instructions more than two years after the estate had been distributed. All beneficiaries appeared, demanding such manner of division and payment of the corpus of the estate held in trust as they deemed consistent with law and the decree of distribution. Every one stands squarely upon what he deems to be a valid construction of that decree. For a beneficiary under a testamentary trust to seek an interpretation of a final decree of distribution and diligently to serve the court in its labors to ascertain the true meaning of such decree does not give cause to apply to him the testator's restrictive clause. The legatees' efforts herein in that behalf do not therefore work a forfeiture of their rights under the decree. Estate of Brisacher, 27 Cal.App.2d 327, 330, 80 P.2d 1033; Estate of Harrison, 22 Cal.App.2d 28, 41, 70 P.2d 522.

In view of the foregoing it is unnecessary to discuss the other points raised. The nullity of Town's bequest leaves sufficient funds to pay all sums specified in the court's order to Braille and to the individual legatees named, leaving a respectable sum for the residuary devisee.

It is therefore adjudged that the order appealed from be and it is reversed and the court is directed to require the trustees of the George E. Loring trust at the proper time to pay nothing to Town but to pay all other legacies as specified in the decree of distribution and any excess to Sarah Loring, the residuary legatee.

MOORE, Presiding Justice.

McCOMB and WILSON, JJ., concur.