The CONTINENTAL BANK & TRUST COMPANY, а Utah corporation, as Trustee under the Revocable Trust Agreement of Marshall E. Huffaker, deceased, Plaintiff and Appellant, v. COUNTRY CLUB MOBILE ESTATES, LTD., a Utah limited partnership; The First Security Bank of Utah, N. A., Personal Representative of the Estate of Marshall E. Huffaker, deceased; et al., Defendants and Respondents.
No. 17157.
Supreme Court of Utah.
July 14, 1981.
632 P.2d 869
Plaintiff‘s attempt to renew the judgment for the $2,333.70 arrearages as of October 7, 1970, is unavailing because the record conclusively shows that defendant‘s payments on that judgment have more than satisfied its total amount. The issue in this case concerns plaintiff‘s attempt to “renew” the judgment as to amounts accrued since October 7, 1970.
Plaintiff asserts that the 1970 Utah judgment gave full faith and credit to the Idaho divorce decree and thereby adopted the Idaho decree “in toto,” in effect making it a Utah decree ordering defendant thereafter to pay the specified monthly installments for child support. Though that result is apparently now expressly authorized under
Since the 1970 Utah judgment imposed no prospective obligation on the defendant to continue the supрort payments specified by the Idaho decree, the Utah judgment cannot now be “renewed” to achieve that result.1 The ruling of the trial court dismissing this action must therefore be affirmed. Costs to respondent.
STEWART and HOWE, JJ., concur.
HALL, C. J., concurs in the result.
MAUGHAN, J., heard the arguments but died before the opinion was filed.
Peter W. Billings, Daniel W. Anderson, Salt Lake City, for plaintiff and appellant.
OAKS, Justice:
The issue in this appeal is whether a settlor who has created a trust by conveying property that is subject to an option to sell can thereafter extend the period of the option without the participation or consent of the trustee. We hold that he cannot. For ease of reference, this opinion will refer to the plaintiff-appellant, Continental Bank & Trust Co., as the “trustee,” to defendant-respondent, Country Club Mobile Estates, Ltd., as the “lessee-optionee,” and to Marshall E. Huffaker, deceased, as the “settlor.”
The sequence of events is critical. On September 29, 1965, the settlor gave the lessee-optionee a fifty-year lease and an option to purchase, during the sixth year of the lease, the 31 acres of land at issue in this litigation. On March 1, 1971, the set
On July 3, 1979, the trustee brought this action against the lessee-optionee and other interested parties to quiet title to the 31 acres of trust property and to determine the validity of the attempted extension of the option. Both parties moved for summary judgment on the issue of the validity of the extended option. The district court denied the trustee‘s motion and granted the lеssee-optionee‘s motion, and the trustee appealed. We reverse.
A settlor admittedly could reserve power to extend the duration of an option on trust property, and do so without the consent or involvement of the trustee. The question is whether this settlor did so. The issue turns on the terms of the trust instrument, which, in this case, gave the trustee broad powers, including the power to grant options, but also reserved to the settlor the right to revokе the trust or to direct the trustee to sell trust property. The relevant clauses are as follows:
ARTICLE IV.
To carry out the Trust purposes of the Trust created hereby ... the Trustee is vested with the following powers ...:
B. To manage, control, sell, convey, ...; to grant options. ...
K. ... The enumeration of certain powers of the Trustee herein shall not be construed as a limitation of the Trustee‘s power, it being intended that the Trustee shall have all rights, powers and privileges that an absolute owner of the property would have.
ARTICLE V.
The Trustor by an instrument in writing filed with the Trustee may modify, alter or revoke this Agreement in whole or in part, and may withdraw any property subject to the agreement; ...
There is hereby reserved to the Trustor the power to direct the trustee, in writing, from time to time, to retain, sell, exchange or lease any property of the trust estate. ... Upon receipt of such directions, the Trustee shall comply therewith.
The lessee-optionee argues, and the district court held, that in the foregoing provisions of the trust agreement the settlor reserved the power to direct the trustee in regard to the leased property, and that the effect of his executing the extension of the option on March 1, 1976, was to direct the trustee to sell the property to the lessee-optionee upon its exercise of the option. We disagree. We are unable to find an exercise of the “power to direct the trustee, in writing,” in an act that was not intended to communicate and did not in fact communicate anything to the trustee. We are likewise unable to construe the extension agreement signed by the settlor and the lessee-optionee as “an instrument in writing filed with the Trustee” to “modify, alter or revoke this Agreement. ...” Nor can we agree with the dissent‘s argument for “liberal construction ... to the reserved powers of a settlor” in a trust agreement which expressly vests the trustee with the power “to grant options” and explicitly states its intention that the trustee “shall have all rights, powers and privileges that an absolute owner of the property would have.” Article IV, quoted above.
After a settlor has completed the creation of a trust he is, with small exсeptions noted below, and except as expressly provided otherwise by the trust instrument or by statute, not in any legal relationship with the beneficiaries or the trustee, and has no liabilities or powers with regard to the trust administration.
None of the exceptions identified by Bogert applies in this case.
This is a case where a settlor created a trust and then chose to ignore it. He could have modified or revoked the trust, or directed the trustee in writing to sell or lease the trust property, but he took neither of these actions. Instead, more than two years after the creation and recording of the trust, and without any direction or notice to the trustee, the settlor gave the lessee-optionee a signed instrument purporting to extend its option to buy the trust property for another five years. The trustee did not learn of this instrument until two and one-half years later, immediately following the dеath of the settlor.
An extension of the option to buy would obviously have a limiting effect on the value of the reversion owned by the trust (and thus on the rights of the trust beneficiaries), which the trustee has a duty to protect. Acott v. Tomlinson, 9 Utah 2d 71, 77, 337 P.2d 720 (1959).1 Even a revocable trust clothes beneficiaries, for the duration of the trust, with a legally enforceable right to insist that the terms of the trust be adhered to. If we gave legal effect to the settlor‘s extension of this option in contraventiоn of the existence and terms of the trust, we would prejudice the interests of the beneficiaries, blur some fundamental principles of trust law, and cast doubt upon whether it is the trustee or the settlor who is empowered to manage and dispose of the trust property in a valid revocable trust.2
The judgment of the district court is reversed and the cause is remanded with instructions to enter judgment for the plaintiff. Costs to appellant.
HALL, C. J., and STEWART, J., concur.
MAUGHAN, J., heard the arguments but died bеfore the opinion was filed.
HOWE, Justice (dissenting):
I dissent. The majority opinion has overlooked the cardinal principle of construction of a trust agreement which is that the settlor‘s intent should be followed. See Leggroan v. Zion‘s Savings Bank & Trust Co., 120 Utah 93, 232 P.2d 746 (1951). Instead, the majority places a strict and rigid interpretation on the language of the trust agreement which defeats the settlor‘s intent and denies him an important power he
Unlike the situation found with many trusts, Huffaker in establishing his trust reserved to himself broad powers in Article V.:
ARTICLE V.
The Trustor by an instrument in writing filed with the Trustee may modify, alter or revoke this Agreement in whole or in part, and may withdraw any property subject to the Agreement; Provided, however, that the duties, powers and limitations of the Trustee shall not be substantially changеd without its written consent, except as to revocation or withdrawal. [Emphasis added.]
* * * * * *
There is hereby reserved to the Trustor the power to direct the trustee, in writing, from time to time, to retain, sell, exchange or lease any property of the Trust estate, to invest Trust funds, or to purchase for the Trust any property which they [sic] may designate and which is acceptable to the Trustee. Upon receipt of such directions, the Trustee shall cоmply therewith. [Emphasis added.]
Thus while Huffaker committed the property into the management and control of the trustee, he retained the right in Article V. to direct the trustee from time to time with regard to the property, and the trustee agreed that upon receipt of any such directions it would comply. It is significant that the consent of the trustee was not required. These broad reserved powers in effect gave him greater power over the рroperty than the trustee possessed since he had the final word.
The property in question was subject to defendant‘s option when it was placed in trust. The trustee took title subject to that option and subject to future directions from Huffacker. The extension granted by Huffaker to the defendant was in effect a directive that the trustee sell the property to the defendant if and when it elected to purchase the property. At that time, the defendant could deliver the directive to the trustee which held legal title and the sale could be consummated. Contrary to what is said in the majority opinion, the extension was intended to communicate and did communicate to the trustee the settlor‘s intention to sell to the defendant. The trustee does not claim to have any doubt as to what the settlor intended.
There was no requirement in the trust agreement as to when the directive to sell had to be delivered to the trustee nor was there any requirement that the settlor must himself deliver the direction to sell to the trustee rather than the buyer deliver it. The majority opinion concedes that Huffaker had the power to extend the option but denies him that power because he did not communicate his intention to exercise that power to the trustee at the time he extended the option. It ignores the fact that the lessee had fivе years to decide whether it wanted to buy the property, at which time it could deliver the direction to sell to the trustee. The majority opinion reads into the trust agreement rigidity and strictness which is unwarranted.
The majority opinion contains a quote from Bogert, Trust and Trustees, § 42, for authority that after a settlor has completed the creation of a trust he is not in any legal relationship with the beneficiaries or the trustee, and has no liabilities or powers with regard to the trust administration. However, as will be seen in that quote, it is there recognized that those rules do not apply where it has been expressly provided otherwise by the trust instrument. Such is the case here where the settlor reserved extensive powers and was himself the primary beneficiary.
Huffaker‘s extension agreement apparently would not have been challenged by his trustee if he had given written directions to the trustee to extend the option instead of executing the extension with the defendant himself, and apparently would not have
The majority opinion treats the relationship between Huffaker and his trustee as an adversary relationship instead of recognizing that the trustee was Huffaker‘s fiduciary to assist him in managing his property. Therefore, there is no reason to construe the trust agreement as if it were meant to deal with a relationship between two adverse parties.
My view that a liberal construction should be given to the reserved powers of a settlor under these circumstances finds support in a decision of the Supreme Judicial Court of Massachusetts, Trager v. Schwartz, 345 Mass. 653, 189 N.E.2d 509 (1963). There the settlor on July 15, 1942, executed as donor a declaration of trust. The res was 65 shares of stock and 4 lots of land. In that instrument he reserved the right to alter, amend or revoke the instrument in whole or in part. However, it was specifically provided in the declaration of trust that “any such alterations, amendments оr revocations of this trust shall be by an instrument in writing signed by the donor, and shall become effective only upon being recorded in the South District Registry of Deeds for Middlesex County.”
Later, on February 4, 1954, the trustor executed a document entitled “Modification and Amendment of Trust” whereby he withdrew the 65 shares of stock from the trust and sold them to his son and told him that he had arranged for the recording of that instrument by his lawyer. However, he did not record the document nor instruct his attorney to do so. On August 25, 1960, the settlor executed a document entitled “Revocation of Declaration of Trust,” in which he revoked in whole the declaration of trust of July 15, 1942. This revocation was recorded on August 26th. He thereupon directed the trustees to deliver to him the 65 shares of stock and the 4 lots of real estate. His son received notice of the revocation on August 30, 1960, and recorded the following day the modification and amendment dated Februаry 4, 1954, by which he had obtained the 165 shares of stock.
In a suit brought by the settlor to regain ownership of the stock, he contended that the recording of his complete revocation on August 26, 1960, rendered ineffective the recording of the partial revocation on August 31, 1960. He relied upon the principle that “A valid trust once created cannot be revoked or altered except by the exercise of a reserve power to do sо, which must be exercised in strict conformity to its terms.” The court upheld the earlier sale of stock stating:
The provision of the declaration of trust that amendments and revocations ‘shall become effective only upon being recorded’ shall not be interpreted, where there are no intervening rights of third-parties, as preventing the carrying out of the earlier amendment once it has been recorded. This should be the result, particularly whеre there was an express undertaking by one of the parties to see to the recording.
In the instant case, defendant will be greatly prejudiced, and the settlor‘s intention thwarted, as a result of following the majority opinion‘s interpretation of the trust terms as they relate to a written direction to the trustee to sell trust property. Defendant gave up to the opportunity to purchase the property within the original option period in reliance on Huffaker‘s execution of the extension agreement, a document prepared by his attorney. I am not persuaded that because defendant was making its rental payments to the trustee it was unreasonable in obtaining the extension of the option, which previously had been granted it by Huffaker, to again deal with him and rely on him since he was the final power respecting his property, and since neither he nor his attorney who had full and complete knowledge of the trust apparently raised any question as to the propriety of what they were doing. Just as the settlor in Trager v. Schwartz, supra, was not permitted to gain advantage by his failure to record as required by the trust agreement, I think the settlor‘s beneficiaries in the instant case should not gain by Huffaker‘s omissions and to the extreme prejudice of defendant.
The trustee has based its arguments on cases and principles that are distinguishable or inapplicable to the instant case. It regards the trust agreement as expressly allowing only it, as trustee and holder of the legal title to the property, to sell, option, or otherwise dispose of it. But the language of the trust regarding powers retained by Huffaker is inclusive enough to encompass his action in this case, for he expressly retained the right to direct the plaintiff to sell the property, a right that is compatible with his granting of the option extension.
The trustee also asserts that the written instrument received after Huffaker‘s death was ineffective as a directive to the trustee. Plaintiff cites authority for the principle that a revocable trust can only be modified during the settlor‘s lifetime, e. g., Chase National Bank of City of N. Y. v. Tomagno, 172 Misc. 63, 14 N.Y.S.2d 759 (1939). We are not dealing with an attempted testamentary disposition in this case, however. The option extension agreement was executed during Huffaker‘s lifetime, and the fact that it wаs received by plaintiff only after he died does not deprive it of its effect.
I would affirm the judgment below.
RICHARD C. HOWE
JUSTICE