Neel v. BarnardNeel v. Barnard
A petition for hearing in this case was granted to the end that further consideration be given to the contentions of the appellants. On such consideration, we agree with the disposition of the appeal by the District Court of Appeal of the Second Appellate District, Division Three, and adopt as the opinion of this court the opinion of that court prepared by the Honorable Hartley Shaw, Justice pro tem. It is as follows: “This action was commenced by Henry H. Neel, Thomas W. Neel, his son, and Dessie L. Neel, wife of Thomas, against Chas. Barnard. After the action was begun, plaintiff Henry H. Neel and defendant Chas. Barnard died, the executors of their respective estates were substituted for them, and the executrix of the deceased wife of Barnard was also made a defendant. In discussing the case we shall use the terms ‘plaintiffs’ and ‘defendants’ to refer to the original parties, except as otherwise specially stated. The present plaintiffs appeal from a judgment in favor of the present defendants.
“This action arose from a contract between the plaintiffs and the defendant by which, as plaintiffs claim and the trial court found, the defendant became a trustee for plaintiffs, and was based upon certain claimed breaches of duty by defendant as such trustee. The contract consisted of a letter written by defendant to H. H. Neel and T. W. Neel, two of the plaintiffs, dated December 23, 1930, and a more formal agreement naming all the plaintiffs as parties of the first part and defendant as party of the second part, dated December 26, 1930, and signed by all of them. The letter transmitted the agreement to plaintiffs and referred to it in such fashion as to make both, as the trial court found, parts of the one contract between the parties. Also a part of the transaction was a deed, dated December 26, 1930, by which the plaintiffs conveyed to defendant, without qualification or restriction of any sort, their real property hereinafter mentioned.
“At and prior to the time of executing this contract plaintiffs were the owners of approximately 245 acres of valuable farming land in Ventura County, mostly used for the purpose of producing walnuts, with some of it in beans and other crops. Only 10 acres of this land were owned by plaintiffs Thomas W. Neel and Dessie L. Neel, the balance being the property of plaintiff Henry H. Neel, who was a widower.
“The letter and agreement above mentioned recited the facts regarding the loans, the incumbrances and the default in all the detail necessary to a complete statement, provided for the execution of the deed above referred to, and declared that plaintiffs had received no consideration for the deed. By the agreement the plaintiffs gave the defendant ‘full authority and power irrevocable to sell, lease or otherwise dispose of any part of or all of said real property, or any interest or estate therein, in such pieces or parcels, and for such prices and upon such terms and conditions as the party of the second part may deem proper, and to enter into contracts, and execute all papers as may be proper or necessary in order to carry out and consummate said sale or sales, and upon receipt of the purchase price, either in cash or part of the purchase price in cash and the payment of the remainder to be secured by a mortgage or deed of trust upon the property so sold, to execute and deliver to the respective purchaser all necessary and proper contracts, bonds and deeds of conveyance for the lands so sold which are or may be necessary or proper to fully carry out and complete the transfer of the property so sold and to be in such form and under such conditions as the party of the second part may deem proper. ’ Plaintiffs also authorized the sale of personal property used on the realty and of water stock appurtenant to it. In the agreement plaintiffs stated their ‘confidence and trust in the integrity and honesty’ of defendant and their belief, by reason thereof, that ‘the disposition and sale of said real property and the payment of their indebtedness . . . can be more expeditiously accomplished, at less cost, expense and for a greater value than can possibly be made’ on a foreclosure sale and that the proceeds of sale will probably be in
“ Defendant contends that this agreement did not create a trust, but merely made of defendant a mortgagee in possession. The trial court, however, treated defendant as a trustee and we are satisfied that this view of the matter is correct. It is true the defendant, in his letter, referred to the fact that the deed was without limitation or qualification, saying also ‘I decline to enter into any trust agreement, or declaration of trust’; but in this respect he was like Byron’s maid who ‘whispering “she would ne’er consent,” consented.’ The defendant was not even named as the lender and beneficiary in some of the trust deeds recited in the agreement, and many of the notes originally made to him as payee had at the date of the agreement been transferred to others. The powers given him by the contract far exceeded those of a mortgagee in possession. The relationship created by the contract has all the earmarks of a voluntary trust and must be so regarded. There is a transfer of property by plaintiffs to defendant, motivated by their personal confidence reposed in him, for the purpose of enabling him to carry out
“Many of the points made by appellants are based upon the claim, which permeates their briefs, that the defendant, a short time after the trust was created, repudiated and abandoned it, claimed the trust property as his own and from that time forward treated the property as if there were no trust and the conveyance to him had been absolute, the plaintiffs further asserting that by such conduct defendant committed a conversion of the trust property and must be charged with the value of the propery as of the date of repudiation. In reply the respondents contend that this claim of appellants is not within the scope of the complaint filed by plaintiffs or of the claim presented to the estate of the original defendant. These two points merge into one, for when, by reason of the death of the original defendant before the trial, it became necessary to file a claim against his estate (Prob. Code, § 709) the claim filed was simply a copy of the plaintiffs’ complaint herein. There is no room here for the application of the rule that prevails where an issue not made by the pleading is tried by consent, even if that rule could be applied to a variance from the claim filed, for defendant made timely objection to the evidence on which appellants found their contentions in this matter.
“The complaint contained two statements of causes of action. The first alleged the creation of the trust, stating the surrounding circumstances including defendant’s superior knowledge and skill in the management and sale of property such as that of plaintiffs and plaintiffs’ great trust and confidence in defendant, setting forth copies of defendant’s letter and of plaintiffs’ deed to him and giving what the plaintiffs understood to be the legal effect of the agreement, a copy of which they alleged they had been unable to find. This stated legal effect, while lacking many of the details of the actual
“The second statement of a cause of action began by incorporating the first. Then it alleged that by the contract between the parties it was agreed that defendant would ‘diligently and expeditiously sell so much of said . . . properties as would liquidate and satisfy the said indebtedness then owed by the plaintiffs; that by reason thereof it was the duty and obligation of the said Chas. Barnard to sell transfer and dispose of so much of said real properties within a reasonable time as would liquidate said indebtedness; that there was at said time an active market for the disposal of said real property, and at such prices as would have liquidated said indebtedness then owed by plaintiffs and which would have left a balance either in money or property for the plaintiffs of approximately two hundred thousand dollars. ’ Then followed allegations that defendant had at various times not stated received bona fide offers from cash buyers for various parts of the property, which would have enabled defendant to sell the entire property for more than $400,000, but he ‘refused to sell, transfer and dispose of certain parcels of said . . . properties’ and if he had sold them plaintiffs ‘would have been restored to the occupation and possession of certain parcels of said real properties and would have received the rents, issues, incomes and profits therefrom, and all to plaintiffs’ damage in the sum of two hundred thousand dollars. ’ The second count then alleged facts regarding each sale made by defendant, showing that in each case the sale had been made for much less than the market value, to plaintiffs’ damage in the aggregate sum of $37,619.28. Finally, it alleged that ‘by reason of the failure, refusal and
“The action, as characterized by the complaint, goes far beyond an effort to follow and reclaim a specific fund or specific property. It asserts a general liability against defendant, to be satisfied out of the assets of his estate, whatever they may be, and arising out of the contract pleaded. It is therefore subject to the provisions of Probate Code, section 709, requiring the filing of a claim where an action is pending at the time, of a decedent’s death. (See 11A Cal. Jur. 706, 711, 712.) This conclusion is even more obvious as applied to appellants ’ theory of a repudiation of the trust, leading to a liability for the value of the property, for this theory involves an abandonment of the property by plaintiffs.
“Neither of the causes of action stated in the complaint constituting plaintiffs’ claim said anything of a repudiation of the trust. The first was solely and simply an action to obtain an accounting. The second added to the first four items of damage which plaintiffs sought-to recover; that is, $200,000 arising from defendant’s failure and refusal to sell the property for enough to liquidate plaintiffs’ indebtedness and leave them a balance of $200,000; $6,619.28 and $31,000 caused by defendant’s sales of two properties for less than their value; and $85,000 for interest, which accrued on plaintiffs ’ debts by reason of defendant’s delay in selling. We cannot see how any of these allegations even hints at, or can be regarded by any sort of implication as including, a repudiation of the trust by defendant, with concomitant claim to hold the property in his own right, free of any trust.
“ ‘ The provision that the holder of a claim against an estate cannot maintain an action thereon unless the claim is first presented is equivalent to a declaration that he cannot maintain an action upon any claim that he has not first presented for allowance, and that in any action brought he can
‘ ‘ The complaint and the ■ claim do, however, clearly present the point that it was the duty of defendant to sell the trust property, or so much of it as was necessary, in a reasonable time, that he failed to do so, and that by reason of such failure the plaintiffs suffered damage. The trial court put a construction on the contract which contravenes plaintiffs’ contention, in this finding: ‘That it was not the duty or obligation of Chas. Barnard to sell, transfer and dispose of so much of the real property involved herein within a reasonable time as would liquidate said indebtedness, but that it was his duty to offer said properties for sale at what he deemed a reasonable and fair price in an endeavor and an attempt to liquidate said indebtedness within a reasonable time and have a substantial sum left over to pay to the Neels, or in case of a liquidation by sale of a part of the property, to return the remaining properties to the plaintiffs.’ We shall not undertake to decide whether the construction thus put on the contract in regard to defendant’s duty to sell within a reasonable time is correct; for assuming plaintiffs’
“Much of plaintiffs’ argument on this point is based on the further finding that the defendant had ‘an opportunity to sell the 89 acre tract (part of the land conveyed to defendant by plaintiffs) for a net sum of $133,000 (the offer of $140,000 being subject to a 5 per cent real estate commission) which offer was made in January of 1931, and which was refused . . .’ This is coupled with the further finding that ‘at said time and place defendant offered to sell said property to the same person for $150,000 cash, which offer was likewise refused. That said offers and refusals were not made in violation of the terms of the contract, but in the exercise of an honest judgment and discretion made and exercised in good faith. ’ The contract, while it may have required a sale within a reasonable time, conferred a large amount of discretion on the defendant regarding the prices, terms and conditions of sale. The question, what was a reasonable time, is inextricably bound up with his exercise of discretion in these matters, and the time might vary accordingly. Defendant’s mere failure to make a sale, even if, as plaintiffs contend was the case here, the price was adequate, as viewed from the standpoint of the present and the information on market conditions and trends now available, does not necessarily convict him of a breach of duty as trustee, for his discretion would properly take other matters into consideration.
“By the formal agreement defendant is given power to sell the land ‘in such pieces or parcels, and for such prices and upon such terms and conditions as the party of the second part [defendant] may deem proper, ’ and in the letter defendant stated ‘I must have the total and absolute control of the entire property as to its care, management, recital [so reads the record; perhaps ‘rental’ is intended] and sale or as to the disposition of the proceeds from the income or the proceeds or as to the disposition of the proceeds from a sale, and certainly there must be no restriction as to a sale and conveyance under such terms and conditions, as I may deem proper for as to those matters, I am to be the sole judge. ’
“Concerning the later failure of defendant to sell, the court found ‘That it is untrue that on or about December 26, 1930, or at any time thereafter, there was an active market for the disposal of said real property, but it is true that there were only occasional sales of like properties, similarly situated, and that there was not an active market for said properties at any time subsequent to December 26, 1930, and it is untrue that the defendants had an opportunity to sell any or all of said properties at such price as would have liquidated the indebtedness owed by plaintiffs to defendants and which would have left a balance either in money or property of plaintiffs of approximately $200,000.00 or any other sums. That the two sales made by plaintiff were made in the due course of business and were the only ones which could have been made other than an opportunity to sell the 89 acre tract . . .’ (here follows the finding already quoted regarding this offer). Upon examining the evidence we see therein sufficient support for this finding, which it seems unnecessary to set forth here, to the mere lengthening of this opinion. Conditions of depression during the time in question are so well known that little proof of them is necessary. This finding while it does not directly pass upon the question of reasonable time, does in effect dispose of it; for if the property could not have been sold, on such terms as defendant properly determined, a reasonable time for sale had not
‘ ‘ Even if, as plaintiffs contend, the properties could have been sold for enough to pay the debts and leave a substantial surplus, defendant’s failure to sell would not necessarily convict him of bad faith or breach of duty. It was not necessarily unreasonable for him to believe that the market would improve, and the court may well have concluded that plaintiffs shared that belief. There was no evidence that plaintiffs ever urged defendant to close the properties out at the best prices obtainable or that they were not satisfied to rely upon his judgment. It is true that they had no right to control defendant’s action, but the fact that they made no protest against his failure to make sales indicates that they did not then question either his good faith or his good judgment. Furthermore, mistaken judgment is not necessarily unreasonable judgment and of course neither is the equivalent of bad faith.
“In regard to this issue of fraud and bad faith, which is raised as to all of defendant’s acts in accepting and carrying out the trust, and particularly as against the court’s finding
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That it is untrue that the defendant, Chas. Barnard, acting as trustee or otherwise under the contract herein, has failed, refused and neglected, or failed, refused or neglected, to properly perform and discharge his duty as trustee,’ there are circumstances pointed out by plaintiffs which tend to east some doubt on defendant’s complete bona tides, and if the trial court had made findings in plaintiffs’ favor on this issue, perhaps they could have been sustained. But on a consideration of all these matters and of the evidence as a whole we are of the opinion that the question was one for resolu
“Complaint is made that defendant was guilty of a breach of trust because he acquired the notes secured by the various trust deeds incumbering the property deeded to him, this being called the acquiring of an interest adverse to the trust, which is prohibited by section 2233 of the Civil Code. The trial court found that this was done ‘pursuant to the contract’ between the parties, and we think this finding is supported. Defendant had been the payee of notes amounting to $160,000 and secured by trust deeds of plaintiffs’ land, and had sold them to others with his endorsement, so that upon the default which is recited in the contract he could be compelled by the holders to take them up. The motives inducing plaintiffs to execute the contract, as expressly recited in the formal agreement, were the promise of defendant not to humiliate or embarrass them by recording a notice of default under the trust deed securing the money he had advanced and their expectation that the proceeds of sales by defendant would probably be greater than could be obtained at foreclosure sales and greater than the amount required to pay their indebtedness. The agreement also mentions disbursements to be made by defendant in the care and management of the property. The defendant’s letter transmitting the agreement stated that ‘ all my future investments will be for the care and protection of the property’ and that ‘it will be necessary to invest much additional capital before we can complete the entire matter.’ If defendant was to avoid the recording of a notice of default oh the trust deed running to himself, he must, of necessity, obtain the notes secured by it; and the purchase of notes secured by other trust deeds would be advisable and perhaps necessary to avoid the foreclosure sales, in accordance with the purpose of the contract.
“Plaintiffs further complain that defendant should have been required to assume the burden of proof on the accounting. At the trial defendant presented an account and
“Many other points are made- and argued in the 762 pages of briefs filed herein, but they relate to the contention that there was a repudiation of the trust and to the weight of the evidence and a discussion of them here is not deemed necessary in a disposition of this appeal.”
The judgment appealed from is affirmed.