Opinion
Rehearing Denied Dec. 1, 1960.
Hearing Granted Jan. 5, 1961.
Opinion vacated 13 Cal.Rptr. 411. Stanley N. Gleis, Beverly Hills, or appellant Fred H. Bixby, Jr.
Lawler, Felix & Hall, Wm. T. Coffin, Los Angeles, John G. Wigmore, So. Pasadena, for respondent Security First National Bank, as trustee of fourth trust.
Sherman Anderson, Los Angeles, for respondents Robert B. Green and others.
DISHOP, Justice pro tem.
Fred H. Bixby, Jr., the beneficiary of the Fourth Trust created by the will of Fred H. Bixby, has appealed from those provisions of the Order Settling the Trustee's First Account Current and Report of Administration, which he identifies as being: '1. From the order overruling the objections and further objections of Fred H. Bixby, Jr.; 2. From the order setting, approving and confirming the Trustee's First Account current and Report of Administration in regard to the following: (a) The allocation to principal by the Trustee of 27 1/2% of the oil royalties received by the Trustee; (b) The retention by the Trustee of 3590 shares of Fred H. Bixby Ranch Co. stock and the Trustee's failure to sell said shares of stock and invest the proceeds from said sale in assets that will yield reasonable income. 3. The failure of the Court to remove Security-First National Bank as Trustee.'
Income and Principal.
We begin with consideration of the first specific portion of the order appealed from, that allocating 27 1/2% of the royalties received by the trustee to principal, and so not received by the beneficiary, to whom the income was to go. In ruling upon this objection, the trial judge was not called upon to bring his understanding of the common law rules, respecting the proper allocation of receipts between income and principal, to bear upon facts as he found them to be. Had that been his responsibility he might have concluded that no more than 20%--to take any arbitrary figure less than 27 1/2%--should have been treated as principal. Instead, the question he had to answer was this: Was the allocation by the trustee made in good faith and according to its best judgment? This was quite a different question from the one first suggested, and the substitution of the latter for the former is due to the adoption, in this State, of the This Act, dealing as stated in the Commissioner's prefatory note to the Uniform Principal and Income Act (Vol. 9B, Uniform Laws Annotated), 'with the difficult problems of adjustment of principal and income between [beneficiaries] and remaindermen in trust and other estates in property' frees the courts from 'the large number of difficult and technical questions which arose in this connection', by two of its provisions. The first, relied upon by the appellant, is the declaration found in sections 9 and 10 of the 1941 Act and now in sections 730.11 and 730.12, Civil Code, which, roughly summarized, states that all royalties from oil wells are to be treated as income. But this is not all that the legislature has said. This further significant provision from section 2 (now section 730.04), is quoted in Estate of Jacks, 1947, 80 Cal.App.2d 562, 568, 182 P.2d 605, 608, and requoted by this court in Estate of Bixby, 1958, 158 Cal.App.2d 351, 364-365, 322 P.2d 956, 965, with the emphasis added: "'This act shall govern the ascertainment of income and principal, and the apportionment of receipts and expenses between tenants and remaindermen, in all cases where a principal has been established with * * * the interposition of a trust; except that in the establishment of the principal provision may be made touching all matters covered by this act, and the person establishing the principal may himself direct the manner of ascertainment of income and principal and the apportionment of receipts and expenses or grant discretion to the trustee or other person to do so, and such provision and direction, where not otherwise contrary to law, shall control notwithstanding this act. The exercise by the trustee or other designated person, of such discretionary power if in good faith and according to his best judgment, shall be conclusive, irrespective of whether it may be in accordance with the determination which the court having jurisdiction would have made."'
In Estate of Bixby, supra, our present appellant was appealing from the order settling the third and final account and decree of distribution in this same estate. The question in dispute was whether the trial court should have specified what portion of the funds about to be turned over to the trustee should be distributed as income and what should be regarded as principal. This court, in passing on this contention, might have contented itself with saying, as it did in effect, as an alternative, near the close of its opinion, that it really did not matter; all was being distributed to the trustee and the allocation could still be made. It did not limit its approval of the trial court's silence to this line of reasoning, however. Early in its opinion (at page 353 of 158 Cal.App.2d, at page 958 of 322 P.2d), it called attention to the provision of the will that set forth the trustees' powers, including this one: "(f) To determine what is principal and what is income of the trust estate and what items should be charged or credited to either; to accumulate the income of the trust estate to such extent as the Trustees or Trustee, in their absolute discretion, think necessary or advisable to provide for the maintenance, protection or improvement of the trust estate, or any part thereof, or to discharged any lien or encumbrance to which the trust estate, or any part thereof, may be subject, or to repay any advances made by the Trustees or Trustee or any loan which the Trustees or Trustee may negotiate." This provision, it held, was a direction, by the person establishing the principal, of the manner of ascertainment of income and principal, bringing the case within section 2 and 730.04, quoted above, and that the result was that the problem, of determining what is income and what is principal, was not for the probate court, but for the trustee. True, the opinion goes on: 'If the trustee should abuse his discretion * * * [the beneficiary] has a ready and effective remedy.' But, we interpret the language used in the light of the statute, the trustee would be held to have abused its discretion only if it acted other than in We have, then, a decision in this proceeding, on a prior appeal in which our appellant was the appellant, and the trustee a respondent, determining the meaning of the statute as applied to provision (f) of the will. We are precluded by 'the law of the case' from reaching a different conclusion. Estate of Carothers, 1914, 168 Cal. 691, 694, 144 P. 957, 958; Katemis v. Westerlind, 1956, 147 Cal.App.2d 799, 805-806, 299 P.2d 383, 387. We are not, however, precluded from saying that, law of the case or not, we are of the opinion that the legislature, realizing the difficulty in many cases of arriving at a satisfactory solution of the problem of ascertaining what is income and what is principal, undertook to lay down the rules applicable, 'except' in those cases where the trustor undertakes himself to state upon whom the responsibility shall fall. In this case the trustor put the responsibility upon the trustee. The trial court was warranted by the evidence in concluding, as it did, that '* * * said Trustee in administering the Fourth Trust exercised the powers and discretions vested in it reasonably, in good faith and in accordance with its best judgment * * *.'
Appellant relies rather heavily upon Estate of Heard, 1951, 107 Cal.App.2d 225, 236 P.2d 810, 27 A.L.R.2d 1313, in support of its contention that the trial court should have set aside the allocation of 27 1/2% of royalties to principal. That case is authority for the proposition that in a proper situation the probate court may set aside the allocation made by a trustee between income and principal. But its problems were quite different from ours, although the result reached by it is identical with ours in this: it affirmed the action taken by the probate court. That action had been to set aside an allocation by the trustee of all of a stock dividend as principal. It is quite possible that had the trustee, in this case, allocated 100% of the royalties received to principal, the trial court would have concluded that its action was indefensible, and we would applaud its decision. We do not say that the trustee's actions are subject to no control, but we do conclude, after weighing all of the arguments advanced by the appellant, that the trial court correctly held that the trustee had not exceeded the authority that was given it, even should it be true that the trial court might, if the responsibility had been its alone, arrived at a different solution of the problem entrusted to the trustee.
Sale of Stock in Ranch Company.
Appellant's second specific contention is that the trustee's action in retaining, as a part of the trust estate, 3,590 shares of the Fred H. Bixby Ranch Co. stock, should not have been approved. The dividends paid on this stock have been so meager, during the past five years, he points out, that the result has been to return substantially less income than would have resulted if the stock had been sold and the proceeds otherwise invested. The trial court's conclusion that the trustee should not be compelled to sell the stock and invest the proceeds in ways that would produce greater immediate returns, may have been based, in part, on the fact that the appellant himself has, these years, owned two and one half times as many shares of the stock as the trustee; has sought to buy more; but has never attempted to sell any. He must think, as the directors apparently do, that in future years the returns will make up for the present practice of plowing such profits as these are back into the enterprise. But be this as it may, the trustor provided that the trustee was vested with the power and discretion: '(a) To hold any property at any time constituting a part of the trust estate so long as the Trustees or Trustee may deem it advisable to so do.' If the appellant has reason to feel himself aggrieved, it should be because of this declaration of the trustor.
Allocation of Development Costs.
Before discussing the remaining specific portion of the order appealed from, Here again we have a problem placed, primarily, upon the shoulders of the trustee. To repeat a portion of section 730.04, this time with different emphasis: '* * * the person establishing the [trust] may himself direct the manner of ascertainment of income and principal and the apportionment of receipts and expenses or grant discretion to the trustee or other person to do so * * *.' In the Seventh paragraph of the will governing this case the trustor gave the trustee power and discretion '(h) To pay from the gross income of the trust estate, or from the principal thereof should the * * * Trustee deem that necessary * * * all costs, charges * * * and other expenses incurred in connection with * * * the management, care, administration or distribution of the trust estate * * *.'
'(b) To * * * lease * * * for any purpose, including exploration for and removal of gas, oil and other minerals * * * on such terms and conditions as the * * * or Trustee shall deem advisable * * *.'
In the premises we conclude that the trial court did not err in approving the action of the trustee in charging various items of 'Development Cost' against income.
Discharge of Trustee.
This brings us to the last of the portions of the order from which appellant took his appeal: '3. The failure of the Court to remove Security-First National Bank as Trustee.'
No doubt the superior court has authority to remove a trustee. Civil Code § 2283. It was taken for granted in Estate of Keyston, 1951, 102 Cal.App.2d 223, 227 P.2d 17 and Estate of Baird, 1955, 135 Cal.App.2d 343, 287 P.2d 372, that the making of an order bringing about such a removal was within the power of the probate court, and we take it for granted now. However, it is a power not to be lightly exercised, and whether or not action should be taken rests largely in the discretion of the trial court, as was pointed out in the cases just cited.
The appellant first requested the removal of the trustee in the prayer of his 'Further Objections' filed some time after he presented his original objections. No reason for the removal of the trustee was advanced in either pleading, except as a reason may be implicit in the objections respecting the allocation of any of the royalty receipts to principal, the retention of the shares of stock of the Fred H. Bixby Ranch Co., and the use of income to pay development costs. It is not surprising that the trial court, not having found any of the objections or further objections well based, should not find in them a reason for supplanting the trustee. The trial court cannot be held to have erred in not sifting the evidence to see if it could not find some fact--not pleaded--upon which appellant's request could be granted. The trustee was appointed, not by the court, but by the creator of the trust, an added reason for not hastening to grant appellant's request. Estate of Brown, 1937, 22 Cal.App.2d 480, 71 P.2d 345, 349.
The several portions of the order appealed from are affirmed.
VALLEE, Acting P. J., and FORD, J., concur.