Kenny v. Citizens Nat. Trust & Savings Bank of Los Angeles

Decision Date27 April 1954
Citation269 P.2d 641
CourtCalifornia Court of Appeals Court of Appeals

Milo V. Olson, Walter L. Nossaman, Joseph L. Wyatt, Jr., Los Angeles, for appellant.

Cosgrove, Cramer, Diether & Rindge, John N. Cramer, Samuel H. Rindge, Los Angeles, for respondent bank.

Belcher, Kearney & Fargo, Los Angeles, for respondent Ivey.

FOX, Justice.

Defendants' demurrers to plaintiff's first amended complaint were sustained without leave to amend. Plaintiff appeals from the ensuing judgment.

George W. Walker had a daughter, Ethelwyn, who married William N. Jarnagin (hereinafter referred to as William), in November, 1927. This marriage relationship continued until the death of Ethelwyn, on January 2, 1951. Mr. Walker passed away in May, 1943. His will was admitted to probate, and defendant bank, Robert W. Kenney and Ethelwyn were appointed co-executors in accordance with its direction. The will created a trust naming as co-trustees the same parties who were named and appointed co-executors. In November, 1946, pursuant to a decree of partial distribution, assets valued in excess of $1,150,000 were distributed to these trustees. The bank thereafter acted as the managing trustee during the entire period of administration of the testamentary trust and defendant Ivey, as executive vice president of the bank, was actively in charge of all matters relating thereto.

Ethelwyn was not only a co-trustee of this trust but she was also a life beneficiary. After payment of a small annuity to one Minnie Van Ness, who passed away in November, 1947, the balance of the income (but not less than $40,000 per year, even if recourse to the corpus were necessary) went to Ethelwyn. Additionally, Ethelwyn was given a power of appointment to be exercised 'by will or instrument in the nature of a will' over the residue of the trust. In default of her exercise of the power of appointment, Mr. Walker's will provided that the trustees should distribute such residue to the person or persons entitled to succeed to Ethelwyn's estate 'in accordance with the laws of intestate succession of the place of her residence as of the date of her death, and in effect as of that date.'

During the period of the administration of the Walker trust and until the death of Ethelwyn it is alleged that the Bank and Ivey, as its executive vice president, 'in their capacity as trustee for William N. Jarnagin' under the Walker trust, 'used their position to obtain an advantage from William N. Jarnagin, their beneficiary, in that by reason of their position as trustee and executive vice president of said Bank, and the influence that resulted therefrom, they pursued a course of conduct of ingratiating themselves with Ethelwyn Gertrude Jarnagin to such an extent that defendant Ivey became her confidential, financial and business advisor and confident, and advised and directed her with relation to all business matters that pertained in any way' to the Walker trust and any other business affairs of her own; and that 'at the suggestion, advice and under the direction, dictation and control of said defendants, and as a result of the influence defendants' trustee position under the Walker trust gave them,' Ethelwyn signed an holographic will, in December, 1947, by which she gave her husband, William, $3,500 a month 'during his lifetime only,' provided for other annuities, made a gift of $10,000 to her friend Sarah Kenny, and gave the residue of her own estate and her father's estate over which she had power of appointment to defendant Ivey. A trust was created, with the bank as trustee, to take care of the annuities, and the Bank and Ivey were named as executors.

In February, 1948, Ivey borrowed $72,500 from Ethelwyn without interest. In the following March defendants, it is alleged, 'advised, and by persuasion and the influence given them by their trustee position under the Walker trust, caused' Ethelwyn to execute a more elaborate, witnessed will. This will was filed for probate in January, 1951, and admitted to probate the following February. By its terms Ethelwyn made a specific bequest of a sapphire ring to Sarah Kenny, devised her home to Ivey and forgave any indebtedness owing by him to her at her death which, it is alleged, aggregated $83,500 without interest. The will made bequests to 20 friends, relatives and employees in the aggregate sum of $184,500, and bequests to 16 charities totaling $294,000. The residue of her estate, including the property in the Walker trust over which she had power of appointment, Ethelwyn bequeathed to the Bank and Ivey, in trust, to pay the income to her husband but not to exceed $40,000 per year, unless the trustees determined that a sum in excess of that amount was necessary for William's welfare. If the income from the trust were insufficient, the trustees were directed to make up the difference from the corpus. The trustees were directed to pay Ivey the balance of the income and, in the event it was less than $30,000 in any calendar year they were authorized and directed to take recourse to the principal of the trust for the deficiency. Upon the death of William the trust terminated and the trustees were directed to distribute the corpus thereof to Ivey, or, if he were dead, to his daughter, or, if she were dead, to her issue. The will also provided that if any heir or beneficiary thereunder challenged the will or any provision thereof such person would be cut off with $1 and the share or interest that would have gone to such person went to Ivey. The Bank and Ivey were named as executors.

During all the period of the administration of the Walker trust, William was crippled by arthritis, and was a bed-ridden patient in a sanitarium and not living at the family home. The Bank and Ivey knew of this situation, and, it is alleged, 'took advantage of it' and 'were thus enabled to ingratiate themselves' with Ethelwyn. William and plaintiff learned of this conduct of the defendants when Ethelwyn's witnessed will was filed for probate in January, 1951.

Ethelwyn was a resident of California when she passed away, and under the laws of this state, her husband, William, was her sole heir. The assets of the Walker trust as to which Ethelwyn had power of appointment then had an appraised value in excess of $2,200,000 and her own estate was valued at approximately $2,150,000. Plaintiff alleges that upon Ethelwyn's death William would have inherited both of these estates had she not executed either of these wills.

In February, 1952, the remaining assets of the Walker trust were distributed to the Bank and Ivey as the executors of Ethelwyn's will pursuant to the power of appointment which she exercised therein.

William passed away in February, 1953, and plaintiff was appointed executor of his will. He thus survived his wife by a little more than two years. During that period he received $84,300 pursuant to the provisions of her will. No portion of this amount has been repaid or tendered to her estate.

In June, 1951, following Ethelwyn's demise the previous January, a petition was filed seeking an appointment of a guardian for William. Defendants, 'as friends of the court,' objected to such appointment. A guardian was, nevertheless, appointed. The guardian then brought on for hearing in July, which was within six months after the admission of Ethelwyn's will to probate, a petition for instructions as to whether he should, on behalf of William, take steps to revoke the probate of her will. At this hearing defendants objected to the court's giving the guardian any instructions to file a petition to revoke the probate of Ethelwyn's will. Defendants urged, according to the amended complaint, that because of William's sick and destitute condition, and because the litigation would be prolonged and Ivey would not loan or advance William any funds pending such litigation, and even though William won the contest of the witnessed will he would still have to contest the holographic will, and because of the forfeiture clause in the witnessed will, he could not afford to petition for the revocation of its probate. The court thereupon instructed the guardian not to file such petition. Thereafter the Bank and Ivey 'sponsored the distribution of the Walker trust * * * assets' to themselves as executors under Ethelwyn's probated will.

The Pleadings

The amended complaint contains six alleged causes of action. The first, third and fifth relate only to the Walker trust estate. The second, fourth and sixth also include Ethelwyn's estate. Plaintiff now concedes that the demurrers to counts three and four are well taken.

In count one, plaintiff seeks damages for breach of a fiduciary duty alleged to have been owed William by the defendants in relation to the Walker trust. In the second count damages are sought upon the same grounds but Ethelwyn's estate is also included. The fifth count seeks to impose a trust upon all the property that came into the possession of defendants from the Walker estate. Count six seeks to impose a trust on the property obtained from Ethelwyn's estate.

The basic theory of plaintiff's complaint is that the Bank, as trustee, and Ivey, as its executive vice president in charge of the administration of the Walker trust, used the influence which their position as trustee gave them with Ethelwyn--a life beneficiary with power of appointment--to obtain an advantage over William--also a beneficiary under the trust. To put it another way, plaintiff charges defendants with a violation of their fiduciary duty to William in their conduct and dealings with Ethelwyn, with whom they were also in a fiduciary relation. In this connection it should be pointed out that during the course of this appeal plaintiff has conceded the validity of Ethelwyn's will.


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