Court Opinion

ID: 9531872
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:15:33.508364+00
Date Added: 2024-06-11T13:28:36.339320
License: Public Domain

EDMONDS, J.
In 1927, the owners of certain real property in the county of El Dorado conveyed it to Metropolitan Trust Company of California. Three years later, the parties executed a declaration of trust reciting that the trust company held the property as security for the payment of two promissory notes. The successors in interest of the trustors declare that a conveyance made by the trustee, following an asserted default in payment of one of these notes, is invalid, and the appeal is from a judgment based upon an order sustaining demurrers to their complaint with leave to amend.
In the first count of the complaint, Walter K. Ephraim and *827his wife claim to be the owners of and entitled to the possession of the specifically described real property. They allege that the trust company, E. H. Strosnider and Girlie Strosnider, and certain other defendants sued under fictitious names, without any right to do so, claim an interest in the property adverse to their title. The Ephraims also assert that the trust company "is made a defendant “as trustee, mortgagee and beneficiary, under any trust or mortgage that may be shown by the declaration” of trust which it executed. A further allegation is that the action is brought under sections 738 and 1060 of the Code of Civil Procedure.
The second count of the complaint is in the nature of a suit to remove clouds from the Ephraims’ title and for declaratory relief. The allegations of the first count as to ownership and right to possession of the land, the basis upon which the trust company is made a defendant, and the statements regarding the code sections relied upon, are incorporated by reference. It is then alleged that in 1927 H. L. Henry and his wife were the owners of and entitled to the possession of the property in controversy. At that time the Henrys, to secure the payment of an indebtedness owing by them to the trust company, executed and delivered to it a grant deed of the property, the intention of both parties being that the deed would not operate as a conveyance, but as a mortgage only.
In 1930, according to the complaint, the trust company and the Henrys executed and recorded a declaration of trust reciting that the corporation held title to the real property so conveyed, first, as security for the payment of $10,000 owed by the Henrys to it, and, secondly, for the payment of a junior obligation of $13,000 owed by the Henrys to one Girlie Strosnider. Each indebtedness was evidenced by a promissory note whose terms and conditions are set out in the declaration of trust. Under the declaration the trust company, as trustee, was empowered to hold in trust, subdivide, convey, and improve the real property and to apply the proceeds from the sale of the lots in payment of the indebtedness and to other specified purposes. Each lot of the tract of land as subdivided might be released from the lien of the indebtedness by the payment of $50, but the trustee retained the power to make a conveyance of the property after the payment of the release price. The Henrys, who were designated as beneficiaries, agreed to pay the taxes, assessments, insurance, cost *828of improvements and certain other charges. The trustee was empowered to convey all necessary easements and to dedicate to public use all streets and alleys shown on the subdivision map. An express purpose of'the declaration of trust was the conveyance of lots in accordance with a “Schedule of Sale Prices. ’ ’ The trustee was given the exclusive right to execute all deeds and agreements of sale affecting*the property.
A further provision of the declaration of trust was that the interest “of said Beneficiaries and of each . . . successor in interest of said Beneficiaries is personal property and that no such Beneficiary has or shall have any right, title or interest in or to any property covered hereby, nor has or shall have any right or power to in any manner apply for or secure the dissolution or termination of this Trust, or the partition or division of any of the Trust Property. ...” The trust was to end after 20 years, unless sooner terminated by the sale of all of the property and the performance of the’other purposes of the trust. If there was no default the unconveyed property was to be deeded to the beneficiaries.
Should the beneficiaries default in the payment of any sum payable under the trust the trustee, at its election, might sell the real property comprising the trust estate, and although the provisions of section 2924 of the Civil Code were expressly waived by the beneficiaries, the declaration also provided that the sale of the real property comprising the trust estate should be made only in the manner required by law for the sale of ■real property under execution and held as security by a deed of trust. However, in regard to the sale of the beneficial interest in case of default, the trust provided “that should the said Henrys default in payment of either of said principal sum of $13,000 or interest of the said second lien . . . and should said default continue for a period of thirty days after notice in writing ... of such default . . . , upon the request of the holder of said indebtedness the trustee could proceed to foreclose and sell the beneficial interest of the said Henrys, at public auction, in the manner provided in said declaration, for the payment of said indebtedness.” Another provision was that in the event of the foreclosure of the second lien under a power of sale contained in the declaration of trust, the trustee should first publish notice of the time and place of such sale with a description of the entire beneficial interest to be sold, at least once a week for three successive weeks in a newspaper published in the city of Los Angeles, and “shall give such *829other notice as may be required by law”; and that upon payment of the purchase price, the trustee should deliver to the purchaser an “Assignment of Beneficial Interest” so sold. The provisions of Civil Code section 3006, relating to the sale of pledged personal property, were expressly waived by the beneficiaries.
The Henrys defaulted in the payment of the junior note, the complaint continues, and Girlie Strosnider executed and delivered to the trustee a written declaration of default and demand for sale, directing the trustee to sell in the manner set forth in the declaration and “according to law” the entire beneficial interest. Following that demand, the trustee published a notice of time and place of sale of the beneficial interest, without any description of the real property, in a newspaper published and printed only in the city of Los Angeles, and posted a copy of the notice of sale in the city of Los Angeles, where the sale of the beneficial interest was to take place.
At the time specified, the trustee sold the beneficial interest to R H. Strosnider and executed an “Assignment of Beneficial Interest” to him. Subsequently the trustee executed and delivered to R H. Strosnider and without reference to the mortgage deed or declaration of trust, a grant deed of the real property which deed was recorded. But there was no recordation in El Dorado County, where the property is situated, of the notice of breach and election to sell. No notice of sale describing the real property was published in any newspaper in that county or elsewhere in the State of California, nor was a copy of the notice of sale or any notice posted on the mortgaged property. This is the only action to enforce the mortgage and power of sale which has been taken by the respondents.
The mortgage and the debts and notes for which the mortgage and power of sale were security, became due and payable in 1933, and they are now barred by the statute of limitations. In 1939, the Ephraims acquired title to the land by a deed of the trustors’ grantee. Because of the illegal sale, and the bar of the statute of limitations, the complaint concludes, the mortgage deed of 1927 and the assignment of beneficial interest and the deed from the trustee to R. H. Strosnider are void and operate only as clouds upon the plaintiffs’ title. Accordingly, there now exists an actual controversy between the parties to the action and “it is necessary *830... to secure a declaratory judgment . . . and ■ to remove all of the aforesaid clouds resting upon their title.” By the prayer the court is asked to declare that the conveyance of the Henrys and the transaction between them and the trust company constitutes a mortgage and a lien upon the land as security for the payment of the obligations evidenced by the two notes; that the sale by the trustee of the so-called beneficial interest is invalid and did not divest or impair the Henrys’ ownership; that, since 1937, the mortgage deed and power of sale, and the debts secured thereby" have been barred by the statute of limitations; and that the Ephraims have a valid title to the real property in controversy, freed from any claims of the defendants.
Separate demurrers were interposed to this complaint. The trust company, in addition to pleading that the first count does not include facts sufficient to state a cause of action, set up the bar of sections 318 and 343 of the Code of Civil Procedure as applicable statutes of limitation. The Strosniders demurred to both counts upon these grounds, adding that each of the causes of action is uncertain, ambiguous and unintelligible in certain enumerated particulars. They also included section 319 of the Code of Civil Procedure as a statute of limitation relied upon to bar declaratory relief. The demurrer of the trust company to the second count follows that of the Strosniders, but also pleads that there is a variance between the averments regarding the declaration of trust, in that at one point it is referred to as a mortgage with power of sale and later as a conveyance of property to a trustee vested with power to convey.
As grounds for a reversal of the judgment, the Ephraims contend that the allegations of the first count include all that the law requires in an action to quiet title. That cause of action, they say, is not directed toward any particular instrument. The two counts of the complaint are not interrelated; they do not depend upon the same facts, nor do they attempt to state but one cause of action based upon alleged infirmities of the declaration of trust.
The second count, the appellants assert, is in the nature of an action for declaratory relief and to remove clouds from their title, presenting an issue as to the intention of the parties concerning the purpose of the conveyance and declaration of trust. In this connection, it is urged that the lien of the mortgage was lost by the bar of the statute of limitations on *831the principal obligation; that the Ephraims are not personally liable for the debts and are under no moral obligation to discharge them, and since the instruments executed by the Henrys created only a mortgage or deed of trust, the power of sale was invalidly exercised by the trustee because it did not comply with the requirements of section 2924 of the Civil Code and section 692 of the Code of Civil Procedure.
Furthermore, say the appellants, an action for declaratory relief will lie even when there is an available remedy in an ordinary action at law or equity, and a general demurrer should be overruled if the plaintiff is entitled to any relief under the allegations of the complaint. Also, the second count does not allege a cause of action which comes within or is affected by a statute of limitation, because such a statute does not apply to a suit to set aside and cancel a conveyance which is a cloud upon title.
In support of the judgment, the trust company asserts that where a simply stated cause of action, such as one to quiet title or a common count, is followed by a second count pleading a statement of facts in detail which is vulnerable to demurrer, the first count cannot stand. Also, it is said, if the deed of 1927 was not a mortgage, then the second cause of action is subject to the plea of the statute of limitations. The further point is made that because, as appears from the opinion in Strosnider v. Superior Court, 17 Cal.App.2d 647 [62 P. 2d 1394], in 1934 the Henrys were adjudged bankrupt, and in connection with the administration of their estates the bankruptcy court authorized the proceeding under which title was acquired by the Strosniders, the Henrys had no title to convey to the Ephraims’ grantors, and the superior court has no jurisdiction to entertain the present action.
Turning to the appellants’ characterization of the 1927 conveyance as a “mortgage deed,” it is argued that there must first be a determination of the nature of the transaction. The instruments pleaded in the complaint do not constitute a mortgage, hence the trust company was not obliged to observe section 2924 of the Civil Code and section 692 of the Code of Civil Procedure. It is evident from the language of the declaration of trust that the parties intended the Henrys to retain merely a personal property interest in the properties. As supporting this construction of the document, the trust company makes reference to the nature of the trust, the express waiver of section 3006 of the Civil Code relating to the *832sale of pledged personal property, and the exclusive authority of the trustee to convey a legal title to any portion of the lands in question. In this connection, there is quoted another provision of the instrument which declares that “the interest under this trust of said beneficiary and of each assignee . . . is personal property and that no such beneficiary has or shall have any right, title or interest in or to any property covered hereby.” By the terms of the declaration of trust the trustee was not authorized to sell the real property upon the default of the Henrys and it was given no power to make a conveyance but was directed to sell and transfer the “beneficial interest” of the obligors. Moreover, the beneficiaries expressly waived the provisions of section 2924 of the Civil Code. And if the land was originally conveyed without consideration, the grantee, from the beginning, must have been a trustee. Finally, the argument concludes, as the appellants are bound by the express terms of the pleaded instruments and a contrary interpretation must be regarded as surplusage, the appellants’ complaint is vulnerable to the plea of the statute of limitations.
The Strosniders argue that the first count is interrelated with the second and both are aimed at a removal of a cloud on the title. The first cause of action is barred by the provisions of sections 318 and 343 of the Code of Civil Procedure, they say, because the complaint shows that legal title is not vested in them. Furthermore, the cause of action accrued in 1930, when the declaration of trust was executed and the present action was not commenced until 1943. The count to remove a cloud upon title is subject to general demurrer because there are insufficient facts alleged pointing out the nature of the cloud. And, assuming that a count to quiet title is followed by the statement in a second cause of action of the particular facts upon which the plaintiff relies, and these facts show that the plaintiff is not entitled to recover, a demurrer to both causes of action should be sustained. The characterization of the transaction as a mortgage is not one of the facts admitted by the demurrer if the exhibits deny the pleader’s conclusion to that effect.
The Strosniders take the same position as the trust company in regard to the effect of the decision in Strosnider v. Superior Court, 17 Cal.App.2d 647 [62 P.2d 1394]. They contend also that the Ephraims have pleaded no facts showing that an actual controversy exists, and the court may, in its discretion, refuse to exercise the power granted under section 1060 of *833the Code of Civil Procedure where its declaration or determination is not necessary or proper at the time and under all the circumstances. (Code Civ. Proc., § 1061.) Furthermore, the Ephraims have a moral obligation to pay the debts and “he who seeks equity must first offer to do equity.”
One who alleges that he is the owner of certain described real property, that defendants claim an interest therein adversely to him, that such claim is without right, and that the defendants have no estate, title or interest whatever in said premises or any part thereof pleads all that the law requires in an action to quiet title and, in such an action, the complaint need not particularly state the facts in regard to the asserted invalidity nor attack the instrument which is claimed to be a cloud against the title of the plaintiff. (Code Civ. Proc., § 738; Thompson v. Moore, 8 Cal.2d 367, 372 [65 P.2d 800, 109 A.L.R. 1027]; California-Mich. L. & W. Co. v. Fletcher, 206 Cal. 392, 394 [274 P. 527]; Hyatt v. Colkins, 174 Cal. 580, 581 [163 P. 1007]; Castro v. Barry, 79 Cal. 443, 447 [21 P. 946]; Rough v. Simmons, 65 Cal. 227 [3 P. 804].)
However, a complaint which consists of two counts, one to quiet title to real property and the other, as incidental to the first count, to have declared void an instrument under which particular defendants assert title states only one cause of action. (Thompson v. Moore, supra, p. 370, and eases cited therein; Louvall v. Gridley, 70 Cal. 507, 510 [11 P. 777]; Stephan v. Obersmith, 48 Cal.App.2d 199, 202 [119 P.2d 388].)  And where, as is true in the present pleading, the count to quiet title in regard to particularly named defendants clearly shows that it is based upon the same facts which are pleaded in the cause to remove a cloud, a general demurrer of those defendants should be sustained if the second count reveals a defect in plaintiff’s title or does not state a cause of action to remove a cloud. (Martin v. Hall, 219 Cal. 334, 338 [26 P.2d 288]; Hamman v. Milne, 179 Cal. 634 [178 P. 523]; see Orloff v. Metropolitan Trust Co., 17 Cal.2d 484 [110 P.2d 396]; Hibernia S. & L. Soc. v. Ordway, 38 Cal. 679; Hays v. Temple, 23 Cal.App.2d 690 [73 P.2d 1248]; Harris v. Kessler, 124 Cal.App. 299 [12 P.2d 467].)  A suit to quiet title must be distinguished from an action to remove a cloud on the title alleged to have been created by a designated instrument. In a suit to remove a cloud the complaint must state facts, not mere conclusions, showing the *834apparent validity of the instrument designated, and point out the reason for asserting that it is actually invalid. (Thompson v. Moore, supra; Castro v. Barry, supra; Hibernia S. & L. Soc. v. Ordway, supra; Kroeker v. Hurlbert, 38 Cal.App.2d 261 [101 P.2d 101] ; 4 Bancroft’s Code Pleading, § 2188, p. 3900; 44 Am.Jur. § 79,'p. 63.)
Turning to the second count of the complaint, the allegations clearly show that, after the Henrys conveyed the land to the trust company, they agreed in writing, in the form of the declaration of trust, upon their respective rights and those of Girlie Strosnider in regard to the terms and conditions under which the land should be held for subdivision and other purposes, and the rights of the creditors in the event of default. There is no charge that the declaration of trust was executed by them as the result of fraud or undue influence, nor that they acted under any mistake of law or of fact. In other words, the pleading affirmatively shows the execution and delivery of a declaration of trust expressly referring to the deed which had been made three years before and stating completely and with certainty the terms upon which title had been conveyed and received with no issue of fact concerning the effect which the parties intended to be given to their contract.
A voluntary trust is created, as to the trustor and beneficiary, by any words or acts of the trustor, indicating with reasonable certainty an intention on the part of the trustor to create a trust, and the subject, purpose and beneficiary of the trust. (Civ. Code, § 2221; see Cahlan v. Bank of Lassen County, 11 Cal.App. 533 [105 P. 765] ; Rest., Trusts, §§ 17 (subd. a), 18.)  And the primary rule in construction of trusts is that the court must, if possible, ascertain and effectuate the intention of the trustor or settlor. (Title Ins. & Trust Co. v. Duffill, 191 Cal. 629 [218 P. 14]; Gunter v. Janes, 9 Cal. 643; Wright v. Security-First Nat. Bank, 35 Cal.App.2d 264 [95 P.2d 194]; Smith v. Bank of America etc. Assn., 14 Cal.App.2d 78 [57 P.2d 1363]; see Rest., Trusts, §23.)
In the present case it clearly appears that the Henrys and the trust company intended to create a valid voluntary trust conforming to the provisions of section 2221 of the Civil Code for the purpose of subdividing, selling and accounting for the proceeds of sales of the real property in the manner specifically provided in the declaration of trust. Provision *835was also made for the payment of the indebtedness to the trust company and Girlie Strosnider. The allegations of mere conclusions with respect to the legal construction of the instrument, and the averments in conflict with its provisions should be disregarded as surplusage. (Peak v. Republic Truck Sales Corp., 194 Cal. 782 [230 P. 948]; Stoddard v. Treadwell, 26 Cal. 294; Bashford v. A. Levy & J. Zentner Co., 123 Cal. App. 204 [11 P.2d 51] ; Meer v. Cerati, 53 Cal.App. 497 [200 P. 501].)  The extent of the interest of the beneficiary of a trust depends upon the manifestation of intention of the trustor, and ordinarily if real property is held in trust, and by the terms of the trust a duty is imposed upon the trustee to sell it and hold the proceeds in trust or distribute the proceeds, the interest of the beneficiary is personal property. (Wright v. Security-First Nat. Bank, supra; Smith v. Bank of America etc. Assn., supra; Bank of America Assn. v. Sparr R. Corp., 20 Cal.App.2d 10 [66 P.2d 476]; Houghton v. Pacific Southwest T. & S. Bank, 111 Cal.App. 509 [295 P. 1079]; Finnie v. Smith, 83 Cal.App. 707 [257 P. 866]; see Title Ins. & Trust Co. v. Duffill, supra; In re Walkerly, 108 Cal. 627 [41 P. 772, 49 Am.St.Rep. 97]; Ward v. Waterman, 85 Cal. 488 [24 P. 930]; Faires v. Title Ins. etc. Co., 15 Cal.App.2d 350 [59 P.2d 428]; Craven v. Dominguez Estate Co., 72 Cal.App. 713 [237 P. 821]; Civ. Code, §863; Rest., Trust, §§ 128, 131, subd. (1); 13 Cal.L.Rev. 76.)
Although the grantor in an ordinary trust deed given to secure a debt retains an interest in the real property, a different situation exists where property is conveyed and held under trust provisions such as those of the declaration agreed to by the Henrys. Prom the express intention of the parties and the nature and purposes stated in the declaration of trust, it is evident that the Henrys and Metropolitan Trust intended that the grantors should have only a personal property interest in the corpus of the trust. The trust company was given absolute title to the real property, a step necessary to effectuate the declared purposes of the trust in regard to the subdivision of the land. The trustee had the exclusive right to execute all deeds and agreements of sale affecting the property, to convey all necessary easements, and to dedicate to public use certain designated streets and alleys. Only if the indebtedness was paid in full by the grantors of the land and there was no subdivision sale'of any part of it, could the Henrys have again acquired title to the same land they con*836veyed. It was the duty of the trustee to receive and disburse in the manner provided by the declaration the moneys paid for lots. And although the beneficiaries were to pay certain charges such as taxes and insurance, this was merely a condition imposed by the trustee before it would agree to assume the trust burden and does not indicate any reservation of title in the beneficiaries.
Furthermore, by its terms the trust agreement expressly limited the beneficial interest to personal property. That the interest of the Henrys was personal property was further evidenced by the beneficiaries’ express waiver of the provisions of Civil Code section 3006 relating to the sale of pledged personal property. Nor was the title to revert to the beneficiaries immediately after the payment of the indebtedness, but was to continue for 20 years, or until all of the lots were sold and the other purposes of the trust carried out.
It thus appears that by an express trust the Henrys conveyed the real property to the trustee primarily for the purpose of sale, and incidentally for the purpose of security, and the deed and declaration, when construed together, clearly establish that it was the intention of the parties to convert the real property interest of the grantors into personal property,
Under such circumstances, since the whole estate vests in the trustee (Civ. Code, §§ 863, 864) and the trustee and its successors in interest have a superior title to that of the Henrys or their successors (Civ. Code, §§ 863, 865), an action to quiet title or remove a cloud will not lie in favor of the beneficiaries for whom the trustee holds the legal title in trust. The available remedy for such a plaintiff is either an action to enforce the trust and to obtain a conveyance of the legal title or one to compel the trustee to redress a breach of trust. (Yoakam v. Kingery, 126 Cal. 30 [58 P. 324]; Harrigan v. Mowry, 84 Cal. 456 [22 P. 658, 24 P. 48]; Becker v. Highboy Coaster Trust, 112 Cal.App. 219 [296 P. 651]; Craven v. Dominguez Estate Co., supra; see Rest., Trusts, §§ 198, 199 and Cal. Anno.) It has also been held that the grantor has the remedy of rescission (Campbell v. Kennedy, 177 Cal. 430 [170 P. 1107]), but the complaint of the Ephraims includes no facts which would warrant granting such relief. [10] And since no present legal controversy exists, a cause of action for declaratory relief is not stated. (Code Civ. Proc., § 1060; City of Alturas v. Gloster, 16 Cal.2d 46 [104 P.2d 810]; Merkley v. Merkley, 12 Cal.2d 543 [86 P.2d 89].)
*837The provisions of section 2924 of the Civil Code ordinarily do not apply to transfers of property held in trust but here the trustee agreed to sell the real property in the manner required by law for the sale of real property under a deed of trust. Resolving any ambiguity relating to waiver in favor of the Ephraims, they cannot successfully contend that the sale of the beneficial interest and the conveyance of the real property to R. H. Strosnider were void.  Although, according to the allegations of the complaint, the requirements for such sales were not fully complied with, the assignment and deed of the trust company at the most are only voidable and the Ephraims cannot obtain equitable relief without offering to do equity by paying the debt. (Williams v. Koenig, 219 Cal. 656, 660 [28 P.2d 351]; Shimpones v. Stickney, 219 Cal. 637, 649 [28 P.2d 673]; Humboldt Sav. Bank v. McCleverty, 161 Cal. 285, 290 [119 P. 82]; Py v. Pleitner, 70 Cal.App.2d 576 [161 P.2d 393]; Carpenter v. Hamilton, 59 Cal.App.2d 149, 151 [138 P.2d 355]; Leonard v. Bank of America, 16 Cal.App.2d 341 [60 P.2d 325].)
The judgment is affirmed.
Gibson, C. J., Shenk, J., Traynor, J., Sehauer, J., and Spence, J., concurred.