Equitable Reformation of Trust in California

What Is an Equitable Reformation of Trust?

Purpose and Scope

The purpose of reformation is to correct a written instrument to effectuate a common intention of the parties which was incorrectly reduced to writing. (Getty v. Getty (1986) 187 Cal.App.3d 1159, 1178.) Reformation is unavailable unless it can be shown that the parties in fact agreed to the terms of the contract as sought to be established. (Id. at 1180.)

Equitable Power of Trial Court for Reformation

It is appropriate for a court, in equity, to reform an irrevocable trust where appropriate to properly carry out the trustors' original intentions. (Bilafer v. Bilafer (2008) 161 Cal.App.4th 363.) Noting the presumption against reforming wills, that court stated: “Regardless of any distinctions made in the reformation of a will, they need not detain us. “At common law, a trial court had the equitable power to reform an irrevocable trust where a drafting error defeats the trustor’s intentions....[caselaw] confirms that this authority remains today.” (Giammarrusco v. Simon, 171 Cal.App.4th 1586, 1604.) Later, the California Supreme Court held “that an unambiguous will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted.” (Estate of Duke (2015) 61 Cal.4th 871, 898.)

Statutory Provision

Cal. Civ. Code Section 3399 provides:

“When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.”

(Civ. Code Sec. 3399.)

“Civil Code section 3399 is a codification of the equitable action for reformation of a written instrument, and the sole purpose of the reformation doctrine is to correct a written instrument in order to effectuate a common intention of the parties which was incorrectly reduced to writing....” (Giammarrusco v. Simon (2009) 171 Cal.App.4th 1586, 1606.) “While sometimes referred to as a "cause of action," reformation is merely one of several remedies for a single wrong.” (Landis v. Superior Court of Los Angeles County (1965) 232 Cal.App.2d 548, 555.)

“A complaint for the reformation of a contract should allege what the real agreement was, what the agreement as reduced to writing was, and where the writing fails to embody the real agreement. It is also necessary to aver facts showing how the mistake was made, whose mistake it was and what brought it about, so that mutuality may appear.” (Lane v. Davis (1959) 172 Cal.App.2d 302, 309.)

Judicial Interpretation

“In Getty v. Getty (1986) 187 Cal.App.3d 1159, 1180, the Court of Appeal... held that an intended trust beneficiary had standing to seek reformation of a trust agreement under Civil Code section 3399. In so holding, the Getty court noted that Civil Code section 3399 is a codification of the equitable action for reformation of a written instrument, and the sole purpose of the reformation doctrine is to correct a written instrument in order to effectuate a common intention of the parties which was incorrectly reduced to writing.... However, the Getty court also noted that a court cannot create a new agreement for the parties under a theory of reformation....” (Giammarrusco v. Simon (2009) 171 Cal.App.4th 1586, 1606-7.)

“Civil Code section 3399 recognizes the equitable common law power of a trial court to reform a trust agreement based on mistake, but not to create a new trust agreement under the theory of reformation.” (Giammarrusco v. Simon (2009) 171 Cal.App.4th 1586, 1606.)

Reformation and “No Contest” Clauses

“[T]he reformation of a trust necessarily violate a no contest clause, as made clear in the Restatement Third of Property, which California courts often find persuasive.” (Giammarrusco, supra, 171 Cal.App.4th at 1606 citing e.g., Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 81, 84; Peak Investments v. South Peak Homeowners Assn., Inc. (2006) 140 Cal.App.4th 1363, 1368.) “The Restatement provides: "A suit to construe, reform, or modify the language of a donative document is not a contest of the document and hence is not a violation of a no-contest clause, unless the construction, reformation, or modification advocated by the person bringing the suit would invalidate the donative document or any of its provisions.... A proceeding brought by a beneficiary for the purpose of resolving an ambiguity, or for reforming or modifying the document, valid under all possible constructions or valid under the construction advocated by the beneficiary, is not a contest. . . . In such a case, the beneficiary is seeking merely to determine and to protect the donor's intention and is not seeking to circumvent it. . . ." (Id., citing Rest.3d Property, § 8.5, com. d, at 198.)

“As the California Law Revision Commission has explained in discussing no contest clauses:

‘To effectuate the [trustor's] true intentions, it may be necessary to seek judicial construction of an ambiguous provision or the modification, reformation, or termination of an instrument that has become incompatible with the [trustor's] intentions. The need to determine the [trustor's] actual intentions may trump [his or her] desire to avoid litigation.’

(Recommendation: Revision of No Contest Clause Statute (Jan. 2008) 37 Cal. Law Revision Com. Rep. (2007) at 377 (hereafter No Contest Recommendation).) ‘A beneficiary should not be punished for bringing an action to ensure the proper interpretation, reformation, or administration of an estate plan. Such actions serve the public policy of facilitating the fair and efficient administration of estates and help to effectuate the [trustor's] intentions, which might otherwise be undone by mistake, ambiguity, or changed circumstances.’” (Id. at 395.)

Documents for Equitable Reformation of Trust in California

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Allied First Bank, SB vs Department of Veterans Affairs of The State of California, Successor to the Veterans Welfare Board of The State of California et al document preview

Complaint - Case Management Conference

58 pages

1 James F. Lewin (SBN 140268) Matthew T. Sanford (SBN 336883) 2 Elaina N. Moore (SBN 265636) THE MORTGAGE LAW FIRM, PLC 3 27368 Via Industria, Suite 201 1/12/2024 Temecula, Califomia 92590 4 Telephone: (619) 465-8200 Facsimile: (951) 225-4073 5 elaina.moore@mtglawfmn.com TS #164997 6 Attorneys for Plaintiff, 7 ALLIED FIRST BANK, SB DBA SERVBANK 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA …

Case Name Allied First Bank, SB vs Department of Veterans Affairs of The State of Ca…