In Spears v. Spears, A164622 (1st App. 2023), the Court of Appeals of the State of California considered the question of when is an oral promise enforceable against an estate in California. In the decision, filed December 19, 2023, the Court analyzed reviewed a trial court’s dismissal of a creditor’s claim against the trustee of a testamentary trust, as well as testing the validity of oral contracts under the contract defenses of statute of limitations and statute of frauds.
This appeal arose from a dispute over a trust established by a deceased father, James Spears. Brian Spears, the son, filed a petition seeking to be named a creditor of his father’s trust and to remove his stepmother, Therese Spears, as trustee. Brian creditor’s claim rested on two oral agreements. The first related to a $60,000 payment made by the State of California to James and Therese for the care Brian’s daughter that should have been paid to Brian and his estranged wife. Brian alleged that, on January 15, 2012, James orally promised to repay the money in periodic payments. Brian alleged that there was a second oral agreement whereby, “sometime in 1996 or 1997”, James and Therese agreed to pay Brian $30,000 for a modular home in monthly payments of $300. In each case, Brian further alleged that James agreed that if he died before paying off either debt, that debt would become due and payable in full.
Can a Creditor Claim Qualify as an Amended Petition in Probate?
The trial court dismissed Brian’s petition on the basis that he did not file an amended pleading after the court had sustained Therese’s demurrer to the petition, with leave to amend. Brian appealed this decision, arguing that he did in fact file an amended pleading, reasserting only his creditor claim against the trust.
When the trial sustained Therese’s demurrer to Brian’s original petition, it granted him leave to amend his petition to plead his creditor claim with more specificity.
“Brian then filed a document titled “Creditor’s Claim” on Judicial Council Form DE-172, together with a notice of creditor’s claim and a declaration in support of the claim. These documents provided additional specificity regarding the oral agreements on which he based his claim to be a creditor of the trust, plainly aimed at remedying the defects the trial court found in his original claim. He filed these documents under the same case number as his original complaint. Giving these documents a reasonable interpretation, the creditor’s claim was intended to be Brian’s amended pleading, given that Brian was abandoning his claims for an accounting and removal of Therese as trustee and proceeding solely on his creditor’s claim. (Mathews v. Becerra (2019) 8 Cal.5th 756, 768 [when reviewing a demurrer ruling, “ ‘ “ ‘we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context’ ” ’ ”].)” Spears, p. 8.
The Court of Appeal found that:
“Brian was unambiguously attempting to address the factual deficiencies the trial court identified in its ruling on Therese’s demurrer to Brian’s original petition. Brian’s creditor’s claim set forth the same factual allegations, with additional detail, as he had alleged in the portion of his original pleading in which he asked to be added as a creditor of the trust. It would elevate form over substance to dismiss Brian’s claim on the basis that it was not an amended pleading because he used the incorrect form, and Therese cites no authority supporting such a result. There is no indication that Therese was confused or misled about the relationship between Brian’s original petition and his creditor’s claim or Brian’s intent that the creditor’s claim constitute his amended pleading.” supra, p. 9.
Should the creditor claim be filed against the personal representative or the trustee?
Therese then argued Brian’s creditor claim was appropriately dismissed because she, as trustee, did not pursue the optional procedure under Probate Code sections 19000-19403, which sets an early date to cut off creditor claims against trust assets based on the settlor’s debts, Brian was required to first file a claim against the personal representative of James’ estate under Probate Code Section 9351. That section provides that a creditor claim “may not be commenced against a decedent’s personal representative on a cause of action against the decedent” unless a claim is first filed and rejected in the estate probate proceeding. Since Brian did not make such a claim within the one-year statute of limitations after James’ death, she argues that Brian’s claim is time-barred. (Check here for more on statute of limitations for creditor claims in California).
The Court acknowledged that Therese’s description of the procedure would be correct if anyone had opened a probate estate for James after his death. However, since no probate proceedings had been opened for James and the trustee has not followed the optional section 19000 procedure, the Court looked to Section 19400 which states that, subject to the one-year statute of limitations under Code of Civil procedure section 366.2, “if there is no proceeding to administer the probate estate of the deceased trustee does not file a proposed notice to creditors pursuant to Section 19003 and does not publish notice to creditors pursuant to Chapter 3 (commencing with Section 19040), then a beneficiary of the trust to whom payment, delivery, or transfer of the deceased settlor’s property is made pursuant to the terms of the trust is personally liable, to the extent provided in Section 19402, for the unsecured claims of the creditors of the deceased settlor’s probate estate.” The Court found that:
“taken together, these statutes allow Brian to assert a claim against Therese as trustee and seek to recover from the assets of the trust, as section 19402, subdivision (b) implicitly requires a creditor in these circumstances to seek relief against the trust before pursuing any trust beneficiary. (§ 19402, subd. (b) [beneficiary of trust may be liable “only to the extent the claim of the creditor cannot be satisfied out of the trust estate”].)” supra, p. 11.
The Court also noted that Brian had raised Probate Code section 850 as authority for his claim against Therese as trustee. The pertinent parts of section 850 are as follows:
(a) The following persons may file a petition requesting that the court make an order under this part:
. . .
(3) The trustee or any interested person in any of the following cases:
(A) Where the trustee is in possession of, or holds title to, real or personal property, and the property, or some interest, is claimed to belong to another.
(B) Where the trustee has a claim to real or personal property, title to or possession of which is held by another.
(C) Where the property of the trust is claimed to be subject to a creditor of the settlor of the trust.
Given the availability of claims under Sections 19400 and 19402 or pursuant to Section 850(a)(3)(A) or (C), the Court found that the trial court should not have dismissed Brian’s creditor’s claim for failure to raise any viable legal avenue of relief.
Are Oral Promises Enforceable Against a Trust or Estate in California?
The Court then turned to Therese’s argument that the two alleged oral agreements were invalid under the statute of limitations and the statute of frauds. Code of Civil Procedure section 366.2, subdivision (a) states, “If a person against whom an action may be brought on a liability of the person, whether arising in contract, tort, or otherwise, and whether accrued or not accrued, dies before the expiration of the applicable limitations period, and the cause of action survives, an action may be commenced within one year after the date of death, and the limitations period that would have been applicable does not apply.”
Since Brian filed his original petition within one year of James’ death his claim was timely if the limitations period had not expired before James died. However, Therese argued that Brian’s claims were barred by the two-year statute of limitations in Code of Civil Procedure section 339 for oral contracts. The Court agreed that the two-year statute of limitations applied, but deciding if the claims were time-barred required the Court to consider when the cause of action accrued:
“A cause of action for breach of a contract generally accrues upon the alleged breach. (Piedmont Capital Management, L.L.C. v. McElfish (2023) 94 Cal.App.5th 961, 968 (McElfish).) If a contract calls for a party’s performance on separate occasions such that the contractual duties are divisible, each breach triggers a separate limitations period. (Id. at pp. 968–969.) To determine whether breach of an agreement to repay a debt gives rise to one or multiple limitations periods, a court must first examine whether the contract requires periodic payments. (Id. at p. 971.) If it does, then the court must then “determine whether or not the duty to make a monthly payment is divisible from the duty to pay the full amount of the debt.” (Ibid.)”
Therese argues that the statute of limitations ran from January 15, 2012, the date James allegedly agreed to repay the $60,000. In rejecting Therese’s argument, the Court noted:
“Brian’s pleading does not disclose enough details about the agreement to determine how to apply the two-year statute of limitations. James’ payments were intended to be periodic. This, together with the fact that the only alleged acceleration clause concerned James’ death, creates a possibility that the periodic payments were intended to be divisible from the overall obligation to repay the debt, thus triggering separate limitations periods for each payment. (See McElfish, supra, 94 Cal.App.5th at pp. 969–970 [payment obligation was divisible and each payment created separate limitations periods where duty to pay full amount was divisible from periodic payments and clause for acceleration of debt upon missed payment was discretionary].) Brian’s pleading does not indicate how many payments James was obligated to make or specify the amount of the payments from which one could calculate the number of required payments or the date when the last payment was due. The agreement was made over ten years ago, but we cannot infer from that fact alone that the debt was intended to be repaid more than two years prior to James’ death so that all applicable limitations periods would have expired before he died. The trial court therefore could not have dismissed this aspect of Brian’s claim based on the statute of limitations.”
Finally, Therese contends that the trial court properly dismissed Brian’s claim because it rests on oral contracts that violate the statute of frauds. In rejecting this argument, the Court wrote as follows:
“Civil Code section 1624, subdivision (a)(5) provides that “[a]n agreement that by its terms is not to be performed during the lifetime of the promisor” is “invalid” unless it, “or some note or memorandum thereof, [is] in writing and subscribed by the party to be charged or by the party’s agent.” A mere possibility that a contract will not be performed within the lifetime of the promisor is insufficient; “[i]f the terms of a contract are such that it admits of performance during the lifetime of the promisor, it is not within the statutory provision here involved.” (Roy v. Salisbury (1942) 21 Cal.2d 176, 182.) Brian does not allege that James was prohibited from paying either debt before his death or that the agreements otherwise foreclosed the possibility that James could have fully performed them during his lifetime. The mere possibility of payment after James’ death is insufficient to make the oral agreements subject to the statute of frauds.