Present: Kinser, C.J., Lemons, Goodwyn, Millette, and Mims,
JJ., and Koontz, S.J.
RIVERSIDE HEALTHCARE
ASSOCIATION, INC., ET AL.
OPINION BY
v. Record No. 100108 CHIEF JUSTICE CYNTHIA D. KINSER
April 21, 2011
SARAH E. FORBES, FORMER TRUSTEE
OF THE SARAH E. FORBES RIVERSIDE
TRUST, ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF NEWPORT NEWS
Timothy S. Fisher, Judge
The General Assembly enacted the Uniform Principal and
Income Act, Code §§ 55-277.1 through –277.33 (the UPIA), in
1999. 1999 Acts ch. 975. Its purpose generally is "to provide
uniformity in the law relating to allocation of receipts and
expenses among income beneficiaries and remaindermen." Venables
v. Seattle-First Nat'l Bank, 808 P.2d 769, 771 (Wash. Ct. App.
1991); accord Briel v. Mody, 186 A.2d 314, 315 (N.J. Ch. 1962);
see Kumberg v. Kumberg, 659 P.2d 823, 827-28 (Kan. 1983). With
regard to the allocation of receipts and disbursement to or
between principal and income, the drafters of the 2008
Amendments to the Revised Uniform Principal and Income Act
acknowledged, however, that the act provides only "default rules
and that provisions in the terms of the trust are paramount."
U.P.I.A. § 103 cmt. (2008).
In this appeal, the questions are whether the UPIA
provision regarding the allocation of compensation from an
eminent domain proceeding governs or whether the grantor of a
trust directed the allocation of such compensation. We also
address whether the remainder beneficiary stated a cause of
action for an equitable accounting pursuant to Code § 8.01-31.
Because we conclude that the grantor did allocate such
compensation to income, we will affirm the portion of the
circuit court's judgment granting partial summary judgment in
favor of the trustee. However, because we conclude that the
circuit court erred in sustaining the trustee's demurrer to the
claim for an equitable accounting, we will reverse that portion
of the circuit court's judgment.
I. RELEVANT FACTS AND PROCEEDINGS
Sarah E. Forbes, as Grantor and Trustee, executed a
document titled the "DECLARATION OF INTER VIVOS TRUST AGREEMENT
KNOWN AS 'THE SARAH E. FORBES RIVERSIDE TRUST'" (the Trust).
The Grantor conveyed to the Trustee a certain parcel of real
estate in the City of Newport News consisting of approximately
seven acres. The Trust provisions prohibit the Trustee from
selling "the real property of this [T]rust . . . except to a
condemnor pursuant to a notice of condemnation." The Trust
provisions further direct the Trustee to "distribute all net
income generated by the [T]rust and the [T]rust property unto
the Grantor . . . during the lifetime of the Grantor." Unless
sooner terminated, the Trust will end upon the Grantor's death,
2
and, subject to certain conditions not relevant to this appeal,
the principal of the Trust will be distributed to Riverside
Healthcare Association, Inc. (Riverside). The Trust provisions
define the term "net income" as "all funds received from the
rental of the [T]rust property and/or generated from or by the
[T]rust property and/or any proceeds from the [T]rust property
. . . LESS all funds paid by the Trustee" for certain enumerated
expenses such as real estate taxes, insurance premiums, and
repairs to the Trust property.
In 2008, the Commonwealth of Virginia acquired a portion of
the Trust property pursuant to a certificate of take. See Code
§§ 25.1-307, -308, -313, and -314. Because the Trustee and
Riverside disagreed as to whether the compensation received in
the eminent domain action should be allocated to principal or
income, they entered into an escrow agreement directing escrow
agents, Forbes and Molly E. Trant, to hold the condemnation
compensation and to disburse such funds only in accordance with
future directions from the Trustee and Riverside.
Subsequently, in an amended complaint, the Trustee sought
declaratory relief against Riverside, asking, among other
things, that the condemnation compensation be paid to the
Trustee for distribution to the Grantor as income in accordance
3
with the terms of the Trust. 1 Responding, Riverside asserted
that the condemnation compensation should be allocated as a
receipt of principal in accordance with the Trust provisions.
In a third amended counterclaim, Riverside also sought
declaratory relief against the Trustee on the same basis, in
addition to removal of Forbes as the Trustee and an equitable
accounting pursuant to Code § 8.01-31. 2
The parties filed cross-motions for partial summary
judgment on the issue regarding the allocation of the
condemnation compensation as between principal or income. The
Trustee argued that the plain meaning of the Trust term "net
income" dictates that such compensation be treated as "proceeds
from the [T]rust property." Recognizing that the UPIA directs a
fiduciary to allocate to principal "[p]roceeds of property taken
by eminent domain," Code § 55-277.13(4), the Trustee stressed
that the UPIA, nevertheless, provides that a fiduciary, when
allocating receipts between principal and income, "[s]hall
administer a trust . . . in accordance with the terms of the
trust . . . even if there is a different provision in [the
UPIA]." Code § 55-277.3(A)(1). Riverside, however, contended
that the UPIA controls because the Trust provisions do not
1
The Trustee also named the escrow agents and the Grantor
as defendants in the action seeking declaratory relief.
2
The escrow agent, Trant, joined Riverside in its various
pleadings and they are together referred to as Riverside.
4
define the terms "income" and "principal" or direct how the
compensation from an eminent domain action is to be allocated.
The circuit court granted partial summary judgment in favor
of the Trustee. In a letter opinion incorporated in its order,
the circuit court reasoned that because funds received from the
rental of the Trust property are specifically included in the
definition of the term "net income," "there simply is no
question that money received from the condemnation proceeds[]
fall in the category of 'and/or generated from or by the [T]rust
property and/or any proceeds from the [T]rust property.'
Further, because the condemnation compensation is included in
"net income," as defined by the Trust, the court concluded that
the UPIA rule on the allocation of the condemnation compensation
between principal and income does not apply.
With regard to Riverside's request in its third amended
counterclaim for an equitable accounting pursuant to Code
§ 8.01-31, the circuit court, in a separate letter opinion,
concluded that Riverside is an entity that may request such an
accounting under that statute. However, the court found it
"unnecessary to grant the motion for an 'equitable accounting'
under . . . Code § 8.01-31" on the ground that the court, during
this litigation, previously had ordered compliance with the
Trust provisions requiring the Trustee to provide "a statement
showing the condition of the Trust and the receipts and
5
disbursements during the period covered thereby from the date of
the creation of the Trust or from the date of the last previous
statement furnished by the Trustee." Thus, in its final order,
the court sustained the Trustee's demurrer with regard to
Riverside's claim for an equitable accounting as asserted in its
third amended counterclaim. 3 We awarded Riverside this appeal.
II. APPELLATE ISSUES AND STANDARD OF REVIEW
On appeal, Riverside assigns two errors. It first claims
the circuit court erred in finding that the compensation paid as
a result of the condemnation of a portion of the Trust property
was "an income receipt instead of a principal receipt." It is
undisputed that the Trust received compensation as a result of
the eminent domain action. To decide whether that condemnation
compensation should be allocated as income or principal requires
interpretation of both the Trust provisions and the relevant
sections of the UPIA. Such issues are questions of law, which
we review de novo. See Keener v. Keener, 278 Va. 435, 442, 682
S.E.2d 545, 548 (2009) ("[A]pplying the language of a written
document to an undisputed fact [is] a pure question of law,
3
Prior to the circuit court's issuance of its letter
opinion addressing Riverside's claim for an equitable
accounting, Forbes resigned as Trustee, and T. Christian
Henderson was appointed sole trustee of the Trust. Also,
Henderson was added as a party-plaintiff. Accordingly,
subsequent references to "the Trustee" include both Forbes and
Henderson.
6
subject to review de novo on appeal."); Horner v. Department of
Mental Health, 268 Va. 187, 192, 597 S.E.2d 202, 204 (2004)
("Statutory interpretation presents a pure question of law
subject to de novo review by this Court.").
Second, Riverside asserts that the circuit court erred in
sustaining the Trustee's demurrer to its claim requesting an
equitable accounting. "A demurrer tests the legal sufficiency
of facts alleged in pleadings, not the strength of proof."
Glazebrook v. Board of Supervisors, 266 Va. 550, 554, 587 S.E.2d
589, 591 (2003). A trial court's judgment sustaining a demurrer
is also a question of law and thus reviewed de novo. Id.
III. ANALYSIS
A. Allocation of Condemnation Compensation
The UPIA "applies to every trust . . . existing on
January 1, 2000, except as otherwise expressly provided in . . .
the terms of the trust." Code § 55-277.33. The parties do not
dispute that the UPIA generally governs the Trust at issue in
this appeal. Under the UPIA, "[a] trustee shall allocate to
principal . . . [p]roceeds of property taken by eminent domain."
Code § 55-277.13(4). See also Manufacturers Trust Co. v.
Roanoke Water Works Co., 172 Va. 242, 256, 1 S.E.2d 318, 323-24
(1939) (a condemnation award "equitably stands in the place of
the land taken"). However, Code § 55-277.3(A)(1) provides that,
"[i]n allocating receipts and disbursements to or between
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principal and income," a trustee "[s]hall administer a trust
. . . in accordance with the terms of the trust . . . , even if
there is a different provision in this chapter." That
provision's corollary is contained in Code § 55-277.3(A)(3): the
trustee "[s]hall administer a trust . . . in accordance with
[the UPIA] if the terms of the trust . . . do not contain a
different provision." Thus, the question is whether the Trust
contains a different provision regarding the allocation of the
condemnation compensation to principal or income.
According to the Trustee and the circuit court, paragraph
3, subsection (C)(i) of the Trust provides an allocation of
compensation from a condemnation action different than the
requirement in Code § 55-277.13(4) that such be allocated to
principal. Paragraph 3 of the Trust is titled DUTIES OF THE
TRUSTEE. In subsection (C) proper, the Trustee is directed to
"distribute all net income generated by the [T]rust and the
[T]rust property unto the Grantor" during her lifetime.
Subsection (C)(i) includes in "net income" "all funds received
from the rental of the [T]rust property and/or generated from or
by the [T]rust property and/or any proceeds from the [T]rust
property." The Trustee argues that the condemnation
compensation constitutes "proceeds from the [T]rust property."
When considering the language used in a trust agreement,
"the intent of the grantor controls." Harbour v. SunTrust Bank,
8
278 Va. 514, 519, 685 S.E.2d 838, 841 (2009). We ascertain the
intent of the grantor by looking at the language used in the
trust agreement. Id. As with other written instruments,
" [t]he primary significance of words should ordinarily attach
and does attach, unless it is manifest from the [instrument]
itself that other definitions are intended.' " Wallace v.
Wallace, 168 Va. 216, 224, 190 S.E. 293, 296 (1937) (quoting
Rady v. Staiars, 160 Va. 373, 376, 168 S.E. 452, 452 (1933));
accord PMA Capital Ins. Co. v. US Airways, Inc., 271 Va. 352,
358, 626 S.E.2d 369, 372 (2006) (" 'Words . . . are normally
given their usual, ordinary, and popular meaning.' " (quoting
D.C. McClain, Inc. v. Arlington County, 249 Va. 131, 135, 452
S.E.2d 659, 662 (1995))). Neither the Trust nor the UPIA
defines the term "proceeds." 4 It is a "word of varied
significance and employed with different meanings." Chase v.
The Union Nat'l Bank of Lowell, 176 N.E. 508, 510 (Mass. 1931).
See also Gould v. Lewis, 267 Ill. App. 569, 572 (1932) (The
meaning of the term "proceeds" "in each case depends on its
context, depends very much on the connection in which it is
4
In addition to its use in the definition of "net income,"
the term proceeds is found in the Trust provisions requiring the
Trustee to "borrow on a non-recourse basis using the [T]rust
property as security." The Trust provisions direct the Trustee
to distribute "the proceeds of the loans . . . to the Grantor
during her lifetime at least annually, . . . and distribute the
proceeds of the loan obtained at the time of the death of the
Grantor to the estate of the Grantor."
9
employed and the subject matter to which it is applied."
(internal quotation marks omitted)). It has been defined,
however, as "[t]he value of land, goods, or investments when
converted into money; the amount of money received from a sale."
Black's Law Dictionary 1325 (9th ed. 2009).
We agree with the Trustee that "proceeds from the [T]rust
property" include the condemnation compensation at issue. The
UPIA uses the term "proceeds" when referring to the compensation
awarded in exchange for property taken by eminent domain. Code
§ 55-277.13(4) ("[p]roceeds of property taken by eminent
domain"). Further, the Trust provisions direct that the Trustee
"shall not sell the [Trust] property . . . except to a condemnor
pursuant to a notice of condemnation." (Emphasis added.) Thus,
the Grantor recognized that the Trust could, at some point,
receive compensation from an eminent domain action, which the
Trust termed a sale, that would take some or all of the Trust
property. And, "money received from a sale" is commonly
described as "proceeds." Black's Law Dictionary 1325 (9th ed.
2009).
Relying on Code § 55-277.33, Riverside, however, contends
that every section of the UPIA applies "except as otherwise
expressly provided in the . . . terms of the trust." Id.
According to Riverside, the Trust's reference to "any proceeds
from the [T]rust property" in the definition of the term "net
10
income" is not an express provision negating application of the
UPIA provisions allocating "[p]roceeds of property taken by
eminent domain" to principal. Code § 55-277.13(4). We do not
agree with Riverside's interpretation of Code § 55-277.33. That
section means that Chapter 15.1 of Title 55, styled Uniform
Principal and Income Act, applies as a whole to any trust in
existence on January 1, 2000 unless the trust instrument itself
expressly states that the UPIA does not apply. When the trust
instrument so states, no part of the UPIA governs such a trust.
As previously stated, the parties here do not dispute that the
UPIA applies to the Trust at issue.
In contrast to Code § 55-277.33, Code § 55-277.3 does not
contain language requiring express rejection of the UPIA's
default rules for allocating receipts and disbursements between
principal and income. Instead, Code § 55-277.3 directs a
fiduciary to "administer a trust . . . in accordance with the
terms of the trust" when allocating receipts to principal or
income "even if there is a different provision in [the UPIA]."
This section is consistent with the principle that the "intent
of the grantor controls." Harbour, 278 Va. at 519, 685 S.E.2d
at 841. So, the relevant inquiry is whether the Trust at issue
contains any provision reflecting the Grantor's intent with
regard to the allocation of condemnation compensation.
11
It is correct, as Riverside asserts, that paragraph 3(C)(i)
of the Trust does not expressly address allocation of receipts
between principal and income. Instead, paragraph 3 pertains to
the Trustee's duties, which, among other things, include the
duties to "hold, manage, and generate income from the [T]rust
property," pay taxes, repair the Trust property, make capital
improvements, and distribute "net income generated by the
[T]rust and the [T]rust property" to the Grantor during her
lifetime. Riverside contends that the definition of the term
"net income" contained in subsection (C)(i) of paragraph 3, when
read in context, merely provides the method of calculating net
income and does not provide any rule for allocation of
condemnation compensation.
The provisions of paragraph 3(C)(i) state:
i. For purposes of this Agreement, net
income shall be defined as all funds received
from the rental of the trust property and/or
generated from or by the [T]rust property and/or
any proceeds from the [T]rust property and/or
provided by the Grantor under paragraph C.ii. to
maintain a positive operating cash flow LESS all
funds paid by the Trustee for (a) current taxes
due against the [T]rust property, (b) current
insurance premiums for coverage secured on the
[T]rust property, (c) repairs made to the [T]rust
property, (d) currently due installments of
principal and interest on loans secured by the
[T]rust property, including authorized loans for
capital improvements and loans for distribution
to the Grantor, and (e) the administration of
this [T]rust, including but not limited to,
[T]rustee's fees, accounting fees, recording
12
fees, management fees, attorney's fees, and
filing fees.
Undoubtedly, this subsection explains how to compute the
"net income" distributable to the Grantor. Calculating net
income necessarily starts with determining gross income and then
deducting the allowable expenses. In this Trust, the Grantor
specifically included in gross income "all funds received from
the rental of the [T]rust property and/or generated from or by
the [T]rust property and/or any proceeds from the [T]rust
property." By doing so, the Grantor allocated those receipts to
income, and the Trustee is required to administer the Trust in
accordance with its terms. Code § 55-277.3(A)(1). And, as we
have already explained, the term "proceeds," as used in this
Trust, encompasses the condemnation compensation at issue.
We are not persuaded otherwise by the cases cited by
Riverside. For example, in Estate of Reynolds, 432 A.2d 158
(Pa. 1981), the question was whether shares of stock received by
the trustee of a testamentary trust as part of a "3-for-2 stock
distribution" should be allocated to principal or income. Id.
at 159. The relevant provisions of the trust directed that "any
and all dividends shall be considered as income." Id. at 160.
However, the Pennsylvania Principal and Income Act mandated the
allocation of the stock distribution at issue to principal. Id.
at 161. According to the court, "[t]o supersede the operation
13
of the Principal and Income Act, . . . a [contrary] direction
[by a settlor] must be clearly expressed." Id. Thus,
resolution of the dispute turned on the definition of the term
"dividend." Finding nothing in the trust agreement to indicate
that the settlor intended such a stock distribution to be
allocated to income and recognizing that the corporation had
referred to the distribution as a "dividend" or a "split," the
court concluded that the stock distribution was not a dividend,
meaning that it was allocated to principal in accordance with
the Pennsylvania Principal and Income Act. Id. at 163-64.
In Venables, the issue concerned the allocation of trust
expenses against principal and income. 808 P.2d at 771. In
several paragraphs of the testamentary trust, the decedent
directed the deduction of "costs and expenses," and in one
paragraph, directed the trustee to "defray the reasonable costs
of this trust including reasonable compensation to said
trustee." Id. at 770. "[B]ecause the trust instrument lack[ed]
the specificity to identify and allocate adequately the variety
of costs and expenses involved in administering the trust," the
court concluded that the Washington Principal and Income Act
controlled the allocation of the expenses against principal and
income. Id. at 772. In contrast, the Trust at issue in the
case before us expressly allocates "any proceeds from the
[T]rust property" as income to be distributed to the Grantor,
14
and the term "proceeds" encompasses money received as
compensation for real property taken by eminent domain. As the
allocation rule for condemnation compensation is provided in the
Trust, there is no need to resort to the UPIA's default rules.
Finally, Riverside contends that the circuit court's
conclusion that the condemnation compensation should be
allocated as income would lead to an absurd result because, had
all the Trust property been taken by eminent domain, rather than
only a portion, the entire Trust corpus could be depleted. But,
the Trust provisions allow the Grantor to convey additional
property, real and/or personal, to the Trustee. Furthermore, if
the language used by a grantor is clear and unambiguous, "we
will not consider the grantor's apparent reasoning or motivation
in choosing the particular language employed." Harbour, 278 Va.
at 519, 685 S.E.2d at 841.
Thus, we conclude that the circuit court did not err by
concluding that the condemnation compensation should be
allocated as income to the Trust, pursuant to its terms. The
court properly granted partial summary judgment in favor of the
Trustee on this issue.
B. Equitable Accounting
Pursuant to Code § 8.01-31, "[a]n accounting in equity may
be had against any fiduciary . . . for receiving more than comes
to his just share or proportion." In its third amended
15
counterclaim, Riverside alleged, among other things, that the
Trustee failed to timely pay real estate taxes and storm water
fees assessed against the Trust property despite the Trust
provisions requiring the Trustee to "pay current taxes against
the property." According to Riverside, the failure to pay such
fees resulted in an "overstatement" of net income payable to the
Grantor. In the demurrer to these allegations, the Trustee
stated that the third amended counterclaim "fail[ed] to set
forth grounds sufficient to entitle Riverside to an equitable
accounting by the Trustee."
The properly pled facts in Riverside's third amended
counterclaim, accepted as true, see Glazebrook, 266 Va. at 554,
587 S.E.2d at 591, are sufficient to state a claim that the
Trustee, as a fiduciary, received "more than comes to [her] just
share." Code § 8.01-31. The circuit court, however, sustained
the Trustee's demurrer because it concluded that Riverside
obtained the "relief sought in the equitable accounting" when
the Trustee complied with the court's order requiring her to
provide, pursuant to the Trust provisions, a "statement showing
the condition of the Trust and the receipts and disbursements."
Whatever accounting the Trustee provided pursuant to the
circuit court's order was not produced to the circuit court and
is not part of the record in this appeal. "In determining
whether the pleading states a cause of action, the court may
16
also examine any exhibits accompanying the pleading." TC
MidAtlantic Dev. v. Commonwealth, 280 Va. 204, 210, 695 S.E.2d
543, 547 (2010); accord Dodge v. Trustees of Randolph-Macon
Woman's Coll., 276 Va. 1, 5, 661 S.E.2d 801, 803 (2008). But,
in the absence of such exhibits, we, like the circuit court,
"are confined to the facts as they are alleged in the
[pleading]." Fun v. Virginia Military Inst., 245 Va. 249, 252,
427 S.E.2d 181, 183 (1993).
Thus, the circuit court erred in considering the Trustee's
accounting because it was neither an exhibit accompanying the
pleading nor a document produced in response to a motion craving
oyer. See Dodge, 276 Va. at 5, 661 S.E.2d at 803 (In ruling on
a demurrer, a trial court may "consider the facts alleged as
amplified by any written documents added to the record as a
result of the motion" craving oyer.).
The Trustee, nevertheless, asserts that Riverside does not
have a sufficient interest at stake to warrant an equitable
accounting nor has it sustained a harm that would be redressed
by such. The circuit court, however, found that Riverside is an
entity that may request an equitable accounting pursuant to Code
§ 8.01-31, and the Trustee does not challenge that finding on
appeal. See Rule 5:17(c).
17
IV. CONCLUSION
For these reasons, we will affirm the portion of the
circuit court's judgment granting partial summary judgment in
favor of the Trustee with regard to the allocation of the
condemnation compensation as income. We will reverse the
portion of the circuit court's judgment sustaining the demurrer
as to the claim for an equitable accounting under Code § 8.01-31
and remand for further proceedings.
Affirmed in part,
reversed in part,
and remanded.
18