Case Title: Smith v. Mountjoy

Citation: 

Docket Number: 091470

State: virginia

Court: Virginia Supreme Court

Date: 2010-06-10T00:00:00Z

Document:
PRESENT:  All the Justices 
 
CAROL SMITH, IN HER CAPACITY AS EXECUTRIX OF THE 
ESTATE OF EVELYN B. SMITH AND IN HER CAPACITY AS 
TRUSTEE OF THE EVELYN B. SMITH INTER VIVOS 
REVOCABLE TRUST 
 
 
 
 
OPINION BY 
v.  Record No. 091470 
JUSTICE CYNTHIA D. KINSER 
 
 
 
June 10, 2010 
 
JEAN MOUNTJOY, IN HER CAPACITY AS EXECUTRIX 
OF THE ESTATE OF THEODORE M. SMITH  
 
FROM THE CIRCUIT COURT OF FAUQUIER COUNTY 
Jeffrey W. Parker, Judge 
 
This appeal presents two primary issues: whether certain 
transactions undertaken by an attorney-in-fact constituted a 
gift, which the attorney-in-fact was not authorized to make, and 
if so, whether the principal nevertheless ratified the agent's 
acts.  Because we conclude, inter alia, that the transactions at 
issue were a gift and that ratification did not occur, we will 
affirm the circuit court's judgment. 
MATERIAL FACTS AND PROCEEDINGS 
The relevant facts are undisputed, as the circuit court 
ruled on cross motions for summary judgment.  See Rule 3:20.  
Theodore M. Smith (Theodore) and Evelyn B. Smith (Evelyn) were 
married in 1946.  In May 2006, after experiencing serious health 
problems, Theodore executed a Durable Power of Attorney (DPOA) 
naming Evelyn as his attorney-in-fact. 
Theodore's DPOA generally authorized Evelyn to act "for 
[Theodore] and in [his] name . . . and on [his] behalf, and for 
[his] use and benefit to do and transact all and every kind of 
business whatsoever in [his] name as fully as though [he] was 
acting[.]"  Specifically, Evelyn was granted the authority, 
inter alia, "[t]o sell, lease, purchase, exchange, and acquire 
. . . any real or personal property whatsoever" as well as 
"repair, maintain, improve, manage, insure, rent, lease, sell, 
convey, subject to liens, [or] mortgage" any of the same.  
However, the DPOA contained no express authority to make gifts. 
Acting as Theodore's attorney-in-fact but unbeknownst to 
him, Evelyn executed an instrument on May 23, 2007, creating 
"The Theodore M. Smith Inter Vivos Revocable Trust" (Theodore's 
Trust).  At the same time, she executed a separate document 
establishing "The Evelyn B. Smith Inter Vivos Revocable Trust" 
(Evelyn's Trust).  Evelyn was named as the "initial" trustee for 
both trusts, but their respective provisions were not "mirror 
images."  Theodore's Trust provided that upon his death, the 
trust's assets were to be distributed outright to Evelyn if she 
survived him.  In the event Evelyn did not survive Theodore, 
certain assets were to be distributed to Jean Mountjoy 
(Mountjoy) and others, and the remaining corpus of Theodore's 
 
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Trust was to be distributed to Carol Smith (Carol), or to Carrie 
Smith Parret if Carol did not survive Theodore.1 
In contrast, Evelyn's Trust provided that upon her death, 
Theodore, if he survived her, was to receive the net income from 
the trust's assets and such principal as the trustee deemed 
"necessary" or "proper" for Theodore's "support, maintenance and 
medical care."  Upon Theodore's death, or if he did not survive 
Evelyn, certain assets were to be distributed to Mountjoy and 
others, and the remaining corpus of the trust was to be 
distributed to Carol, or to Carrie Smith Parret if Carol did not 
survive Evelyn. 
On the same day that she created both trusts, Evelyn, 
acting as Theodore's attorney-in-fact, and also in her 
individual capacity, executed two "deeds of gift" conveying to 
the trustee of each trust a one-half interest in six parcels of 
real estate (the Properties), which the Smiths until then had 
held as tenants by the entirety with rights of survivorship.  
The deeds changed ownership of the Properties to tenants in 
common.  Evelyn died unexpectedly in July 2007, without 
informing Theodore of these transactions. 
                     
1 Mountjoy is Theodore's sister.  Although Theodore and 
Carol share the same surname, they are not consanguineously 
related.  Carol is Evelyn's niece. 
 
3
Soon after Evelyn's death, Theodore discovered the 
transactions and, on September 6, 2007, executed, "pursuant to 
Article X (Reserved Rights)" of Theodore's Trust, a "Notice of 
Termination" (the Notice) to revoke and terminate his trust in 
its entirety.  The Notice directed Carol, who was then acting as 
the substitute trustee of Theodore's Trust, to deliver "all 
assets" of the trust to Theodore, and revoked "all powers 
heretofore granted to the [t]rustee by virtue of the [t]rust."2 
Theodore next filed an action against Carol, in her 
capacity as substitute trustee of Theodore's Trust and as 
executrix of Evelyn's estate.  In a second amended complaint, 
Theodore sought, inter alia, a declaration that Evelyn's 
creation of Theodore's Trust and conveyance of the Properties to 
that trust and Evelyn's Trust, "which thereby terminated the 
tenancies by the entirety and voided Theodore's survivorship 
interests, to be beyond the powers granted to [Evelyn] in the 
[DPOA] and/or was not authorized by" him.  Theodore further 
requested that he be declared "the sole owner" of the one-half 
interest in the Properties held by Evelyn's Trust. 
On September 26, 2008, prior to filing his second amended 
complaint, Theodore, acting through counsel, made "a demand 
                     
2 Each trust document named Carol as substitute trustee in 
the event Evelyn died or could not otherwise serve as trustee. 
 
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pursuant to [paragraph A of] ARTICLE VI" of Evelyn's Trust, for 
a distribution of income.  That provision provides: 
For so long as [Theodore] shall live, [the trustee of 
Evelyn's Trust] shall pay to [Theodore's] legal 
representative, for the benefit of [Theodore], all of 
the net income of [Evelyn's] Trust Fund, in convenient 
installments but no less frequently than annually. 
 
Theodore also requested under paragraph B of the same article of 
Evelyn's Trust "as much of the principal of [Evelyn's] Trust 
Fund as [Evelyn's trustee], exercising such sole and absolute 
discretion, shall deem necessary or proper for [Theodore's] 
reasonable support, maintenance and medical care."  Theodore 
attached "schedules of medical expenses for round the clock 
care," totaling $106,932.00, in support of his request for a 
distribution from the principal of Evelyn's Trust.  The demand 
also noted that improvements had been made to one of the 
Properties "that is owned [one-half] by Theodore Smith and [one-
half] by [Evelyn's] Trust." 
Theodore died on November 20, 2008, two days after filing 
the second amended complaint.  The circuit court subsequently 
entered an order substituting Mountjoy, in her capacity as 
executrix of Theodore's estate, as the party plaintiff. 
Both Mountjoy and Carol filed motions for summary judgment.  
At a hearing before the circuit court, Mountjoy contended that 
Theodore's DPOA did not give Evelyn the power to sever the 
Smiths' tenancy by the entirety interests in the Properties, as 
 
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those actions "constituted gifts to herself" because "there was 
no consideration given to" Theodore, and Evelyn "received the 
benefit."  Carol, conversely, argued that the severance of the 
Smiths' tenancy by the entirety interests was supported by 
consideration, and thus was not a gift because "they each . . . 
suffer[ed] a detriment or a gain . . . . They both exchanged 
their right of survivorship."  Carol further argued that 
Theodore's revocation of his trust pursuant to its terms and 
later demand for distributions from Evelyn's Trust constituted 
ratification of the transactions undertaken by Evelyn under the 
DPOA. 
In a letter opinion, the circuit court concluded that 
because "[t]here is no specific language in the DPOA [that] 
authorizes Evelyn to set up an estate plan for Theodore 
containing a trust benefiting Evelyn[,]" her creation of 
Theodore's Trust was " 'not authorized by the power under which 
[s]he act[ed],' " rendering the act " 'a nullity.' "  (Citation 
omitted.)  The court also found that Theodore did not ratify 
Evelyn's actions; "[o]n the contrary, he promptly moved to 
protect his property rights in light of her unauthorized 
actions."  Thus, the circuit court granted partial summary 
judgment in favor of Mountjoy, holding "that [Theodore's] Trust 
is void and of no effect" and, further, "invalidating the 
conveyance of the [P]roperties" to both trusts. 
 
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Carol filed a motion for reconsideration, seeking 
clarification of the circuit court's ruling.  She argued that 
Evelyn "took no unauthorized actions under the DPOA," citing 
deposition testimony of Mountjoy wherein she allegedly 
acknowledged that Evelyn had "authority to transfer the couple's 
properties."  Mountjoy opposed the motion, arguing, inter alia, 
that the deeds constituted gifts that were not authorized by the 
DPOA, thus entitling Theodore, as the then-surviving spouse, and 
now his estate, to sole ownership of the Properties. 
After hearing argument on the motion, the circuit court 
concluded that no consideration passed for the severance of the 
Smiths' tenancy by the entirety interests and conveyance of one-
half interest in the Properties to each trust and that the 
transactions were therefore gifts.  The court further concluded 
that Evelyn "did [not] have the power to make a gift of real 
estate," noting that Carol's counsel did not "suggest that [the 
DPOA] authorized" a gift.  In its final order, the circuit court 
held that the "recorded deeds . . . purporting to convey the 
interests of [Theodore and Evelyn] in the . . . Properties 
. . . , are void and of no effect, and, consequently[,] fee 
simple title to the . . . Properties continued to be held by 
[Theodore and Evelyn] as tenants by the entireties until 
 
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[Evelyn's] death . . . , at which time fee simple title vested 
exclusively in [Theodore]."3  Carol now appeals. 
ANALYSIS 
As previously noted, the primary issues raised by Carol's 
assignments of error concern whether the severance of the 
parties' tenancy by the entirety interests and conveyance of 
one-half interest in each of the Properties to the trustee of 
Evelyn's Trust was a gift4 and, if so, whether Theodore, 
nevertheless, ratified Evelyn's acts.  Carol also challenges the 
circuit court's refusal to consider Mountjoy's proffered 
deposition testimony. 
As Carol acknowledges on brief, the facts establishing the 
transactions at issue are undisputed; therefore, whether those 
transactions constituted a gift is a question of law.  As such, 
                     
3 In a separate order, the circuit court granted Carol's 
motion to intervene in her capacity as substitute trustee of 
Evelyn's Trust, adding her as a party defendant.  Carol was 
initially named as a defendant only in her capacity as executrix 
of Evelyn's estate and as substitute trustee of Theodore's 
Trust. 
4 Carol does not assign error to the circuit court's holding 
that Evelyn did not have the power and authority under the DPOA 
to make a gift of real property.  Thus, that issue is not before 
us.  See Rule 5:17(c). 
We note, however, that the General Assembly recently 
enacted the Uniform Power of Attorney Act, future Code §§ 26-
71.01 through -74.03, which is set to become effective July 1, 
2010.  2010 Acts chs. 455, 632.  It is not necessary to address 
the applicability of that act to resolve the issues in this 
appeal. 
 
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we review the circuit court's resolution of that issue de novo.  
Oraee v. Breeding, 270 Va. 488, 494, 621 S.E.2d 48, 50 (2005). 
We have long defined "[a] gift . . . as a contract without 
a consideration."  Ott v. L&J Holdings, LLC, 275 Va. 182, 188, 
654 S.E.2d 902, 905 (2008) (citing Spooner v. Hilbish, 92 Va. 
333, 341, 23 S.E. 751, 753 (1895)).  Consideration may arise 
from " '[a]ny act done at the defendant's request, and for his 
convenience, or at the inconvenience of the plaintiff.' "  
Looney v. Belcher, 169 Va. 160, 167, 192 S.E. 891, 893 (1937) 
(citation omitted).  " 'Consideration is, in effect, the price 
bargained for and paid for a promise.  It may be in the form of 
a benefit to the party promising or a detriment to the party to 
whom the promise is made.' "  Dulany Foods, Inc. v. Ayers, 220 
Va. 502, 511, 260 S.E.2d 196, 202 (1979) (quoting Brewer v. Bank 
of Danville, 202 Va. 807, 815, 120 S.E.2d 273, 279 (1961)). 
Carol contends that the transactions were supported by 
consideration because "as a matter of law[,] the exchange of the 
couple's entireties interests constituted a sufficient exchange 
for consideration."  According to Carol, "[e]xchanging" their 
mutual tenancy by the entirety interests in the Properties "for 
equal and opposite rights of a co-tenant must, . . . by 
definition, constitute an exchange for value."  The fallacy with 
Carol's position is that the severance of the parties' tenancy 
by the entirety interests and conveyance of one-half interests 
 
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to the respective trusts were not in exchange for "equal and 
opposite rights." 
Review of the pertinent provisions of the two trusts 
demonstrates that the transactions at issue did not result in 
aligning ownership rights and obligations in the manner asserted 
by Carol.  Theodore's Trust provided that, upon Theodore's death 
and in the event Evelyn survived him, its assets were to be paid 
and distributed "to [Evelyn], outright and free of trust," 
unless she elected otherwise, presumably for tax purposes.  
However, in the event that Evelyn predeceased Theodore – what in 
fact occurred – Theodore was not entitled to full and outright 
ownership of the assets of Evelyn's Trust.  Instead, he was 
merely to receive periodic distributions of income and 
principal, the latter limited to payments the "Trustee, 
exercising such sole and absolute discretion, shall deem 
necessary or proper for [Theodore's] reasonable support, 
maintenance and medical care."  Upon Theodore's death in the 
event Evelyn did not survive him, Evelyn's heirs, i.e., Carol, 
or Carrie Smith Parret if Carol did not survive Theodore, 
neither of whom were consanguineously related to Theodore, 
received the bulk of the assets held by Theodore's Trust.  And 
the same individuals also received the greater part of the 
 
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assets of Evelyn's Trust upon the death of both Theodore and 
Evelyn.5  
Thus, we hold that no consideration passed to Theodore in 
exchange for severing the tenancy by the entirety interests and 
conveying a one-half interest in each of the Properties to the 
trustee of Evelyn's Trust.  While both Evelyn and Theodore 
relinquished the right of survivorship appurtenant to holding 
real property as tenants by the entirety, the complete 
transactions conferred a benefit to Evelyn and/or her heirs that 
she did not have when the Properties were held as tenants by the 
entirety.  With no corresponding benefit to Theodore, the 
disparate provisions of the two trusts allowed Evelyn, along 
with the trustee of Evelyn's Trust, or her heirs, eventually to 
obtain fee simple ownership of the Properties, irrespective of 
whether she or Theodore died first.  That scenario — in which 
Evelyn and the trustee of her trust, or her heirs, would obtain 
ownership of the Properties — could not have occurred when the 
Properties were held as tenants by the entirety, unless Theodore 
predeceased Evelyn.  As the transactions conferred a benefit to 
Evelyn and only a detriment to Theodore, we conclude, contrary 
                     
5 While the beneficiaries under Theodore's Trust were the 
same beneficiaries as those under Evelyn's Trust, Theodore's 
heir, Mountjoy, received a substantially smaller portion of the 
two trusts' combined assets than Evelyn's heirs, Carol and 
Carrie Smith Parret. 
 
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to Carol's assertion, that the transactions did not confer 
"equal and opposite rights" to Evelyn and Theodore.  Instead, 
Evelyn, acting as Theodore's attorney-in-fact, made a gift to 
her trust. 
This conclusion is supported by our decision in Ott.  
There, a wife, acting pursuant to her husband's power of 
attorney, established a limited liability company in which she 
and her husband were the sole members.  275 Va. at 185, 654 
S.E.2d at 904.  The husband's membership interest was 
established at 80 percent and the wife's at 20 percent.  Id.  
Those respective membership interests represented each spouse's 
interest in the whole of three parcels of real estate owned by 
the husband and wife as tenants by the entirety.  Id. at 185, 
654 S.E.2d at 903-04.  In a deed of gift, the wife then conveyed 
those particular parcels to the limited liability company.  Id. 
at 185-86, 654 S.E.2d at 904. 
The question on appeal was whether that deed exceeded the 
wife's authority as her husband's attorney-in-fact.  Id. at 184, 
654 S.E.2d at 903.  The power of attorney granted the wife the 
power, inter alia, "to sell and convey real property, to enter 
into binding contracts[,] to manage [her husband's] business 
affairs[, and] to make gifts," but not to herself.  Id. at 184-
85, 654 S.E.2d at 903.  The trial court concluded that the 
conveyance was not a gift, despite the deed's caption, but 
 
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rather that it was given for valuable consideration.  Id. at 
186, 654 S.E.2d at 904.  The trial court reached that conclusion 
based on its factual findings that "the transfer of the property 
was undertaken for legitimate business reasons and that [the 
husband and wife] each received benefits, including possible 
future tax benefits, commensurate with their respective 
percentage interests, without any self-dealing on [the wife's] 
part."  Id. at 189, 654 S.E.2d at 906.  We affirmed the trial 
court's judgment, holding that the transaction at issue was 
within the powers granted to the wife under her husband's power 
of attorney.  Id. 
As previously explained, no such similar exchange of mutual 
benefit (or detriment) was effected by the transactions 
involving the Properties at issue.  Theodore did not receive a 
benefit commensurate with his interest in the Properties.  
Unlike Ott, the facts here do not show that the transactions 
were supported by consideration.  And, while not controlling, 
the two deeds here were captioned as "deeds of gift" and cited 
the statutory exemption provision for deeds of gift.  See 
Code § 58.1-811(D).  Therefore, the circuit court did not err in 
finding that Evelyn, acting as Theodore's attorney-in-fact, made 
a gift to her trust and, in doing so, exceeded her authority 
under the DPOA. 
 
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We now turn to the issue concerning whether Theodore 
ratified Evelyn's acts.6  "A principal is bound by his agent's 
previously unauthorized act if he ratifies the act by accepting 
its benefits with full knowledge of the relevant facts, or, if 
upon learning of the act, he fails to promptly disavow it."  
Kilby v. Pickurel, 240 Va. 271, 275, 396 S.E.2d 666, 668 (1990) 
(internal citations omitted).  If a " 'principal, with knowledge 
of all the facts, adopts or acquiesces in the acts done under an 
assumed agency, he cannot be heard afterwards to impeach them 
under pretense that they were done without authority.' "  
Winston v. Gordon, 115 Va. 899, 907, 80 S.E. 756, 760 (1914) 
(citation omitted).  And, when a principal, after being 
informed, fails to disavow the act, "he makes it his own."  Id.; 
accord Coastal Pharm. Co. v. Goldman, 213 Va. 831, 839, 195 
S.E.2d 848, 854 (1973).  Any act of disavowal must occur 
" 'within a reasonable time.' "  Higginbotham v. May, 90 Va. 
233, 239, 17 S.E. 941, 943 (1893) (citation omitted). 
Carol alleges Theodore ratified the transactions undertaken 
by Evelyn as his attorney-in-fact by terminating Theodore's 
Trust, pursuant to its terms, in September 2007, and by 
                     
6 Mountjoy asserts that the issue of ratification is waived 
because Carol did not plead such as an affirmative defense.  The 
circuit court, however, decided the issue, and Mountjoy does not 
assign cross-error claiming that the issue was not properly 
before the circuit court.  See Rule 5:18(b). 
 
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demanding a distribution of income and principal from Evelyn's 
Trust in September 2008.  According to Carol, the termination of 
Theodore's Trust in accordance with its provisions evidenced a 
choice by Theodore "to recognize the result of the [d]eeds and 
the severance of the couple's entireties interests in the . . . 
Properties," resulting in Theodore's "tak[ing] personal 
possession of his . . . half interests in the . . . Properties."  
Instead of repudiating Evelyn's actions and taking steps to 
restore the status quo ante, Theodore made an "informed decision 
. . . to recognize the existence of his trust, and the Trustee's 
then-existing rights and powers thereunder and to follow a 
course of action which his wife had empowered him to take in the 
trust document itself."  Filing this action, Carol maintains, 
was "merely an after-the-fact attempt to avoid the trust, the 
existence and fruits of which he had long since accepted." 
Carol's argument is without merit.  To characterize 
Theodore's termination of his trust, in accordance with its 
terms, as accepting the benefits of his wife's acts is 
misguided.  Theodore did not "adopt or acquiesce" to the 
creation of his trust by utilizing its provisions to terminate 
it.  Instead, upon learning of Evelyn's acts, he promptly – 
within two weeks of her death – disavowed those acts by 
terminating his trust.  That termination cannot also be viewed 
as an adoption of the acts taken by Evelyn under the DPOA.  
 
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Furthermore, by filing this action, he took steps to disavow 
Evelyn's severance of the parties' tenancy by the entirety 
interests in the Properties. 
Similarly, Theodore, by demanding a distribution of income 
and principal from Evelyn's Trust, did not "adopt or acquiesce" 
in Evelyn's acts establishing his trust and severing the 
parties' tenancy by the entirety interests.  Theodore had no 
basis upon which to challenge Evelyn's creation of her trust, 
which contained assets other than the Properties at issue, and, 
by its terms, he was entitled to income and a distribution of 
principal under certain circumstances.  In sum, Theodore did not 
"act[] in such a manner as to unmistakably indicate that he 
intend[ed] to avail himself of the benefits of" the actions 
taken by Evelyn under the DPOA.  Piedmont Mt. Airy Guano Co. v. 
Buchanan, 146 Va. 617, 625, 131 S.E. 793, 795 (1926).  Thus, we 
conclude that the circuit court properly held that Theodore did 
not ratify Evelyn's acts. 
Finally, Carol argues that the circuit court erred in 
refusing to consider the proffered deposition of Mountjoy in 
opposition to Mountjoy's motion for summary judgment.  As both 
parties filed motions seeking summary judgment, the deposition 
was not offered just to oppose such a motion.  And, Mountjoy 
objected to the use of the deposition.  Thus, we conclude that 
the circuit court did not abuse its discretion.  See Code 
 
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§ 8.01-420; Rule 3:20; Lloyd v. Kime, 275 Va. 98, 107, 654 
S.E.2d 563, 568 (2008). 
CONCLUSION 
For these reasons, we will affirm the judgment of the 
circuit court.7 
Affirmed. 
                     
7 In light of our conclusion, it is not necessary to address 
Carol's remaining assignment of error. 
 
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