Opinion ID: 1427434
Heading Depth: 1
Heading Rank: 14

Heading: excerpt from district court's decision letter filed april 8, 1985

Text: What then is wrong with the contract, if anything? 1. It purports to be a lease. Therefore each lease payment would be treated as ordinary income for tax purposes and if this estate has the income, which it would appear to have by virtue of the lease, it probably would be in a fairly high tax bracket meaning much of the income would go for taxes. The Arambels would be able to deduct all lease payments as business expenses. 2. When the option is exercised, and it was on September 23, 1983, the contract became a contract of sale without interest. Therefore, the IRS would impute 10% interest a year compounded semi-annually to each payment so that the estate would have to pay tax on that interest as ordinary income and the Arambels could deduct it as a business expense. 3. Taking the contract as of the day it was executed, it is clear that the Arambels could have waited until the last day of the full forty years of the lease and could have continued to deduct the lease payments as business expenses and the estate would have to declare them as ordinary income, thereby effectively depriving the estate of the opportunity to treat the payments as long term capital gains rather than as ordinary income. 4. The option provides that the area or areas on which said animal units are run shall be at the discretion and control of the Arambels if Isaac, Jr. exercises his option. He has nothing to say about it at all. 5. The option states the Arambels shall be entitled to buy the 500 A.U.M.'s if the option is not exercised. They are not obligated to buy them. Therefore, as I understand it, Isaac, Jr. would be sitting there with 500 A.U.M.'s with no base property to attach them to  either federal, state, fee, or grazing association land, and, as will be noted later, would probably forever remain that position. 6. The Arambels would have from five to eight years to use the 500 A.U.M.'s free of charge until Isaac exercised his option, if ever. 7. Despite the assurances by the Arambels that Isaac, Jr. would be a partner with them, that is not the case. Nowhere in the contract was that assurance ever provided for or made good. 8. The contract to be performed over a great period of time  between 40 and 52 years  probably through the lifetime of two generations  Mrs. Brooks and possibly even her children, and particularly Isaac, Jr. 9. John Arambel testified that what he told Mrs. Brooks meant nothing  that only the contract itself mattered. 10. The entire transaction was completed with inordinate haste at the principal insistence of John Arambel, the basic documents were prepared by the Arambels, and Mrs. Brooks, as nearly as I can tell, was not consulted as far as those basic documents were concerned. It also seems unusual to me that no effort was made by the Arambels to buy at a lesser price. Generally, in my experience, there is always some dickering or horse trading done, but not here. 11. Although five of the ultimate beneficiaries of this estate were juveniles when the contract was made, and four of them still are, no guardian was ever appointed for them and no one represented them in any way except for the feeble and probably futile attempt to protect Isaac, Jr. Furthermore, no one ever suggested that a guardian be appointed for them. 12. Mrs. Brooks had no professional advice of any kind. She discussed the matter with her children, her brother, Mrs. McCurtain and Mr. Smith. None of them knew any more than she did about the legal effects of the contract. Mr. Smith knew the manual aspect of operating a ranch, but nothing of the legal aspects. 13. Despite the fact that Mrs. Brooks purported to understand the contract when it was signed, I am convinced that she did not have the faintest idea of its significance. The Arambels and Zebre make much of the fact that she insisted on retaining the mineral rights, indicating her understanding of the terms of the contract, but I submit that was probably something she had heard her husband say at one time or another and it stuck in her mind. I perceived her as intellectually backward and incapable of understanding. The contract was signed on August 12, a Friday, and on August 14, a Monday, Zebre took the contract to Galen West and asked him to have the contract confirmed. West was concerned because he had not been consulted and when he talked to Mrs. Brooks, he stated she was confused. Each time he talked to her he thought she was extremely confused about the meaning of the lease as she kept calling the contract. After West explained to her the magnitude of what she had done, she said she wanted out. West also explained what she should do but she never authorized him to do anything. Even after he explained the contract to her, West thought she knew something was wrong with the deal but she continued to be confused as to what she should do. West told Zebre that Mrs. Brooks wanted the contract changed, but Zebre said his clients were satisfied so if she wanted changes, she should suggest them, but she never authorized him to do anything, as noted above. Mrs. Brooks testified that West told her the contract made him sick to his stomach. She also saw two other attorneys who told her the contract was bad but she did not hire them and later saw Mr. White who finally filed his Petition in probate on November 13, 1984, approximately one year after the Arambels took possession of the ranch. Mrs. Brooks obviously had great faith in John Arambel and an honest belief that he would take care of her. Hers was a faith beyond mere friendship as I perceived it  he was, in her eyes, acting almost in a fiduciary capacity. Because of her faith in him and because of her lack of intellectual perception, I believe Mrs. Brooks was in a state of confusion for well over a year after the contract was signed, despite the fact that three attorneys had told her the contract was bad and not in the best interests of Her or the estate. her own actions in the manner in which she spent the down payment, and proceeds from the sale of the animal livestock crop and culls, and in the manner in which she let the city property deteriorate to the point of destruction is further evidence of her confused state and inability to control the estate affairs. 14. Although the contract purports to protect Isaac, Jr. by giving him the option of running his 500 A.U.M.'s on the ranch, it is obvious to me that he is not now, nor will he ever able to be, capable of running anything. He is a frail, sickly boy who cannot even walk straight and who appears also mentally retarded, all as a result of his many ailments and operations. It is difficult, if not impossible, for me to comprehend how anyone with any degree of perspicacity could think otherwise. Frankly, it is questionable that Isaac, Jr. will live long enough to exercise the option, and even the contract recognizes that possibility where it gives the Arambels the right to buy the 500 A.U.M.'s if Isaac, Jr. does not attain the age of 19 years. 15. Although the Buyers insist that by virtue of Section 2-7-609, no court confirmation of the sale was necessary if a power of sale is given in the will, it is evident that confirmation was contemplated in view of the fact that Zebre asked West to get the contract confirmed and also asked how long it would take to do this. 16. Had the ranch been sold for cash, or even on an installment sale over a short period to lessen the tax aspects, and even at the value of $1,650,000.00 placed on it by the Arambels' appraiser, that money could be invested now in such a manner as to give the estate a return far greater than this contract does. Furthermore, what will be the value of a dollar 40 to 52 years in the future if inflation continues at even the present comparatively low rate?