Court Opinion

ID: 4485334
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:20.717581+00
Date Added: 2024-06-11T14:53:42.600873
License: Public Domain

Körner, J., dissenting: I must respectfully dissent from the majority opinion in this case. In my view, the majority has arrived at an erroneous result here, which is based upon an erroneous analysis of the situation which is presented in this case, and a failure to apply the established law to the correct set of facts. The facts are relatively simple and were fully stipulated: On August 3,1972, decedent created a trust, with himself as trustee, which was revocable and which reserved all the life interest to himself. Upon his death, the trust was to become irrevocable and two trusts were created, one for the benefit of his son, and the other for the benefit of his two grandchildren. The decedent’s home place in Santa Clara, California (the Cromwell residence), was conveyed to the trust as part of the trust corpus a couple of months thereafter. On the same date as the creation of the trust, August 3, 1972, decedent executed his will, in which, after making specific provisions for his personalty, he devised and bequeathed all the rest and residue of his estate as a pourover into the inter vivos trust. Almost 2 years later, on June 21,1974, and in contemplation of marriage, decedent entered into an antenuptial contract with Jennie Whitlatch (Jennie). That contract provided, inter alia, that Jennie should receive a life estate in the Cromwell property, if decedent predeceased her and if Jennie was still married to him at that time. Thereafter, and prior to her death, Jennie’s life estate could be terminated only if she relinquished it or if she should remarry. The contract (clearly conditioned on the parties’ subsequently marrying, which they did on August 10, 1974) specifically provided that decedent would amend his will to carry out the provisions of the agreement, but it also provided (in section 3.07 thereof) that the parties would enter into any other documents which would be necessary to carry out the purposes and intentions of the antenuptial agreement,1  At the time the antenuptial agreement was executed, decedent had already conveyed the Cromwell property to the trust, so that it was impossible for him to amend his will in any way which would give Jennie the agreed life estate therein. The only way the agreement could be carried out was to amend the trust instrument so as to provide for Jennie’s life estate, contingent upon her surviving decedent and being married to him at the time of his death. In fact, decedent amended neither his will nor his trust prior to his death on December 26, 1977. On that date, Jennie was still married to decedent, and survived him. On this set of facts, I would conclude as follows: The antenuptial agreement was not just a contract to make a will, as the majority appears to hold. It was an executory contract which became operative upon decedent’s and Jennie’s getting married, and its clear intention was to provide for Jennie a life estate in the Cromwell property, contingent only upon her surviving decedent and being married to him at the date of his death. I think that what was intended here was the immediate creation in Jennie of a contingent future interest in the Cromwell property, both of which contingencies were in fact satisfied at the moment of decedent’s death. The proper way to have carried out this intention was for decedent to have amended the trust instrument to clearly give Jennie her contingent future interest, after decedent and Jennie were married on August 10, 1974. At the moment of decedent’s death, the trust instrument would be self-executing, and Jennie’s contingent future interest would vest in possession, being terminated only by a later relinquishment by Jennie or by her remarriage, both of which events were under her control. The recital in the antenuptial agreement about decedent’s amending his will reflects a confusion either of decedent or his attorney as to what the legal situation was. I do not think that this reference to amending the will should be narrowly construed as nothing more than a contract to make a will (which would be ineffective), especially in view of the obligation in the contract to execute any other documents necessary to carry out the contract provisions. To construe the antenuptial contract in this manner could be viewed as an attempt on the part of decedent to deceive or defraud Jennie of the life estate following decedent’s death, which she clearly contracted for, and which the majority correctly holds was supported by full and adequate consideration. Thus, I think the present facts present a clear case for the application of the doctrine of equitable conversion. This ancient and well-known doctrine rests upon the principle that equity regards things which are directed to be done as actually having been done, where nothing has intervened which ought to prevent performance. It is well recognized as the law in California. Parr-Richmond Industrial Corp. v. Boyd, 43 Cal. 2d 157, 272 P.2d 16 (1954); McCaughna v. Bilhorn, 10 Cal. App. 2d 674, 52 P.2d 1025 (1935). As it applies to the present situation, the application of the doctrine was aptly stated by the Supreme Court of California many years ago: When a contract for sale of real property binding on the parties is executed, an equitable conversion is worked; the purchaser of the land is deemed the equitable owner thereof, and the seller is considered the owner of the purchase price. The equitable conversion thus deemed to exist from the time a valid contract of sale is entered into may or may not be absolute. Whether it is, or not, will depend upon whether the terms of the contract of sale are subsequently complied with. If there is no default in that respect, but, on the contrary (and dealing now with the contract involved here), the purchaser performs all the conditions precedent which under the contract entitle him to a conveyance on a given day, he will be deemed on that day to be the owner of the land and the seller to be the owner of the purchase money. The fact that the contracting owner of the land refuses to perform his part of the agreement and make the conveyance to which the purchaser is entitled, on compliance with the contract, cannot affect the status or rights of the parties as to the property. The purchaser having performed or offered to perform his covenants at the date when the contract called for a conveyance to him, equity considers the property as belonging to him as of that date, and the owner as simply holding the legal title in trust for him. * * * [In re Dwyer’s Estate, 159 Cal. 664. _, 115 P. 235, 240 (1911).] The equitable conversion takes place at the time when the conveyance should have been made, under the effective contract. This depends upon the contract and the intention of the parties as to when it should be effective. Baker v. Commissioner of Corporations and Taxes, 253 Mass. 130, 148 N.E. 593 (1925). When the effectiveness of the contract is subject to the happening of a future event, the conversion will take place when the contingency occurs, so as to carry out the intention of the parties. Rockland-Rockport Lime Co. v. Leary, 203 N.Y. 469, 97 N.E. 43 (1911). In the instant case, the future event which made the antenuptial contract operative was the marriage of Jennie and decedent. Viewed as a contract for the conveyance of an interest in property, as I think the antenuptial contract should be construed, I think that Jennie had a right to specific performance under California law (Parr-Richmond Industrial Corp. v. Boyd, supra; Utley v. Smith, 134 Cal. App. 2d 448, 285 P.2d 986 (1955); In re Dwyer’s Estate, supra). So viewed, it should be held that Jennie, through the doctrine of equitable conversion, had an equitable interest in the Cromwell property — an interest which she had bought and paid for — which was transformed from a future interest to a possessory interest at the moment of decedent’s death. What is involved here is simply an interest which Jennie acquired by purchase from decedent in an arm’s-length contractual negotiation. Prior to decedent’s death, such rights were contingent, but they became fully vested at the moment of his death. The value of Jennie’s life estate should accordingly be excluded from decedent’s gross estate under section 2033 and the exception clause of section 2036(a).2 Applying the appropriate valuation table for a female aged 77 (Jennie’s age at the time of decedent’s death), in accordance with respondent’s regulations, sec. 20.2031-10(c), table A(2), Estate Tax Regs., a factor of .35307 is produced which, when applied to the apparently agreed value of the Cromwell property ($89,000), produces a value of $31,423 for Jennie’s life estate. It follows that petitioner’s amended position herein should be sustained.3  Goffe, Shields, Hamblen, and Wright, JJ., agree with this dissent.  The majority fails to find this critical fact, which was an integral part of the antenuptial agreement, a stipulated exhibit in this record.   Sec. 2036(a) reads as follows: SEC. 2036(a). General Rule. — The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death— (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.   The majority opinion declines to consider the doctrine of equitable conversion as a proper basis for decision in this case, on the grounds that this "issue” was not raised by either party, and, in any event, is of doubtful applicability (see majority opinion note 7). While the majority is clearly entitled to its opinion as to the applicability of the doctrine to the facts of this case, I do not think that it is proper to refuse to consider it at all. No "new issue” is being raised here; the issue is the same, viz, whether Jennie had an interest in the Cromwell residence at the time of decedent’s death which was properly excludable from his gross estate. Petitioner claimed that she did; respondent claimed that she did not. Neither side addressed the doctrine of equitable conversion; this is a new legal theory, true enough, but it does not change the issue between the parties which was properly before the Court. It simply presents a new basis upon which the existing issue can be decided. Nor is the doctrine of equitable conversion to be considered as a "new matter.” It does not alter or increase the original deficiency determination, nor does it call for the introduction of any new or different evidence. Cf. Sorin v. Commissioner, 29 T.C. 959 (1958), affd. per curiam 271 F.2d 741 (2d Cir. 1959); Estate of Jayne v. Commissioner, 61 T.C. 744 (1974), appeal dismissed 7th Cir. (1975); Achiro v. Commissioner, 77 T.C. 881 (1981). If the majority entertains doubt as to whether the doctrine of equitable conversion is properly applicable in this case under controlling California law, as I believe it to be, then it is entirely proper to call on the parties for additional briefing on the subject, given the fact that neither party addressed it at trial or on brief. Rule 151(a). To refuse to consider the theory at all, however, seems to me to be improper on at least two grounds: (a) It permits the parties, at least by omission, to control the basis upon which this Court decides cases which are presented to it. (b) To refuse to consider an established legal doctrine of which we are aware, and which may provide the correct basis of decision, simply because neither party has had the wit to address it, is to abdicate our judicial responsibility to decide cases correctly, under the law as we are given the light to see it.