Opinion
February 3, 1958 —
February 28, 1958.
APPEAL from a judgment of the circuit court for Dane county: RUSSELL E. HANSON, Circuit Judge of the Eighteenth circuit, Presiding. Affirmed.
For the appellant there was a brief by Rieser, Mathys, McNamara Stafford, and oral argument by Willard Stafford and by Robert W. Smith, all of Madison.
For the respondents there was a brief by Stroud, Stebbins Stroud and W. Wade Boardman, guardian ad litem for minors, all of Madison, and oral argument by Mr. Donald R. Stroud, Mr. Ray M. Stroud, and Mr. Boardman.
Action for declaratory judgment to determine whether the property, which passed to the plaintiff, Mrs. John H. Findorff, from her late husband's estate pursuant to her election to take under the law, ever became subject to an irrevocable trust.
John H. Findorff, a prominent Madison contractor, died testate at the age of seventy-nine on October 31, 1948. He was survived by his widow (who will sometimes hereinafter be referred to as Mrs. Findorff); one daughter, Arline Findorff, and one son, Milton Findorff. The gross estate aggregated approximately $572,000.
The will provided that his estate be held in trust to pay his widow the sum of $500 per month for life, and upon her death to be divided equally between Arline and Milton. The widow was also to receive personal effects, the right to occupy the homestead, and sufficient funds to cover necessary expenses connected with illness due to disease or injury. Milton and Arline were to act as trustees, and were entitled to share equally the net income of the trust in excess of the payments required to be made on behalf of their mother. Milton and Arline were coexecutors under their father's will.
Attorney Oscar T. Toebaas was retained as attorney to probate the estate. He came to the conclusion that a large amount of federal estate tax could be saved if Mrs. Findorff would elect to take under the law instead of the will. This was because the widow's interest under the testamentary trust would not qualify for the marital deduction provided in the federal estate-tax statutes. Under date of July 7, 1949, Mr. Toebaas in a letter to Mrs. Findorff outlined the tax saving which he estimated could be achieved if she elected to take a one-third interest in the estate under the intestacy statutes of the state, such estimated saving being $46,408.35. Mr. Toebaas recommended in such letter that Mrs. Findorff elect to take under the law and then place her one-third share of the estate in a trust with Arline and Milton named as trustees. The letter further stated that any provision could be inserted in the trust agreement which Mrs. Findorff wished so that she would "never be in want or out of money." Mr. Toebaas had several conferences with Mrs. Findorff concerning the matter and as to the provisions to be included in the proposed trust agreement. Mrs. Findorff informed him that she desired a monthly income of $1,200 from the trust. Attorney Toebaas also conferred with Arline and Milton who were the remaindermen under the testamentary trust. Pursuant to Milton's request, the proposed trust agreement provided for his three children to take half the remainder interest, which half under the testamentary trust would have gone directly to Milton.
As a result of these conferences, Attorney Toebaas drafted a written election to take under the law for Mrs. Findorff to sign, and a proposed trust agreement whereby she was to place her one-third share of the estate in trust, as recommended in the letter of July 7, 1949. The trust agreement required that Arline and Milton, as trustees, pay $1,200 per month to Mrs. Findorff out of trust income and corpus and "any additional sums . . . as may be needed by her from time to time." Upon her death, the expenses of her last illness and burial, and state inheritance taxes and federal estate taxes due from her estate, were also to be paid, and the residue then distributed to Arline and to Milton's children. The provisions for distribution to the remaindermen were expressly stated to be "irrevocable." At a conference held September 26, 1949, Mrs. Findorff first signed the election to take under the law, and then the trust agreement. Arline and Milton also subscribed the trust agreement. The widow's election to take under the law was not filed with the county court of Dane county until October 1, 1949.
Neither the trust agreement, nor a copy thereof, was filed with the county court. Therefore, when the final decree was entered in the husband's estate on February 21, 1950, Mrs. Findorff's one-third share in the personal property and real estate was assigned directly to her and not in trust to the trustees. On April 22, 1955, Mrs. Findorff, Arline, and Milton executed an amendment to the trust agreement which was not drafted by Mr. Toebaas but by separate counsel employed by Mrs. Findorff. This amendment purported to cancel and rewrite the paragraph of the original agreement providing for distribution of the residue upon the death of Mrs. Findorff. The principal change made was as to the manner of distribution to be made of a one-sixth share for a daughter of Milton. Significantly, the amendment recited that, except as modified by the new paragraph providing distribution to the remaindermen, "said agreement of September 26, 1949, is to continue in full force and effect."
The within action was commenced March 5, 1956. The complaint, in addition to asking for declaratory relief adjudging the trust inoperative, in the alternative prayed that the trust agreement be reformed so as to permit revocation on the part of Mrs. Findorff.
The action was tried to the court without a jury. Judgment was entered July 11, 1957, and among other things decreed:
"1. That the trust defined by the trust agreement of September 26, 1949, was duly put in operation by the parties to the agreement and is a valid and existing trust which is irrevocable, enforceable, and not subject to amendment.
"2. That the instrument dated April 22, 1955, attached to the original complaint herein as `Exhibit B' and purporting to amend the trust agreement of September 26, 1949, is a nullity and of no force or effect."
From such judgment Mrs. Findorff has appealed.
The three principal issues presented on this appeal are:
(1) Was the trust agreement of September 26, 1949, effective to create a presently operative trust, or was it only executory in nature?
(2) Did the trial court commit error in not reforming such trust agreement so as to include a power of revocation in favor of the settlor?
(3) Was it prejudicial error for the court to deny admission in evidence of the adverse examination before trial of Mrs. Findorff who was physically unable to appear and testify at the trial?
The first-listed issue is the crucial one on this appeal. This is because counsel for Mrs. Findorff maintain that the trust was wholly executory in nature, and that the subsequent course of conduct by the settlor and the two trustees conclusively established that the trust was never put into operation. It is further contended that Mrs. Findorff could revoke the trust agreement so long as it continued in its executory character.
The language of the trust instrument completely refutes such contention that the trust was executory in nature. We quote the following paragraph of the agreement, which bore the heading "Transfer of Property in Trust:"
"Mrs. Findorff hereby transfers, conveys, and assigns in trust to said trustees all of her right, title, and interest in the one-third net personal estate and the undivided one-third interest in the real estate of the estate of John H. Findorff, deceased, hereinafter described, except her interest in the lease dated July 1, 1946, wherein J. H. Findorff Son, Inc., is lessee and John H. Findorff and Anna C. Findorff are lessors, all subject to the provisions and terms hereinafter set forth."
However, it is the position of counsel for Mrs. Findorff that there was no res in existence at the time the agreement was executed which could provide the subject matter for a valid trust; and, therefore, the trust was by necessity of an executory character. This argument is grounded upon the fact that an election by a widow to take under the law, and not under the will of her husband, is not effective until filed in the county court. Sec. 233.14, Stats., and Church v. McLaren (1893), 85 Wis. 122, 55 N.W. 152. Mrs. Findorff's election so to take was not filed with the county court, in which her husband's estate was being probated, until five days after the execution of the trust instrument. Nevertheless, Mrs. Findorff at the time of execution of the trust possessed the alternative rights of either taking under the will or under the intestacy statutes. Under either right she had an assignable interest in the property comprising her husband's estate.
She possessed such right to take under the law independently of filing her election so to take, because such filing did not create the right. This is made clear in Ludington v. Patton (1901), 111 Wis. 208, 231, 86 N.W. 571, wherein the court stated that the widow's election statute (now sec. 233.14) "was intended to operate as a statute of limitation, fixing with certainty a time, deemed by legislative wisdom to be reasonable, within which a widow must assert, by an affirmative act as indicated, her intention to take the rights secured to her by law in her husband's estate, or suffer the penalty of their irretrievable loss. Further, it must be admitted that such statute should be given the same force and effect as any other statute of limitations."
The fact, that the exact nature of Mrs. Findorff's interest in the property which comprised her husband's estate, on September 26, 1949, was contingent upon whether she filed the election to take under the law within one year after the date of filing of the petition for probate, is immaterial. Even a contingent interest of this nature may constitute a valid res of a trust. Restatement, 1 Trusts, p. 243, sec. 85. The governing principle of law with respect to this issue is stated in 1 Perry, Trusts and Trustees (7th ed.), p. 52, sec. 68, as follows:
"At common law no possibility, right, title, nor chose in action could be granted or assigned to strangers. But in equity the rule is different, and choses in action, expectancies, contingent interests, and even possibilities may be assigned, and a valid trust created in them. Equitable reversionary interests stand upon the same ground. Property not owned by the assignor at the time, and not even in esse, may be assigned in equity, and a valid trust may be created in a naked power or authority."
Inasmuch as at the time of the execution of the trust instrument a present assignable interest existed which was placed in trust, it is also immaterial that further acts upon the part of the settlor might be required in order to vest legal title in the trustees to the assets to be thereafter assigned to her by the final decree to be entered in her husband's estate. The trust instrument contained this further provision:
"At the request of the trustees, Mrs. Findorff agrees to sign and deliver any assignment, bill of sale, lease, mortgage, deed, or any other document as to the one-third net personal estate and the one-third interest in the real estate of John H. Findorff, deceased, which properties are to become the corpus of this trust, wherever the execution of any such instrument is necessary to do so."
The trust instrument imposed certain positive duties upon the trustees which they undertook to perform. The covenant upon the part of the trustees to so perform these duties provided a sufficient legal consideration for the above-quoted promise of the settlor to execute further needed documents of transfer and conveyance. Colburn v. Hodgdon (1922), 241 Mass. 183, 135 N.E. 107.
Much evidence was introduced at the trial in behalf of Mrs. Findorff to show that she and the trustees dealt with trust assets, as if the trust had never become operative and that such assets were her individual property. For example, her interest in the real estate was assigned to her individually by the final decree, and she conveyed away the same by deeds executed by her and not the trustees. Likewise, securities received by her from the estate were permitted to be registered in her name although the trustees had possession thereof. We deem all of this evidence to be wholly immaterial. While the practical construction placed upon an ambiguous provision of a contract or trust by the parties thereto through their acts is entitled to great weight, the parties by their acts cannot abrogate or nullify a validly existing trust contrary to its express terms.
It is, therefore, the determination of this court that a valid existing trust came into operation on September 26, 1949. Unless the trust instrument be reformed to reserve a power of revocation, such trust is irrevocable because no right to revoke was expressly reserved. Restatement, 2 Trusts, p. 984, sec. 330.
We turn now to the issue of whether it was error for the trial court to refuse to reform the trust instrument so as to reserve a power of revocation in the settlor. The trial court, in its findings of fact, expressly found that the trust agreement "embodies the intention and agreement of the parties to the instrument when they signed the same and it was their intention that it be effective to create the trust defined by the agreement."
Counsel for Mrs. Findorff contend that the trust agreement should be reformed to permit revocation by her, because her confidential advisers failed to inform her prior to the execution of the trust agreement that she could set up a revocable trust as well as an irrevocable one. Such advisers were Attorney Toebaas, the son, and daughter. It is true that Mr. Toebaas was acting in the capacity of attorney for Mrs. Findorff as well as for the executors of the estate. However, Mrs. Findorff expressed reluctance to upset her husband's will by electing to take under the law, and told Mr. Toebaas, "Well, this is Daddy's will." Under her husband's will she had no power to change the terms of the testamentary trust set up for her benefit. Therefore, the creation of an irrevocable inter vivos trust was more in keeping with the terms of the will than would have been a revocable one. All of the terms of the trust agreement were thoroughly explained by Mr. Toebaas to Mrs. Findorff before it was executed. Furthermore, he had previously told her that she had the right to make an election to take under the law without entering into a trust agreement.
The grounds for reforming a contract are mutual mistake, or a mistake on one side and fraud on the other. Langer v. Stegerwald Lumber Co. (1952), 262 Wis. 383, 391a, 55 N.W.2d 389, 56 N.W.2d 512. However, in a case for reformation of a trust agreement because of mistake on the part of the settlor in failing to include a power of revocation, such unilateral mistake may be sufficient to entitle the settlor to reformation. Restatement, 2 Trusts, p. 1003, sec. 332. To prevail on the ground of mistake it is not enough to show that the settlor did not consider the question of a power of revocation. Ibid., p. 1004, comment 1 b. No misrepresentations are claimed to have been made to Mrs. Findorff. Therefore, in order for her to be entitled to the reformation prayed for, it would be incumbent upon her to establish fraudulent concealment on the part of her attorney, son, and daughter. The evidence will not support such a finding.
Mrs. Findorff's advanced age and physical condition were such that her physician advised her not to attend the trial after the first morning thereof, which advice she followed. She was, therefore, unavailable to testify in her own behalf. However, there was no showing that Mrs. Findorff was so ill that her deposition could not be taken, or that it was not feasible to hold an adjourned session of court at her bedside. During the course of the trial her counsel offered in evidence the deposition of her adverse examination taken before trial. The trial court sustained an objection to the admissibility thereof. Such ruling was based upon the ground that sub. (5) of sec. 326.12, Stats., only purports to authorize the admission of a deposition of an adverse examination by the party who took the examination, and because sec. 325.31 did not apply to the situation.
Sub. (5) of sec. 326.12 reads: "Such portions of any such deposition as are relevant to the issues may be offered by the party taking the same, and shall be received when so offered upon the trial of action or proceeding in which it is taken, notwithstanding the deponent may be present."
Sec. 325.31 provides: "The testimony of a deceased witness, or a witness absent from the state, taken in any action or proceeding (except in a default action or proceeding where service of process was obtained by publication), shall be admissible in evidence in any retrial, or in any other action or proceeding where the party against whom it is offered shall have had an opportunity to cross-examine said witness, and where the issue upon which it is offered is substantially the same as the one upon which it was taken."
Counsel for Mrs. Findorff do not question the inadmissibility of the offered deposition under sub. (5) of sec. 326.12 and sec. 325.31, Stats. However, they urge that the trial court had inherent power to admit the same, and cite the authorities listed at pages 316, 317 of Markowitz v. Milwaukee E. R. L. Co. (1939), 230 Wis. 312, 284 N.W. 31. Even if the court possessed the inherent power to admit prior testimony of a physically incapacitated person given in the same lawsuit, we doubt if it ever would be proper to offer an entire adverse examination of such party, because parts might be incompetent or irrelevant. Furthermore, it was incumbent upon counsel to make an offer of proof as to the rejected testimony as a condition precedent to this court passing on this alleged erroneous ruling on evidence. Plainse v. Engle (1952), 262 Wis. 506, 56 N.W.2d 89, 57 N.W.2d 586; and Langer v. Chicago, M., St. P. P. R. Co. (1936), 220 Wis. 571, 580, 265 N.W. 851. This is because without such offer of proof this court cannot determine whether the exclusion of the offered evidence was prejudicial, even though such ruling may have been erroneous.
Because no proper offer of proof was made we do not deem it advisable to pass upon the issue of the inherent power of the court to have admitted part or all of the offered adverse examination.
By the Court. — Judgment affirmed.
WINGERT, J., took no part.