Opinion
No. 5-629 / 04-1117
Filed January 19, 2006
Appeal to the Iowa District Court for Carroll County, David R. Danilson, Judge.
Sharon Steffes appeals the district court decision ordering her to return certain property to plaintiffs because it had been held in a constructive trust. On cross-appeal, plaintiffs claim they are entitled to additional assets. REVERSED ON THE APPEAL, AFFIRMED ON THE CROSS-APPEAL, AND DISMISSED.
Patricia M. Hulting of Terrill, Martens, Hulting Stockdale, Ames, for appellant.
Michael R. Mundt of Mundt, Franck Schumacher, Denison, for appellee trust.
Jeffrey R. Minnich of Neu, Minnich, Comito Neu, P.C., Carroll, for individual appellees.
Heard by Sackett, C.J., and Mahan and Hecht, JJ.
Defendant Sharon Steffes, a divorced farm wife, appeals following a favorable verdict for Leona Frazier, Diana Fischer and Blane Steffes, three of the siblings of Sharon's former husband, Alden. They sued Sharon contending that Alden and Sharon, during their twenty-five year marriage, were farming under an oral constructive trust created by their parents, decedents Frank and Cordellia Steffes, for plaintiffs' benefit. They claim that certain assets and two Carroll County, Iowa farms, referred to as the North Place and the Nockels Place that Sharon received in the 1997 decree dissolving her marriage from Alden were held in trust and should be conveyed to plaintiff Lance Levis as Trustee of the Cordellia Steffes Trust. The district court, after hearing the evidence, found for plaintiffs and ordered Sharon to convey to the trust the two farms and certain proceeds and rents therefore.
Sharon has appealed challenging the rulings on a number of grounds. The plaintiffs have cross-appealed contending Sharon should have been ordered to turn over additional funds to them. We reverse on appeal, affirm on cross-appeal and dismiss.
SCOPE OF REVIEW.
This case was tried in equity in the district court, and consequently our review is de novo. Iowa R. App. P. 6.4. We give weight to the district court's factual findings; however, we are not bound by them. Iowa R. App. P. 6.14(6)( g); Jackson v. Schrader, 676 N.W.2d 599, 603 (Iowa 2003); In re Receivership of Mt. Pleasant Bank Trust Co., 526 N.W.2d 549, 553 (Iowa 1995).
The resolution of this case can only be decided by reviewing the testimony and the many pages of exhibits that provided some insight into the financial dealings of Sharon with her former husband and his parents over twenty-five years. While the testimony and exhibits present some insight to these dealings, they do not answer all questions. And our task is rendered even more difficult by the fact that both Frank and Cordellia are dead, Alden has disappeared, the plaintiffs had nothing to do with the farming operation, and Sharon, according to the testimony of the lawyer who represented her during the course of her difficult dissolution, testified she knew little of the family dealings. That said, from our review we find the following facts.
The roots of this case go back to June of 1972. Sharon, then twenty years old, was engaged to marry Alden, and the wedding date was set for the June 24. Alden, the youngest child of Frank and Cordellia Steffes, had been working for several years with Frank farming central Iowa farmland owned by Frank and Cordellia. Frank had two children from an earlier marriage, a son, Elmer Steffes, and a daughter, Mildred. Cordellia had a son from a previous marriage, James Daniel. The children all assisted on the farm while living at home, but other than Alden had nothing to do with the farming operation during the twenty-five years Sharon and Alden were married.
In establishing that Alden and Sharon held the property in trust, the district court relied heavily on testimony of Frank and Cordellia's daughters, Leona and Diana that a short time before Sharon and Alden's wedding there was a family conference in which Frank set the perimeters for the trust. The women, who at the time were married and lived in the Carroll County area, said they had come to their parents' home with their children and were in their parents' kitchen where Cordellia was making potato salad, when Frank asked his daughters to sit at the kitchen table. Alden and Sharon joined the group at the table. According to Diana and Leona, Frank said he was getting older and wanted to plan ahead. He wanted Alden to take over the farm operation and keep the Steffes money in the Steffes family. The women said that Sharon said she did not care about the Steffes money, and either at Frank or Cordellia's request, Frank wrote something on a notepad from Production Credit Association (PCA) and Sharon signed it. The alleged writing was never produced.
According to Diana, Frank said he was having Alden take over the land and monies he had and after he died it was to be divided among Cordellia and his children. Diana testified she did not know what he meant by that for sure, how much money, but she thought of the money he had in his PCA account or extra money. Diana also testified Frank said he wanted Alden to get the 183-acre North farm some day. The only testimony as to Cordellia's participation was Leona's testimony that her mother said, after hearing Sharon's remark she did not want the Steffes money, to write it down. The daughters said they remembered the event because their father never talked to them about these things.
Sharon denied the conversation, which the district court found transpired. Other than the paper allegedly signed by Sharon, which was not produced, there is no claim that there is further written documentation of the claimed agreement written prior to the time Sharon filed for dissolution of her marriage from Alden. The numerous written documents, including financial statements of decedents, deeds transferring land, tax returns, and other things introduced at trial, contain no mention of a trust or an agreement as defined by Leona and Diane until September of 1997 when Alden and Sharon's dissolution came on for trial.
Cordellia wrote some letters referencing the alleged agreement after Sharon filed for dissolution. Alden also wrote some letters and signed an affidavit following the dissolution which referenced the alleged agreement. Both Cordellia and Alden's writings contradicted their earlier positions and will be discussed later.
That was when Blane Steffes, after consultation with attorney Robert Korhorst, filed a petition of intervention in Alden and Sharon's pending dissolution. Blane contended that much of the property claimed to be owned by Sharon and Alden was at best a gift to Alden and at worst the result of an unduly influenced transfer to Alden. The petition to intervene was denied. The dissolution was settled and the district court approved the decree, which resulted in Sharon receiving the two farms and other assets totaling about forty percent of the approximate four million dollars determined to be the parties' net worth. Alden received about sixty percent of these assets.
Other than Blane's petition there was nothing that indicated Alden's siblings made any oral comments or written communications to Sharon about the alleged trust during her marriage to Alden, nor did they during the marriage ask her about the farm operation, offer to assist in it, or ask her for an accounting. After the dissolution, however, claims began to surface that before Alden and Sharon's marriage it was orally agreed that, at the time of the last of Frank and Cordellia to die, all farm land and assets Alden and Sharon held would be divided four ways between Alden, Leona, Diana and Blane.
Blane did, after Frank's death, inquire of attorney Bruner about Cordellia's affairs and Bruner wrote a letter only to Blane suggesting he request an accounting.
On September 1, 1998, Robert Korhorst, the attorney Blane had consulted earlier, brought a suit for Cordellia, who at the time was still living in Audubon County, Iowa, seeking title to farm real estate Alden held that had been allocated to him in the dissolution and that Alden had transferred a month earlier to M Life Foundation of which he was trustee. Alden appeared and had legal counsel representing him in the suit. He was not present at trial but gave to attorney Kohorst two affidavits which were filed and from which the district court found Alden acknowledged all property deeded to him by Frank and/or Cordellia Steffes was deeded to him in trust and the deeds were not absolute on their face. The district court held it had no choice but to find clear and convincing evidence that the transfers to Alden by Frank and/or Cordellia were in trust and that land allocated to Alden located in both Audubon and Carroll County and awarded to him in the dissolution were transfers by Frank and Cordellia to an implied, resulting, or constructive trust.
Other litigation sought to set aside transfers of the land Alden made after the dissolution. Transfers were held null and void on January 17, 2002. Alden was ordered to cease to act as trustee and Levis was appointed successor trustee. On November 3, 2003, a default judgment was entered against Alden in a suit filed by Alden's half-brother James Daniel, wherein the court held that by virtue of Alden's failure to hold the assets of Cordellia in trust, he was forever barred and estopped from any claim to any real property or assets of Cordellia Steffes, the Cordellia Steffes trust, or any assets discovered in the future. Sharon was not named as a party and did not appear in any of these suits.
The suit that led to this appeal was commenced by attorney Kohorst on September 26, 2002, asking that title to the two farms allocated to Sharon in the dissolution be titled in the name of the trust and that judgment be entered against Sharon for farm rents she received from the farms for the years 1998 through 2002. Kohorst subsequently determined he needed to be a witness in this case and withdrew. The trustee hired new counsel.
A claim that a mortgage on the farms be declared null and void was later dropped and is not an issue on appeal.
Following a trial, the district court concluded the land should be transferred to a trust as there was a 1972 oral agreement whereby it was agreed that Frank and Cordellia would transfer assets to Alden for the benefit of his three siblings, who are the plaintiffs. The court further found a confidential relationship existed between Alden and Sharon and Frank and Cordellia and that Sharon held the real estate in a constructive trust created by Frank and Cordellia both, then deceased, for the benefit of Alden's siblings Leona, Diana and Blane. The court found the oral trust could be enforced because Sharon obtained the property in violation of a confidential relationship, and certain conveyances made by Frank were in contemplation of his death. The court found Sharon's conduct constituted bad faith, abuse of confidence, unconscionable conduct, or at least questionable conduct. The court then reasoned a constructive trust should be imposed to avoid unjust enrichment and imposed a constructive trust on the two Carroll county farms. It ordered the two farms be titled in Lance Levis, Trustee, and ordered Sharon to repay rent she had collected on the property and to pay Blane money he paid to purchase a portion of one of the two farms. Sharon challenges these findings and conclusions and contends the district court failed to apply the correct law.
THIS COURT'S FINDINGS.
We on our de novo review agree with Sharon on some of her challenges to the district court's factual findings and make our own additional findings before we address her other claimed error.
After their marriage, Alden and Sharon moved into a house on Frank and Cordellia's farm, and Alden continued farming with his father, who then was sixty-two years of age. Frank, who according to all testimony, ruled the family and made all important decisions, had acquired certain farmland and had other assets. A financial statement filed with PCA for lending purposes showed Frank and Cordellia's net worth in April of 1972 to be $169,253.22.
Frank was pleased that Alden elected to stay on the farm and assist him with farming. Blane, who left home at a young age and wanted nothing to do with the farming operation, had disappointed Frank, who besides being strong-willed and demanding, disliked lawyers and hated paying taxes.
Alden and Sharon entered their marriage with few assets. However, on June 14, 1972, just prior to their marriage, Frank and Cordellia sold the property referred to as the North Place to Alden for $72,000 with a $12,000 down payment and payments of $1,000 a year plus interest with a balloon payment of $46,000 due in 1987. On February 13, 1981 Frank and Cordellia signed a warranty deed conveying the farm to Alden and Sharon as tenants in common, and in deeding the farm obligated themselves to pay the existing mortgage. This was the farm Diana testified Frank told her he wanted Alden to have.
In March of 1978 Alden and Sharon purchased on contract the 160-acre Nockels farm Sharon received in the dissolution. In January of 1989 a warranty deed was given from the owners of the property to Alden alone.
In 1978 Alden and Sharon purchased 191 acres for $151,000. On March 2, 1982 Frank and Cordellia recorded a deed conveying 115 acres to Alden and Sharon. These two farms went to Alden in the dissolution settlement. On March 17, 1982 Frank and Cordellia a signed financial statement filed with PCA showing their net worth at $789,617.
Frank died on April 9, 1982. Attorney Barry Bruner probated Frank's estate. Frank's will, dated March 19, 1956, made specific bequests of $3,500 to Elmer and Mildred, his children from his earlier marriage, and left the balance of his estate to Cordellia. She was named executor and so served.
Frank's probate inventory showed a net taxable estate of $356,604.00, mostly in land subject to a substantial mortgage. Two checking accounts of less than $100, a $1,000 certificate of deposit, and an old car held in joint tenancy with Cordellia comprised the balance of his estate. Cordellia had to borrow to pay the specific bequests and estate and inheritance taxes. Frank's probate inventory made no reference to any interests held for Frank in trust and stated that Frank had not tendered any property by deed, grant, sale, gift, or transfer or any other nature in contemplation of death. Bruner testified there was no mention made by the family of any type of trust or family agreement when he probated Frank's estate.
After Frank's death Alden helped Cordellia with her business and farmed land that she owned.
Alden was close to his parents and he and his father carried on the farm business, but Frank was the dominate person in the relationship. Sharon worked for four years as a licensed LPN and then stayed on the farm to care for the four children born to the marriage between 1977 and 1992. She helped at times with farm chores and ran errands. There is no specific evidence Sharon was involved in other ways with farm business other than signing financial statements for loans, signing loan documents, and at times paying farm bills at Alden's direction. James Van Dyke, the attorney who represented her throughout the dissolution, testified Sharon did not know much about Alden's financial status and affairs and she was largely on the outside when it came to Alden's financial matters. Richard Heisterkamp, who prepared income tax returns for Alden and Sharon and Cordellia, testified it was nearly always Alden who came to his office with the tax information for him and Sharon, and it was Alden, not Sharon, who brought Cordellia's information to his office after Frank died.
There is little evidence Sharon was involved with Cordellia's business. Plaintiffs rely heavily on evidence of Sharon's handwriting on a promissory note for $13,000 Cordellia made payable to one of Frank and Cordellia's daughters, and the fact that Cordellia left some signed checks with Alden, but little else suggests Sharon was involved in Cordellia's business affairs.
Alden, on the other hand, assisted his mother with the farm business, and while it is clear Cordellia had little experience in the operation of the farm business, the only testimony was that she was competent at all times leading to her death. This testimony came from plaintiffs and from attorney Bruner who prepared deeds at Cordellia's direction and drew a will for her. He also testified that Cordellia generally came in his office alone. Attorney Kohorst, who represented Cordellia in her lawsuit against Alden and who drew a will for Cordellia after Alden and Sharon were divorced, also testified he found Cordellia competent in his dealings with her.
Cordellia executed a number of deeds transferring property only to Alden from 1984 to 1987. In 1984 she deeded to Alden the Home Place of 160 acres, in 1987 she deeded to Alden the East Place of 180 acres, and in July of 1987 Cordellia deeded Alden three houses. She reserved a life estate in her Carroll homestead which she extinguished in 1996. These properties went to Alden in the dissolution, where he claimed they were gifts. There was no evidence as to the value of those farms or the amount of indebtedness thereon at the time of the transfer. Consequently, we cannot assume, as plaintiffs argue, that the decrease in Cordellia's net worth was the result of transferring land to Alden because the heavily mortgaged land could have declined in value after Frank's death. Also, his estate owed a sizeable amount of federal estate tax.
The inventory showed 330 acres of land valued at $1,800 an acre for a total value of $594,000 subject to a mortgage of $234,353.33. A decrease in land values common in the mid-1980s could have substantially decreased her net worth. No evidence was introduced as to land values at the time following Frank's death, consequently we cannot assume why her property value decreased.
On November 30, 1995, Bruner witnessed a will he drew and Cordellia executed. After providing for Masses for the repose of her soul and the soul of Frank, Cordellia stated that over the years she had disposed of interests in farm and town properties to pay daily expenses; to ease the worries of the large debt she and Frank accumulated on the farm property; to make advances to their son Elmer who had farm debt problems; to make advances to their son James who had houses, debt problems and living expenses; and to their son Blane to purchase a business in Willey, Iowa. She noted Alden had been able to keep the farm properties in the family name for many years and she hoped he could continue to do so. She devised the residue of her estate to persons she referred to as her children: James, Diane, Elmer, Mildred, Leona, Blane, Diana, and Alden in equal and undivided shares. She further provided that if any beneficiary contested the will or filed any legal action concerning her estate that his or her share should lapse and pass equally to her other children.
The amount of these gifts is not in the record.
Apparently it was not long after Cordellia's will was drawn that Alden began experiencing mental problems. Sharon contended he was bipolar and gay, and did not want to remain in a Catholic marriage. On March 27, 1997, Sharon filed a petition for dissolution of her marriage to Alden. Sharon was represented by attorney Van Dyke, and Alden was represented by a series of attorneys. There was substantial discovery and it was determined Alden and Sharon had about four million dollars in assets all but $250,000 of which Alden claimed were gifted to him by his parents, and which he claimed in deposition should be his so he could hold them and give them to his children.
An exhibit detailing the alleged gifts was prepared and presented to the dissolution court. Alden claimed Frank gave him $42,662.21 during the first ten years of Alden's marriage up and until the month before Frank died, and then Cordellia gave him an additional $261,671.77 after Frank's death. The exhibit was again introduced at this trial and Sharon's counsel noted it was received in the dissolution court but said it was accepted "more just informal for the court."
Obviously Alden's purpose in presenting the exhibit was self-serving as he was attempting to show that substantial property should be set aside to him as gifts in the dissolution.
In this trial, Sharon's counsel objected that the exhibit should not have full probative weight and they would agree to admit it on that basis. Attorney VanDyke, who testified at this trial, said the exhibit did not receive much consideration in dissolution negotiations and adverse counsel did not argue very seriously Alden's claim that $4,300,000 had come to the couple as gifts from Frank and Cordellia. VanDyke further testified the exhibit showed payments to Alden that actually went to PCA. The exhibit supports the plaintiffs' position that Frank and Cordellia made substantial transfers to Alden. It does not support plaintiffs' theory substantial transfers were made to Sharon. It is evidence that Alden at that time viewed the transfers as gifts and not as being made in trust. We determine the exhibit has little probative value. The dissolution court did not rule on the weight, if any, to be given to the exhibit. Furthermore, despite Alden's position Sharon was entitled to little property on September 27, 1997, he ultimately agreed to a stipulation approved by the court in dissolving the marriage that resulted in Sharon's receiving about forty percent of the parties' net worth.
Plaintiffs further sought to support their claim that what Alden and Sharon accumulated came from Alden's parents by introducing copies of income tax returns filed by Alden and Sharon during the course of their marriage and filing a summary of the tax returns showing that from 1972 to 1976, Alden and Sharon had a negative adjusted gross income of $567,241. From these figures the district court determined they had large losses from 1972 to 1987. We agree they had losses during that period; however the district court substantially overstated them. In computing the loss the district court added the adjusted gross income shown on the exhibit for the parties for those years. However, in computing their income in that manner the district court used the net operating losses at least twice. The net operating losses were counted as losses in the years they were accrued and then as the losses were carried forward, they were counted as losses again in the year years they were carried to both in offsetting other income and in the excess not necessary to offset other income as an additional loss. While this may be proper accounting practices, it fails to consider the substantial incomes earned by the couple on the farm schedule in carry forward years.
We also recognize the tax returns do not tell the entire story. Alden and Sharon were heavily into real estate, and as real estate increased or decreased in value their net worth decreased or increased. Any increase in their net worth as a result of appreciation in land values would have only been taxable income if the land was sold. Alden and Sharon acquired land; they did not sell land. Yet the increase in Alden and Sharon's net worth increased their borrowing power. Therefore, while it is evident that concessions and gifts or transfers, whatever they be called, helped to increase Sharon and Alden's net worth, on this record without additional information it is not possible to determine to what extent. Also the increase in their net worth came not only from concessions, gifts, or transfers, but also from good management and frugal living.
ANALYLSIS.
With these facts in mind we address Sharon's contention the evidence does not support a finding of a constructive trust. A constructive trust is a remedy, applied for purposes of restitution, to prevent unjust enrichment. It is an equitable doctrine. Slocum v. Hammond, 346 N.W.2d 485, 493 (Iowa 1984). In Loschen v. Clark, 256 Iowa 413, 419, 127 N.W.2d 600, 603 (1964), the Iowa Supreme Court approved the following definition:
A constructive trust is a creature of equity, defined . . . as a remedial device by which the holder of legal title is held to be a trustee for the benefit of another who in good conscience is entitled to the beneficial interest. So, the doctrine of constructive trust is an instrument of equity for the maintenance of justice, good faith, and good conscience, resting on a sound public policy requiring that the law should not become the instrument of designing persons to be used for the purpose of fraud.
The constructive trust remedy may be imposed where a defendant has profited inequitably at the expense of a plaintiff. Neimann v. Butterfield, 551 N.W.2d 652, 654 (Iowa Ct.App. 1996); In re Estate of Farrell, 461 N.W.2d 360, 361 (Iowa Ct.App. 1990). Yet if mere wishes or expectations of a party may provide the basis for an unjust enrichment claim, the potential for using constructive trusts would be virtually unlimited. See In re Estate of Peck, 497 N.W.2d 889, 890 (Iowa 1993).
Constructive trusts fall into three categories: (1) those arising from actual fraud; (2) those arising from constructive fraud (appropriation of property by fiduciaries or others in confidential relationships); and (3) those based on equitable principles other than fraud. Id.; Slocum, 346 N.W.2d at 493; Loschen, 256 Iowa at 419-20, 127 N.W.2d at 603.
One seeking the remedy must establish the right by clear, convincing, and satisfactory evidence. Slocum, 346 N.W.2d at 493; Copeland v. Voge, 237 Iowa 102, 107, 20 N.W.2d 2, 5 (1945). The distinguishing feature of the constructive trust is that it arises by construction of the court, and ordinarily the result is reached regardless of and contrary to any intention to create a trust. Slocum, 346 N.W.2d at 493; Westcott v. Westcott, 259 N.W.2d 545, 547 (Iowa Ct.App. 1977).
Where as here there is a claim that the owner of an interest in land transfers it inter vivos to another in trust for a third person, but there is no memorandum properly evidencing the intention to create a trust signed . . . and the transferee refuses to perform the trust, the transferee holds the interest upon a constructive trust for the third person, if, but only if, (a) the transferee by fraud, duress or undue influence prevented the transferor from creating an enforceable interest in the third person, or (b) the transferee at the time of the transfer was in a confidential relation to the transferor, or (c) the transfer was made by the transferor in anticipation of death.
Orud v. Groth, 652 N.W.2d 447, 452 (Iowa 2002).
In order to be binding, an agreement must be definite and certain as to its terms to enable the court to give it an exact meaning. Palmer v. Albert, 310 N.W.2d 169, 172 (Iowa 1981). Although vagueness, indefiniteness and uncertainty are matters of degree, their existence as to any of the essential terms of an agreement is adequate reason for refusal to direct specific performance. Davis v. Davis, 261 Iowa 992, 1002, 156 N.W.2d 870, 877 (1968).
In finding there was a trust, the district court reasoned its existence was shown by Diana and Leona's testimony, statements and affidavits made by Alden following the dissolution, and the will executed by Cordellia on April 7, after Alden and Sharon's dissolution.
Diana was unsure what Frank meant by his statements in June of 1972. She thought the North farm was to be given to Alden. The statement Leona and Diana said Frank made was to keep Steffes money in the family. It is unclear if that meant only money or property the Steffes had at that time. There was no reference to future acquisitions. The testimony of Diana and Leona standing alone would not be sufficient to prove Sharon made a definite and binding agreement in the Steffes kitchen before her wedding in June of 1972.
The finding of the district court was in essence that Sharon agreed to waive rights she may acquire in her marriage. Consistent with principles of waiver, the Iowa court has always required a full disclosure or independent knowledge of the nature and extent of the parties' assets to ensure the agreement was fairly procured. In re Marriage of Spiegel, 533 N.W.2d 309, 315 (Iowa 1996). The court refused to find a wife who signed a prenuptial agreement a week before her wedding without the benefit of counsel, had knowingly and voluntarily waived her rights to a share of property accumulated during the marriage. See In re Marriage of Gonzalez, 561 N.W.2d 94, 97 (Iowa Ct.App. 1997).
The testimony of Cordellia as to the agreement came in through copies of letters she wrote after Alden and Sharon's dissolution, which statements are in accord with provisions of the will drawn by attorney Korhorst for Cordellia after Alden's dissolution providing for Masses for the repose of her soul and the soul of Frank and stating that property was transferred to Alden by herself and Frank without consideration and she considered Alden and Sharon Steffes were merely fiduciaries. She said it was the intent of Frank and herself that the property would be divided equally between the four children she and Frank had together, namely Diana, Alden, Leona and Blane. She stated she made no provision for Frank's children from a prior marriage because they had inherited from their father. Unlike her prior will, it made no provision for her son James nor did she give a reason for omitting him as she had done for her step-children. Also, as discussed earlier affidavits of Alden filed after the dissolution supported the trust.
The question of whether Cordellia was competent and not unduly influenced to execute the will is not an issue; however, the total omission of any reference to James, her biological son who inherited in an earlier will is puzzling when she made specific reference to the reason not making bequests to her stepchildren.
The affidavits of Alden and the second will of Cordellia are impeached by earlier deposition testimony of both. Additionally the statements in Cordellia's second will were contrary to statements made in her earlier will. That said we need not decide if this is clear and convincing evidence supporting a trust, because in order for there to be a trust there must not only be clear, convincing, and satisfactory evidence of its terms, but because this alleged trust involves inter vivos transfers of land allegedly in trust for third persons and there is no signed memorandum evidencing the intention to create a trust as required by the statue of frauds, other proofs must be made by clear and convincing evidence. See Orud, 652 N.W.2d at 452.
Where, as the plaintiffs claim here, Frank and/or Cordellia transferred interests in land inter vivos to Sharon and Alden in trust and there is no signed memorandum evidencing their intention to create a trust as is required by the statute of frauds, for the court to find that Alden and Sharon held the land in the claimed constructive trust, it must find that either (a) Alden and Sharon by fraud, duress, or undue influence prevented Frank and/or Cordellia from creating an enforceable interest in Alden's siblings, or (b) Alden and Sharon were in a confidential relationship to Frank and/or Cordellia at the time of the transfer, or (c) Frank and/or Cordellia made the transfers in anticipation of death. See Orud, 652 N.W.2d at 452 (quoting Restatement (Second) of Trust § 45, at 118 (1959)).
The district court found (1) Frank made a transfer in anticipation of death, and (2) Sharon and Alden were in a confidential relationship with both Frank and Cordellia. Sharon challenges these findings.
"The statute [of frauds] exists for the prevention of fraud and perjury; and the means that it adopts is to refuse enforcement unless the contract is evidenced by a signed document." Peterson v. Petersen, 355 N.W.2d 26, 28 (Iowa 1984). When a plaintiff is asking enforcement without having such a document, there is always the possibility that he is attempting to effectuate the very kind of fraud the statute was passed to frustrate. Id. Therefore, before decreeing enforcement, in disregard of the statutory prohibition, the court must be thoroughly convinced that the oral contract was in fact made as alleged. Id. This explains the various protecting limitations of the part performance doctrine. Id. at 29. One of these, and the most important and effective of all of them, is that specific enforcement will not be decreed unless the oral contract is proved to the entire satisfaction of the court. Id.
A gift causa mortis or in contemplation of death is defined as a gift of personal property made by one in expectation of death then imminent, upon condition that the property shall belong fully to the donee if the donor dies as anticipated, leaving the donee surviving him, and the gift is not in the meantime revoked. Carlson v. Bankers Trust Co., 242 Iowa 1207, 1215, 50 N.W.2d 1, 6, (1951). There cannot be such a gift unless (1) it is with a view to the donor's death, (2) it is conditioned to take effect only on the donor's death from his existing disorder or illness, and (3) there be a delivery of the subject of the gift. Id. No writing or consideration is necessary. Id.
Black's Law Dictionary 696 (7th ed. 1999) defines "gift causa mortis," as follows:
A gift made in contemplation of the donor's imminent death. The three essentials are that (1) the gift must be made with a view to the donor's present illness or peril, (2) the donor must actually die from that illness or peril, without ever recovering, and (3) there must be delivery.
There must be an apprehension of death from some existing disease or impending peril. . . . It is not necessary, however, that the gift be made while the donor is in extremis or moved by apprehension of immediate death when there is no time or opportunity to make a will, or that he be confined to his bed or his room.
Gray v. Watters, 243 Iowa 430, 437, 51 N.W.2d 885, 889 (1952) (citation omitted).
In discussing Restatement (Second) section 45(1)(c), the Missouri Court of Appeals discussed a situation where the transferor, who was in ill health, died two years after transferring property to plaintiffs. Crane v. Centerre Bank, 691 S.W.2d 423, 429 (Mo.Ct.App. 1985). The court found the transfer was not made in anticipation of death and said:
Darius continued to live for two years after the transfer. The evidence does not show he was in his last illness, expecting to die at any moment. It was not until two months before his death that his children believed he should move to town. Plaintiffs have failed to meet their heavy burden.
Id. at 430.
There was no evidence to show Frank was in his last illness or was expecting to die at any moment when he transferred property to Alden and Sharon. There was "no more `contemplation of death' . . . than there is such contemplation by any person of advanced years." Id. (quoting Jones v. Gachot, 230 S.W. 2d 937, 938 (Ark. 1960)). We reverse this finding of the district court. There is not clear and convincing evidence that the transfers made by Frank were in contemplation of death. We reverse the district court on this issue.
Sharon further contends she never had a confidential relationship with either of her former in-laws. To prove undue influence, one must show
such persuasion as results in overpowering the will of the [grantor] or prevents him from acting intelligently, understandingly, and voluntarily — such influence as destroys the free agency of the grantor and substitutes the will of another person for his own.
Mendenhall v. Judy, 671 N.W.2d 452, 454 (Iowa 2003); see Leonard v. Leonard, 234 Iowa 421, 429, 12 N.W.2d 899, 903 (1944). Undue influence must be present at the very time the transfer is made. Arndt v. Lapel, 214 Iowa 594, 603, 243 N.W. 605, 609 (1932). Proof of undue influence must be by evidence that is clear, convincing, and satisfactory. Else v. Fremont Methodist Church, 247 Iowa 127, 139, 73 N.W.2d 50, 57 (1955). Evidence is clear, convincing, and satisfactory when there is no serious or substantial uncertainty about the conclusion to be drawn from it. Raim v. Stancel, 339 N.W.2d 621, 624 (Iowa Ct.App. 1983). Direct proof of undue influence is not required. In fact, undue influence may be and usually is proven by circumstantial evidence. Estate of Cory v. Ankeny State Bank, 169 N.W.2d 837, 842 (Iowa 1969).
Four elements are necessary to establish undue influence:
(1) The [grantor] must be susceptible to undue influence, (2) opportunity [on the part of the grantee] to exercise such influence and effect the wrongful purpose must exist, (3) a disposition [on the part of the grantee] to influence unduly for the purpose of procuring an improper favor must be present, and (4) the result must clearly appear to be the effect of undue influence.
Estate of Herm v. Henderson, 284 N.W.2d 191, 200-01 (Iowa 1979). Weakened mental condition of the grantor, relationship of the grantor and the grantee, inequality of distribution, and activity of the grantee are all factors that bear on the question of undue influence. Wilson v. Wilson, 240 Iowa 26, 33, 34 N.W.2d 911, 915 (1948).
The district court found, and all the witnesses who knew Frank agreed, that he ran the show. He was not one to be intimidated and he decided what needed to be done. There was not evidence he was susceptible to influence. The district court recognized that and specifically found, "Frank ruled this family [referring to his wife and children] and made all important decisions." The district court reasoned, however, that a confidential relationship existed because Alden and Sharon held property in trust. We disagree with this conclusion.
To prove the trust where there is a lack of written documentation, there first must be proof of a confidential relationship or other reasons as set out in Orud, 652 N.W. 2d at 452, for enforcing it where there is no written documentation. Therefore, until the trust is proven it cannot be the basis for a finding there was a confidential relationship. See id. There is scant or no evidence that Alden or Sharon were the dominant influence in a confidential relation with Frank or Cordellia prior to Frank's death. Frank was the dominant person, therefore, we consider any transfers of property or money during that period by Frank and Cordellia as gifts. We reverse the district court's finding to the contrary.
Unlike the district court we find little evidence that Sharon was involved in the farm business or the business of either Frank or Cordellia. In arriving at this conclusion, as we discussed earlier, we give weight to and consider with other evidence the testimony of attorney Van Dyke, who worked with Sharon for some months in putting together a list of assets and liabilities of Sharon and Alden, that Sharon knew little about Alden's business. We consider also that Alden claimed transfers from Cordellia were made to him alone, and deeds in evidence from Cordellia go only to Alden. There is scant evidence Sharon was in a confidential relationship with Cordellia from the time of Frank's death until Cordellia's death. We reverse the district court's finding that plaintiffs proved by clear and convincing evidence Sharon was in a confidential relationship with Cordellia.
We agree with the district court that there is evidence some of the transfers that were made to Alden after Frank died may have been the result of undue influence on the part of Alden. However, this is not a case against Alden, who has disappeared. Alden attempted to manipulate assets he obtained from the divorce in such a way so as to keep them from others including Sharon, who despite having substantial judgments against Alden for child support and college expenses, has been unable to collect over $100,000 of it.
Frank and Cordellia reported a net worth of less than $200,000 in the year Alden and Sharon were married. Inflation would have contributed to its increase. However, the $200,000 would not have increased to four million dollars without hard work, good management, and frugal living. Despite suggestions otherwise our review convinces us that Alden and Sharon reported earning after depreciation of about $500,000 during their marriage.
The district court found there was a conversation in the Steffes' kitchen in June of 1972 where Sharon allegedly agreed not to want Steffes' land and in essence would hold any Steffes' land she acquired in a trust for her husband and his siblings. Even if these events transpired we do not find the evidence showed either that the terms of any trust or agreement were specific, that Sharon had sufficient knowledge and understanding to make the agreement she allegedly made, and that it was made freely. Sharon was twenty years old. There is no showing she understood the Steffes' farm holdings. There is no showing she understood the consequences of what the family allegedly believed the agreement to entail. Furthermore, at the time Sharon was in the company of the man she planned to marry and his family, people who as a bride-to-be she obviously was anxious to please. It is hardly believable that she would have committed herself to twenty-five years of servitude as a farm wife, working hard so that she would build a fortune for her husband and his siblings to enjoy, but she would receive no share.
Furthermore, we find plaintiffs have failed to prove that any transfers made by Frank to Alden and/or Sharon were in contemplation of death, and plaintiffs have not shown the elements necessary to prove transfers made by Cordellia after Frank's death were made in a constructive trust.
The equities do not support the transfer of the assets Sharon obtained in the dissolution to the trust for the plaintiffs' benefit. Whatever Alden did, even under the best scenario for the plaintiffs, he would have been entitled to one-fourth of the farms and assets. There is no equity in imposing a trust on the property Sharon took from the marriage.
We reverse and dismiss.
REVERSED ON APPEAL, AFFIRMED ON CROSS-APPEAL, AND DISMISSED.
Mahan, J., concurs specially; Hecht, J., dissents.
I concur specially. I find the plaintiffs' case for a constructive trust to be weak both as to the facts and the equities.
I respectfully dissent because I would affirm the district court's determination that the plaintiffs are entitled to relief under the constructive trust theory. "A constructive trust is not an actual trust but is simply a legal construct expressing a right to restitution based on unjust enrichment." Orud v. Groth, 652 N.W.2d 447, 452 n. 2 (Iowa 2002) (citing Restatement (Second) of Trusts, section 404, Introductory Note, at 326). This legal construct is in my view appropriately applied where, as here, Frank and Cordelia Steffes made inter vivos transfers of land and money to Alden and Sharon on the condition that three-fourths of such assets would be distributed to three of Alden's siblings upon the death of Frank and Cordelia, but failed to sign memoranda properly evidencing their intention to create a trust.
Although most of the transfers were made to Alden, in at least one instance Sharon was also a named grantee.
Like the district court, I would find this condition was evidenced by a 1972 family meeting during which Frank and Cordelia announced to family members the intention to conditionally transfer property to Alden in furtherance of the mistaken notion that they would evade taxes and attorney fees.
Unlike the majority, I would not discount the plaintiffs' proof of the June 1972 family meeting on the ground that the meeting was not evidenced by documents, or because it is too indefinite and uncertain to express an exact meaning required to establish a contract claim. The availability of the constructive trust remedy is not limited to cases in which an enforceable contract is established.
I find clear and convincing the evidence tending to prove Frank and Cordelia intended the transfers to be subject to a specific condition. The district court's similar finding on this point was significantly based on an amply supported assessment of Sharon's credibility. On de novo review, we give deference to the district court's credibility assessments. Iowa R. App. 6.14(6)( g).
Having found Frank and Cordelia intended the transfers to be conditional and in furtherance of their poorly conceived plan to distribute their assets to four of their children, I would also find that Alden and Sharon were in a confidential relationship with Frank and Cordelia. "In law [a confidential relationship] has been defined or described as any relation existing between parties to a transaction wherein one of the parties is duty bound to act with the utmost good faith for the benefit of the other party. In its broadest connotation the phrase embraces those multiform positions in life where one comes to rely on and trust another in his important affairs. A confidential relationship arises whenever a continuous trust is reposed by one person in the skill and integrity of another, and so it has been said that all the variety of relations in which dominion may be exercised by one person fall within the general term "confidential relation." Mendenhall v. Judy, 671 N.W.2d 452, 455 (Iowa 2003). Frank, Cordelia, Alden, and Sharon were involved in a family farming operation. They shared equipment and engaged in a very complicated and, in some cases, poorly documented web of financial transactions over a period of many years. The very formulation of a "self-help" estate plan speaks volumes about the trust and confidence Frank and Cordelia held in Alden. It was a plan conceived to deal with matters of great importance to Frank and Cordelia: accumulation of property, evasion of taxes, maximization of their access to funds available through government programs, and preservation and distribution of property to four of their children. That Frank and Cordelia trusted Alden to hold their property in furtherance of these important goals and then divide it with three of his siblings after the death of Frank and Cordelia amply demonstrates the confidence which supports a finding of a confidential relationship between Alden and his parents. I also find clear and convincing evidence that, although they were initially suspicious of her intentions, Frank and Cordelia came to also hold trust and confidence their daughter-in-law, Sharon. Cordelia's reliance upon Alden and Sharon clearly deepened after Frank's death as she became more dependent upon them, trusted them to assist her with financial matters, and faithfully followed the family's plan to transfer her assets before her death.
The record discloses that Cordelia had, consistent with the plan, transferred all of her assets by the end of 1992. She began living in a nursing home in 1995, and apparently relied on Title IX payments to pay for the cost of her care during the last years of her life.
Although Frank and Cordelia contracted to sell the North Place to Alden a few days before his marriage to Sharon in 1972, the property was deeded to both Alden and Sharon in 1981. Sharon conceded at trial that she became close to Cordelia during the marriage and participated, at Alden's direction, in the preparation of certain financial documents which facilitated some of the transfers.
I agree with the majority's finding that Frank "ruled the family and made all important decisions" before his death in 1982. Unlike the majority, however, I do not believe Frank's disposition supports a reversal of the district court's decision. While Frank's disinclination to submissiveness might be relevant to a determination of whether the transfers he made were the product of undue influence, I do not rest my conclusion that a constructive trust should be imposed on the ground that Frank was unduly influenced. In my view, Frank's single-minded commitment to avoid taxes and keep the property "in the family" prompted the formation of the family plan, inspired Frank's and Cordelia's trust and confidence that Alden and Sharon would make the desired distributions to the other three children after Frank and Cordelia died, and motivated each of the transfers.
Having found the transfers made by Frank and Cordelia to Alden and Sharon were affected by a confidential relationship, I would affirm the district court's order restoring the assets to the plaintiffs. I do not minimize the majority's assessment of the equitable considerations implicated by the district court's decision to disgorge from Sharon most of the assets she took from the dissolution of her marriage to Alden. I am convinced, as the majority apparently is, that Sharon worked hard during the marriage and assisted significantly in the preservation and management of the farm assets which are the subject of this case. I am nonetheless convinced that the countervailing equities support the disposition made by the district court.
The disposition I would make of the confidential relationship issue would make it unnecessary for me to address Sharon's challenge to the district court's conclusion that the transfers were made in contemplation of death. I would affirm the district court's resolution of the other economic issues raised by Sharon on appeal.