Bank of America v. Saville, 16785.

• Decision Date: 19 January 1970
• Docket Number: No. 16785.,16785.
• Citation: 416 F.2d 265
• Parties: BANK OF AMERICA, etc., Executor of the Estate of Grace M. Sonnenschein, Plaintiff-Appellee, v. Ruth M. SAVILLE and Abbott Laboratories, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

416 F.2d 265 (1969)

BANK OF AMERICA, etc., Executor of the Estate of Grace M. Sonnenschein, Plaintiff-Appellee, v. Ruth M. SAVILLE and Abbott Laboratories, Defendants-Appellants.

No. 16785.

United States Court of Appeals Seventh Circuit.

June 10, 1969.

Rehearing Denied August 1, 1969.

Certiorari Denied January 19, 1970.

Owen W. Crumpacker, Harold Abrahamson, Richard P. Komyatte, Crumpacker & Abrahamson, Hammond, Ind., James E. Knox, Chicago, Ill., for defendant-appellant, Ruth M. Saville.

Lowell E. Enslen, G. Edward McHie, Peters, McHie, Enslen & Hand, Hammond, Ind., Robert B. Simon, Simon & Ingram, Chicago, Ill., for plaintiff-appellee; Peters, McHie, Enslen & Hand, Hammond, Ind., of counsel.

Before KILEY, FAIRCHILD and KERNER, Circuit Judges.

Certiorari Denied January 19, 1970. See 90 S.Ct. 685.

FAIRCHILD, Circuit Judge.

Action by Bank of America, executor of the estate of Grace Sonnenschein, to compel Ruth Saville to transfer to plaintiff certain shares of stock (together with dividends received) which were formerly owned by plaintiff's decedent.¹ Mrs. Sonnenschein allegedly transferred the shares to Mrs. Saville on June 18, 1964. The ultimate issues are whether Mrs. Sonnenschein had legal capacity to make a gift, and, if she did, whether the transfer was nevertheless the result of undue influence.

Mrs. Sonnenschein was a widow, living in Los Angeles. Her next of kin were two nephews, Lester and William Saville. Ruth Saville is Lester's wife. The Savilles lived in Indiana.

Mrs. Sonnenschein was 84 years of age and in failing health. On May 7, 1964, both her lawyer, Louis Licht, and her doctor considered her mentally incapable of making a will. She improved, and on May 9 they both thought her capable and she executed a codicil. It became more difficult to have her cared for at her apartment, and on June 17 she was admitted to a hospital. She remained until she died, January 5, 1965. On June 18 she signed the transfer form on the certificate evidencing the shares in question.

Mrs. Saville and Mrs. Sonnenschein were fond of each other and Mrs. Saville made many trips from Indiana to visit Mrs. Sonnenschein, who reimbursed Mrs. Saville for her expenses. In early 1964 they had made plans for Mrs. Sonnenschein to travel to Indiana to live in a motel operated by the Savilles.

Mrs. Saville visited Mrs. Sonnenschein in early May. Mrs. Saville was given a power of attorney to sign checks. She called Mr. Licht about preparing the codicil. On May 8 she signed a petition, prepared by Mr. Licht, seeking the appointment of the bank as conservator of the estate of Mrs. Sonnenschein and herself as conservator of her person. She alleged that "Due to advanced age and ill health conservatee is incapable of attending to her affairs." On June 8 the court found the allegations true and found Mrs. Sonnenschein "unable unassisted to manage and take care of herself or her property * * *" and made the appointments requested. Letters were issued to the bank on that date. On June 18, before the stock certificate was endorsed, Mrs. Saville executed an affirmation as conservator of the person, and letters were issued to her June 22.

Mrs. Sonnenschein possessed securities worth about $300,000, kept in a safety deposit box. Among these were 745 shares of common stock of Abbott Laboratories, Inc. In April, 1964 the company split its stock and issued certificates for two additional shares for each share outstanding. On May 11 a certificate for 1490 shares was mailed to Mrs. Sonnenschein at her home. When Mrs. Saville came to Los Angeles in June the practical nurse who attended Mrs. Sonnenschein at her home handed this certificate and other papers to Mrs. Saville for safekeeping. The 1490 shares were worth about $57,000.

Mrs. Sonnenschein had executed a will July 11, 1963. It made no provision for her nephews. Gifts of $1,000 each were made to four individuals. Gifts totalling $145,000 were made to nine charitable organizations and institutions. The residue was to be divided among a named home, a clinic, and the University of Southern California, with lapsed gifts going to the University of California at Los Angeles. An earlier will had provided $1,000 and items of jewelry for Mrs. Saville, but this will left her $1.00. Mrs. Sonnenschein gave Ruth a check which she may have thought of as fulfillment of the gift in the earlier will.

The codicil of May 9, 1964, earlier referred to, changed the July 11 will by providing gifts of $25,000 each to Lester and William Saville. It made no change as to Ruth.

Mrs. Saville testified that Mrs. Sonnenschein had told her early in May that the Abbott stock was going to be split and Mrs. Sonnenschein was going to give it to her; that she took the certificate to the hospital June 18 and spoke to Mrs. Sonnenschein about it; that Mrs Sonnenschein told her it was hers and signed the transfer form; that Mrs. Laird, the private nurse, signed as a witness; and that after leaving the hospital she happened to see Mr. Licht and told him of the gift.

An elderly friend of Mrs. Sonnenschein testified that Mrs. Sonnenschein said she intended to give Ruth the stock, but the district court deemed her testimony "discredited by her own obvious confusion and poor memory" and by other testimony tending to show that the conversation did not occur. Lester Saville testified that his wife did not tell him of the intended gift when she returned to Indiana in May. Mrs. Laird did sign, but her testimony indicated she signed at Mrs. Saville's request while busy with some laundry in the bath room and under the impression that the paper had something to do with the hospital. She heard no conversation about it between Ruth and Mrs. Sonnenschein. Mr. Licht denied that Ruth mentioned the gift to him and the district judge noted that he believed Mr. Licht.

Mrs. Saville had the shares transferred and obtained a certificate in her own name. The split had occurred before the bank became conservator, but the certificate was not in the box with the other securities and never came into the bank's possession. It is understandable that the bank employees may have remained unaware of its existence or transfer.

There was evidence that Mrs. Sonnenschein was severely disoriented on June 17. Although her doctor testified that she had been alert on June 17 and 18, the district court noted other answers which indicated the doctor was not expressing an opinion of her mental capacity to deal with her property.

The district court's summary of the proof of Mrs. Sonnenschein's mental condition on June 18 is amply supported by the record. It is as follows:

"In this case there is no testimony other than that of the defendant that the decedent knew what she was doing at the time of the transfer. The evidence as a whole shows that the decedent had been admitted to the hospital the day before in a seriously weakened condition. It is admitted that Mrs. Saville had signed for the decedent\'s admission to the hospital on the ground that the decedent herself was too sick to sign. The plaintiff has introduced evidence that while in the hospital the decedent did not always remember where she was, and it was necessary to place her in a restraining jacket. Other evidence showed that as early as a month before this transaction the decedent was incapable at times of making a will.

"It was also shown that near the same time in May, Mrs. Sonnenschein had periods of lucidness when her doctor and lawyer felt she was capable of making a will. If the burden of proof were upon the plaintiff all this evidence together might not be enough to find that the decedent did not have capacity at the time of the transfer. However, the burden is not on the plaintiff and the defendant has failed to prove that the decedent knew what she was doing, or that she was free from undue influence at the time the transfer took place."

The district court concluded (1) Mrs. Sonnenschein was without legal capacity to transfer the shares because of the conservatorship; (2) Mrs. Saville had the burden of proving the transfer was not the result of undue influence, and failed to meet it; and (3) Mrs. Saville is a constructive trustee. Judgment was entered ordering Mrs. Saville to transfer the stock to plaintiff executor and to account for dividends received. Mrs. Saville has appealed.

1. The effect of the conservatorship on capacity to transfer property. It is clear, under the law of California, that after appointment of a guardian and until the guardianship is judicially terminated, the ward is legally incapable of transferring the assets of his estate. This proposition is not expressed in the portions of the probate code which deal with guardianship, but rests upon § 40 of the civil code, providing "After his incapacity has been judicially determined, a person of unsound mind can make no conveyance or other contract, nor delegate any power or waive any right, until his restoration to capacity * * *"

In 1929, the Supreme Court of California said, in applying § 40 to one for whom a guardian had been appointed:

"It seems evident that the term incompetent is intended to include not only the insane, but also those who are afflicted with less serious derangements of the mind. The adjudication of mental capacity applies to both the insane and the incompetent, regardless of the character or degree of the mental derangement. No further evidence of mental incapacity is required under our statute while such a decree remains in full force and effect."²

The court also said:

"When, however, a court has regularly adjudged one to be incompetent, he thereby becomes incapable of making a valid contract, and it is deemed to be void, not because he is unable, unassisted, to properly care for his property, or lacked understanding of the nature and effect of the particular transaction, but because the decree of incompetency is notice to the world of his incapacity to make a valid contract."

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