Estate of Ross v. Ross

• Decision Date: 26 February 1981
• Docket Number: No. 16816,16816
• Citation: 626 P.2d 489
• Parties: 31 UCC Rep.Serv. 1699 In the Matter of the ESTATE of David E. ROSS, Deceased, v. E. Roderick ROSS, Respondent.
• Court: Utah Supreme Court

Page 489

626 P.2d 489

31 UCC Rep.Serv. 1699

In the Matter of the ESTATE of David E. ROSS, Deceased, v. E. Roderick ROSS, Respondent.

No. 16816.

Supreme Court of Utah.

Feb. 26, 1981.

Max D. Wheeler, Michael D. Blackburn, Craig Stephens Cook, Salt Lake City, for appellants.

Kenneth W. Yeates, Salt Lake City, for respondent.

HOWE, Justice:

This action was initiated by the personal representative of decedent David E. Ross to determine whether the decedent had made completed inter vivos gifts of certain shares of corporate stock to his son E. Roderick Ross (hereinafter called Rod) or whether the shares were a part of the decedent's estate and should be distributed equally among his three children, who are his heirs under his will. The District Court held that the decedent had made valid inter vivos gifts of the stock to Rod. David E. Ross II and Betsy Louise Ross Rapps (hereinafter called David and Betsy), the brother and sister of Rod, appeal.

Decedent was the secretary and treasurer of Equitable Life and Casualty Insurance Company and also served as one of its directors and as stock transfer agent. The entire stock was owned by the decedent and his two brothers and their families. Decedent also served in the same capacities in four other family-owned companies, namely, Ross Brothers Corporation, National Housing and Finance Syndicate, Insurance Investment Company, and Equitable Investment Company.

In 1972 Rod began working for Equitable Life. David and Betsy lived out of the state and were not involved in the operations of the various companies. Between 1974 and 1978, decedent told several persons of his desire to reward Rod for his work with Equitable Life by giving him stock which would be in addition to the stock he would later inherit. A number of stock transfers were subsequently made on the corporate books by the decedent. In November 1974 decedent cancelled a stock certificate representing his ownership of 2440.87 shares of Equitable Life. In its place a certificate for 2210.70 shares was issued in Rod's name and another for 230.17 shares was issued to decedent. These transfers were shown by appropriate entries on the stock ledger sheet of the company. The certificate issued to Rod was placed in an envelope on which was typed his name, the certificate number, the number of shares it represented, and the date. The envelope was placed in a bank safety deposit box with other envelopes that contained stock certificates belonging to other stockholders.

In December 1974 a 25% share dividend was declared and paid to all shareholders of record of Equitable Life. A certificate for 552.67 shares of common stock was issued in Rod's name and was placed in the envelope containing the other certificate already issued to him. A notation on the envelope identified the second certificate. Cash dividends were paid to shareholders in November 1976 and May 1977 and Rod received the amounts of $276.33 and $276.34. He also attended and voted at shareholders' meetings.

In May 1977 Ray Ross, decedent's brother and business associate, died. At that time the decedent and his surviving brother, Galen, transferred the contents of the safety deposit box where the stock certificates of various family members had been kept to a safe located in the company offices. Only the decedent and the president and vice-president of Equitable Life had the combination to the safe.

The Ross Brothers Corporation was organized at a meeting held in December 1977 for the purpose of distributing the assets of a former partnership involving the three brothers. Galen Ross issued stock certificates in the new corporation. A certificate for 250 shares, which represented 25% of the shares allotted to his father, was issued in Rod's name and handed to him personally. He delivered the certificate to his father, and it was placed in an envelope identified by his name and kept with the other family stock certificates.

In February 1978 there were several transactions in which stock certificates were issued in Rod's name. These certificates represented shares in Equitable Investment Company, Insurance Investment Company, and the National Housing and Finance Syndicate Corporation. The trial court found that "(a)ll actions necessary to complete the transfer on the books and records of each of the corporations for each of the shares of stock in question were completed...." The certificates were placed in a single envelope with the name of Rod Ross and the certificate numbers written upon it. The envelope was placed with the others in the office safe.

The shares transferred to Rod represented one-fourth of the stock holdings of his father. There was testimony that the decedent had expressed his intention that Rod should receive one-fourth of his stock through lifetime gifts, and that the remaining three-quarters would pass by will and be equally divided among Rod, David and Betsy. This would result in Rod's receiving a total of one-half of his father's stock, and his brother and sister each receiving one-fourth.

A will prepared for the decedent by his brother Galen and dated February 1978 divided the estate equally among the three surviving children. There was no reference in the will to prior gifts of stock to Rod.

After their father's death, on April 19, 1978, David and Betsy challenged the validity of the inter vivos stock transfers. Their position before the trial court was that there had been no completed gifts because Rod did not have possession of the stock certificates issued in his name, he did not know where the certificates were or have access to the safe where they were kept, and no gift tax returns were ever filed by the decedent with respect to the transfers.

Following an evidentiary hearing and the submission of trial memoranda by the parties, the court below found

that there was a clear and unmistakable intention on the part of the deceased to pass immediate ownership to E. Roderick Ross and that there was an irrevocable delivery to him and an acceptance by him of the stock certificates here in question.

The trial judge in his memorandum decision emphasized the significance of the transfer of the shares in question to Rod on the corporate books.

Under Utah law a donee has the burden of proving an inter vivos gift by "clear and convincing" evidence. Sims v. George, 24 Utah 2d 102, 466 P.2d 831 (1970); Lovett v. Continental Bank & Trust Co., 4 Utah 2d 76, 286 P.2d 1065 (1955). This standard requires a finding not merely that the existence of the disputed facts is more probable than not, but rather that it is very highly probable that such facts exist. Lovett, supra. The role of this Court in reviewing a decision that a gift was made is to determine whether it was reasonable for the jury to find that the requisite degree of proof was met. Id.

Appellants assert that three elements must be proven for a person to claim valid title to property by inter vivos gift: a clear and unmistakable intention on the part of the donor to pass immediate ownership, an irrevocable delivery, and acceptance. They concede that there is substantial evidence in the record to support the lower court's conclusion that there was the necessary intent on the part of decedent to make a gift and that Rod "accepted" the stock transfer. They contend, however, that the court's decision was erroneous in that the element of irrevocable delivery was not established by clear and convincing evidence.

An important purpose of the delivery requirement is to avoid the hedging of a would-be donor who wishes to retain certain benefits of ownership, including the control of the gift property, while designating another as the recipient of the property during the donor's lifetime. If a gift is not completed before one's death, of course, it is subject to the formalities of testamentary disposition. In the instant case, therefore, the finding of a gift must be based on the decedent's voluntary parting with the control of the stock during his lifetime.

It is appellants' position that decedent should have parted with his dominion over the certificates by physically delivering them to Rod and that the transfer of ownership on the corporate records was insufficient to meet the requirement of delivery. Other courts have split on this issue, and the question has not been ruled on by this Court. Appellants contend, nevertheless, that Utah law supports their contention. Rasmussen v. Sevier Valley Canal Co., 40 Utah 371, 121 P. 741 (1912), cited by appellants, is not in point, however, for in that case no stock certificates had ever been issued, and this Court held that an oral order by the decedent to the corporation to transfer his stock to a donee was sufficient to effect a valid transfer. Brown v. Wright, 48 Utah 633, 161 P. 448 (1916), and Gowans v. Rockport Irrigation Co., 77 Utah 198, 293 P. 4 (1930), also cited by appellants, do not involve inter vivos gifts of stock; rather, they hold that in a commercial setting the actual physical delivery of stock certificates to a purchaser is sufficient as between the parties to transfer title, regardless of corporate by-laws imposing additional requirements.

A leading case holding that transfer on the corporate books was sufficient to complete a gift of shares in the corporation is Roberts' Appeal, 85 Pa. 84 (1877). The circumstances there were similar to those in the instant case. The donor caused certain stock certificates to be made out in the name of his niece with the stated intention of making a gift to her; she, however, was not informed of his intention, and the stock certificates were not delivered to her. The donor apparently retained them in his own custody and possession, but the gift to the niece was nevertheless held to be complete. The Pennsylvania court distinguished the Roberts' facts from the situation where an assignment of shares was executed and retained by the potential donor and the shares remained in his name. In...