Estate of Smith v. U.S.

• Decision Date: 19 September 1997
• Docket Number: No. 2:95-CV-195.,2:95-CV-195.
• Parties: ESTATE OF Charles S. SMITH, Jr., and Charles S. Smith, III and Fleet Bank, Executors, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Vermont

979 F.Supp. 279

ESTATE OF Charles S. SMITH, Jr., and Charles S. Smith, III and Fleet Bank, Executors, Plaintiffs, v. UNITED STATES of America, Defendant.

No. 2:95-CV-195.

United States District Court, D. Vermont.

September 19, 1997.

COPYRIGHT MATERIAL OMITTED

Steven Lee Saltonstall, Witten, Saltonstall, Woolmington, Bongartz & Campbell, P.C., Bennington, VT, for Plaintiffs.

Thomas D. Anderson, Sheehey Brue Gray & Furlong, Burlington, VT, Carol L. Shea, Asst. U.S. Atty., Tristram J. Coffin, Office of the U.S. Atty., Dist. of Vermont, Burlington, VT, George P. Eliopoulos, U.S. Dept. of Justice, Tax Div., Washington, DC, for Defendant.

William Gilbert Livingston, Vermont Land Trust, Montpelier, VT, for Amicus Vermont Land Trust.

OPINION AND ORDER

SESSIONS, District Judge.

I. Introduction

This is a complaint for refund of taxes and interest paid by the Estate of Charles S. Smith, Jr. ("Smith II") to the Internal Revenue Service ("IRS") in the amount of $227,265.70. The Estate claims that the IRS erroneously disallowed a charitable deduction from the value of the gross estate. The disallowed deduction represented the claimed value of the development rights to Smith II's farm. The development rights were donated to the Vermont Land Trust ("VLT") prior to Smith II's death. The VLT has been granted leave to appear as amicus curiae in these proceedings. Pending before the Court are cross motions for summary judgment by the United States (paper 20) and by the Smith Estate (paper 24). For the reasons that follow, both motions are denied.

II. Factual Background

For purposes of this summary judgment motion, the following facts are not in dispute. In 1952, Smith II bought a 291 acre farm located in Danby, Vermont, where he lived until his death in 1991. On January 25, 1989, he executed a durable power of attorney naming his son, Charles S. Smith, III, ("Smith III") as his attorney-in-fact. The instrument gave the son the power to "sell, purchase, lease, mortgage, and convey" any real property owned by the father. On September 24, 1990, Smith III executed a deed donating the development rights to the farm to the VLT. Smith II died on March 2, 1991. Smith III and Fleet Bank were named co-administrators of Smith II's estate.

On January 5, 1992, the Estate filed its federal estate tax return. In its return, the Estate excluded $436,000 from the value of the gross estate as a charitable gift. The Estate claimed that this amount represented the fair market value of the development rights to the farm, based on a 1990 appraisal.

The IRS audited the return, and disallowed the deduction. The IRS claimed that Smith III exceeded his authority as attorney-in-fact when he donated the development rights to the farm to the VLT.

The IRS assessed an additional tax of $189,247.83, plus interest of $38,017.87, for a total of $227,265.70. The Estate paid this amount to the IRS in April and June, 1994. It thereafter filed a claim for refund of the tax and interest. On January 19, 1995, the IRS denied the Estate's claim for refund. On administrative appeal by the Estate, the denial was upheld. This action for refund followed.

III. Discussion

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact. Id., at 325, 106 S.Ct. at 2554.

The parties do not dispute that Vermont state law governs whether the power of attorney at issue authorized Smith III to donate to the VLT the development rights of his father's farm. See Morgan v. Commissioner, 309 U.S. 78, 80, 60 S.Ct. 424, 425, 84 L.Ed. 585 (1940). At issue is whether the term "convey" as used in this power of attorney encompassed the power to make a gift of an interest in the property.

The power of attorney executed by the father named the son his "true and lawful Attorney," with the power to

sell, purchase, lease, mortgage and convey any real property owned by me or to be acquired by me, and for this purpose, make, execute, sign, seal, acknowledge and deliver unto the Seller or Purchaser thereof, a proper and sufficient deed of conveyance of all my right, title and interest and estate in said real estate, or any other documents necessary for the completion of such transactions.

Power of Attorney ("POA") (paper 24, att. 1).¹ This power of attorney gave Smith III authority to act for his father generally, in matters involving his real and personal property, including the power to convey his real property. It did not explicitly empower him to make a gift of an interest in the property.

The nature or extent of authority granted to an agent by a power of attorney is an issue of fact which depends on an interpretation of the agreement, and ordinary principles of contract interpretation apply. See Restatement (Second) of Agency § 32 (1958); Estate of Sawyer v. Crowell, 151 Vt. 287, 292, 559 A.2d 687, 690 (1989). See also Russell v. Atkins, 679 A.2d 333, 335 (Vt.1996) (agent's authority may be proven from the facts and circumstances attending the transaction in question).² In construing written instruments to ascertain the intention of the parties, a court must give effect to every part, and from the parts form a harmonious whole, if possible. Cross-Abbott Co. v. Howard's, Inc., 124 Vt. 439, 441, 207 A.2d 134, 137 (1965). When an agreement is clear and unambiguous, its plain meaning governs its interpretation. Workman v. Agency of Transportation, 163 Vt. 606, 608, 657 A.2d 174, 176 (1994).

As a threshold matter, the question of whether a term in an agreement is ambiguous is a matter of law for the court to decide. Isbrandtsen v. North Branch Corp., 150 Vt. 575, 577, 556 A.2d 81, 83 (1988). See also Vogel v. W.A. Sandri, Inc., 898 F.Supp 254 (D.Vt.1995). A provision in a contract is ambiguous only to the extent that reasonable people could differ as to its interpretation. Isbrandtsen, 150 Vt. at 577, 556 A.2d at 83; Vogel, 898 F.Supp. at 257.

In determining whether an ambiguity exists, a Vermont court may consider the circumstances surrounding the making of the instrument, if the ambiguity does not appear on the face of the instrument. "Ambiguity will be found where a writing in and of itself supports a different interpretation from that which appears when it is read in light of the surrounding circumstances, and both interpretations are reasonable." Isbrandtsen, 150 Vt. at 579, 556 A.2d at 84; Vogel, 898 F.Supp. at 257.

The Government contends that the power of attorney is unambiguous, and clearly did not confer the power to make gifts. The Plaintiffs argue that the power of attorney unambiguously conferred the power to make gifts by its inclusion of the term "convey," and, in the alternative, that if the provision is ambiguous, an examination of the attendant circumstances will demonstrate that Smith II intended that his attorney-in-fact be empowered to make a gift of the development rights to the property to the VLT.

To date, no reported decision from a Vermont court has addressed the meaning of "convey" in the context of a general power of attorney. Other jurisdictions have frequently held that a general power of attorney authorizing a person to convey real property does not authorize conveyance as a gift. See King v. Bankerd, 303 Md. 98, 492 A.2d 608, 612 (1985) (collecting cases). As the Court in King pointed out, the power to make a gift is a power that is potentially hazardous to the principal's interests, and will not lightly be inferred from broad, all-encompassing grants of power to the agent. Id., 492 A.2d at 613. See also, Aiello v. Clark, 680 P.2d 1162, 1166 (Alaska 1984); Whitford v. Gaskill, 345 N.C. 475, 480 S.E.2d 690, 691-92 (1997); Johnson v. Fraccacreta, 348 So.2d 570, 572 (Fla.Dist. Ct.App.1977); Honeycutt v. Farmers & Merchants Bank, ___ N.C.App. ___, 487 S.E.2d 166, 168 (1997).

The Supreme Court of Vermont has consistently used the term "convey" to refer to any transfer of an interest in land. In Colby v. Colby, 157 Vt. 233, 235, 596 A.2d 901, 902 (1991), for example, the Court discussed two transactions in which it described land as "conveyed," one for consideration, and the other as a gift. In Bills v. Wardsboro Sch. Dist., 150 Vt. 541, 542-43, 554 A.2d 673, 674-75 (1988), the Court referred to the gift of real property to build a school as a "conveyance." A parcel of land was "conveyed" as a gift in Tokarski v. Gates, 138 Vt. 220, 221, 414 A.2d 1155, 1156 (1980). In Ball v. Hall, 129 Vt. 200, 274 A.2d 516 (1971), the term "conveyance" was used to describe a gift of land to the town of Bakersfield.³

None of these cases, however, addressed the nature of an agent's authority to "convey," when the term is preceded and followed by terms that suggest that the context is a transfer for consideration: "sell, purchase, lease, mortgage and convey ... and for this purpose ... deliver unto the Seller or Purchaser thereof ..." General, all-embracing expressions, such as the second paragraph of the power of attorney at issue, granting "full power and authority to do and perform all and every act and thing whatever requisite and necessary ... as fully and to all intents and purposes as I might or could do if personally present, hereby ratifying and confirming [the agent's actions]," add nothing to the attorney-in-fact's enumerated powers, and are disregarded, in the words of the Restatement, as "meaningless verbiage." Restatement, § 34, Comment on Clause (e). See also Estate of Casey v. Commissioner, 948 F.2d 895, 901 (4th Cir.1991). These features of the power of attorney suggest that inclusion of the term "convey"...