Hollingsworth's Estate, Matter of, 44154

• Citation: 560 P.2d 348,88 Wn.2d 322
• Decision Date: 10 February 1977
• Docket Number: No. 44154,44154
• Parties: In the Matter of the ESTATE of Claude HOLLINGSWORTH, Deceased. Willard W. JONES, Special Administrator of the Estate of Claude Hollingsworth, Deceased, Respondent, J. Y. Hollingsworth et al., Petitioners, v. Howard HOLLINGSWORTH and Oma C. Hollingsworth, husband and wife, Respondents.
• Court: United States State Supreme Court of Washington

Page 322

88 Wn.2d 322

560 P.2d 348

In the Matter of the ESTATE of Claude HOLLINGSWORTH, Deceased.

Willard W. JONES, Special Administrator of the Estate of Claude Hollingsworth, Deceased, Respondent, J. Y. Hollingsworth et al., Petitioners, v. Howard HOLLINGSWORTH and Oma C. Hollingsworth, husband and wife, Respondents.

No. 44154.

Supreme Court of Washington, En Banc.

Feb. 10, 1977.

Rehearing Denied April 29, 1977.

Winston, Cashatt, Repsold, McNichols, Connelly & Driscoll, Spokane, Miller, Anderson, Nash, Yerke & Wiener, Grant T. Anderson, Portland, Or., for petitioners.

Lycette, Diamond & Sylvester, Josef Diamond, Simon Wampold, Seattle, Willard W. Jones, Spokane, for respondents.

HAMILTON, Associate Justice.

This appeal concerns the interpretation of a condition precedent to a stipulation of settlement.

Petitioners, J. Y. Hollingsworth, Max Hollingsworth, Fred Hollingsworth, and Elaine Bollam (formerly Elaine Curtis), and respondent, Howard Hollingsworth, ¹ are the five children of the deceased, Claude Hollingsworth, who died December 13, 1964. On March 5, 1964, Claude Hollingsworth transferred approximately $261,000 in stocks and a joint venture interest to respondent. Respondent, except for a few minor bequests, is the beneficiary of Claude Hollingsworth's last will and testament dated June 1, 1964. After respondent had entered the will for probate, petitioners intervened and sought to have the will and the inter vivos transfer set aside.

The day before the will contest was to go to trial, petitioners and respondent entered into a stipulation of settlement. The stipulation provided that the inter vivos transaction was valid, that the will was invalid, and that, after payment of expenses of administration, attorney fees, estate taxes, and respondent's personal income taxes, the remainder of the estate was to be divided among the petitioners and respondent, giving a 1/5th share to each. The stipulation contained the following provisions:

RECITALS:

4. The Internal Revenue Service is asserting additional estate tax liability against the Estate of Claude Hollingsworth upon the premise that the intervivos (sic) transfers were invalid and that the property was an asset of the estate at the time of death and is also asserting income tax liability against Defendants (respondent and his wife) covering a period of several years and arising primarily from gains realized by Proponent (respondent) from sales of the same property. The parties expect to be able to compromise, settle and make provision for the payment of any and all tax liability of the estate and of the Defendants in amount and manner acceptable to the parties to this Stipulation but such determination and provision for payment of any and all such tax liability lies at the threshhold (sic) of any settlement of issues among the parties to this Stipulation and is a condition precedent to the consummation of any compromise and settlement of the issues among the parties hereto.

RELEASE FROM STIPULATION:

In the event the parties are unable to arrange with the Internal Revenue Service a determination of the estate tax liability of the Estate of Claude Hollingsworth and the income tax liability of Defendants and make provision for payment thereof in amount and manner acceptable to the parties to this Stipulation within ninety (90) days from the date of this Stipulation or within such additional time as the parties hereto stipulate in writing filed with the above entitled Court as a supplement to this Stipulation, this Stipulation shall be without any legal effect whatsoever, all parties shall be excused from performance hereunder, and no party hereto shall be prejudiced in anywise for having entered into this Stipulation.

Respondent's personal accountant was hired by the estate to negotiate with the Internal Revenue Service (IRS). As a result of his negotiations, the IRS dropped its claim for additional estate taxes and increased respondent's personal income taxes. In effect, the negotiations save the parties approximately $250,000 in taxes, because all taxes will be paid by the estate prior to distribution of each party's 1/5th share.

The tax compromise was presented to respondent in October 1971. He rejected this compromise and sought an additional deduction from his personal taxes. The IRS would not allow this additional deduction, because respondent was unable to produce adequate documentation.

In May 1972, the probate judge, upon application of the special administrator of the estate, ordered respondent to sign his personal income tax returns, which the accountant had prepared. Respondent refused, and the judge held him in contempt. The contempt order was not appealed. In August 1972, respondent filed a 'Petition to Declare Stipulation Void and to Set Cause for Trial' on the basis the tax compromise was unacceptable to him. A trial was held before another judge on the sole issue of whether or not the stipulation was valid.

The trial court found the stipulation valid and dismissed respondent's petition with prejudice. It concluded that the stipulation was binding on the parties because the tax compromise was acceptable to a reasonable person and because respondent acted in bad faith in rejecting the tax compromise.

Respondent appealed the dismissal to the Court of Appeals. Jones v. Hollingsworth, 14 Wash.App. 534, 543 P.2d 363 (1975). The Court of Appeals reversed, holding that 'the express terms of the stipulation gave (respondent) the absolute right to reject the proposed tax compromise and when he exercised that right, the stipulation was by its terms 'without any legal effect whatsoever." Jones v. Hollingsworth, supra at 540, 543 P.2d at 367. We granted review of that decision. Jones v. Hollingsworth, 87 Wash.2d 1001 (1976).

We begin our discussion by noting that the role of the court is to ascertain the parties' intentions and give effect to their intentions. Grant County Constructors v. E. V. Lane Corp., 77 Wash.2d 110, 459 P.2d 947 (1969); Felton v. Menan Starch Co., 66 Wash.2d 792, 405 P.2d 585 (1965). When the intent of the parties is clearly evident, courts have nothing to construe and must be governed by the intention of the parties as expressed in their written instrument. Schwieger v. Harry W. Robbins & Co.,48 Wash.2d 22, 290 P.2d 984 (1955); Silen v. Silen, 44 Wash.2d 884, 271 P.2d 674 (1954).

In their stipulation of settlement, the parties expressly termed the acceptability of the tax compromise 'a condition precedent to the consummation of any compromise and settlement . . ..' In the 'release from stipulation' section of their stipulation, the parties stated that '(i)n the event the parties are unable to arrange . . . a determination . . . in amount and manner acceptable to the parties to this Stipulation . . . this Stipulation shall be without any legal effect whatsoever . . ..' The express language of the stipulation clearly evidences the parties' intention to make the acceptability of the tax compromise a condition precedent which had to be met before the stipulation became a binding contract. ²

The first issue which we must decide is whether the acceptability of the tax compromise should be judged objectively or subjectively. As a general rule, when contractual language is ambiguous as to whether the parties intended one party to have the unqualified option to terminate the contract in case of dissatisfaction, the contract is construed as giving the party the right to terminate only when he has reasonable grounds for dissatisfaction. Gould v. McCormick, 75 Wash. 61, 65, 134 P. 676 (1913). See Restatement (Second) of Contracts § 254 (1973). Further, when a contract provides that one party shall perform to the satisfaction of the other party, and the contract also provides guidelines within which the party must perform, the right to terminate exists only when the latter party's dissatisfaction is based upon reasonable grounds. Yarno v. Hedlund Box & Lumber Co., 129 Wash. 457, 469, 225 P. 659, 227 P. 518 (1924); Gould v. McCormick, supra, 75 Wash. at 66--67, 134 P. 676. The present case does not fall within the above rules. The stipulation is not ambiguous. It provides that the tax compromise must be acceptable To the parties before the stipulation became a binding contract. See McDougall v. O'Connell, 72 Wash. 349, 353--54, 130 P. 362, 131 P. 204 (1913); Tatum v. Geist, 46 Wash. 226, 230, 89 P. 547 (1907). Further, the stipulation does not provide guidelines within which the accountant's negotiations with the IRS were to proceed. The parties clearly intended that the stipulation would not be binding if the tax compromise was unacceptable to any one party, regardless of whether that party had reasonable grounds for finding the tax compromise unacceptable. Thus, the determination of this case depends on whether the tax compromise was acceptable to respondent.

Most cases dealing with the issue of subjective satisfaction involve situations wherein one party must perform to the satisfaction of the other party. In those cases, the latter party's duty to perform is conditioned on his satisfaction with the former party's performance. Most courts require any dissatisfaction with the performance to be genuine, I.e., made in good faith. Commercial Mortgage & Fin. Corp. v. Greenwich Sav. Bank, 112 Ga.App. 388, 145 S.E.2d 249 (1965); Fulcher v. Nelson, 273 N.C. 221, 159 S.E.2d 519 (1968); Western Hills, Oregon, Ltd. v. Pfau, 265 Or. 137, 508 P.2d 201 (1973); Jenkins Towel Serv. v. Tidewater Oil Co., 422 Pa. 601, 223 A.2d 84 (1966); Atomic Fuel Extraction Corp. v. Estate of Tom Slick, 386 S.W.2d 180 (Tex.Civ.App.1964). One reason for requiring good faith dissatisfaction is so that the contract will not be illusory. See 3A A. Corbin, Corbin on Contracts § 645, at 89--90 (1960); 5 S. Williston, A Treatise on the...