Land v. Marshall

• Decision Date: 13 March 1968
• Docket Number: No. B--254,B--254
• Citation: 426 S.W.2d 841,39 A.L.R.3d 1
• Parties: Erie Darnall LAND et al., Petitioner, v. Viola Walker MARSHALL, Respondent.
• Court: Texas Supreme Court

Page 841

426 S.W.2d 841

39 A.L.R.3d 1

Erie Darnall LAND et al., Petitioner, v. Viola Walker MARSHALL, Respondent.

No. B--254.

Supreme Court of Texas.

March 13, 1968.

Rehearing Denied May 1, 1968.

Hassell & Riley, J. W. Hassell, Jr., Dallas, for petitioner.

Elvin E. Tackett, Fort Worth, for respondent.

POPE, Justice.

Viola Walker Marshall, the widow of W. E. Marshall, instituted this suit to set aside a trust created by her husband. Plaintiff asked judgment for the recovery of title and possession to one-half of the corpus of the trust which she alleged was her community property. The corpus consisted of 2,562 shares of stock in the Franklin Life Insurance Company valued at $99,587.75 at the date of the trustor's death. Plaintiff sued Erie Darnall Land who was trustee under the Marshall trust, Erie Land's husband, and Linda Darnall Land. Erie is the plaintiff's and W. E. Marshall's daughter and Linda is their granddaughter. Linda was the ultimate beneficiary of the corpus of the Marshall trust. Each side of this controversy made motions for summary judgment and concedes the absence of any fact questions. The trial court granted defendants' motion for summary judgment, but the court of civil appeals reversed that judgment and awarded plaintiff title to an undivided one-half interest in the shares of stock. 413 S.W.2d 820.

The plaintiff and W. E. Marshall were married in 1905. During the marriage and prior to Marshall's creation of the trust, they accumulated 760 shares of stock in the Franklin Life Insurance Company. Except for a small house and lot and some worthless stock, the Franklin Life stock constituted the entire community estate. On August 23, 1960, W. E. Marshall, without informing his wife, executed a trust instrument and transferred the corporate stock to their daughter, Erie Darnall Land as trustee. The stock certificates were transferred on the books of the company to the name of Erie Darnall Land, Trustee, and were delivered to her. The summary judgment proofs show that plaintiff did not learn of the trust until three weeks before her husband's death on August 4, 1965. She obtained the information from Franklin Life's transfer agent to whom she had made the inquiry. At that time, by reason of stock dividends and stock splits, the trustee held 2,562 shares. After Marshall created the trust, he continued to receive all the dividends as well as the proceeds from shares which the trustee sold upon his instructions. After Marshall's death, plaintiff refused to accept any dividends or profits from the trust. The provisions of the trust instrument are stated in a footnote to the opinion of the court of civil appeals, supra, and we shall not repeat them. The essential features are:

1. Marshall expressly declared he was acting for himself and as manager of the community estate in transferring the stock.

2. The stock was to be owned and held by the trustee for the benefit of Marshall and wife.

3. The trustee was to pay all dividends, interest, and profits arising from the securities to Marshall during his life, and after his death to his wife during her life.

4. The trustee was to follow the instructions of Marshall with reference to the holding, sale, disposition or encumbrance of the stock; also with reference to voting the shares of stock and making her election upon optional proposals.

5. Marshall reserved the power to require the trustee to sell, dispose of, or encumber the stock and to pay to him the proceeds even though it would extinguish the trust.

6. Marshall reserved the power to require the trustee to pay out of the principal such sum as he might direct at any time, if in his sole judgment the income was insufficient to maintain himself and wife.

7. The trustee could invade the principal of the trust to provide for Marshall and his wife if either should become incompetent by reason of illness or adversity.

8. The Marshall Trust was to terminate after the death of both W. E. Marshall and his wife, whichever occurred later. The trustee was then to deliver the remaining corpus to W. E. Marshall's granddaughter, Linda Darnall, who would take the property absolutely. If Linda Darnall predeceased Marshall and his wife, the corpus of the trust was to go to the living children of Linda Darnall, and if there be no such children, the trustee was to take the property at her own.

9. On August 7, 1961, Marshall amended the trust instrument. The amendment provided that upon the deaths of both W. E. Marshall and wife, the trust corpus was to go absolutely to the trustee, Erie Darnall Land. If the trustee was not then living, the trust corpus vested in Linda Darnall absolutely. If Linda Darnall was not alive at that time, the trustee was directed to deliver in equal shares the remainder of the trust to the living children of Linda Darnall. If there be no such children, the trustee was required to distribute one-half the trust estate to the heirs at law of W. E. Marshall as of that date. The remaining one-half was to go to the heirs at law of Viola Walker Marshall.

The court of civil appeals sustained several contentions advanced by plaintiff for its holding that the Marshall trust was invalid. It held that the trust failed because it was an attempted testamentary disposition of the wife's one-half community interest in the stock, it was an incomplete gift of the stock, it was a constructive fraud practiced by the husband as manager of the community upon the wife's marital rights, and, without so holding, the court suggested that the trust instrument was illusory rather than real. The defendants, on the other hand, urged that the Marshall trust was a community estate, and that Marshall, in the absence of fraud, had the power under article 4619, ¹ Vernon's Ann.Tex.Civ.Stats., to control the community property during the marriage. Arnold v. Leonard, 114 Tex. 535, 273 S.W. 799 (1925). Defendants urged that Marshall, acting under those powers, created an express revocable trust authorized by the Texas Trust Act. ² We shall discuss each of these contentions.

The court of civil appeals held that the Marshall Trust failed because Marshall did not have the right to make a testamentary disposition of his wife's community property. This is a correct legal principle. Langehennig v. Hohmann, 139 Tex. 452, 163 S.W.2d 402 (1942); Dakan v. Dakan, 125 Tex. 305, 83 S.W.2d 620 (1935); Smith v. Butler, 85 Tex. 126, 19 S.W. 1083 (1892). When one of the spouses undertakes to devise community property belonging to both, the survivor has an election to take under the will or to take the community share. Wright v. Wright, 154 Tex. 138, 274 S.W.2d 670 (1955); Dakan v. Dakan, supra. These principles, however, are not determinative of the problem presented by this case. A valid inter vivos trust is not and does not purport to be a will. The question presented is whether the trust was valid at the time of its creation. If the death of the trustor is a condition precedent to the creation of a trust, the requirements for the execution of a will must be met; if a trust is created during the lifetime of the trustor, even though he reserves the power to revoke, a trust may presently be created. Sections 56--57, Restatement of Law of Trusts 2d (1959); see Reporters Notes, § 57, Appendix, p. 111. Scott, in his article, Trusts and the Statute of Wills, 43 Harv.L.Rev. 521, 528 (1930) points up this difference:

'It is sometimes suggested that a trust created Inter vivos is invalid if it is made in lieu of a will. Such an objection is almost meaningless. Any trust which is to continue after the death of the settlor must be created either Inter vivos or by will, and if either form of disposition is employed it is used in lieu of the other. * * * It would seem, however, that the disposition is not to be condemned merely because the settlor elected to dispose of his property in one way rather than in another. It is not against public policy to uphold a disposition not made by will although other dispositions not very different would be invalid unless so made. * * * Probably all that is really meant is that the disposition must be what it purports to be, that it must be real and not colorable. * * *.'

Plaintiff further contended and the intermediate court held that the Marshall trust must fail because it was an incomplete inter vivos gift. The basis of the argument and of the holding of the court of civil appeals is Fleck v. Baldwin, 141 Tex. 340, 172 S.W.2d 975 (1943). In that case it was said:

'While the transactions under review are in the form of voluntary trusts, they are governed in general by the rules applicable to gifts. The principal difference between such a trust and gift lies in the fact that in the case of a gift the thing given passes to the donee, while in the case of a voluntary trust only the equitable or beneficial title passes to the cestui qui (sic) trust. In each case the equitable title must pass immediately and unconditionally and the transfer thereof must be so complete that the donee might maintain an action for the conversion of the property. Absent a completed gift of the equitable title, no trust is created, for an imperfect gift will not be enforced as a trust merely because of its imperfection. A gift cannot be made to take effect in the future, for the reason that a promise to give is without consideration. Neither can the donor retain the right to use and enjoy the property during his lifetime and direct its disposition after his death in any manner other than by the making of a will. * * *'

We do not think Fleck v. Baldwin sustains the proposition that a valid inter vivos trust may not be created without conforming to the requirements of a gift inter vivos. First, Fleck v. Baldwin did not involve an application of the Texas Trust Act because the trusts in that case were created before April 19, 1943, the effective date of that act. The Trust Act did not operate retroactively. Binford v. Snyder, 144...