Redke v. Silvertrust

• Decision Date: 24 November 1971
• Citation: 98 Cal.Rptr. 293,6 Cal.3d 94,490 P.2d 805
• Court: California Supreme Court
• Parties: , 490 P.2d 805 Mitzi Lee REDKE, Plaintiff and Respondent, v. Abraham SILVERTRUST, as Executor, etc., and Co-trustee, etc., et al.,Defendants and Appellants. L.A. 29886. In Bank

Page 293

98 Cal.Rptr. 293

6 Cal.3d 94, 490 P.2d 805

Mitzi Lee REDKE, Plaintiff and Respondent, v. Abraham SILVERTRUST, as Executor, etc., and Co-trustee, etc., et al.,Defendants and Appellants.

L.A. 29886.

Supreme Court of California,

In Bank.

Nov. 24, 1971.

As Modified on Denial of Rehearing Dec. 29, 1971.

Ervin, Cohen & Jessup, Allan Browne, Beverly Hills, O'Melveny & Meyers, and Philip F. Westbrook, Jr., Los Angeles, for defendants and appellants.

Samuel Reisman, Los Angeles, Ball, Hunt, Hart, Brown, Baerwitz, Clarence S. Hunt, Long Beach, for plaintiff and respondent.

Edward L. Lascher, Richard E. Rader, Ventura, and Henry E. Kappler, Los Angeles, as amici curiae for plaintiff and respondent.

BURKE, Justice.

Plaintiff Mitzi Lee Redke brought an action in Los Angeles Superior Court to enforce the terms of an oral agreement allegedly made for her benefit between her mother, Ann Hayden, and her stepfather, Samuel Hayden, both of whom are now deceased, whereunder Sam agreed to bequeath certain of Ann's separate property to Mitzi. Defendants, who are the executors of Sam's estate, co-trustees of a trust created by him, and testamentary trustees under Ann's will, appeal from a judgment in Mitzi's favor. We have concluded that, except for one minor modification, the judgment should be affirmed.

The pertinent facts underlying the dispute are as follows: In 1955, Sam, a widower with three adult children, married Ann, mother of Mitzi and Warren. By 1963, Ann's separate property had grown from approximately $20,000--$40,000 to over a million dollars, largely as result of Sam's assistance in managing her investments. Ann executed a will and an inter vivos trust which provided that half of her separate property would be placed in a marital deduction trust for Sam, giving him a general power of appointment over that property; the remaining half was to be placed in trust for her children, Mitzi and Warren. Sam executed a similar will and trust leaving half of his property to Ann, and half in trust for Mitzi and Warren.

On February 22, 1963, Warren died unexpectedly from a heart attack. Ann, who was suffering from terminal cancer, was informed of her son's death the following day. That news was a shock to Ann, and she immediately became concerned about providing for Mitzi, whose husband was also ill. Consequently, she informed Sam, in the presence of her nurse, Mitzi and another person, that she wanted to call her lawyers to change her will and trust to leave All of her separate property to Mitzi. Sam assured her that no such changes were necessary, and promised that if Ann died, Sam would leave his share of Ann's property to Mitzi upon his own death and would see that Mitzi received all of Ann's property. Ann agreed. Thereafter, the only substantial changes made in Ann or Sam's estate plans prior to Ann's death were amendments to their trusts to give Warren's share of their trust estates to Mitzi; Ann also executed a document transferring to her trust most of her remaining property.

Ann died on April 5, 1963. On the following day, Sam offered to give to Mitzi Ann's jewelry and furs, a matter discussed separately below. Sam also reaffirmed to various persons, including Mitzi, his promise to leave Mitzi has share of Ann's property. Nevertheless, within a few months following Ann's death, Sam met and married Ruth Allender and shortly thereafter amended his trust and will eliminating all provision for Mitzi and naming as beneficiaries his new wife and his natural children. Sam died in 1965, and Mitzi filed creditor's claims against his estate based upon the oral agreement and the separate gift of furs and jewelry.

At trial, defendants denied the existence of the alleged oral agreement and contended, among other things, that such an agreement would be unenforceable under the statute of frauds and void as contrary to public policy, being an illegal evasion of federal and state death taxes. The trial court made extensive findings which, in effect, recognized the existence of the oral agreement and upheld its validity and enforceability. The court held that upon Ann's death Sam became constructive trustee for the benefit of Mitzi of all of Ann's separate property, furs and jewelry received by Sam from and after Ann's death, together with all income, interest and profits derived therefrom. The court's judgment ordered defendants to deliver to Mitzi certain designated stock valued at $392,186.48, with dividends and increments thereto, plus seven precent interest from the date of judgment. In addition to this stock, Mitzi was awarded the sum of $457,916.06, plus seven percent interest from the date of judgment. Mitzi also obtained judgment for all damages which she or Ann's estate may incur by reason of Sam's negligence or misconduct.

1. The Oral Agreement

In general, a contract to make a particular testamentary disposition of property is valid and enforceable. As in every contract, 'there is an implied covenant of good faith and fair dealing that neither party will do anything which injures the right of the other to receive the benefits of the agreement. (Citations.) Where the parties contract to make a particular disposition of property by will, the agreement necessarily includes a promise not to breach the contract by revoking the will and failing to dispose of the property as agreed.' (Brown v. Superior Court, 34 Cal.2d 559, 564--565, 212 P.2d 878, 881; Brewer v. Simpson, 53 Cal.2d 567, 588--589, 2 Cal.Rptr. 609, 349 P.2d 289.) If the contract is executed between spouses, a failure to perform it constitutes a violation of their confidential relationship and is constructive fraud which justifies the imposition of a constructive trust. (Day v. Greene, 59 Cal.2d 404, 411, 29 Cal.Rptr. 785, 380 P.2d 385.)

The trial court correctly determined that the statute of frauds did not render the agreement unenforceable. 'Although the statute requires that an agreement to make a provision by will be in writing (Civ.Code, § 1624, subd. 6; Code Civ.Proc., § 1973, subd. 6), a party will be estopped from relying on the statute where fraud would result from refusal to enforce an oral contract (citation). The doctrine of estoppel has been applied where an unconscionable injury would result from denying enforcement after one party has been induced to make a serious change of position in reliance on the contract or where unjust enrichment would result if a party who has received the benefits of the other's performance were allowed to invoke the statute. (Citation.)' (Day v. Greene, supra, 59 Cal.2d 404, 409--410, 29 Cal.Rptr. 785, 788, 380 P.2d 385, 388; see Monarco v. Lo Greco, 35 Cal.2d 621, 623, 220 P.2d 737; Notten v. Mensing, 3 Cal.2d 469, 474, 45 P.2d 198; Mintz v. Rowitz, 13 Cal.App.3d 216, 223--225, 91 Cal.Rptr. 435.)

The trial court found that Ann, by reason of her trust and confidence in Sam, and in reliance upon his oral promise, changed her position to her detriment, and to Mitzi's detriment, by not changing her will and trust to make Mitzi her sole beneficiary; she changed her position by maintaining the status quo despite her concern over her daughter's welfare. Defendants do not question the evidentiary support for this finding, nor do they dispute the applicable law set forth above. They do, however, contend that Sam and Ann subsequently abandoned the agreement, a factual question which the trial court resolved in plaintiff's favor. There was ample evidence to support the court's finding that the agreement was not abandoned, including the fact that after Ann's death, Sam affirmed to five witnesses, including Mitzi, his agreement to leave his share of Ann's property to Mitzi. ¹ We conclude that the trial court correctly held that defendants are estopped to rely upon the statute of frauds.

Defendants' primary contention is that the agreement between Ann and Sam was illegal and against public policy as an attempted evasion of death taxes. By the terms of Ann's will and trust, Sam was given half of Ann's separate property for life, with an unlimited power to appoint the remainder. One of the purposes of framing Ann's estate plan in this manner was to take advantage of the tax benefits afforded by the federal marital deduction (26 U.S.C. § 2056) whereby death taxes may be lawfully avoided as to one half of a spouse's separate property. The federal deduction is only available, however, if the surviving spouse is given the unrestricted right to dispose of the property as he chooses. Any limitation upon that right could result in the loss of the deduction. Thus, 'if the surviving spouse entered into a binding agreement with the decedent to exercise the power (of appointment) only in favor of their issue, that condition (i.e., that the surviving spouse be given an unrestricted right of disposition) is not met.' (Fed. Tax Reg. (1971) § 20.2056(b)-5(g)(2); see Batterton v. United States, 5 Cir., 406 F.2d 247.)

The evidence discloses that following Ann's death, Sam, as executor of her estate, claimed the marital deduction, obtaining a substantial tax savings. It is likely that had the existence of the oral agreement restricting Sam's right to dispose of Ann's property been disclosed to the taxing authorities, the deduction would have been disallowed. Defendants contend, therefore, that the agreement constituted a fraud upon the tax authorities and should not be enforced.

Since any wilful attempt to evade or defeat taxes is a crime (26 U.S.C. § 7201), had Ann and Sam entered into their agreement with the intent of fraudulently concealing its existence from the tax authorities for the purpose of improperly obtaining the marital deduction, it is likely that we would hold the agreement unenforceable. (See Platt v. Wells Fargo Bank, 222 Cal.App.2d 658, 664, 35 Cal.Rptr. 377.) However, having failed to prove such an intent at trial, defendants cannot prevail.

There was, of course, nothing illegal per se in Sam's oral...