Doris E. Young, Administratrix v. Gary Douglas Young , 808 S.E.2d 631 ( 2017 )

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 2017 Term FILED
_______________
November 2, 2017
released at 3:00 p.m.
Nos. 16-0603 and 16-0955 EDYTHE NASH GAISER, CLERK
SUPREME COURT OF APPEALS
_______________ OF WEST VIRGINIA
DORIS E. YOUNG, Individually and in Her Capacity as the Administratrix of the Estate
of Gary Ray Young,
Defendant Below, Petitioner
v.
GARY DOUGLAS YOUNG,
Plaintiff Below, Respondent.
____________________________________________________________
Appeal from the Circuit Court of Putnam County
The Honorable Philip M. Stowers, Judge
Civil Action No. 14-C-129
REVERSED AND REMANDED
____________________________________________________________
Submitted: September 20, 2017
Filed: November 2, 2017
Harvey D. Peyton Perry W. Oxley, Esq.
Thomas H. Peyton J.E. White, Jr., Esq.
Peyton Law Firm, PLLC J. Jarrod Jordan, Esq.
Nitro, West Virginia Anspach Meeks Ellenberger LLP
Counsel for the Petitioner Charleston, West Virginia
Counsel for the Respondent
JUSTICE WALKER delivered the Opinion of the Court.
CHIEF JUSTICE LOUGHRY and JUSTICE KETCHUM dissent and reserve the right to
file a dissenting opinion.
SYLLABUS BY THE COURT
1. “A circuit court’s entry of summary judgment is reviewed de novo.”
Syllabus Point 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
2. “No promise is good in law unless there is a legal consideration in
return for it.” Syllabus Point 1, Thomas v. Mott, 74 W. Va. 493, 82 S.E. 325 (1914).
3. “A valuable consideration may consist either in some right, interest,
profit or benefit accruing to the one party or some forbearance, detriment, loss or
responsibility given, suffered, or undertaken by the other.” Syllabus Point 1, Tabler v.
Hoult, 110 W. Va. 542, 158 S.E. 782 (1931).
4. “The promise of a party to a contract, in order to be a good
consideration for the undertaking of the other party thereto, must be such as to impose a
legal liability. Where the promise relied upon as constituting the consideration for the
contract does not impose any legal liability upon the promisor, it will not ordinarily be
held to be a sufficient consideration on the part of the other party.” Syllabus Point 2,
Banner Window Glass Co. v. Barriat, 85 W. Va. 750, 102 S.E. 726 (1920).
5. If a contract or a contract term is substituted for a will such that it
prevents an electing surviving spouse from receiving the full value of his or her
i
distributive share of marital property owned by his or her spouse at the time of death, the
contract or contract term is unenforceable as against the electing surviving spouse for the
purposes of determination of his or her elective share.
ii
WALKER, Justice:
Gary Ray Young (Decedent) and his son Gary Douglas Young (Decedent’s
son) formed a partnership in 1985. After Decedent died without a will in 2016, a dispute
arose between Decedent’s son and Decedent’s wife of more than thirty years, Doris
Young (Mrs. Young) about the disposition of Decedent’s one-half interest in the
partnership, which Mrs. Young has valued at approximately $1 million. Decedent’s son
claims that he has a valid contractual option to purchase Decedent’s entire one-half
interest in the partnership for $50,000 according to an option agreement executed
between Decedent and his son in 1987. Mrs. Young contends that her elective share
should be based upon the full value of the partnership rather than upon the option price of
$50,000.
Mrs. Young instituted this appeal to challenge the circuit court’s summary
judgment determination that the option agreement was supported by consideration and
that the option price of $50,000 would be used in calculating her elective share. Upon
review, we conclude that the option agreement was unsupported by consideration and
testamentary in nature, executed in the guise of a partnership agreement. Further, we find
that the option agreement, as structured, contradicts the public policies and principles of
the elective share statutory scheme and is unenforceable against Mrs. Young for the
purposes of determining her elective share.
1
I. FACTUAL AND PROCEDURAL BACKGROUND
Decedent married Mrs. Young on April 9, 1982. While Decedent had two
children from a previous marriage – Gary Young and Rita Marion – he did not have any
children with Mrs. Young. During his marriage to Mrs. Young, Decedent and his son
formally organized their partnership, G&G Investments, by executing the Agreement of
Partnership (“1985 Partnership Agreement”) on December 9, 1985. Decedent and his son
were the only two partners. As to the partnership’s disposition upon death of one of the
partners, the 1985 Partnership Agreement provided:
In the event of the death of one of the partners prior to
the otherwise termination of the partnership, the partners
hereby irrevocably grant to each other the exclusive right and
option to purchase such deceased partner’s interest in the
partnership property from the estate of such deceased partner
for an amount equal to one-half of the net book value of the
partnership property as of the date of such partner’s death, it
being the intent of the partners that the surviving partner shall
receive all of the partnership property.
On October 14, 1987, Decedent and his son amended their partnership
agreement by executing an Amended Partnership Agreement for G&G Investment, a
West Virginia Partnership (“1987 Partnership Agreement”). The new agreement
contained the same terms as the 1985 Partnership Agreement except for the provision
relating to the partnership’s disposition on the death of one of the partners. This
provision was amended to read as follows:
In the event of the death of one of the partners prior to
the otherwise termination of the partnership, the deceased
partner’s interest in the partnership shall be governed by the
2
provisions of a separate contract between all the partners
hereto. The heirs, executors, administrators, or legal
representatives of a deceased partner shall be bound by that
separate contract.
That same day, Decedent and his son executed a new document – the G&G Investments
Purchase and Sale Agreement (“Option Agreement”) giving Decedent’s son the option to
purchase Decedent’s undivided one-half interest in the partnership for $50,000. The
exact language is as follows:
I. In the event of the death of [Decedent],
[Decedent’s son] shall have the option to purchase
[Decedent’s] interest in the partnership for the amount of
Fifty Thousand Dollars ($50,000.00), by providing the legal
representative of the estate of [Decedent] written notice of
such election within six (6) months of the date of death of
[Decedent].
[Decedent’s] estate shall be paid in full the above
referenced purchase price within one year after the notice of
[Decedent’s son’s] election to purchase such interest. The
above specified purchase price does not necessarily represent
the fair market value of [Decedent’s] interest in said
partnership at the time of the formation of this agreement or
in the future, but represents the amount [Decedent] desires
[his son] to pay in order to receive full ownership of the
partnership and its assets.
II. On [sic] the event of the death of [Decedent’s
son] his interest in the partnership shall be assumed by his
estate according to the terms and conditions set forth in his
last will and testament.
G&G Investments operated under the 1987 Partnership Agreement until
Decedent passed away on November 1, 2016, without a will. At the time of his death, the
3
partnership was worth significantly more than the $50,000 price in the Option
Agreement.1
Twenty-one days after Decedent’s death, his son notified Mrs. Young, the
administratrix of Decedent’s estate, of his intent to exercise his option to purchase
Decedent’s half of G&G Investments. Mrs. Young refused to convey the partnership
interest. Decedent’s son then filed a Petition for Declaratory Judgment and Associated
Relief to compel the conveyance. Mrs. Young filed a counter-claim and cross-claim
seeking a declaration of her rights to an elective share of the augmented estate. The
parties both filed motions for summary judgment and sought the circuit court’s review of
whether the Option Agreement was valid and enforceable and how to value Decedent’s
partnership interest for the purpose of probate and assignment of Mrs. Young’s elective
share.
1
As administratrix, Mrs. Young attempted to conduct a valuation of the
partnership, but was not provided access to all of the necessary information. Mrs. Young
alleges that even if the only assets used in the valuation are the real estate appraisal and
the capital account, her husband’s interest in the partnership is worth, at minimum, $1.1
million. She believes that the actual value is much higher. Decedent’s son has not
contested any valuation figure. The value of the partnership interest presents a question
of fact for the court. While we recognize that valuation of a partnership is a complicated
process and that Mrs. Young’s valuation does not reflect an actual final product of that
process or an official valuation, for purposes of this appeal we rely upon the only
valuation in the record – $1.1 million – as the value of Decedent’s interest in the
partnership.
4
The circuit court determined that the Option Agreement was valid and
enforceable because it was incorporated by reference in the 1987 Amended Partnership
Agreement and therefore was supported by consideration because that underlying
agreement was supported by consideration. Next, the circuit court recognized two
competing interests – on the one hand, freedom of contract, and on the other, a statutory
scheme aimed at preventing disinheritance of a spouse. As a solution, the circuit court
devised a balancing test to determine which interest should prevail, considering whether
the consideration was more than a nominal sum, whether there was a legitimate business
purpose for the transfer, and whether the agreement was in place for a sufficient period of
time in order to abate concerns that the transfer was solely designed to defeat the
spouse’s elective share claim.
Having already determined that the Option Agreement was valid,
enforceable, and supported by consideration, the circuit court found that determination of
partnership interest at death was a legitimate business purpose, and that the agreement
had been in effect for more than thirty years, so there was no evidence that it was
designed solely to defeat the spouse’s elective share claim. Thus, pursuant to the
balancing test created by the circuit court, all factors weighed in favor of Decedent’s
son’s contractual claim to the partnership property over Mrs. Young’s elective share.
5
On appeal, Mrs. Young contends that the Option Agreement was
unsupported by consideration and an attempted testamentary disposition of property, and
that the circuit court’s balancing test imparted an element of intent to disinherit, when
there is no such requirement under the elective share statutes. Additionally, Mrs. Young
asserts that “the public policy and purpose of the elective share statute dictates the
inclusion of [Decedent’s] partnership interest in his probate estate for the purpose of
elective share just as if it were being considered a part of his marital estate for equitable
distribution.”
II. STANDARD OF REVIEW
The issues before us arise from a grant of summary judgment. It is well
established that “[a] circuit court’s entry of summary judgment is reviewed de novo.”2
III. ANALYSIS
Mrs. Young raises two interrelated arguments on appeal. First, she argues
that the Option Agreement is unenforceable because it lacks consideration and is an
attempted testamentary disposition that is not compliant with the Statute of Wills.3
Second, she argues that even if the Option Agreement is enforceable, the purchase price
2
Syl. Pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
3
W. Va. Code §§ 41-1-1 to 5-20 (2014).
6
is not binding on a surviving spouse electing against her intestate share because the
public policy and purpose of the elective share statute requires that the actual value of the
partnership be included in the estate for calculation of her elective share. Decedent’s son
counters that the Option Agreement is valid and specifically enforceable because his
contractual right to purchase Decedent’s partnership interest is superior to Mrs. Young’s
claim as a surviving spouse.
We preface our analysis with a discussion of the elective share statutory
scheme4 in order to consider Mrs. Young’s challenges to the validity and enforceability
of the Option Agreement in context. The elective share statute, which codifies rights of a
surviving spouse against disinheritance, provides:
The surviving spouse of a decedent who dies
domiciled in this state has a right of election, against either
the will or the intestate share, under the limitations and
conditions stated in this part, to take the elective-share
percentage of the augmented estate, determined by the length
of time the spouse and the decedent were married to each
other [as determined by the statutory schedule].5
4
W. Va. Code §§ 42-3-1 to -7 (2014).
5
W. Va. Code § 42-3-1(a) (2014).
7
The statutory schedule provides that after fifteen years of marriage, a surviving spouse is
entitled to fifty percent of the “augmented estate.”6 The “augmented estate” is composed
of the probate estate as well as the “reclaimable estate,” both of which are used to value
the spouse’s elective share.7 The “reclaimable estate” returns to the estate, for purposes
of calculation of the elective share, certain nonprobate assets the now-decedent spouse
transferred to persons other than his spouse or held with persons other than his spouse
with right of survivorship.8
According to the statute, Mrs. Young is entitled to elect against her intestate
share and receive fifty percent of the augmented estate based on the length of her
marriage to Decedent. The critical inquiry before us is whether the partnership property
at issue in the Option Agreement should be included in the augmented estate. In order to
resolve this question, we must decide whether the Option Agreement included the
requisite consideration or if it merely was an instrument through which assets were
transferred at death outside of the probate process. Finally, we must weigh the competing
public policies at issue. With this context in mind, we turn to an analysis of the validity
of the Option Agreement.
6
W. Va. Code §42-3-1(a) (2014).
7
W. Va. Code § 42-3-2 (b) (2014).
8
Stuter v. Fortin ex rel. Estate of Stuter, No. 12-1185, 2013 WL 3184642 at *1
(W. Va. June 24, 2013) (memorandum decision).
8
A. Failure of Consideration
We have acknowledged “[t]hat consideration is an essential element of, and
is necessary to the enforceability or validity of a contract is so well established that
citation of authority therefor is unnecessary.”9 Further, “[n]o promise is good in law
unless there is a legal consideration in return for it.”10 And, “where there is no benefit
moving to the promisor or damage or injury to the promisee, [the contract] is void.”11
Consideration is a broad term; we have stated that “[a] valuable consideration may
consist either in some right, interest, profit or benefit accruing to the one party or some
forbearance, detriment, loss or responsibility given, suffered, or undertaken by the
other.”12
Decedent’s son argues that because the Option Agreement is incorporated
by reference into the 1987 Partnership Agreement, it need not be supported by separate
consideration because it benefits from the consideration given in the 1987 Partnership
Agreement. Decedent’s son further argues that the Option Agreement on its face states
9
First Nat. Bank of Gallipolis v. Marietta Mfg. Co., 151 W. Va. 636, 642, 153
S.E.2d 172, 177 (1967)
10
Syl. Pt. 1, Thomas v. Mott, 74 W. Va. 493, 82 S.E. 325 (1914).
11
Syl. Pt. 2, in part, Sturm v. Parish, 1 W. Va. 125, 144 (1865).
12
Syl. Pt. 1, Tabler v. Hoult, 110 W. Va. 542, 158 S.E. 782 (1931).
9
that the agreement was made “[i]n consideration of the promises, and the mutual
covenants herein contained, and other good and valuable consideration.”
Indeed, we have held that so long as a multi-clause contract overall is
supported by consideration, separate consideration is not required for each promise
contained within it.13 Decedent’s son’s contention on this point is inapplicable, however,
when one considers that the 1987 Partnership Agreement contains the exact same terms
of the 1985 Partnership Agreement, except for the provision referring to a “separate
contract” governing disposition of a deceased partner’s interest (Buy-Sell Provision). By
its terms, the 1987 Amended Partnership Agreement is a single modification of the 1985
Partnership Agreement for the sole purpose of including the Buy-Sell Provision.
Under these circumstances, the Option Agreement requires new
consideration. We have determined that “not only must such modification or alterations
be by mutual agreement but must be based upon a valid consideration, and the original
consideration . . . cannot be used as consideration for any agreement of modification or
alteration in connection therewith.”14 Similarly, we have held that “[c]onsideration is an
essential element of a valid contract, and it is axiomatic that past consideration already
13
See Syl. Pt. 6, Dan Ryan Builders, Inc. v. Nelson, 230 W. Va. 281, 737 S.E.2d
550 (2012).
14
Steinbrecher v. Jones, 151 W. Va. 462, 470, 153 S.E.2d 295, 301 (1967).
10
given for a previous agreement cannot constitute valid consideration for a new
agreement.”15 Thus, even if we were to find that the terms of the Option Agreement were
incorporated by reference, the terms of the 1987 Partnership Agreement cannot provide
consideration for the Buy-Sell Provision because it remained unchanged and already
bound the parties. The Buy-Sell Provision is a modification of the original 1985
Partnership Agreement and requires new consideration.
In light of that finding, we turn to whether, standing alone, the promises
contained in the Option Agreement are supported by consideration. The Option
Agreement is prefaced with the language “[i]n consideration of the promises, and the
mutual covenants herein contained, and other good and valuable consideration, it is
hereby agreed . . . .” Initially, we dispose of Decedent’s son’s argument that this bare
recital of consideration alone somehow creates consideration. While a recital of
consideration containing a sum paid or detriment undertaken in return for the promises
made in the agreement may be sufficient consideration, the recital here contains no such
statement.16 Decedent’s son has neither argued nor demonstrated that the “good and
15
Chesapeake Appalachia, L.L.C. v. Hickman, 236 W. Va. 421, 439, 781 S.E.2d
198, 216 (2015) (citing Syl. Pt. 1, Cole v. George, 86 W. Va. 346, 103 S.E. 201 (1920)
(“An agreement by one to do what he is already legally bound to do is not a good
consideration for a promise made to him.”)).
16
See, e.g., Oates v. Oates, 127 W. Va. 469, 476, 33 S.E.2d 457, 460 (1945)
(“Plaintiff recites in his deed the receipt of ten dollars as a consideration for his
(continued . . .)
11
valuable consideration” recited references that he paid any sum in return for the option,
undertook additional duties in the partnership, bore more losses, or any other
manifestation of consideration that may not be apparent from the four corners of the
document. Accordingly, we limit our review of applicable consideration to the language
in the Option Agreement relating to the promises and mutual covenants made.
The Option Agreement is, in contractual terms, a promise in return for a
promise. Decedent promises that on his death, his son has the option to purchase his
interest in the partnership for $50,000. Decedent’s promise further acknowledges that
$50,000 is not representative of the actual fair market value at the time of executing the
agreement or in the future, but is the amount he desired his son to pay for full ownership.
His son, in turn, promises that upon his death, his interest in the partnership is assumed
by his estate according to his will.
In theory, because this agreement purports to be a bilateral agreement, the
consideration given by Decedent’s son could be either (1) realization of Decedent’s
desire to have his son take over the business; or (2) his return promise to allow his estate
to assume his partnership interest on his death according to his will. As discussed below,
both of these fail because they are legally insufficient consideration.
conveyance to the defendant. This recital, although open to explanation and
contradiction, is prima facie evidence of the payment thereof.”) (citation omitted).
12
With respect to Decedent’s promise, the language of the Option Agreement
makes it clear that Decedent was motivated to enter into the agreement in order to
provide a means for his son to assume his partnership interest on his death at a certain
price, if his son so elected, regardless of its actual value. Other jurisdictions have
concluded that the motives behind a party’s decision to enter into a contract are
insufficient to enforce it in the absence of actual consideration. Citing the litany of other
jurisdictions that have concluded motive as legally insufficient17 consideration, Williston
on Contracts § 7.17 explains:
if there is no legal consideration, no mere motive, such as
love and affection, close friendship or a desire to do justice,
or a desire to avoid trouble, or to equalize the shares in an
estate, or provide for a child, or to express regret for having
caused some difficulty, will support a promise. Unlike the
“causa” in the Roman or civil law, consideration is a present
exchange bargained for in return for a promise. “Causa” is
some adequate reason for making a promise, and may be
either a present exchange or an existing state of facts.18
17
We note here that there is a distinct difference between legally insufficient
consideration and the adequacy of consideration. The former contemplates that, by
operation of law, there is no consideration, whereas the latter concerns whether the
legally sufficient consideration given is adequate to justify the magnitude of the promises
made in an agreement.
18
3 Williston on Contracts § 7.17 (4th ed. 2017) (citing cases from Alabama,
California, Connecticut, Illinois, Indiana, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, New Jersey, New York, North Carolina, Ohio, Oregon,
Pennsylvania, Rhode Island, Texas, West Virginia, and Wisconsin as standing for the
proposition that motive is legally insufficient consideration) (citations omitted).
13
Further, the concepts of consideration and motive are distinguished in Prudential
Preferred Properties v. J and J Ventures, Inc.:19
the court discussed the difference between consideration and
motive, making clear that the two concepts are distinct and
must not be confused; that although one consideration may
support multiple promises, at least one consideration must be
present for any promise to be enforceable; and that while
consideration is essential to any binding promise, the
motivation of the promisor or promisee is largely irrelevant,
at least when there is an absence of the requisite
consideration; the court said: “Ultimately, in testing to
determine if consideration is present, the court is asking:
‘What did you give to get what you got?’”20
Thus, we find that while Decedent may have contemplated that his motives would be
accomplished by entering into the Option Agreement, accomplishment of intent or
motive alone is legally insufficient to serve as consideration for this Option Agreement.21
Likewise, the inquiry “what did you give to get what you got?” is
instructive to our analysis of Decedent’s son’s return promise – that is, what did
Decedent’s son give to get full ownership of the partnership at $50,000, regardless of its
19
859 P.2d 1267 (Wyo. 1993).
20
3 Williston on Contracts § 7.17 (4th ed. 2017) (citing Prudential Preferred
Properties v. J and J Ventures, Inc. 859 P.2d 1267 (Wyo. 1993) (emphasis added)).
21
3 Williston on Contracts § 7.17 (4th ed. 2017).
14
actual value? Facially, as noted above, the Option Agreement is executed as an exchange
of two promises. In actuality, Decedent’s son gave up nothing to receive full ownership
of the partnership at the $50,000 price. To be clear, this is not an exchange of reciprocal
and mutual options for the partners to buy out one another’s interest at death typical of
buy-sell agreements in partnerships. Rather, Decedent gave his son the right to buy out
his ownership interest for the arbitrary figure of $50,000 at his death regardless of its
actual value, and his son, in return, only promises to do with his ownership interest what
he so chooses.
In examining non-reciprocal options such as the Option Agreement, we
find this discussion by the Court of Appeals of Kentucky instructive:
There is no requirement of the law that for each right created
by a contract in one party the other party must have a
reciprocal right of the same nature. . . . The crucial question is
whether the nature of the unilateral option is such that the
party to whom it is granted has in actuality no fixed
obligations under the contract. If so, his promise to perform
is illusory in the sense that he has made no legally
enforceable commitment . . . .”22
Further, comparing the doctrine of mutuality of obligation to the theory of consideration
in the law of contract, the Kentucky court expounded that:
22
David Roth’s Sons, Inc. v. Wright & Taylor, Inc., 343 S.W.2d 389, 390-91 (Ky.
1961).
15
the doctrine of mutuality of obligation (as distinguished from
mutuality of assent of remedy) is closely related to the theory
of consideration in the law of contracts. Where an agreement
is founded solely upon reciprocal promises, unless each party
has assumed some legal obligation to the other the contract is
wanting in consideration and lacking in mutuality.23
As to contracts for which a return promise supplies the requisite consideration, we have
held:
The promise of a party to a contract, in order to be a
good consideration for the undertaking of the other party
thereto, must be such as to impose a legal liability. Where the
promise relied upon as constituting the consideration for the
contract does not impose any legal liability upon the
promisor, it will not ordinarily be held to be a sufficient
consideration on the part of the other party.24
Succinctly put,
[t]hat a promise of one may be valid consideration for the
promise of another is well settled. It is equally as well
settled, however, that in order for such a promise to be a good
consideration for the promise of the other party, it must be
such as legally binds the promisor so that an action for the
breach thereof might be maintained against him.25
In this case, Decedent’s son made no additional promise and imposed no additional
obligation upon himself that he did not already have – he merely agreed to dispose of his
23
Id. at 390 (citation omitted).
24
Syl. Pt. 2, Banner Window Glass Co. v. Barriat, 85 W. Va. 750, 102 S.E. 726
(1920).
25
Id. at 752, 102 S.E. at 727.
16
property in accordance with his will. His return promise imposed no legal duty on him;
his station before and after the execution of the contract remained utterly unchanged, and,
had Decedent’s son breached the contract, Decedent would have had no recourse against
him. We have held in similar circumstances that in the absence of consideration passing
in exchange for a promise, “it [is] no more than an executory promise to make a gift, and
it is well settled that a promise to make a gift in the future is of no effect . . . until the
subject matter of the gift has actually been delivered to the donee . . . .”26 Accordingly,
under these circumstances, the exchange of these promises, in the absence of other
consideration, is legally insufficient consideration.
B. Testamentary Disposition and the Elective Share Statutory Scheme
We next examine whether the Option Agreement is in effect a testamentary
disposition, or, in other words, a means by which Decedent could make a gift to take
effect at the time of his death without complying with the Statute of Wills. Decedent’s
son argues that he was not given the partnership property outright; he is made to pay
$50,000 in return for it – thus, it is not gratuitous and, therefore, not testamentary. It is
clear to us, however, that this option was not executed at arm’s length and is Decedent’s
substitute for a will under the guise of a partnership agreement. That is, there is an
agreement that is otherwise unsupported by consideration, to take effect at death, which
vests in Decedent’s son an option to purchase his share of the partnership for an arbitrary,
26
Id. at 752-53, 102 S.E. at 727.
17
fixed price, regardless of its actual value, and whose actual value is appraised at twenty
times the arbitrary, fixed option price. The failure of Decedent and his son to choose a
price rationally related to the actual value of the partnership coupled with the fact that
this is a one-sided option to convey an interest at death for far less than full and adequate
consideration makes it clear that this agreement served as a device for Decedent to pass
interest to his son outside of probate and for that reason the Option Agreement is a will
substitute.
The Restatement of Property states that a will substitute
serves the function of a will because it is an arrangement
respecting property or contract rights that is established
during the donor’s life under which (1) the right to possession
or enjoyment of the property or to a contractual payment
shifts outside of probate to the donee at the donor’s death; and
(2) substantial lifetime rights of dominion, control,
possession, or enjoyment are retained by the donor.27
This Option Agreement is a textbook example of a will substitute – the option vested a
contract right in Decedent’s son during Decedent’s life, but which he would not enjoy
until the death of Decedent because Decedent retained full control over the partnership
property and its proceeds during his life. As such, the will substitute is subject to the
elective share statute:
Although the validity of a will substitute does not
depend on its being executed in compliance with the statutory
27
Restatement (Third) of Property (Wills & Don. Trans.) § 7.1 (2003).
18
formalities required for a will, a will substitute serves the
function of a will. It shifts the right to possession or
enjoyment to the donee at the donor’s death. In this sense, a
will substitute is in reality a nonprobate will. A will
substitute is therefore, to the extent appropriate, subject to
substantive restrictions on testation and to rules of
construction and other rules applicable to testamentary
dispositions.28
More specifically,
[c]onstruing and applying the [elective share] statute broadly
according to its purpose . . . the statute [leaves] no opening
for ingenuity to enable a husband to remain during his life in
full dominion of his property and yet to dispose of the same
after death to the exclusion of his widow from her distributive
share. The right of a widow to her share of the estate owned
by her husband at the time of his death is impregnable or it is
not existent at all[.]29
It is plain that Decedent wanted his son to have his share of the partnership
for $50,000 – there is no evidence that Decedent was coerced into this agreement.
Nonetheless, the elective share is a statutorily imposed restriction on the freedom of
contract and on the alienation and devise of property when it infringes upon the rightful
share of the surviving spouse. Thus, even if a valid contract were executed between
28
Id. at § 7.2.
29
85 A.L.R. 4th 418 (1991) (discussing Fleming v. Fleming, 180 N.W. 206 (Iowa
1920)) (emphasis added).
19
Decedent and his son,30 when viewed in the face of an elective share claim by the
surviving spouse, the $50,000 option price cannot be enforced against her to the extent it
does not satisfy her full statutory share. 31 Indeed, the statutory framework of the elective
share statute explicitly exempts from the reclaimable estate transfers for which “full and
32
adequate consideration in money or money’s worth” was given in exchange for the
property, understandably, because the decedent’s estate would have already been
compensated for the value of that asset during his life or at death.33 Here, however, the
30
Of course, a surviving spouse’s share is dictated by the percent ownership
owned by his or her deceased spouse at the time of death. Thus, had the agreement
previously been amended to provide, for example, that the son would be responsible for a
larger percentage of the work or responsibility for the business and the percentage
ownership were amended to reflect that shift, that agreement would be unaffected by this
Opinion.
31
See Rubeinstein v. Mueller, 225 N.E.2d 540 (N.Y. 1967) (citing with approval
cases holding that a former wife’s right to specific enforcement of a separation agreement
to make a will leaving property to the former spouse or children must give way to the
spouse’s elective share); Buehrle v. Buehrle, 126 N.E.539 (Ill. 1920) (husband could not
by an agreement with his business partner deprive his widow of her rights in his estate
where agreement was entered during the marriage); Keats v. Cates, 241 N.E.2d 645, 652
(Ill. App. Ct. 1968) (stating the general rule that a contract to devise or bequeath property
which is entered into during the marriage cannot defeat the rights of the surviving spouse
unless such surviving spouse has relinquished her rights in some other way).
32
Although not implicated here, we note that the Legislature has also exempted
transactions from the augmented estate if the transfer was irrevocably made with the
written consent or joinder of the surviving spouse. W. Va. Code § 42-3-2(c) (2014).
33
W. Va. Code § 42-3-2(c)(i) (2014). This Court takes special notice that the
language of this code provision provides that transfers made in exchange for “full and
adequate consideration in money or money’s worth” are excluded from the reclaimable
estate, as opposed to the probate estate. This statute defines the “probate estate” as
(continued . . .)
20
$50,000 option is one-sided and is not remotely related to the actual value of the
partnership. Decedent’s son argues that the $50,000 option price reflects the definition of
fair market value because it is the price at which someone [Decedent] was willing to sell
it. This argument is unavailing because that definition of fair market value assumes that
the asset was available in the marketplace – in this case, the “price a buyer was willing to
pay” was set by a contract that we have already discussed was not negotiated at arm’s
length. To conclude that the option price reflects the fair market value would also require
us to reach the illogical conclusion that the partnership’s fair market value is $50,000 if
Decedent dies first, but $1.1 million if Decedent’s son died first. We decline to do so.
Rather, as to the enforceability of an option price on a non-consenting spouse, we find the
“property, whether real or personal, movable or immovable, wherever situated, that
would pass by intestate succession if the decedent died without a valid will.” W. Va.
Code § 42-3-2(a)(iv) (2014). Conversely, the reclaimable estate, as provided for in W.
Va. Code § 42-3-2 (b)(2)(iii)(A), includes:
property transferred by the decedent to any person
other than a bona fide purchaser at any time during the
decedent’s marriage to the surviving spouse, to or for the
benefit of any person, other than the decedent’s surviving
spouse, if . . . the decedent retained at the time of his or her
death the possession or enjoyment of, or right to income from
the property[.]
Although the partnership property itself would not have transferred until the option was
exercised, we nevertheless find this language instructive in the context of an option
vesting in Decedent’s son a contract right to take effect at death for less than full and
adequate consideration. Ultimately, however, the fact that Decedent owned this property
at the time of his death and our conclusion that this is a will substitute would indicate that
this partnership property is considered part of the probate estate.
21
system of equitable distribution more instructive because the issues presented and public
policies at stake are common to both contexts where marital property is involved.
When dividing assets through equitable distribution, the majority of
jurisdictions have not considered a fixed price in a partnership or corporate buy-sell
agreement as binding on the other spouse when he or she did not consent to it or was not
otherwise bound by its terms.34 Instead, it is a factor to be weighed in evaluating the
asset because “the price established for buy-out purposes . . . is often artificial and does
not always reflect true value.”35 Looking at the totality of the circumstances in this case,
not only was Decedent deprived of any reciprocal right to buy the partnership at the same
price had the son died first, but upon Decedent’s death, his estate was only nominally
compensated for property Decedent died owning.
34
See In re Marriage of Keyser, 820 P.2d 1194 (Colo. Ct. App. 1991) (stating
majority rule and noting that some courts hold that buy-sell provisions presumptively
control value, while a small minority regard the value specified in the agreement as
controlling).
35
Bosserman v. Bosserman, 384 S.E.2d 104 (Va. 1989). See also, Bettinger v.
Bettinger, 183 W. Va. 528, 396 S.E.2d 709 (1990) (under West Virginia law, a buy-sell
agreement setting stock value for equitable distribution purposes should not be
considered binding, but rather should be weighed with other factors in determining the
value of the stock).
22
As a matter of fundamental fairness, it is undisputed that this partnership
was built entirely during the marriage with marital funds. We have recognized that “the
elective share provision of the Revised Uniform Probate Code specifically was written in
order to ‘bring the elective share law into line with the contemporary view of marriage as
an economic partnership.’”36 Further, “[t]he purpose behind the elective-share provision
set forth in W. Va. Code, 42-3-1 [1992] is to prevent spousal disinheritance in order to
ensure that the surviving spouse’s contribution to acquisition of property during the
marriage is recognized and in order to ensure that the surviving spouse has continuing
financial support after the death of his or her spouse.”37 Thus, to allow a contract void of
consideration to divest a surviving spouse of her distributive share of marital property at
the death of her spouse would provide a court-sanctioned means of hiding or diverting
assets and would thereby emasculate the elective share statutes and undermine our
equitable distribution laws. Accordingly, although we do not take the freedom to
contract lightly, the Option Agreement, as written, is unenforceable because it
“contravenes legislative intent in a way that is clearly injurious to the public good” in
violation of public policy.38
36
Mongold v. Mayle, 192 W. Va. 353, 355-56, 452 S.E.2d 444, 446-47 (1994)
(citation omitted).
37
Id. at 356, 452 S.E.2d at 447.
38
Franks v. Bowers, 116 So. 3d 1240, 1247 (Fla. 2013). See also Cedillo v.
Farmers Ins. Co. of Idaho, 345 P.3d 213, 222-23 (Idaho 2015) (“An illegal contract is a
(continued . . .)
23
Under these circumstances, the freedom of contract must give way to the
elective share statute. Decedent died owning his interest in a partnership created entirely
with marital funds, and during his life subjected that interest to a one-sided option that,
by its own terms, contemplated no semblance of actual or fair market value, rendering it
quasi-testamentary and a will substitute. In the face of a claim of a surviving spouse,
equity and the public policy behind the elective share statutes dictate that under these
circumstances the option price is ineffective and the full value of the partnership must be
included in the augmented estate for purposes of calculating Mrs. Young’s elective share.
Had this option been properly executed in a will, Mrs. Young would have the
uncontroverted right to elect against that devise and the result should be no different
when a will substitute is employed.39 We have discussed that “there are numerous
nonprobate devices which can be used to circumvent policy and thus diminish a surviving
contract that ‘rests on illegal consideration consisting of any act or forbearance which is
contrary to law or public policy.’”) (citations omitted); 5 Williston on Contracts § 12.1
(4th ed. 2017) (“[I]t may be broadly said that a bargain will be declared illegal or
unenforceable if: . . . ‘[T]he interest in enforcement [of a promise or term] is clearly
outweighed in the circumstances by a public policy against the enforcement of such
terms,’ in which case the term will be unenforceable.”) (citation omitted).
39
Although intent to disinherit one’s spouse need not be proven in order to take
under the elective share statute, it is suspect that Decedent, who has been twice married,
with children from a previous marriage, and considerable assets died without a will.
Decedent’s interest in G&G Investments was by far his largest asset at his death. Though
neither essential nor required for our analysis, this reinforces the conclusion that the
Option Agreement was a will substitute.
24
spouse’s elective share,” and we find that the Option Agreement employed here is one
such device.40 To hold that Mrs. Young is denied her share of the partnership because
this testamentary disposition was executed in a “contract” rather than a will would honor
form over substance and we decline to do so. Therefore, we conclude that if a contract or
contract term is a substitute for a will such that it prevents an electing surviving spouse
from receiving the full value of his or her distributive share of marital property owned by
his or her spouse at the time of death, the contract or contract term is unenforceable as
against the electing surviving spouse for the purposes of determination of his or her
elective share.
IV. CONCLUSION
For all of these reasons, we find that Mrs. Young is entitled to her elective
share of Decedent’s augmented estate, which includes the value of Decedent’s undivided
one-half interest in G&G Investments. We remand for the determination of the value of
Decedent’s undivided one-half interest in G&G Investments as calculated under the
provisions of the Uniform Partnership Act.
Reversed and Remanded.
40
Johnson v. Farmers & Merchants Bank, 180 W. Va. 702, 706, 379 S.E.2d 752,
756 (1989).
25