Smith v. Mountjoy

PRESENT: All the Justices

CAROL SMITH, IN HER CAPACITY AS EXECUTRIX OF THE
ESTATE OF EVELYN B. SMITH AND IN HER CAPACITY AS
TRUSTEE OF THE EVELYN B. SMITH INTER VIVOS
REVOCABLE TRUST

OPINION BY
v. Record No. 091470 JUSTICE CYNTHIA D. KINSER
June 10, 2010

JEAN MOUNTJOY, IN HER CAPACITY AS EXECUTRIX
OF THE ESTATE OF THEODORE M. SMITH

FROM THE CIRCUIT COURT OF FAUQUIER COUNTY
Jeffrey W. Parker, Judge

This appeal presents two primary issues: whether certain

transactions undertaken by an attorney-in-fact constituted a

gift, which the attorney-in-fact was not authorized to make, and

if so, whether the principal nevertheless ratified the agent's

acts. Because we conclude, inter alia, that the transactions at

issue were a gift and that ratification did not occur, we will

affirm the circuit court's judgment.

MATERIAL FACTS AND PROCEEDINGS

The relevant facts are undisputed, as the circuit court

ruled on cross motions for summary judgment. See Rule 3:20.

Theodore M. Smith (Theodore) and Evelyn B. Smith (Evelyn) were

married in 1946. In May 2006, after experiencing serious health

problems, Theodore executed a Durable Power of Attorney (DPOA)

naming Evelyn as his attorney-in-fact.
 Theodore's DPOA generally authorized Evelyn to act "for

[Theodore] and in [his] name . . . and on [his] behalf, and for

[his] use and benefit to do and transact all and every kind of

business whatsoever in [his] name as fully as though [he] was

acting[.]" Specifically, Evelyn was granted the authority,

inter alia, "[t]o sell, lease, purchase, exchange, and acquire

. . . any real or personal property whatsoever" as well as

"repair, maintain, improve, manage, insure, rent, lease, sell,

convey, subject to liens, [or] mortgage" any of the same.

However, the DPOA contained no express authority to make gifts.

Acting as Theodore's attorney-in-fact but unbeknownst to

him, Evelyn executed an instrument on May 23, 2007, creating

"The Theodore M. Smith Inter Vivos Revocable Trust" (Theodore's

Trust). At the same time, she executed a separate document

establishing "The Evelyn B. Smith Inter Vivos Revocable Trust"

(Evelyn's Trust). Evelyn was named as the "initial" trustee for

both trusts, but their respective provisions were not "mirror

images." Theodore's Trust provided that upon his death, the

trust's assets were to be distributed outright to Evelyn if she

survived him. In the event Evelyn did not survive Theodore,

certain assets were to be distributed to Jean Mountjoy

(Mountjoy) and others, and the remaining corpus of Theodore's

2
Trust was to be distributed to Carol Smith (Carol), or to Carrie

Smith Parret if Carol did not survive Theodore. 1

In contrast, Evelyn's Trust provided that upon her death,

Theodore, if he survived her, was to receive the net income from

the trust's assets and such principal as the trustee deemed

"necessary" or "proper" for Theodore's "support, maintenance and

medical care." Upon Theodore's death, or if he did not survive

Evelyn, certain assets were to be distributed to Mountjoy and

others, and the remaining corpus of the trust was to be

distributed to Carol, or to Carrie Smith Parret if Carol did not

survive Evelyn.

On the same day that she created both trusts, Evelyn,

acting as Theodore's attorney-in-fact, and also in her

individual capacity, executed two "deeds of gift" conveying to

the trustee of each trust a one-half interest in six parcels of

real estate (the Properties), which the Smiths until then had

held as tenants by the entirety with rights of survivorship.

The deeds changed ownership of the Properties to tenants in

common. Evelyn died unexpectedly in July 2007, without

informing Theodore of these transactions.

1
Mountjoy is Theodore's sister. Although Theodore and
Carol share the same surname, they are not consanguineously
related. Carol is Evelyn's niece.

3
 Soon after Evelyn's death, Theodore discovered the

transactions and, on September 6, 2007, executed, "pursuant to

Article X (Reserved Rights)" of Theodore's Trust, a "Notice of

Termination" (the Notice) to revoke and terminate his trust in

its entirety. The Notice directed Carol, who was then acting as

the substitute trustee of Theodore's Trust, to deliver "all

assets" of the trust to Theodore, and revoked "all powers

heretofore granted to the [t]rustee by virtue of the [t]rust." 2

Theodore next filed an action against Carol, in her

capacity as substitute trustee of Theodore's Trust and as

executrix of Evelyn's estate. In a second amended complaint,

Theodore sought, inter alia, a declaration that Evelyn's

creation of Theodore's Trust and conveyance of the Properties to

that trust and Evelyn's Trust, "which thereby terminated the

tenancies by the entirety and voided Theodore's survivorship

interests, to be beyond the powers granted to [Evelyn] in the

[DPOA] and/or was not authorized by" him. Theodore further

requested that he be declared "the sole owner" of the one-half

interest in the Properties held by Evelyn's Trust.

On September 26, 2008, prior to filing his second amended

complaint, Theodore, acting through counsel, made "a demand

2
Each trust document named Carol as substitute trustee in
the event Evelyn died or could not otherwise serve as trustee.

4
pursuant to [paragraph A of] ARTICLE VI" of Evelyn's Trust, for

a distribution of income. That provision provides:

For so long as [Theodore] shall live, [the trustee of
Evelyn's Trust] shall pay to [Theodore's] legal
representative, for the benefit of [Theodore], all of
the net income of [Evelyn's] Trust Fund, in convenient
installments but no less frequently than annually.

Theodore also requested under paragraph B of the same article of

Evelyn's Trust "as much of the principal of [Evelyn's] Trust

Fund as [Evelyn's trustee], exercising such sole and absolute

discretion, shall deem necessary or proper for [Theodore's]

reasonable support, maintenance and medical care." Theodore

attached "schedules of medical expenses for round the clock

care," totaling $106,932.00, in support of his request for a

distribution from the principal of Evelyn's Trust. The demand

also noted that improvements had been made to one of the

Properties "that is owned [one-half] by Theodore Smith and [one-

half] by [Evelyn's] Trust."

Theodore died on November 20, 2008, two days after filing

the second amended complaint. The circuit court subsequently

entered an order substituting Mountjoy, in her capacity as

executrix of Theodore's estate, as the party plaintiff.

Both Mountjoy and Carol filed motions for summary judgment.

At a hearing before the circuit court, Mountjoy contended that

Theodore's DPOA did not give Evelyn the power to sever the

Smiths' tenancy by the entirety interests in the Properties, as

5
those actions "constituted gifts to herself" because "there was

no consideration given to" Theodore, and Evelyn "received the

benefit." Carol, conversely, argued that the severance of the

Smiths' tenancy by the entirety interests was supported by

consideration, and thus was not a gift because "they each . . .

suffer[ed] a detriment or a gain . . . . They both exchanged

their right of survivorship." Carol further argued that

Theodore's revocation of his trust pursuant to its terms and

later demand for distributions from Evelyn's Trust constituted

ratification of the transactions undertaken by Evelyn under the

DPOA.

In a letter opinion, the circuit court concluded that

because "[t]here is no specific language in the DPOA [that]

authorizes Evelyn to set up an estate plan for Theodore

containing a trust benefiting Evelyn[,]" her creation of

Theodore's Trust was " 'not authorized by the power under which

[s]he act[ed],' " rendering the act " 'a nullity.' " (Citation

omitted.) The court also found that Theodore did not ratify

Evelyn's actions; "[o]n the contrary, he promptly moved to

protect his property rights in light of her unauthorized

actions." Thus, the circuit court granted partial summary

judgment in favor of Mountjoy, holding "that [Theodore's] Trust

is void and of no effect" and, further, "invalidating the

conveyance of the [P]roperties" to both trusts.

6
 Carol filed a motion for reconsideration, seeking

clarification of the circuit court's ruling. She argued that

Evelyn "took no unauthorized actions under the DPOA," citing

deposition testimony of Mountjoy wherein she allegedly

acknowledged that Evelyn had "authority to transfer the couple's

properties." Mountjoy opposed the motion, arguing, inter alia,

that the deeds constituted gifts that were not authorized by the

DPOA, thus entitling Theodore, as the then-surviving spouse, and

now his estate, to sole ownership of the Properties.

After hearing argument on the motion, the circuit court

concluded that no consideration passed for the severance of the

Smiths' tenancy by the entirety interests and conveyance of one-

half interest in the Properties to each trust and that the

transactions were therefore gifts. The court further concluded

that Evelyn "did [not] have the power to make a gift of real

estate," noting that Carol's counsel did not "suggest that [the

DPOA] authorized" a gift. In its final order, the circuit court

held that the "recorded deeds . . . purporting to convey the

interests of [Theodore and Evelyn] in the . . . Properties

. . . , are void and of no effect, and, consequently[,] fee

simple title to the . . . Properties continued to be held by

[Theodore and Evelyn] as tenants by the entireties until

7
[Evelyn's] death . . . , at which time fee simple title vested

exclusively in [Theodore]." 3 Carol now appeals.

ANALYSIS

As previously noted, the primary issues raised by Carol's

assignments of error concern whether the severance of the

parties' tenancy by the entirety interests and conveyance of

one-half interest in each of the Properties to the trustee of

Evelyn's Trust was a gift 4 and, if so, whether Theodore,

nevertheless, ratified Evelyn's acts. Carol also challenges the

circuit court's refusal to consider Mountjoy's proffered

deposition testimony.

As Carol acknowledges on brief, the facts establishing the

transactions at issue are undisputed; therefore, whether those

transactions constituted a gift is a question of law. As such,

3
In a separate order, the circuit court granted Carol's
motion to intervene in her capacity as substitute trustee of
Evelyn's Trust, adding her as a party defendant. Carol was
initially named as a defendant only in her capacity as executrix
of Evelyn's estate and as substitute trustee of Theodore's
Trust.
4
Carol does not assign error to the circuit court's holding
that Evelyn did not have the power and authority under the DPOA
to make a gift of real property. Thus, that issue is not before
us. See Rule 5:17(c).
We note, however, that the General Assembly recently
enacted the Uniform Power of Attorney Act, future Code §§ 26-
71.01 through -74.03, which is set to become effective July 1,
2010. 2010 Acts chs. 455, 632. It is not necessary to address
the applicability of that act to resolve the issues in this
appeal.

8
we review the circuit court's resolution of that issue de novo.

Oraee v. Breeding, 270 Va. 488, 494, 621 S.E.2d 48, 50 (2005).

We have long defined "[a] gift . . . as a contract without

a consideration." Ott v. L&J Holdings, LLC, 275 Va. 182, 188,

654 S.E.2d 902, 905 (2008) (citing Spooner v. Hilbish, 92 Va.

333, 341, 23 S.E. 751, 753 (1895)). Consideration may arise

from " '[a]ny act done at the defendant's request, and for his

convenience, or at the inconvenience of the plaintiff.' "

Looney v. Belcher, 169 Va. 160, 167, 192 S.E. 891, 893 (1937)

(citation omitted). " 'Consideration is, in effect, the price

bargained for and paid for a promise. It may be in the form of

a benefit to the party promising or a detriment to the party to

whom the promise is made.' " Dulany Foods, Inc. v. Ayers, 220

Va. 502, 511, 260 S.E.2d 196, 202 (1979) (quoting Brewer v. Bank

of Danville, 202 Va. 807, 815, 120 S.E.2d 273, 279 (1961)).

Carol contends that the transactions were supported by

consideration because "as a matter of law[,] the exchange of the

couple's entireties interests constituted a sufficient exchange

for consideration." According to Carol, "[e]xchanging" their

mutual tenancy by the entirety interests in the Properties "for

equal and opposite rights of a co-tenant must, . . . by

definition, constitute an exchange for value." The fallacy with

Carol's position is that the severance of the parties' tenancy

by the entirety interests and conveyance of one-half interests

9
to the respective trusts were not in exchange for "equal and

opposite rights."

Review of the pertinent provisions of the two trusts

demonstrates that the transactions at issue did not result in

aligning ownership rights and obligations in the manner asserted

by Carol. Theodore's Trust provided that, upon Theodore's death

and in the event Evelyn survived him, its assets were to be paid

and distributed "to [Evelyn], outright and free of trust,"

unless she elected otherwise, presumably for tax purposes.

However, in the event that Evelyn predeceased Theodore – what in

fact occurred – Theodore was not entitled to full and outright

ownership of the assets of Evelyn's Trust. Instead, he was

merely to receive periodic distributions of income and

principal, the latter limited to payments the "Trustee,

exercising such sole and absolute discretion, shall deem

necessary or proper for [Theodore's] reasonable support,

maintenance and medical care." Upon Theodore's death in the

event Evelyn did not survive him, Evelyn's heirs, i.e., Carol,

or Carrie Smith Parret if Carol did not survive Theodore,

neither of whom were consanguineously related to Theodore,

received the bulk of the assets held by Theodore's Trust. And

the same individuals also received the greater part of the

10
assets of Evelyn's Trust upon the death of both Theodore and

Evelyn. 5

Thus, we hold that no consideration passed to Theodore in

exchange for severing the tenancy by the entirety interests and

conveying a one-half interest in each of the Properties to the

trustee of Evelyn's Trust. While both Evelyn and Theodore

relinquished the right of survivorship appurtenant to holding

real property as tenants by the entirety, the complete

transactions conferred a benefit to Evelyn and/or her heirs that

she did not have when the Properties were held as tenants by the

entirety. With no corresponding benefit to Theodore, the

disparate provisions of the two trusts allowed Evelyn, along

with the trustee of Evelyn's Trust, or her heirs, eventually to

obtain fee simple ownership of the Properties, irrespective of

whether she or Theodore died first. That scenario — in which

Evelyn and the trustee of her trust, or her heirs, would obtain

ownership of the Properties — could not have occurred when the

Properties were held as tenants by the entirety, unless Theodore

predeceased Evelyn. As the transactions conferred a benefit to

Evelyn and only a detriment to Theodore, we conclude, contrary

5
While the beneficiaries under Theodore's Trust were the
same beneficiaries as those under Evelyn's Trust, Theodore's
heir, Mountjoy, received a substantially smaller portion of the
two trusts' combined assets than Evelyn's heirs, Carol and
Carrie Smith Parret.

11
to Carol's assertion, that the transactions did not confer

"equal and opposite rights" to Evelyn and Theodore. Instead,

Evelyn, acting as Theodore's attorney-in-fact, made a gift to

her trust.

This conclusion is supported by our decision in Ott.

There, a wife, acting pursuant to her husband's power of

attorney, established a limited liability company in which she

and her husband were the sole members. 275 Va. at 185, 654

S.E.2d at 904. The husband's membership interest was

established at 80 percent and the wife's at 20 percent. Id.

Those respective membership interests represented each spouse's

interest in the whole of three parcels of real estate owned by

the husband and wife as tenants by the entirety. Id. at 185,

654 S.E.2d at 903-04. In a deed of gift, the wife then conveyed

those particular parcels to the limited liability company. Id.

at 185-86, 654 S.E.2d at 904.

The question on appeal was whether that deed exceeded the

wife's authority as her husband's attorney-in-fact. Id. at 184,

654 S.E.2d at 903. The power of attorney granted the wife the

power, inter alia, "to sell and convey real property, to enter

into binding contracts[,] to manage [her husband's] business

affairs[, and] to make gifts," but not to herself. Id. at 184-

85, 654 S.E.2d at 903. The trial court concluded that the

conveyance was not a gift, despite the deed's caption, but

12
rather that it was given for valuable consideration. Id. at

186, 654 S.E.2d at 904. The trial court reached that conclusion

based on its factual findings that "the transfer of the property

was undertaken for legitimate business reasons and that [the

husband and wife] each received benefits, including possible

future tax benefits, commensurate with their respective

percentage interests, without any self-dealing on [the wife's]

part." Id. at 189, 654 S.E.2d at 906. We affirmed the trial

court's judgment, holding that the transaction at issue was

within the powers granted to the wife under her husband's power

of attorney. Id.

As previously explained, no such similar exchange of mutual

benefit (or detriment) was effected by the transactions

involving the Properties at issue. Theodore did not receive a

benefit commensurate with his interest in the Properties.

Unlike Ott, the facts here do not show that the transactions

were supported by consideration. And, while not controlling,

the two deeds here were captioned as "deeds of gift" and cited

the statutory exemption provision for deeds of gift. See

Code § 58.1-811(D). Therefore, the circuit court did not err in

finding that Evelyn, acting as Theodore's attorney-in-fact, made

a gift to her trust and, in doing so, exceeded her authority

under the DPOA.

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 We now turn to the issue concerning whether Theodore

ratified Evelyn's acts. 6 "A principal is bound by his agent's

previously unauthorized act if he ratifies the act by accepting

its benefits with full knowledge of the relevant facts, or, if

upon learning of the act, he fails to promptly disavow it."

Kilby v. Pickurel, 240 Va. 271, 275, 396 S.E.2d 666, 668 (1990)

(internal citations omitted). If a " 'principal, with knowledge

of all the facts, adopts or acquiesces in the acts done under an

assumed agency, he cannot be heard afterwards to impeach them

under pretense that they were done without authority.' "

Winston v. Gordon, 115 Va. 899, 907, 80 S.E. 756, 760 (1914)

(citation omitted). And, when a principal, after being

informed, fails to disavow the act, "he makes it his own." Id.;

accord Coastal Pharm. Co. v. Goldman, 213 Va. 831, 839, 195

S.E.2d 848, 854 (1973). Any act of disavowal must occur

" 'within a reasonable time.' " Higginbotham v. May, 90 Va.

233, 239, 17 S.E. 941, 943 (1893) (citation omitted).

Carol alleges Theodore ratified the transactions undertaken

by Evelyn as his attorney-in-fact by terminating Theodore's

Trust, pursuant to its terms, in September 2007, and by

6
Mountjoy asserts that the issue of ratification is waived
because Carol did not plead such as an affirmative defense. The
circuit court, however, decided the issue, and Mountjoy does not
assign cross-error claiming that the issue was not properly
before the circuit court. See Rule 5:18(b).

14
demanding a distribution of income and principal from Evelyn's

Trust in September 2008. According to Carol, the termination of

Theodore's Trust in accordance with its provisions evidenced a

choice by Theodore "to recognize the result of the [d]eeds and

the severance of the couple's entireties interests in the . . .

Properties," resulting in Theodore's "tak[ing] personal

possession of his . . . half interests in the . . . Properties."

Instead of repudiating Evelyn's actions and taking steps to

restore the status quo ante, Theodore made an "informed decision

. . . to recognize the existence of his trust, and the Trustee's

then-existing rights and powers thereunder and to follow a

course of action which his wife had empowered him to take in the

trust document itself." Filing this action, Carol maintains,

was "merely an after-the-fact attempt to avoid the trust, the

existence and fruits of which he had long since accepted."

Carol's argument is without merit. To characterize

Theodore's termination of his trust, in accordance with its

terms, as accepting the benefits of his wife's acts is

misguided. Theodore did not "adopt or acquiesce" to the

creation of his trust by utilizing its provisions to terminate

it. Instead, upon learning of Evelyn's acts, he promptly –

within two weeks of her death – disavowed those acts by

terminating his trust. That termination cannot also be viewed

as an adoption of the acts taken by Evelyn under the DPOA.

15
Furthermore, by filing this action, he took steps to disavow

Evelyn's severance of the parties' tenancy by the entirety

interests in the Properties.

Similarly, Theodore, by demanding a distribution of income

and principal from Evelyn's Trust, did not "adopt or acquiesce"

in Evelyn's acts establishing his trust and severing the

parties' tenancy by the entirety interests. Theodore had no

basis upon which to challenge Evelyn's creation of her trust,

which contained assets other than the Properties at issue, and,

by its terms, he was entitled to income and a distribution of

principal under certain circumstances. In sum, Theodore did not

"act[] in such a manner as to unmistakably indicate that he

intend[ed] to avail himself of the benefits of" the actions

taken by Evelyn under the DPOA. Piedmont Mt. Airy Guano Co. v.

Buchanan, 146 Va. 617, 625, 131 S.E. 793, 795 (1926). Thus, we

conclude that the circuit court properly held that Theodore did

not ratify Evelyn's acts.

Finally, Carol argues that the circuit court erred in

refusing to consider the proffered deposition of Mountjoy in

opposition to Mountjoy's motion for summary judgment. As both

parties filed motions seeking summary judgment, the deposition

was not offered just to oppose such a motion. And, Mountjoy

objected to the use of the deposition. Thus, we conclude that

the circuit court did not abuse its discretion. See Code

16
§ 8.01-420; Rule 3:20; Lloyd v. Kime, 275 Va. 98, 107, 654

S.E.2d 563, 568 (2008).

CONCLUSION

For these reasons, we will affirm the judgment of the

circuit court. 7

Affirmed.

7
In light of our conclusion, it is not necessary to address
Carol's remaining assignment of error.

17