No. 88-380
IN THE SUPREME COURT OF THE STATE OF MONTANA
IN THE MATTER OF THE ESTATES OF:
ANNA MARGARET CLARK, and
WALIVACE BRADLEY CLARK, SR.,
Protected Persons.
APPEAL FR.OM: ~ i s t r i c tCourt of the Twelfth ~udicial~istrict,
In and for the County of Chouteau,
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The Honorable Chan ~ t t i e n , Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Don A. Labar and Margaret M. Joyce Johnson, Church,
Harris, Johnson and ~illiams;Great Falls, Montana
For Respondent:
~llin H. Cheetham, Fort Benton, Montana
Gary W. jella and, Great Falls, Montana
Submitted on Briefs: December 16, 1988
~ ~ ~ i d April :
~ d 26, 1989
- -
" Clerk
Mr. ; r u s t i c e ~ i l - l j - a m . Hunt, S r . d e l i v e r ~ dt-he O p i n i o n o f t h e
F
Court.
Appellants, George Clark, Bertha ~ o v e l l i and Marian
M o l n a r , t h r e e o f t h e f i v e a d u l t c h i l d r e n o f Anna M a r q a r e t and
Wallace Bradley Clark, S r . ( ~ e n i o r s ) , p p e a l from a d e c r e e o f
a
t h e D i s t r i c t C o u r t o f t h e T w e l f t h J u d i c i a l D i s t r i c t , Chouteau
County, which, with exceptions, approved! t h e a c c o u n t i n g o f
t h e conservator of their parents' estates. W reverse and
e
remand f o r f u r t h e r p r o c e e d i n g s .
The i s s u e s r a i s e d a r e a s f o l l o w s :
1. id t.he District Court err j.n substantially
approving t h e c o n s e r v a t o r ' s f i r s t annual accounting?
2. Did the ~ i s t r i c t Court properly scrutini-ze the
conservator's t.ransactions with t h e protected persons?
3. Did t h e ~ i s t r i c tCourt. e r r i n d e t e r m i n i n g t h a t t h e
p r o t e c t e d p e r s o n s were m e n t a l l y c o m p e t e n t ?
In the 1970 ' s , Wallace Bradley Clark, Jr. (Brad), t h e
y o u n g e s t s o n o f t h e S e n i o r s , moved from A l a s k a t o Montana t o
o p e r a t e hi.s p a r e n t s ' 1,760-acre farm l o c a t e d n e a r Geraldine.
I n 1977, t h e s e n i o r s e n t e r e d i n t o a c o n t r a c t f o r deed w i t h
Brad whereby Brad a g r e e d t o p u r c h a s e 8 0 0 a c r e s o f t h e farm
f o r $160,000 a t 6 p e r c e n t interest. The c o n t r a c t providecl
for annual payments to be made from the net proceeds of
o n e - t h i r d o f t h e g r a i n grown on t h e l a n d .
A t about the same t i m e , Brad and t h e Seniors entered
into a ten-year lease for the remaining 96G a c r e s of the
farm. The contract provided for the a n n u a l payment of a
one-fourth share of a1.l c r o p producecl on t h e a c r e a g e u n d e r
lease.
None of the other Clark chi.1-dren r e s i d e d near the
Seniors. The 01-dest s o n , George, had farmed i n t h e G e r a l d i n e
area until 1981, when he retired and moved to West
Yellowstone. The remaining children, Bertha Novelli, Marian
Molnar and ~osephineWilson, all resided in Alaska. Although
the daughters an3 George did not live in the vicinity of the
Seniors, the record indicates that they each v?sited their
parents yearly.
During his visits, George became concerned that his
parents were no longer capable of managing their financial
affairs. In 1984, he discovered that his mother had
overdrawn her checking account by writing checks to the
grandchildren. In 1985, his Father told him that he had
signed some papers but didn't know what they were. Upon
investigation, George found that the seniors had d e e g ~ d
one-half of the 960 acres of farmland to the five children.
Further investigation revealed that the Seniors had given
Brad full power of attorney over their affairs.
On April 25, 1985, George petitioned the District Court
for the appointment of a conservator for the seniors, both in
their early 90s at the time. Concerned that Brad might be
exercising undue influence over his parents, George nominated
one L.C. Siebenaler, a disinterested party, as conservator. A
hearing was held on the matter, during which the District
Court interviewed the elderly couple. The court found that
due to their advanced age and occasional forgetfulness, both
parties were unable to manage their property and affairs
effectively without assistance. Over George's objection, the
court appointed Rrad as conservator, finding that it would be
in the best interest of the Seniors if a family member held
the position rather than someone they did not know. On June
11, 1985, Rrad posted two bonds in the amount of $25,000
each. Letters of conservatorship issued.
On September 18, 1985, Brad filed an inventory and
appraisement of the fair market value of the assets of the
Seniors as of Ju1.y 8, 1985. He failed to file his first
annual accounting, however, until January 8, 1987. Shortly
after filing the accounting, Brac7 filed an amended inventory
and appra isement of assets. The amended inventory reflected
a decrease of approximately $30,600 of the balance receivable
from the 1377 contract for deed between Brad and the Seniors.
Brad later testified that the original inventory showed both
the principal and interest due and owing on the contract for
deed; the amended version reflected only the principal. No
reference to the $30,600 in interest Brad admittedly owed on
the contract as of July 8, 1985, can be found on the amended
inventory.
A hearing on the accounting was held on January 19,
1987, during which George filed written objections. Shortly
thereafter, George filed additional exceptions, seeking to
void certain transactions made by Brad, as we]-!_ as a more
detailed accounting, an audit of the estates and the removal
of Brad as conservator.
A hearing to consider the objections was held on March
2, 1987. The court took testimony at that time but. also
granted Brad's motion for a continuance to ~ p r i l6 , 1987, to
all-owJosephine Wilson, one of the Clark daughters, to appear
and testify. After the hearing, the District Court issued an
order that accepted and approved the first annual accounting.
George, Rertha and Marian moved the court- to re-open the
hearing on the accounting and to remove Brad as conservator.
The District Court granted the motion and trial was held on
August 17 and 19, 1987.
~ u r i n gthe trial, Brad testified that in 1985 and 1986
he exchanged a series of checks with the seniors, resulting
in the forai veness of approximately $70,566 in indebtedness
Brad had accumulated under the contract for deed, including
$30,600 in interest. In its orcler issued after the tri-a!,
the District Court voided these transactions, finding that
t.hey were of such magnitude as to endanger the Seniors'
welfare and that they violated S 72-20-203, MCA, the statute
prohibiting a fiduciary from dealing with trust property for
his own benefit. Appellants do not appeal from this part of
the District Court order.
Erad also testified that his father had given him other
gifts that were not reflected on the accounting, including
$720 for grasshopper poison and the Seniors' share of the
1985 crop, which amounted to approximztely 700 bushels of
winter wheat and 375 bushels of barley. Rrad stated that his
father had given him the Seniors' share of the crop every
year since 1981. ~ccordingto Brad, his father intended to
give him the farm. The contract for deed was executed only
to avoid gift taxes. Therefore, Rrad contended, when farminq
became less I-ucrative, his father no longer required him to
pay under the contract. Erad also test-ified that he had
taken out a $3,900 loan on the 1985 crop, putting all of the
proceeds in his personal account and none in the Seniors,
even though the seniors owned a share of the crop under the
contract and lease.
with the exception of the avoidance of the $70,566 in
forgiven indebtedness mentioned above, the ~istrict Court
once again approveci the first annual accounting. The court
found that the Seniors' promised to give Brad the -Farm and
gave him their share of the crop and other gifts in honor of
that promise. The court also found that the seniors were
mentally competent and capable of handling their own affairs,
though they had difficulty remembering their actions
afterward. The court refused to remove Brad as conservator,
continuing the question to the hearing on the second annual
accounting, which Brad had not yet filed.
On April 18, 1988, George, Bertha and Marian filed a
motion asking the District Court to either withdraw or amend
its findings and conclusions. The movants sought a new trial
in the alternative. The District Court failed to rule on t.he
motion withi-n 45 days. Hence, under Rule 59 (d), M.R..Civ.P,
the motion was deemed denied..
On June 24, 1988, George, Bertha and Yarian appealed to
this Court, seeking, among other things, the removal of Brad
as conservator. This question was rendered moot. when, on
October 17, 1988, Brad resigned his position. Gary W.
~jel.I.and,the conservator appointed in Brad's stead, has
joined as amicus curiae in the appeal of George, Sertha and
Marian wi+.h respect to the remaining issues.
A conservatorship may be warranted when, due to advanced
age, a person is unable to effectively manage his affairs and
he owns property that is in danger of being wasted or
dissipated unless proper management is provided. Section
72-5-409 ( 2 ) , MCA. The institution of a conservatorship
grants the district court broad powers. The court may
exercise all powers over the estate that a protected person
could exercise if he were not under a disability, except the
power to make a will. At all times, however, the court's
handling of the property must be for the benefit of the
protected person. section 72-5-421(3), MCA. The court may
exercise these powers directly or through a conservator.
Section 72-5-427., MCA. If a conservator is appointed, he
must administer the estate as vrou7.d the court if
administering it directly, that i.s, for the benefit of the
protected person.
The conservator is required to account to the District
Court on. an annual basis. Section 72-5-438, MCA. The
District Court must carefully scrutinize the accounting,
keeping in mind t.hat it is the conservator, as trustee of the
estate, who bears the burden of proving the proper
disposition of the property under his control. Local Union
No. 400 of the Internat'l Union of Operating Eng'rs v. Bosh
(1986), 220 Mont. 304, 312, 715 P.2d 36, 41. The conservator
must therefore keep meticulous accounts o f his administration
of the estate, accounting for "the source of every item of
income and the purpose of every item of expense." In re
Allard 11914), 49 Mont. 219, 229, 141 P. 661, 665.
The record demonstrates that +he first annual accounting
filed by Brad Clark, the conservator in this case, was less
than adequate. Other than a ledger listing drafts written on
his father's checking account, Brad failed to introduce any
evidence to verify the accounting. He failed to submit bank
statements reflecting opening and closing balances, deposits
and withdrawals. Re failed to produce receipts for purchases
made on his personal credit card allegedly for the benefit of
the Seniors. Fe failed to introduce gift and income tax
returns filed by the Seniors.
Furthermore, Brad's accounting was inaccurate an?
incomplete. He failed to account for grain held in storage
at the opening of the conservatorship but sold subsequently.
He failed to account for his gift from the Seniors' of their
share of the qrain under the contract for deed and lease. He
failed to account for interest due under the contract for
deed. He failed to indicate either in the original
inventory, the amended inventory or the accounting that the
Seniors' interest in the land under the 1977 contract for
dee6 had been subordinated in 1983 to a Federal Land Rank
mortgage that secured a $230,000 loan.
The purpose of the statutorily required annual
accounting is to inform the court of the financial- condition
of the estste and to ensure that the conservator is managing
the property for the benefit of the protected persons. In
order to fulfill these purposes, the accounting must be
accurate, complete and verifiable. The accounting filed by
the conservator in this case is none of these. The ~istrict
Court erred in accepting and approving it.
When the accounting proferred by the conservator is
inadequate, the District: Court may require the conservator to
suhmit to a physical check of the estate. The physical check
may be made in any manner specified by the court. Section
72-5-438 (3), MCA. In this case, the appellants have
requested an audit of the estate. I?nder the circumstances,
an audit may be the best method by which to determine the
estate's financial condition. We therefore remand this case
for an audit and rehearing.
The conservator acts as a fiduciary. As such, he is
required to observe the stringent standards applicable to
trustees. Section 72-5-423, MCA. Appellants argue that the
~istrictCourt failed to measure Brad's actions against these
rigorous standards. Instead, the court excused Brad's
actions because he "was told he should handle his folks'
affairs just as he had prior to the institution of the
conservatorship, and which he did without any advice to the
contrary from his attorney."
The purpose of a conservatorship is to preserve the
property of the protected person. A conservator who profits
to the detriment of his wards cannot be excused because he
acted out of ignorance or because he acted in t.he same
self-serving manner as he had prior to the institution of the
trust. On remand, the Df-strict Court must more carefully
scrutinize Brad's administration of the estate. Any
transactions in which Rrad obtained an advantage must be
presumed to be entered into by the Seniors without sufficient
consideration and under un$ue influence. Section 72-20-208,
MCA . Rrad has the burden of proving that the any
transactions in which he obtained an advantage were for the
benefit of the Seniors and that the Seniors freely entered
into the transactions with full knowledge of the facts.
Appellants argue that the District Court improperly
ruled that the Seniors were mentally competent from 1981.
through the period of the first accounting. We agree. Jn
order to prove that any transactions in which Brad obtained
an advantage were entered into by the Seniors freely and with
full knowledge of the facts, Brad must also prove that the
Seniors were mentally competent. He failed to do so.
The institution of a conservatorship is not an
adjudication of competency and has no effect on the protected
person's capacity. Section 7 2 - 5 - 4 2 1 ( 5 ) , MCA. The protected
person is therefore presumed to have the capacity to contract
with third parties.
When the protected person transacts with the
conservator, however, the presumption shifts. Because the
conservator is held to the utmost standard of good faith and
fair dealing, he bears the burden of proving that the
protected persons were at all times capable of understanding
the nature of any transaction in which the conservator
obtained a benefit.
In the instant case, the only evidence in favor of a
finding that the Seniors were mentally competent comes from
the testimony of the conservator himself. his t-estimony is
refuted by at least two of the other children. Under the
circumstances, we cannot say that the conservator met his
burden of proof.
We reverse and remand for further proceedings in
accordance with this opinion.
We concur:
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CORRECTION
Date
EDITORIAL DEPARTMENT
West Publishing Co., P.O. Box 3526, St. Paul, MN 55165
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West Publishing Co.
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