McDONALD v. MOORE

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Docket Number

No. 23554-1-I.

Attorney(S)

M. Kathryn Lee, for petitioner. George Livesey, for respondent.

Judges

WINSOR, J.

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Smart Summary

Factual and Procedural Background

Clyde McDonald died testate in 1986. His will and a codicil bequeathed most property to his second wife, Gloria Anne McDonald, and devised real property and a mobile home at 4759 Sucia Drive, Ferndale, Washington, to his daughter Nancy McDonald Moore, "SUBJECT TO: A gift of a continuing option to my beloved wife, GLORIA ANNE MC DONALD, during her life time to purchase said property ... at the fixed price of $40,000.00." At decedent's death the Sucia Drive property had a fair market value of $83,500 and was encumbered by a mortgage of approximately $39,900; Moore took the property subject to that encumbrance.

In August 1988 Gloria McDonald attempted to exercise the option by paying the mortgage and tendering to Moore the difference between the $40,000 option price and the mortgage balance (about $100). Moore refused, insisting Gloria must pay $40,000 and assume the mortgage. Gloria filed a complaint for specific performance and moved for summary judgment; Moore cross-moved to dismiss or for declarations that the option was void as an unreasonable restraint on alienation or that exercise required assumption of the mortgage and payment of $40,000. The Superior Court for Whatcom County denied both motions on January 6, 1989. Nancy Moore (the petitioner) sought discretionary review of that denial in this court.

Legal Issues Presented

Whether the testamentary fixed-price option is valid or void as an unreasonable restraint on alienation.
Whether the option may be exercised by paying the mortgage and the difference to the devisee, or whether exercise requires payment of $40,000 with assumption of the mortgage.
Whether attorney fees should be awarded and, if so, whether they may be assessed against the estate or against the opposing party.

Arguments of the Parties

Petitioner (Nancy McDonald Moore)

Argued the option clause is an unreasonable restraint on alienation and therefore void.
Alternatively argued that, if valid, the option required Gloria McDonald to assume the mortgage and pay Moore $40,000 to effectuate the sale.

Respondent (Gloria A. McDonald)

Maintained she could exercise the option by paying off the mortgage and tendering to Moore the difference between the $40,000 option price and the mortgage balance (approximately $100), and sought specific performance under her interpretation of the will.
Proffered evidence supporting her interpretation, which the court found unpersuasive.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Sea-Pac Co. v. United Food Comm'l Workers Local Union 44, 103 Wn.2d 800, 699 P.2d 217 (1985)	Standards for treating an appeal from an order denying summary judgment as discretionary review; when discretionary review is appropriate (obvious error rendering further proceedings useless).	Used to justify treating the appeal as discretionary review and concluded the superior court committed obvious error warranting reversal.
Roth v. Bell, 24 Wn. App. 92, 600 P.2d 602 (1979)	Procedural authority regarding appeals from orders denying summary judgment.	Cited in support of treating the notice of appeal as discretionary review where appropriate.
In re Estate of Mell, 105 Wn.2d 518, 716 P.2d 836 (1986)	Principle that the court's primary duty is to determine the testator's intent from the four corners of the will and consider the will in its entirety.	Applied as the governing approach to will interpretation and to support considering applicable law when the will was executed.
Fischer v. La Fave, ___ Ill. App.3d ___, 544 N.E.2d 55 (1989), appeal denied, 550 N.E.2d 555 (1990)	That a testator is presumed to have known the law in force when drafting a will and that such law is a circumstance to consider in determining intent when a will is ambiguous.	Relied upon to support examining the law in force at the time the will was executed to resolve ambiguity.
In re Estate of Patton, 6 Wn. App. 464, 494 P.2d 238 (1972)	Support for considering the law in effect when the will was drafted to determine testator intent.	Cited as additional authority for using contemporaneous law to construe an ambiguous will.
Robroy Land Co. v. Prather, 95 Wn.2d 66, 622 P.2d 367 (1980)	Distinction between options and preemptive rights; options permit the optionee to compel sale while preemptive rights merely require an offer if owner elects to sell.	Used to distinguish inapplicable preemption cases from the present option context.
Tombari v. Blankenship-Dixon Co., 19 Wn. App. 145, 574 P.2d 401 (1978)	Cases concerning fixed-price preemptive rights (cited by respondent).	Noted as inapplicable because those cases involved preemptive rights rather than options.
Lawson v. Redmoor Corp., 37 Wn. App. 351, 679 P.2d 972 (1984)	Contrasting authority on preemptive rights (mentioned "but see").	Referenced to show differing treatment of preemption cases; court held preemption authorities inapplicable here.
Mattern v. Herzog, 367 S.W.2d 312 (Tex. 1963)	Held a testamentary fixed-price option is not an unlawful restraint on alienation; reasons included that an option does not impose a direct disabling restraint and is reasonable.	Found persuasive and used to support the conclusion that the testamentary option is not void as an unreasonable restraint on alienation.
In re Estate of Maguire, 204 Kan. 686, 466 P.2d 358 (1970), modified on other grounds, 206 Kan. 1, 476 P.2d 618 (1970)	Reasoning that testamentary options exercisable during lifetimes in being do not impose unreasonable restraint; distinction between contractual and testamentary options and emphasis on testator intent.	Found persuasive; cited to support validity of testamentary fixed-price option and to distinguish contractual options.
In re Boris V. Korry Testamentary Marital Deduction Trust for Wife, 56 Wn. App. 749, 785 P.2d 484 (1990)	Authority regarding awarding attorney fees from the estate where litigation provides substantial benefit to the estate.	Applied to conclude that fees should not be charged to the estate because the litigation produced no substantial benefit to the estate.
Annot., Option Created by Will To Purchase Real Estate, 44 A.L.R.2d 1214 (1955)	Secondary-source survey indicating courts have upheld testamentary fixed-price options against perpetuities and restraint-on-alienation challenges.	Cited to show supportive authority in other jurisdictions that such options are permissible.
61 Am.Jur.2d Perpetuities and Restraints on Alienation § 120 (1981)	Secondary-source authority discussing perpetuities and restraints on alienation, including option provisions created by wills.	Used as general supporting authority that testamentary options have been sustained elsewhere.

Court's Reasoning and Analysis

The court accepted discretionary review under Sea-Pac because the superior court's denial of both summary judgment motions constituted an obvious error. It reaffirmed that the primary duty in will construction is to ascertain the testator's intent from the will itself, and that when a will is ambiguous the law in force when the will was executed is a relevant circumstance.

The will was ambiguous as to the mechanics of exercising the option. The court applied RCW 11.12.070 (statute) to the dispositive effect that when property subject to a mortgage is specifically devised, the devisee takes the property subject to the mortgage unless the will provides otherwise. Because both McDonald (the optionee) and Moore (the devisee) obtained rights solely as devisees under the will, the statute governs: Moore took fee title subject to the mortgage and Gloria's option to purchase is likewise subject to that mortgage.

The court next addressed Moore's contention that the fixed-price testamentary option was an unreasonable restraint on alienation. Distinguishing options from preemptive rights, the court surveyed authority (Mattern, Maguire, secondary sources) and concluded testamentary fixed-price options do not constitute an unlawful restraint on alienation and are reasonable in this context. Thus the option was valid.

Finally, under RCW 11.96.140 the court considered attorney fees and concluded that because the litigation conferred no substantial benefit on the estate, fees should not be assessed against the estate; it was appropriate instead to assess fees against McDonald, who initiated the suit. The court directed an award of $2,439 against McDonald.

Holding and Implications

REVERSED. The Court of Appeals reversed the superior court's denial of petitioner Moore's motion for summary judgment and directed entry of a declaratory judgment that Gloria A. McDonald may exercise the testamentary option by paying $40,000 to Nancy McDonald Moore and taking the Sucia Drive property subject to the mortgage granted by Clyde McDonald.

Implications: The decision (1) upholds the validity of a testamentary fixed-price option as not an unreasonable restraint on alienation, (2) construes the will together with RCW 11.12.070 to require that the optionee take subject to the mortgage, and (3) awards attorney fees of $2,439 against Gloria McDonald (not against the estate). The opinion does not purport to establish broader new precedent beyond its application of these authorities to the facts presented.

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GLORIA A. McDONALD, Respondent, v. NANCY McDONALD MOORE, Petitioner.

[1] Wills — Intent of Testator — Extrinsic Evidence — Ambiguity — Statutes. The court may look to the law in force at the time an ambiguous will was executed, presume that the testator knew the law, and examine the effect of the law on the will to aid in determining the testator's intent.

[2] Wills — Restriction on Alienation — Fixed-Price Testamentary Option. A testamentary provision granting an option for the purchase of an estate asset by a specified party for a fixed price from the party to whom the asset was bequeathed is not an unreasonable restriction on alienation.

[3] Wills — Contest — Costs — Benefit to Estate. In the absence of a substantial benefit to an estate, it is inappropriate to award attorney fees from the estate to a prevailing party in an action involving the disposition of estate property.

WINSOR, J.

Nancy Moore seeks review of a trial court order denying her cross motion for summary judgment. By that motion, Moore sought dismissal of Gloria McDonald's action for specific performance of a testamentary option clause.

There is no right of appeal from an order denying summary judgment. Sea-Pac Co. v. United Food Comm'l Workers Local Union 44, 103 Wn.2d 800, 801-02, 699 P.2d 217 (1985); Roth v. Bell, 24 Wn. App. 92, 104, 600 P.2d 602 (1979). However, a notice of appeal from such an order will be treated as a notice for discretionary review. RAP 5.1(c). Discretionary review may be granted when "`the superior court has committed an obvious error which would render further proceedings useless". Sea-Pac, 103 Wn.2d at 802 (quoting RAP 2.3(b)(1)). Such error occurred here.

Clyde McDonald died testate in 1986. Under his will and a subsequent codicil, Mr. McDonald bequeathed most of his separate and community property to his second wife, Gloria McDonald. Mr. McDonald bequeathed Moore, his daughter from his first marriage,

all my interest in my real property and mobile home thereon located at 4759 Sucia Drive, Ferndale Washington. . ..

. . . .

SUBJECT TO: A gift of a continuing option to my beloved wife, GLORIA ANNE MC DONALD, during her life time to purchase said property, including the mobile home, at the fixed price of $40,000.00.

It is uncontroverted that the fair market value of the Sucia Drive property was $83,500 at the time of Mr. McDonald's death, and that the property was then encumbered by a mortgage of approximately $39,900. Moore took the property subject to the encumbrance.

The codicil to Mr. McDonald's will provides for payment of all of his just debts from the residue of his estate, except "any obligation(s) secured by a voluntary encumbrance on real property and improvements thereon, for which obligations(s) the encumbered real property and improvements shall be the first and primary source of payment. . . ."

In August 1988, McDonald attempted to exercise her option on the Sucia Drive property by paying off the mortgage and giving Moore the "difference between the $40,000.00 stated option price and the exact balance owing [the mortgagee] as of the date of closing," i.e., she would pay Moore about $100. Moore refused to transfer the property under these terms. She insisted that McDonald could exercise the option only by paying her the full $40,000 and assuming the mortgage.

McDonald filed a "Complaint for Specific Performance Requiring Defendant [Moore] to Issue a Deed to Plaintiff" pursuant to her interpretation of Mr. McDonald's will. She then moved for summary judgment. Moore filed a cross motion in which she sought dismissal of McDonald's claims, a declaration that the option clause was an unreasonable restraint on alienation and therefore void, or a declaration that the option clause required McDonald to assume the mortgage and pay Moore $40,000. The trial judge concluded that a hearing to determine Mr. McDonald's intent was necessary and denied both motions. This was error.

[1] The primary duty of a court called upon to interpret a will is to determine the testator's intent at the time he or she executed the will. The testator's intent must, if possible, be derived from the four corners of the will and the will must be considered in its entirety. E.g., In re Estate of Mell, 105 Wn.2d 518, 524, 716 P.2d 836 (1986). A testator is presumed to have known the law in force when the will was drafted and to have drafted the will in conformity with that law. Consequently, if a will in ambiguous, the law when the instrument was drafted is a circumstance to consider in determining the testator's intent. Fischer v. La Fave, ___ Ill. App.3d ___, 544 N.E.2d 55, 57 (1989), appeal denied, 550 N.E.2d 555 (1990); see also Estate of Mell, 105 Wn.2d at 524-25; In re Estate of Patton, 6 Wn. App. 464, 471, 494 P.2d 238 (1972).

Mr. McDonald's will is ambiguous as to how he intended the option clause to be exercised. However, when the option clause is read in conjunction with applicable law, his intent can be determined as a matter of law. The Sucia Drive property was Mr. McDonald's separate property. Neither McDonald nor Moore had any interest in the property except as was bequeathed them by Mr. McDonald. Therefore, they both obtained a right to this property solely as Mr. McDonald's "devisees". Accordingly, RCW 11.12.070 applies to them both and is controlling here:

When any real or personal property subject to a mortgage is specifically devised, the devisee shall take such property so devised subject to such mortgage unless the will provides that such mortgage be otherwise paid. . . .

Under this provision, Moore received a fee interest in the Sucia Drive property, subject to the mortgage, and McDonald received a right to purchase that property for $40,000, subject to the mortgage. [2] Moore's alternative contention below and on appeal is that the fixed-price testamentary option is void as an unreasonable restraint on alienation. This is a matter of first impression in Washington. We note that courts in other states have held that a testamentary fixed-price option does not violate the rule against perpetuities or unlawfully restrict the power of alienation. See generally Annot., Option Created by Will To Purchase Real Estate, 44 A.L.R.2d 1214, 1228-30 (1955); 61 Am.Jur.2d Perpetuities and Restraints on Alienation § 120 (1981). Two cases are illustrative.

Even if we were not convinced that RCW 11.12.070 is dispositive, we would still reverse the trial court. The evidence proffered by McDonald to support her interpretation of the testamentary clause is completely unpersuasive.

Moore relies on cases concerning fixed-price preemptive rights. E.g., Tombari v. Blankenship-Dixon Co., 19 Wn. App. 145, 574 P.2d 401 (1978). But see Lawson v. Redmoor Corp., 37 Wn. App. 351, 679 P.2d 972 (1984). Those cases are inapplicable because preemptive rights differ materially from options. An option creates in the optionee the power to compel sale, whereas a preemption requires the owner to offer the property to the preemptioner when and if the owner decides to sell. Robroy Land Co. v. Prather, 95 Wn.2d 66, 70, 622 P.2d 367 (1980).

In Mattern v. Herzog, 367 S.W.2d 312 (Tex. 1963), the court considered a testamentary provision leaving real property to decedent's children equally, but giving one child the option to purchase the others' property at a fixed price. The court held that the option provision was not an unlawful restraint on alienation. It reasoned that in the case of an option, a direct disabling restraint is not involved and thus an option does not fit into the usual classifications of restraints upon alienation. 367 S.W.2d at 319. Moreover, the court reasoned, even if the option was a restraint on alienation, the restraint imposed was reasonable, given that a testamentary option is not a socially undesirable device. 367 S.W.2d at 320.

A Kansas court employed somewhat different reasoning to uphold a testamentary fixed-price option. It reasoned that

the option . . . is personal and exercisable, if at all, only during the lifetime of the named optionees. So construed, the option may be executed only during lives in being, which we cannot regard, in itself, as an unreasonable period of restriction upon alienation. Moreover, it has been held that an option does not suspend the power of alienation where the parties are in being and ascertainable, and can together convey the entire title.

In re Estate of Maguire, 204 Kan. 686, 690, 466 P.2d 358, 361, modified on other grounds, 206 Kan. 1, 476 P.2d 618 (1970). The Maguire court distinguished contractual options from testamentary options, noting that in testamentary litigation, the intent of the testator "is always of paramount concern." 204 Kan. at 690.

We find these cases persuasive and decline to hold that the testamentary option at issue here is void as an unreasonable restraint on alienation. The order denying summary judgment is reversed, and the trial court is directed to enter a declaratory judgment that McDonald may exercise her option by paying $40,000 to Moore and taking the property subject to the mortgage granted by Mr. McDonald.

[3] Moore requests an award of attorney fees pursuant to RCW 11.96.140. Under this provision, attorney fees may be allowed any party, to be assessed against the estate or any other party as the trial court or this court, in its discretion, finds appropriate. Here, it would not be appropriate to assess fees against the estate, since this litigation resulted in no substantial benefit to the estate. See In re Boris V. Korry Testamentary Marital Deduction Trust for Wife, 56 Wn. App. 749, 755-56, 785 P.2d 484 (1990). It is appropriate, however, to assess fees against McDonald. McDonald instigated this litigation; Moore was entitled to judgment vindicating her position. Moore addressed the issue of attorney fees in a cogent and helpful fashion in her appellate brief. Her request for attorney fees is modest and reasonable: $2,439 for fees incurred in trial court and on appeal. McDonald did not respond to the fee request. The trial court is directed to award Moore judgment against McDonald in the amount of $2,439.

SCHOLFIELD and BAKER, JJ., concur.

Reconsideration denied June 7, 1990.

Review denied at 115 Wn.2d 1013 (1990).