FACTS
On December 10, 2000, after decedent entered a nursing home, his niece began paying all his bills. Five days later she called his attorney to see whether she could sign the checks directly. On December 18, the attorney returned her call and discussed execution of a power of attorney. But he suggested obtaining a signature card from the bank or, if the bank refused to accept that, a conservatorship. On December 23, the niece presented the bank with the appropriate card duly signed by decedent, and the bank added her name to decedent's bank account as a joint tenant. Shortly thereafter, the niece met decedent's wife's niece, the executor, to discuss paying decedent's bills. The niece told the executor nothing about the joint tenancy account. While decedent was still alive, the niece withdrew approximately $100,000 from the account. Decedent died on July 13, 2002. The niece closed out the account on about that day, and she now refuses to restore any of the money to the estate.
Article VII of the will states:
ARTICLE SEVENTH: CONFIRMATION OF JOINT TENANCY AND TOTTEN TRUST ACCOUNTS TITLES. I confirm the title to all assets held on the date of my death with another person as joint tenants or in my name as trustee for another person, it being my intent that title shall control the disposition of such assets rather than the terms of my Will.
ISSUES
1. Is the estate entitled to double damages under Probate Code §9869?
2. Does Article VII prohibit the executor from rescinding the will?
SUMMARY
1. The estate is not entitled to double recovery if the niece acquired the property by undue influence, but it is so entitled if she misrepresented to decedent the nature of the document that he signed.
2. No courts have interpreted this provision or anything like it. On the one hand, the will speaks as of the date of death, after the niece became a joint tenant of the account. On the other hand, the will cannot be expected to ratify wrongdoing of which decedent had no knowledge.
DISCUSSION
1. Double damages may be awarded in a case of misrepresentation.
A personal representative may file a petition for an order when the decedent died holding title to property to which some other person claims an interest. Prob. Code §9860(3). One who has, in bad faith, wrongfully taken, concealed, or disposed of property in the decedent's estate is liable for twice its value, which the personal representative may recover in an action for the estate's benefit. Prob. Code §9869. No cases were found stating whether obtaining the decedent's property by undue influence constitutes taking the property in the decedent's estate. See Estate of Kreher (1951) 107 Cal.App.2d 831, 840 (issue not reached because no undue influence found).
Contractual rules regarding consent determine a gift's validity. Estate of Truckenmiller (1979) 97 Cal.App.3d 326, 330 n. 1. Although a contract requires free consent, apparent consent obtained through undue influence is not free. Civ. Code §§1565, 1567(4). Consent so obtained is not absolutely void but may be rescinded by the parties. Civ. Code §1566. The contract is thus merely voidable. See Golem v. Fahey (1961) 191 Cal.App.2d 474, 476.
A voidable contract still has legal effect. "There is a power to ratify, as well as a power to avoid; and most such contracts as are commonly said to be voidable can be described with equal accuracy as ratifiable." 1 Corbin on Contracts (Rev. ed. 1993) §1.6, at 19. The voidable contract still obligates the party who has not yet rescinded it. Rice v. Dean Witter Reynolds, Inc. (1991) 235 Cal.App.3d 1016, 1024. For example, in Solem v. Fahey, supra, the defendant leased from the plaintiff land both parties clearly expected to be developed commercially. Actually, it was zoned agricultural. The court held that, although the mutual mistake made the contract voidable, the defendant's failure to rescind left him obligated to pay rent. Id., 191 Cal.App.2d at 476-477.
Because the contract was voidable rather than void, the niece had a legitimate interest in the property when she closed out the account. Before rescission, the joint-tenancy agreement bound the estate; thus her closing out the account was not wrongful. After the estate notified her that it was rescinding the agreement, her overreaching conduct made her continued retention of the money wrongful. But the statute does not subject her to damages for mere wrongful retention. It would subject her to damages only if she wrongfully took or concealed the estate's property.
A mere failure to return disputed property is probably not sufficient to expose her to liability. In Beckman v. McKay (1859) 14 Cal. 250, 253, the court disapproved jury instructions that a failure to deliver after demand would constitute a conversion subjecting the defendant to double liability. If the defendant came into the property's possession innocently, or under a bona fide claim or color of right, or in ignorance of the title, a mere force of demand and refusal of compliance would not bring the defendant within the penalty. Ibid. In this case, the plaintiff did have a bona fide claim to the property, although one defeasible on rescission. A mere demand for return would therefore not constitute a wrongful taking or concealing of the property.
But if the conveyance were absolutely void, then niece would have no claim of right and her taking would be wrongful. If the fraud constitutes fraud in the inception or factum, so that the promisor is deceived about the nature of the act and does not actually know what he is signing, mutual assent is lacking and the contract is void. Rice v. Dean Witter Reynolds, Inc., supra, 235 Cal.App.3d at 1024. In that case the contract may be disregarded without the necessity of rescission. Ibid. A mere nullity binding no one, it has no effect whatsoever. Little v. CFS Service Corp. (1987) 233 Cal.App.3d 1354, 1362.
Fraud in the factum arises in an instrument's execution resulting from the signer's ignorance of its nature. Frusetta v. Hauben (1990) 217 Cal.App.3d 551, 556, citing Williston on Contracts (3d ed. 1970) §1488, at 35. It has been found when one party misrepresents to another the document's legal effect. See id., at 557-559. For example, a signature on a release that the releasor is told is only partial will not act as a general release, regardless of its terms. Ibid. (evidence that plaintiff told that release was only a partial release sufficient to raise issue of fraud in the factum, even though it expressly released all claims).
If the executor can show that the niece misrepresented the nature of the document's legal effect to decedent, then she can show fraud in the factum. In that case, the transfer into joint tenancy never had any legal effect, and the money in the account became the estate's on decedent's death. Her transfer of the money into a different account would therefore be wrongful, and she would be liable. She may also be liable if her removal of money before decedent's death constituted its concealment.
Undue influence consists of (1) the use of a confidential position for the purpose of obtaining an unfair advantage, (2) taking an unfair advantage of another's weakness of mind, or (3) taking a grossly oppressive and unfair advantage of another's necessities and distress. Civ. Code §1575. It consists in a dominant person's use of excessive pressure over a servient person resulting in the servient person's apparent will being in fact that of the dominant person. Matter of Cheryl E. (1984) 161 Cal.App.3d 587, 601. Undue susceptibility to such over-persuasion may be the product of physical or emotional exhaustion or anguish, resulting in one's inability to act with unencumbered volition. Ibid.
The test for undue influence in an intervivos transfer is not the same as that for a will. O'Neil v. Spillane (1975) 45 Cal.App.3d 147, 155; contra Estate of Kreher, supra, 107 Cal.App.2d at 839. The party seeking to disaffirm the transfer need not show total incapacity to contract but only that the grantor is lacking in such mental vigor to assert protection against an imposition. Ibid. The party need not show that the influence effectively destroyed the testator's free agency and substituted another's will. Ibid.
Nor will undue influence be presumed only on a showing of a confidential relation. Ibid. Instead, a showing of a susceptibility to imposition, including the grantor's extreme age and infirmity, together with slight evidence of circumstances implying that the instrument was the product of coercion, will shift the burden of proof, requiring the grantee to show affirmatively that the transaction was fair and free from undue influence. Ibid. (emotional anguish caused by sister's death along with transfer of house to friends in joint tenancy raised presumption of undue influence). Although the amount of consideration for a transfer is generally immaterial, an inadequacy so gross as to shock conscience and common sense may amount to proof of undue influence. Herbert v. Lankershim (1937) 9 Cal. 409, 475. "'Where mental weakness occurs in connection with inadequacy of consideration, the presumption of undue influence becomes very strong.'" Id., at 476, quoting 13 C.J. §239. The executor can therefore raise a presumption of undue influence merely by showing that decedent was sick and old at the time of the transaction and that the little work the niece did in caring for him was worth nowhere near the $130,000 she received.
The executor therefore need not show either that decedent had no will of his own or that he and his niece were in a confidential relationship. Although the executor need not prove a confidential relation, she should still argue it. Inadequacy of price will raise a presumption of fraud among parties in a confidential relation. Ibid.
The significance of the citation in the draft brief to Solon v. Lichtenstein (1952) 30 Cal.2d 75, 81-82, 244 P.2d 907, is not clear. Solon relied on the exception for undue influence and fraud to the statutory conclusive presumption that the money in a joint-tenancy account belongs to the survivor. See former Fin. Code §852. The legislature repealed both the conclusive presumption and its exceptions in 1951. Now, money remaining on deposit in a joint-tenancy account belongs to the survivor unless clear and convincing evidence shows a different intent. Prob. Code §5302(a). In Estate of Auen (1994) 30 Cal.App.4th 300, the putative survivor argued that §5302(a) prohibited application of the presumption of undue influence. The court noted that no authority supported such an interpretation before holding that, because the account was for a joint venture, the statute did not apply. See Prob. Code §5122(b)(1). Because the essence of undue influence is the imposition of the dominant party's will for the servient party's, the statute still appears to allow a showing that decedent created the account only through the survivor's undue influence.
2. Article VII and rescission of the will
Article VII could be read as an intention to ratify the joint-tenancy gift. A contract or gift that is void rather than voidable cannot be ratified. Spector v. Pete (1958) 157 Cal.App.2d 432, 436, cert. denied (1958) 358 U.S. 822, 3 L.Ed.2d 63, 79 S.Ct. 36. Otherwise, the right to avoid a voidable contract is lost if the injured party, after acquiring knowledge of the fraud, manifests an intention to affirm the contract. Bowmer v. H.C. Louis, Inc. (1966) 243 Cal.App.2d 501, 503. A delay in rescission after learning of the fraud is also evidence of an intention to ratify. LeClerq v. Michael (1948) 88 Cal.App. 700, 702. Even though Article VII was written before the transfer, the will is presumed to speak as of the time of the testator's death. Estate of Ghiglia (1974) 42 Cal.App.3d 433, 439; Estate of Babb (1927) 200 Cal. 252, 255. The showing necessary to rebut the presumption is unclear.
Before a valid affirmation, the party with the right to avoid must have full knowledge of the facts. Schmidt v. Mesmer (1897) 116 Cal. 267, 271. If the testator did not have full knowledge of the facts, then he could not have ratified the gift. No cases were found applying the rules of ratification to a gift or contract obtained by undue influence. Unlike other causes that make consent not free, undue influence does not depend on the party's ignorance of the facts. One subjected to undue influence presumably knows from the date of execution that the document reflects the dominant party's will and not his or her own. But no cases appear to state that one subject to undue influence has only a limited time in which to disavow the transaction. In fact, the servient party may well have remained under the dominant party's undue influence, in which case voiding the transaction would have been useless or impossible.
CONCLUSION
Only if the executor can show that decedent acted under fraud in the factum rather than under undue influence in opening the joint-tenancy account will she be able to recover double the money in it. Because the alleged undue influence occurred in the making of an inter vivos gift rather than in a will, undue influence will be presumed on a showing that decedent was acting under a weakness of mind and that the consideration received was grossly disproportionate to the services rendered as well as on a showing that decedent and his niece had a confidential relationship. Also, the executor need not show that decedent completely surrendered his will to the niece. Article VII appears to ratify the gift. But it is not effective if the undue influence continued until decedent's death.