IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 96,060
ESTATE OF ETHEL F. DRAPER, deceased,
Appellee,
v.
BANK OF AMERICA, N.A., as Trustee of the ETHEL F. DRAPER
IRREVOCABLE VOLUNTARY TRUST AGREEMENT DATED APRIL 8, 1982,
Appellee/Cross-appellee,
FIRST CHRISTIAN CHURCH OF OLATHE, KANSAS,
Appellant,
JANIS M. WALESKI MURPHY and MARY H. MOELLER,
Appellees/Cross-appellants,
UMB BANK, N.A., AMERICAN CANCER SOCIETY HEARTLAND DIV.,
and OLATHE MEDICAL CTR,
Appellees.
SYLLABUS BY THE COURT
1. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The district court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied.
2. To the extent there is no factual dispute, appellate review of an order granting summary judgment is unlimited.
3. Appellate courts exercise an unlimited standard of review when construing statutes.
4. A de novo standard of review applies to the construction of written instruments and, regardless of the construction given a written contract by the district court, an appellate court may construe a written contract and determine its legal effect.
5. Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he or she would be unjustly enriched if permitted to retain it, a constructive trust arises.
6. Unjust enrichment arises when (1) a benefit has been conferred upon the defendant, (2) the defendant retains the benefit, and (3) under the circumstances, the defendant's retention of the benefit is unjust.
7. Where a person holding property in which another has a beneficial interest transfers title to the property in violation of a duty to the other, the transferee holds the property subject to the interest of the other unless the transferee is a bona fide purchaser.
8. Where the owner of property transfers it in fraud of third persons, the transferee holds the property subject to their claims unless the transferee is a bona fide purchaser.
9. Constructive fraud is defined as a breach of a legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others or violate a confidence, and neither actual dishonesty nor purpose or intent to deceive is necessary. Two additional elements must also be proven in order to establish constructive fraud: (1) a confidential relationship and (2) a betrayal of this confidence or a breach of a duty imposed by the relationship.
10. A confidential relationship refers to any relationship of blood, business, friendship, or association in which one of the parties reposes special trust and confidence in the other who is in a position to have and exercise influence over the first party.
11. For purposes of establishing constructive fraud, the mere relationship between parent and child or between spouses does not raise a presumption of a confidential and fiduciary relationship.
12. A confidential relationship can be based on an agreement between the owner of property and another who will distribute the owner's property in a specified manner upon the owner's death.
13. The duty of good faith and fair dealing is implied in every contract, with the exception of employment-at-will contracts.
14. Contracts made either before or after marriage that are intended to fix property rights between a husband and wife are to be liberally interpreted to carry out the intention of the makers and to uphold such contracts where they are fairly and understandably made, are just and equitable in their provisions, and are not obtained by fraud or overreaching.
15. The duty of good faith does not mean that one who promises to devise property has no rights to use the property or even to gift some property if done in good faith and in amounts that are reasonable under all the circumstances. Gifts cannot be made, however, if the main purpose is defeating the agreement and preventing it from operating for the benefit of those designated.
16. While good faith and reasonableness are usually questions of fact, summary judgment may be appropriate if the facts are uncontroverted and establish that a defined standard has not been met.
17. The duty to marshal assets is among the primary duties of an administrator or executor and is conferred by K.S.A. 59-1401.
18. An action to marshal assets is properly brought by a representative of a decedent's estate and is not a claim against the estate.
19. Although an estate's administrator or executor represents the decedent and it is part of the representative's duties to see that the expressed desires of the decedent are properly executed, the administrator or executor also owes a duty to creditors and heirs to marshal assets and to act as a fiduciary for all interested persons.
20. The statute of limitations begins to run when all of the elements of unjust enrichment are present. Often, this means that the action accrues when there is a request for the return of property or when payment is made to or property is received by a defendant.
Review of the judgment of the Court of Appeals in 38 Kan. App. 2d 183, 164 P.3d 827 (2007). Appeal from Johnson district court; JAMES F. VANO, judge. Judgment of the Court of Appeals reversing the district court is reversed. Judgment of the district court is affirmed. Opinion filed April 17, 2009.
Kurt S. Brack, of Holbrook & Osborn, P.A., of Overland Park, argued the cause and was on the briefs for appellant First Christian Church of Olathe, Kansas.
Michael R. Ong, of Law Office of Michael Ong, P.A., of Leawood, argued the cause, and Michelle M. Krambeck Burge, of the same firm, was with him on the briefs for appellees/cross-appellants Janis M. Waleski Murphy and Mary H. Moeller.
Barry M. Martin, of Speer & Holliday, LLP, of Olathe, argued the cause and was on the briefs for appellee Estate of Ethel F. Draper.
The opinion of the court was delivered by
LUCKERT, J.: This case involves questions concerning the availability of a constructive trust remedy when an estate attempts to bring into the estate some assets that the decedent wrongfully transferred. In addition, issues are raised regarding the applicability of the nonclaim statute and various other statutes of limitation to claims brought by the estate against those who possess the assets.
We hold a constructive trust was appropriately imposed by the district court. Uncontroverted facts establish that the decedent executed an antenuptial agreement in which she promised to devise a specified portion of her entire estate to her husband's sons from a prior marriage. Decedent violated the duty of good faith implied in that agreement by placing almost all of her assets in irrevocable trusts that did not benefit her husband's sons. We further hold that the nonclaim statute does not apply to the Estate's action to marshal assets and the Estate's action did not accrue until the decedent's death, at the earliest.
Background
In April 1967, Clark Draper and Ethel Catlin executed an antenuptial agreement in contemplation of their marriage. Although Ethel had no children, Clark had three sons from a previous marriage. The antenuptial agreement stated that both Clark and Ethel had "substantial property and property rights" and provided that each would retain his or her separate assets and that neither would dispose of property without the consent of the other. Income from the assets would be shared in "a common fund for their mutual support and living expenses." The parties acknowledged that each of them had prepared wills to be executed after the marriage and agreed they would not revise or revoke the wills "during the lifetime of both the parties hereto without both parties hereto consenting to such change." Ethel agreed that she would consent to Clark's will and, if she survived Clark, she would maintain a valid will devising to Clark's sons "not less than one-fourth to each of them of her entire estate remaining after the payment of debts, administrative expense, taxes or other obligations." Clark executed a will leaving a substantial portion of his estate to Ethel should she survive him.
Clark died testate in January 1977, and Ethel (Ethel F. Draper) received her share of his estate as Clark's surviving spouse. In September 1977, before Clark's estate was settled, Ethel created and funded an irrevocable trust whose successor trustee is UMB Bank, N.A. (UMB). This trust allowed Ethel to receive the income and corpus during her lifetime. Upon her death, the trust income and corpus were to be distributed to, among others: First Christian Church of Olathe, the Kansas City Chapter of the American Cancer Society (American Cancer Society), Olathe Medical Center, Mary Helen Moeller, and Janis M. Waleski Murphy. Clark's sons were not mentioned.
In April 1982, Ethel executed a will which divided her estate equally among Clark's three sons. That same day, Ethel created another irrevocable trust whose successor trustee is Bank of America. As with the other trust, Ethel was to receive income from the trust and could receive the corpus. The remainder beneficiaries of this trust were the same as those listed in the 1977 UMB trust. When Ethel died in October 2002, she left a probate estate of less than $10,000, while the total assets in the two irrevocable trusts exceeded $1 million. Ethel's will was admitted to probate in January 2003.
In December 2003, Clark's son Gerald T. Draper, executor of the Estate of Ethel F. Draper, deceased (Estate), filed this action on behalf of the Estate against Bank of America and UMB. In the petition and a subsequently filed first-amended petition, the Estate alleged Ethel "was beyond her authority and capacity under the constraints of the antenuptial agreement" when she transferred most of her assets into the two irrevocable trusts. As a result, the transfers were void and the assets "remain assets of her probate estate." More specifically, the Estate alleged that Ethel committed intentional fraud and "fraud implied in the law" and that she breached the antenuptial contract and her fiduciary duties. All of these claims are based on the obligations imposed on Ethel in the antenuptial agreement, which according to the Estate made Ethel a "continuous trustee of all of her assets" and created a special, fiduciary duty to act in good faith to preserve the assets for disposition by will. The requested remedy was primarily the imposition of a constructive trust on three-quarters of the trust assets and to place these assets in the Estate. Later, the petition was amended to add the trust beneficiaries as defendants.
In its answer to the petition, the American Cancer Society claimed that the Estate's action was barred by the statutes of limitation and repose in K.S.A. 60-511, K.S.A. 60-513, and K.S.A. 60-515. It also claimed that the limitations period under K.S.A. 59-2239 for filing estate claims had expired. The American Cancer Society filed a motion to dismiss based on these statutes, and the other named defendants joined in this motion.
The Estate's response to the motion to dismiss was that none of the statutes cited could apply to the Estate, which exists as a separate entity from Ethel herself. The district court agreed with the Estate and denied the defendants' motion to dismiss, stating that this was "an action on behalf of the estate to marshal the assets, period." Following this ruling, the Estate reached a settlement with Olathe Medical Center and American Cancer Society. Next, First Christian, Waleski Murphy, and Moeller filed a motion for summary judgment, and the Estate did as well. In its memorandum decision, the district court concluded that the antenuptial agreement contained an implied duty which prevented Ethel from divesting Clark's sons of their share of the trust assets. In the district court's view, the antenuptial agreement had created a life estate for Ethel in the marital property.
The district court also found that Ethel's transfers to the irrevocable trusts were void because the transfers exceeded her authority under the agreement. The court granted the Estate's summary judgment motion and ordered that the property be placed in a constructive trust for Clark's sons. The defendants' motions for summary judgment were denied.
First Christian, Waleski Murphy, and Moeller appealed the district court's decision. UMB and Bank of America were also parties to the appeal because of their roles as trustees. First Christian contended on appeal that (1) the district court erred in ordering a constructive trust in favor of the Estate on the assets of the irrevocable trusts because it did not make a finding of fraud; (2) K.S.A. 60-515 barred the action since it was commenced more than 1 year after Ethel's death; and (3) Clark's sons knew of Ethel's trusts as early as 1985, which barred the Estate's claims pursuant to the statute of repose. Waleski Murphy and Moeller argued that the nonclaim statute and various statutes of limitation barred the action, which they contended accrued in 1977 when Ethel first transferred assets into an irrevocable trust. In response, the Estate raised claims involving the interpretation of the antenuptial agreement and Ethel's action.
In a split decision, the Court of Appeals reversed the district court. Estate of Draper v. Bank of America, 38 Kan. App. 2d 183, 164 P.3d 827 (2007). The Court of Appeals concluded that the antenuptial agreement did not restrict Ethel with respect to gifting or inter vivos transfers of her property; further, no language in the agreement restricted Ethel from creating irrevocable trusts. Consequently, the panel determined that Ethel complied with the clear language of the antenuptial agreement and did not breach the contract. 38 Kan. App. 2d at 189.
Regarding K.S.A. 59-2239, the nonclaim statute, the majority stated that none of Clark's sons were disputing what was contained in the Estate. The entire purpose of this lawsuit, the majority concluded, was to collect assets which were outside of the Estate--in Ethel's irrevocable trusts. The majority held that compliance with K.S.A. 59-2239 is "wholly unrelated to this action" and, therefore, any action against the Estate would have been futile. 38 Kan. App. 2d at 190.
Judge Green wrote a concurring opinion in which he agreed with most of the majority's discussion, but he disagreed with the majority's holding regarding K.S.A. 59-2239. 38 Kan. App. 2d at 191-92. Judge Green pointed out that the remedies sought by the Estate were based on Ethel's alleged breach of the antenuptial agreement. Further, it was undisputed that Clark's sons were the intended third-party beneficiaries of that agreement. Thus, in Judge Green's view, Clark's sons had a claim against Ethel to the extent she failed to fulfill her obligations under the contract. As such, because Ethel was deceased and could no longer be sued, Clark's sons' claims based upon Ethel's alleged breach of the antenuptial agreement should have been brought against Ethel's estate. Therefore, Judge Green would have found the case was reversible based on the "estate claims" being time-barred pursuant to K.S.A. 59-2239. 38 Kan. App. 2d at 192 (Green, J., concurring).
Because this case potentially conflicts with another Court of Appeals case, Nelson v. Nelson, 38 Kan. App. 2d 64, 162 P.2d 43 (2007), in which similar issues arose involving the Kansas nonclaim statute, we granted the petitions for review filed in both cases. See K.S.A. 20-3018(b); K.S.A. 60-2101(b).
Standards of Review
Our standard of review on appeal from summary judgment is well settled:
"Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied." Miller v. Westport Ins. Corp., 288 Kan. 27, Syl. ¶ 1, ___, 200 P.3d 419 (2009).
To the extent there is no factual dispute, appellate review of an order granting summary judgment is unlimited. Polson v. Farmers Ins. Co., 288 Kan. 165, Syl. ¶ 1, ___, 200 P.3d 1266 (2009).
In addition, resolution of the Estate's contentions will involve the examination and construction of the Kansas nonclaim statute, K.S.A. 59-2239, and appellate courts exercise unlimited review when construing statutes. Polson, 288 Kan. at ___. Similarly, a de novo standard of review applies to the construction of written instruments, which we are called upon to do in this case as we consider the effects of the antenuptial agreement. Miller, 288 Kan. at ___. Under this latter rule, regardless of the construction given a written contract by the district court, an appellate court may construe a written contract and determine its legal effect. Unrau v. Kidron Bethel Retirement Services, Inc., 271 Kan. 743, 763, 27 P.3d 1 (2001).
Constructive Trust
The Estate contends that the Court of Appeals erred in reversing the district court's decision to impose a constructive trust on the irrevocable trust assets. It specifically takes issue with the panel's determination that the Estate "never claimed there was a confidential relationship" and that Ethel did not breach the antenuptial agreement by making the property transfers to the trusts. 38 Kan. App. 2d at 188.
This issue arises because the Court of Appeals concluded that actual or constructive fraud had to be proved in order for a constructive trust to arise. 38 Kan. App. 2d at 187-88. As discussed in our decision in Nelson v. Nelson, No. 97,664, this day decided, slip op. at 27, actual or constructive fraud does not have to be established before the constructive trust remedy can be ordered. Rather, a constructive trust is an appropriate remedy "[w]here a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it." Restatement of Restitution: Quasi Contracts and Constructive Trusts § 160 (1936) (Restatement of Restitution). In In re Estate of Sauder, 283 Kan. 694, 719, 156 P.3d 1204 (2007), we explained that unjust enrichment arises when (1) a benefit has been conferred upon the defendant, (2) the defendant retains the benefit, and (3) under the circumstances, the defendant's retention of the benefit is unjust.
Where, as here, a person who holds property that is subject to a beneficial interest transfers the property, an action may be brought against the third party for the return of the property. The Restatement explains:
"(1) Where a person holding property in which another has a beneficial interest transfers title to the property in violation of his duty to the other, the transferee holds the property subject to the interest of the other, unless he is a bona fide purchaser.
"(2) Where the owner of property transfers it in fraud of third persons, the transferee holds the property subject to their claims, unless he is a bona fide purchaser." Restatement of Restitution § 168.
Consistent with this provision, the Estate claims (1) that Ethel had a beneficial interest--the equivalent of a life estate--and transferred the property in violation of a duty created by the antenuptial agreement, and (2) that Ethel transferred the assets in fraud. More specifically, in alleging the violation of a duty, the Estate alleges Ethel committed actual and constructive fraud, breached the antenuptial contract, and breached her fiduciary duties. As the case has progressed, the theories became more focused and before the Court of Appeals the focus was on constructive fraud. We, therefore, will focus on that claim as well.
Constructive fraud is "'a breach of a legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others or violate a confidence, and neither actual dishonesty [n]or purpose or intent to deceive is necessary.'" Garrett v. Read, 278 Kan. 662, 674, 102 P.3d 436 (2004). Two additional elements must also be proven in order to establish constructive fraud: (1) a confidential relationship, and (2) a betrayal of this confidence or a breach of a duty imposed by the relationship. 278 Kan. at 674; see also Moore v. State Bank of Burden, 240 Kan. 382, 389, 729 P.2d 1205 (1986), cert. denied 482 U.S. 906 (1987) (party must also conceal facts that the party has legal or equitable duty to communicate, about which the party could not be innocently silent).
A "confidential relationship" refers to any relationship of blood, business, friendship, or association in which one of the parties reposes special trust and confidence in the other who is in a position to have and exercise influence over the first party. Heck v. Archer, 23 Kan. App. 2d 57, 63, 927 P.2d 495 (1996). For purposes of constructive fraud, the mere relationship between parent and child or between spouses does not raise a presumption of a confidential and fiduciary relationship. Olson v. Harshman, 233 Kan. 1055, 1059, 668 P.2d 147 (1983); Curtis v. Freden, 224 Kan. 646, 651, 585 P.2d 993 (1978). However, a confidential relationship can be based on an agreement between the owner of property and another who will distribute the owner's property in a specified manner upon the owner's death. Heck, 23 Kan. App. 2d at 67.
Contrary to the Court of Appeals' holding, the petition in this case alleges these elements. In pleading constructive fraud, the Estate alleged that Clark relied upon Ethel's agreement to leave three-quarters of her estate to his sons when he executed his will and devised his property to Ethel for her use during her lifetime without making provision for his sons--in other words, a confidential relationship existed between Ethel and Clark. In addition, the Estate alleged that the agreement made Ethel a constructive trustee who had the fiduciary duty to act in good faith and preserve the assets for disposition by will according to the terms of the antenuptial agreement.
In addition to adequately pleading constructive fraud, the Estate argues it established the undisputed facts necessary for a finding that a confidential relationship existed. The Estate notes it is uncontroverted that there was a written agreement between Clark and Ethel, the two were married, Clark relied on Ethel's promises in executing the agreement, Clark bequeathed her a share of his estate in conformity with the agreement, and Ethel violated the duty of good faith implied in the agreement by gifting her property to third parties who were remainder beneficiaries of her trusts. These facts, according to the Estate, establish constructive fraud. The Court of Appeals rejected this argument.
Confidential Relationship
First, the Court of Appeals stated that the district court made no finding that a confidential relationship existed and concluded an appellate court could not participate in fact finding. See Sall v. T's, Inc., 281 Kan. 1355, 1362, 136 P.3d 471 (2006) (appellate court is not a factfinding court). This conclusion does not reflect the de novo review that appellate courts perform when an appeal from summary judgment is based upon uncontroverted facts. Polson, 288 Kan. ___, Syl. ¶ 1. In addition, the conclusion does not reflect an appellate court's duty to conduct a de novo review of contracts, including antenuptial agreements, or the fact that the Estate's argument regarding the confidential relationship is based on the terms of the antenuptial agreement. See Miller, 288 Kan. ___, Syl. ¶ 2. Thus, contrary to the Court of Appeals' conclusion, we can review the antenuptial agreement and the uncontroverted facts to determine if a confidential relationship existed between Ethel and Clark.
In this regard, we pause to note that the Court of Appeals incorrectly examined whether there was a "confidential relationship between any of the parties." 38 Kan. App. 2d at 188. This inquiry fails to reflect the nature of this case, which is based on a confidential relationship between Clark and Ethel because of the antenuptial agreement. The defendants are not alleged to have committed any wrong; they are sued because they have been unjustly enriched as a result of Ethel's breach of duty.
Focusing on Clark's and Ethel's relationship, Kansas has repeatedly recognized a confidential relationship arises when spouses agree to leave property by will. Most recently, in Garrett, 278 Kan. at 674-75, we held that violation of such an agreement justified the imposition of a constructive trust. There, the children of the decedent's predeceased spouse sought a constructive trust on a portion of the decedent's estate. The spouses, who both had children from previous marriages, executed nearly identical wills, leaving the entire estate to the survivor and then to the children and one set of grandchildren, evenly divided. The wills evidenced a "'full and explicit provision for the disposition'" of the estate at the death of the surviving spouse. 278 Kan. at 673. After the husband died and his entire estate passed to his spouse, she revoked her will and executed a new will in which she essentially disinherited her spouse's children.
Although the decedent's first will was revoked and was no longer in effect at the time of her death, her husband's children argued the first will was contractual, her estate remained subject to its terms, and a constructive trust was an appropriate remedy. They proceeded on the theory of constructive fraud.
This court concluded the married couple's agreement regarding distribution of their property after the death of the survivor created a confidential relationship based on the husband's trust in his wife to distribute four-sevenths of the estate to his children. Garrett, 278 Kan. at 674-75 (citing Heck, 23 Kan. App. 2d at 67). The agreement imposed a duty upon the wife, and she breached this duty by executing the second will and disinheriting her spouse's children. Consequently, this court held the district court properly imposed a constructive trust. 278 Kan. at 675.
A similar conclusion was reached in Kampschroeder v. Kampschroeder, 20 Kan. App. 2d 361, 887 P.2d 1152, rev. denied 257 Kan. 1092 (1995). In that case, a husband and wife each had a child from previous marriages and brought property into the marriage which they intended to pass to their respective children. However, at the time of the husband's death, the couple held most of the property in joint tenancy. The district court found there was an agreement that the surviving spouse would enjoy the disputed property but then pass it to the decedent's child. Contrary to the agreement, the surviving wife transferred the disputed property to her child. Based upon this evidence, the Court of Appeals affirmed the district court's conclusion that there had been constructive fraud and that a constructive trust was an appropriate remedy. 20 Kan. App. 2d at 363-69.
With regard to the confidential relationship element, the Kampschroeder court focused on the husband's and wife's "agreement in which each relied on the survivor to see that the assets were distributed." Because the husband "placed trust and confidence" in his wife to see that his child received the proper distribution of assets, "it would be inequitable to permit her to disregard the terms of that agreement." 20 Kan. App. 2d at 366; see Gemmel v. Fletcher, 76 Kan. 577, 92 P. 713 (1907).
The same situation arose in this case; Clark made an agreement with Ethel, upon his death he left his assets to her, and he trusted her to comply with the agreement for the benefit of his sons. Under Kansas law it is clear that a confidential relationship existed.
Breach of Duty
The second reason the Court of Appeals reversed the imposition of a constructive trust was the conclusion that Ethel had not violated any duty arising from the confidential relationship. The Court of Appeals rejected the district court's determinations that the antenuptial agreement implied that Ethel had a duty to "'refrain from divesting Clark's sons of their share of her estate'" and, in essence, had a life estate in the marital property. Estate of Draper, 38 Kan. App. 2d at 188. Instead, according to the Court of Appeals, the unambiguous antenuptial agreement merely required Ethel to execute and maintain a valid will, which she did. And, further, the Court of Appeals noted Ethel more than followed the agreement's requirement to leave "'not less than one fourth'" of her estate "'remaining after the payment of debts, administrative expenses, taxes and other legal obligations thereof,'" to each of Clark's sons in that Ethel left her entire estate to Clark's sons. 38 Kan. App. 2d at 189.
Asking us to affirm the Court of Appeals, First Christian argues that the antenuptial agreement required Ethel to leave three-quarters of her probate estate to Clark's sons, not three-quarters of her assets. First Christian suggests that the us