Matter of Thomas & Agnes Carvel Found.

[*1] Matter of Thomas & Agnes Carvel Found. 2002 NY Slip Op 50733(U) Decided on April 1, 2002 Surrogate's Court, Westchester County Scarpino, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 1, 2002
Surrogate's Court, Westchester County

In the Matter of the Application of THE THOMAS AND AGNES CARVEL FOUNDATION, as remainderman under the Last Will and Testament of Thomas Carvel, deceased, for a restraint on the transfer of certain funds.



In the Matter of the Application of THE THOMAS AND AGNES CARVEL FOUNDATION, as remainderman under the Last Will and Testament of THOMAS CARVEL, deceased, for a restraint on the conveyance or encumbrance of certain real property.



3285/90



STEVEN J. FINK, ESQ.

ORRICK, HERRINGTON & SUTCLIFFE, LLP

666 Fifth Avenue

New York, New York 10103

LAURA WERNER, ESQ.

ATTORNEY GENERAL OF THE STATE OF NEW YORK

DEPARTMENT OF LAW

120 Broadway

New York, New York 10271

LARTRYM SERVICES, INC.

C/o MORGAN & MORGAN

P.O. Box 3149

Pasea Estate

Road Town, Tortola, BVI

ROBERT M. REDIS, ESQ.

McCARTHY, FINGAR, DONOVAN, DRAZEN & SMITH, LLP

11 Martine Avenue, 12th Floor

White Plains, New York 10606

EVE RACHEL MARKEWICH, ESQ.

BLANK, ROME, TENZER, GREENBLATT, LLP

405 Lexington Avenue

New York, New York 10174 JOEL MARTIN AURNOU, ESQ.

180 East Post Road

White Plains, New York 10601-4910

GARY E. BASHIAN, ESQ.

BASHIAN, ENEA & SIRIGNANO, LLP

235 Main Street

White Plains, NY 10601

ANTHONY J. CERRATO, JR., ESQ.

656 Yonkers Avenue

Yonkers, New York 10704

ROBERT HAZZARD, ESQ.

KENT, HAZZARD, JAEGER, GREER, WILSON & FAY

50 Main Street

White Plains, New York 10601

W. WHITEFIELD WELLS, ESQ.

925 Westchester Avenue, Suite 207

White Plains, New York 10601

JOSEPH CASSIN, ESQ.

CASSIN, CASSIN & JOSEPH, LLP

300 East 42nd Street

New York, New York 10017

LEONARD M. ROSS, ESQ.

265 Sunrise Highway, Suite 65

Rockville Centre, New York 11570

HERBERT R. ROTH, ESQ.

510 East 23rd Street

New York, New York 10010

REALITIES, A DELAWARE BUSINESS TRUST

c/o THE PRENTICE HALL CORPORATION SYSTEM, INC.

2711 Centerville Road, Suite 400

Wilmington, DE 19808-1645

ANTHONY CONSTANTINI, ESQ. DUANE MORRIS, LLP

380 Lexington Avenue

New York, NY 10168

Anthony A. Scarpino, J.

In these two proceedings consolidated for trial, the Thomas and Agnes Carvel Foundation (the "Foundation") seeks a determination of its rights under an agreement (the "Reciprocal Agreement" or "Agreement") executed by Thomas Carvel ("Thomas" or the "decedent") and his wife Agnes Carvel ("Agnes") contemporaneously with the execution of their mutual wills. By the terms of the Agreement, Thomas and Agnes each contracted

with the other not to make gratuitous transfers of property or in any way change the provision of his of her will. The mutual wills each named the Foundation as residuary beneficiary.

The remaining co-executors of Thomas' estate support the Foundation's claims and contend that the Agreement is valid and binding and, therefore, the Foundation is the rightful beneficiary of Thomas' and Agnes' estates. The proceedings are opposed by Leonard Ross, as Limited Ancillary Administrator of the estate of Agnes Carvel ("Ross") and by Pamela Carvel ("Pamela") (collectively "respondents"). Pamela is, inter alia, Thomas' niece and a former co-executor of Thomas' estate.

The issues raised in these proceedings were tried before the Court in November

2001. The Court makes the following Findings of Fact and Conclusions of Law:

BACKGROUND

Thomas Carvel died on October 21, 1990. His will generally left all his assets to his wife Agnes in trust for life with the remainder payable, on Agnes' death, to the Thomas and Agnes Carvel Foundation. At the time of Thomas' death, Agnes had a "mirror image" will and was ostensibly bound by the Reciprocal Agreement she made with Thomas which precluded her from changing her will. These proceedings concern the validity of this Reciprocal Agreement and various subsequent transfers of assets made by Agnes and Thomas Carvel.

The first proceeding (the "Funds" proceeding) is brought by the Foundation against various entities holding funds to the possible credit of Agnes' estate. These funds include: (i)approximately $600,000, held by the Thomas Carvel Charitable Remainder Unitrust (the "Unitrust"), representing Agnes' final prorated unitrust distribution; (ii) approximately $2.4 million held in escrow subject to a determination of Agnes' claims against a Carvel entity known [*2]as Chain Locations of America, Inc. ("Chain")[FN1] ; and (iii)monies or property that Agnes' estate would be entitled to receive from Thomas' estate. The latter would include accumulated and delayed income, Agnes' half interest in Chain, Agnes' claim to ownership of real property known as "Hedge Farm"[FN2] and other alleged entitlements.

The second proceeding , known as the Realties Proceeding, concerns the transfer of ownership of four parcels of real property located in New York and Florida (sometimes referred to as the "Realtities properties"). Agnes succeeded to the ownership of these properties upon Thomas' death by right of survivorship. In 1995, Agnes transferred these properties to an entity identified only as "Realties." Thereafter, these properties were transferred by Realties to Lartrym Services, Inc. ("Lartrym")[FN3]

The foundation contends that these transfers constitute a breach of the Agreement, that Realties and Lartrym are merely the alter ego of Pamela Carvel, and that the transfers to Lartrym were a sham. The Foundation seeks an award of legal and equitable title to the four properties, a full accounting of the proceeds of sale, if any, received by Realties for the conveyance of the properties to Lartrym, the imposition of a constructive trust for the benefit of the Foundation, and restitution.

The respondents have asserted a number of defenses to these proceedings including abandonment, breach, waiver, the statute of limitations, unclean hands, failure of consideration, EPTL § 13.2.1(b), over-reaching, and the parole evidence rule.

THE FACTS

On February 13, 1988, Thomas and Agnes executed a series of estate planning documents consisting of separate, mutual, mirror image wills, three stock powers, and the Reciprocal Agreement, The wills named the Foundation as the ultimate beneficiary of their respective estates.

The Reciprocal Agreement was prepared by Lawrence Newman, Esq. In 1988, Mr. Newman was a partner in a large New York City law firm and head of that firm's trust and estates department. Mr. Newman was also a professor of trusts and estates at Columbia University Law School, author of "Post-Mortem Planning", and past Chair of the American Bar Association's Estate and Gift Tax Committee. Mr. Newman testified that he prepared a series of estate planning documents for Thomas and Agnes at the request of Herbert Roth, Esq., who represented Thomas and the Carvel [*3]Corporation. These documents included the wills, the stock powers, and the Agreement. Newman testified that the purpose of the Agreement was to carry out the Carvel's mutual estate plan by preventing the transfer of significant amounts of principal in any way different for the general plan [Tr.627-629]. In this regard, Newman explained that the benefit to the Carvels' was mutual in that each derived a benefit from knowing that their mutual estate plan would be carried out by the survivor [Tr.736]. Newman further opined that the Agreement placed no restriction on the disposition of income and did not prevent either Thomas or Agnes from gifting or otherwise disposing of any or all of their income [Tr.630]. According to Newman, this was important to preserve the marital deduction for estate tax purposes since the Carvels' wills each provided a marital trust for the survivor. The use of the marital deduction would save the Carvels many millions of dollars of Federal estate taxes.

The estate planning documents, including the mirror image wills and the Agreement, were executed by Thomas and Agnes under the supervision of Eric Kaviar ("Kaviar"), another Carvel Corporation attorney. Kaviar was known well and favorably by the Carvels. Kaviar testified that he reviewed the documents with the Carvels and explained the import of the Agreement and the other documents to Agnes [Tr.524], i.e., "that the survivor of the two, would not change their will nor make gratuitous transfers" [Tr.507]. According to Kaviar, Agnes "understood what was going on...she understand what I was saying to her, and she understood what was happening at that time" [Tr.525].

Thomas died on October 21, 1990. His will was admitted to probate and seven executors were appointed to administer his estate. In November 1990, Agnes made a new will which was essentially identical to her 1988 will. The 1990 will was executed because it was thought that her 1988 will had been lost.

In 1991, Newman's office prepared an inter-vivos trust agreement for Agnes (known as the "1991 Trust") to which Agnes transferred substantial assets. Newman testified that the 1991 Trust did not violate the Agreement since it was revocable by Agnes with the consent of the trustees and, therefore, did not constitute a gratuitous transfer [Tr.635-36].

Regarding the transfers from Agnes to Realities, the deeds to the four properties, dated August 31, 1994, each identify the grantee as "Realties" residing at a Manhattan cooperative apartment owned by Pamela. When questioned about Realities at her deposition in 1998, Pamela testified that the entity was a "New York, Florida and Delaware" trust created in 1992 [Tr.1270-73], and that she and Agnes were the trustees [Tr.1314-18,1375]. Indeed, Pamela appeared in this proceeding by counsel in her capacity as "Trustee of Realities Trust" and later sought to dismiss the proceeding for lack of subject matter jurisdiction, claiming that the proceeding involved a dispute between two living persons, i.e., Realities and the Foundation. That motion was denied, and Pamela filed an Answer, again in her capacity as Trustee of Realities Trust.

Later, Pamela claimed that the grantee of the four properties was not a New York trust, but a differently entity known as Realities, a Delaware Business Trust which had been created in August 1994 ("Realities DBT") [Tr.1273,1285-86]. However, the Certificate of Trust for Realities DBT, filed with the Delaware Secretary of State, is dated May 1, 1995, and its Application for Federal Employer Identification, signed by "Pamela Carvel, Pres.", lists the "[d]ate business acquired" as May 2, 1995. The Certificate of Trust names Chain Locations of America, Inc., a Delaware Corporation ("Chain Delaware:), as the corporate trustee; however, Chain Delaware was not [*4]incorporated until October 11, 1994-more than one month after Agnes transferred the properties to Realities.

Pamela testified that she prepared the trust instrument for Realities DBT. However, she was not able to produce a copy, claiming it had been stolen. She also testified that she does not know who the trustees or Realities DBT were, does not know whether she or Agnes were beneficiaries, and does not know if the instrument names a remainderman [Tr.1314-18, 1375; 1319-20; 1321-22; 1375].

The proof regarding Lartrym is equally obscure. Pamela testified that the four properties were transferred from Realities to Lartrym to satisfy an antecedent loan of approximately $2 million from Lartrym to Agnes. No documents evidencing the loan(s) or security interests in the properties have been produced. Pamela claims that such documents exist, but does not know where they are [Tr.1381, 1382, 1344]. Pamela's testimony was uncertain, evasive, and inconsistent with other credible evidence adduced at the trial.

Darryl Venron, Esq. Testified regarding his representation of Realities and Lartrym in connection with the attempted sale of one of the properties. Vernon testified that he was contacted by Pamela in October 1988 with instructions to prepare a contract for sale of the property to Lartrym. Vernon also stated that Pamela provided his firm with information about Lartrym, and that he routinely copied Pamela on correspondence in respect of the proposed sale.

Documents in Vernon's files list the same telephone and/or facsimile numbers for Pamela and Lartrym. In addition, Vernon produced five checks for payment to his firm for services rendered to Lartrym. Two were signed by Pamela, and one by Russell Court, Pamela's assumed name under which she does business (see, Pamela Carvel, Exhibit 45 [FEx.45]. Vernon also recognized the other two checks as being signed by Pamela (Foundation Exhibit 78 [FEx. 78, Tr. 1465-70]). Finally, the deeds to Lartrym list a Manhattan cooperative apartment owned by Pamela as the address to where the deeds were to be returned after recording.

On July 7, 1995, Agnes made a third will (the "1995 will"). The 1995 will differs significantly from Agnes' earlier wills. More particularly, the 1995 will names an entity other than the Foundation as the recipient of Agnes' residuary estate. Agnes died on August 4, 1998, a resident and domiciliary of the United Kingdom ("U.K."). The 1995 will contravenes the estate plan created in 1988 and clearly constitutes a total breach of the Reciprocal Agreement. The 1995 will was offered and admitted to probate in the U.K. Pamela was Agnes' guardian immediately prior to Agnes' death and is the U.K. representative of Agnes' estate.

CONCLUSIONS OF LAW

PAROL EVIDENCE RULE

The respondents contend that: (i) the Reciprocal Agreement prohibited the making of any "gratuitous transfers" by Thomas or Agnes; (ii) that the term "gratuitous transfer" is clear and unambiguous [FN4], (iii) the prohibition against "gratuitous transfers" precludes the making of any gift; [*5]and (iv) parole evidence is not admissible to alter or vary the terms of the Agreement.

At trial, the Foundation introduced extrinsic evidence to describe or explain the meaning of the term "gratuitous transfer." No objection was raised to the introduction of this evidence and, in fact, during opening statements, counsel for Agnes' estate stated, "[n]obody knows what a gratuitous transfer is" [Tr. 62; also see Tr. 1502-03]. However, during closing arguments and in the post-trial briefs, respondents argue that the Court may not consider this parole evidence.

The determination as to whether a contract provision is ambiguous is a question of law for the Court to resolve (see, First Development Corp. v Delco Plainview Realty Associates, 194 AD2d 711). A contract should be read as a whole and interpreted so as to give effect to the intention in the unequivocal language employed (see, Caravan v Chase Manhattan Bank, 278 AD2d 352).

It is incumbent upon the Court to determine whether a contractual provision is ambiguous, or its result so absurd, as to warrant going outside the language of the Agreement to ascertain the parties' intent (see, Matter of Wallace v 600 Partners Co., 86 NY2d 543; see also 4 Williston, Contracts § 610B at 533 [3d Ed. 1961]. In these circumstances, a Court may carry out the intention of a contract by "...transposing, rejecting, or supplying words to make the meaning of the contract clear (see, Matter of Wallace, supra, citing Castellano v State of New York, 43 NY2d 909, 911). In addition, the parole evidence rule is not violated by the introduction of extrinsic evidence if such evidence is admitted, not to change the terms of the contract but, instead, merely to explain the meaning of a term (see, Shepherd v Seril, 118 AD2d 422, appeal denied, 68 NY2d 608, citing Petrie v Trustees of Hamilton College, 158 NY458).

Viewed in this context, respondents' claim that a "gratuitous transfer" includes every circumstance where there is a "transfer of something of value without receiving equivalent value in return" (Post-Trial Brief of Pamela Carvel dated January 4, 2002 at p. 9), is too myopic and at odds with the clear intention of the parties as expressed in the Agreement. The phrase cannot be read or interpreted in a vacuum. It must find meaning and purpose by reading the Agreement as a whole. The Agreement specifically refers to the parties' mutual wills, which were being executed simultaneously with the Agreement. It is beyond argument that the only purpose of the Agreement was to further support and secure the continued viability of the parties' estate plan as provided in the mutual wills. The basic estate plan was to provide income to the surviving spouse for life, provide the remainder to the Foundation, and obtain the benefit of the marital deduction.

The Agreement was not intended to prevent Thomas or Agnes from giving Christmas gifts to family members, or "picking up the tab" for lunch, or dropping a few dollars into the Salvation Army coin drop, or tithing at church, or otherwise providing cash gifts to family and friends.

Respondent's interpretation would create the absurd result of rendering the Agreement and the parties' entire plan unenforceable and invalid almost from its inception. In addition, respondents' interpretation would have catastrophic and clearly unintended tax consequences. In order for the marital deduction to be available to Thomas' estate, it was essential that Agnes have fee and unrestricted use of her income (see, 26 USCA § 2056 (b) (7) (B) (ii) (I); 26 CFR §§ 20.2056 (b)-7(d) (2), 20.2056 (b)-5(f), 20.2056 (b)-5 (e), 20.2056 (b)-7(g); see, also, EPTL § 7-1.5). Agnes did, in fact, sign and authorize the filing of Thomas' estate tax return (Form 706) which claimed the marital deduction. A copy of the Reciprocal Agreement was attached to the filed return. If the respondents' interpretation prevailed, the estate would have lost many millions of dollar in tax savings.

The Court concludes that the term "gratuitous transfer" could not have the meaning ascribed [*6]to it by Pamela. In order to determine the intended meaning of the term, it is necessary to look outside the four corners of the Agreement. In this regard, the testimony of Mr. Newman is helpful and credible. According to Mr. Newman, the term was intended to apply to "substantial transfers of principal" in derogation of the estate plan, but did not apply to "the disposition of ...income" [Tr. 629-630). This interpretation is consistent with the purposes for which the Agreement was created; to provide ample financial security to Thomas and Agnes during their lives, to further the charitable purposes of the Foundation after their deaths, and to minimize any adverse tax consequences.

STATUTE OF LIMITATIONS

In beach of contract cases, the cause of action begins to run from the date of the first breach (John J. Kassner & Co., Inc. v City of New York, 46 NY2d 544) and expires six years later (CPLR § 213). The statute of limitations does not provide a viable defense to petitioners' claims. Even assuming, arguendo, that each alleged breach did not give rise to a separate cause of action, In order to constitute a breach, the conduct of Thomas and Agnes must reveal a definite and final communication of their intention to forego performance of the Reciprocal Agreement.

As previously stated, the making of cash gifts of income did not constitute "gratuitous transfers" and, therefore, did not breach the Agreement. In addition, Agnes' execution of her 1990 will did not constitute a breach of the Agreement since it expressly evinces Agnes' continued intention to keep the Foundation as her residuary beneficiary, and the Foundation's interest in Agnes' estate was not diminished.

Finally, the creation of the 1991 Trust did not constitute a breach of the Agreement for the same reasons. While the 1991 Trust did provide the trustees with the power to designate a remainderman other than the Foundation, that power was never exercised, and no damage could accrue to the Foundation until such time as the power was executed.

Thus, the Court finds that the earliest date upon which a breach of the Agreement occurred was September 6, 1994 [FN5], when Agnes transferred the Realities properties to the Realities' Trust. Since this action was commenced within six years of these transfers, the Foundation's claims are timely.

ABANDONMENT BREACH AND WAIVER

The facts do not support the respondents' contentions that Thomas or Agnes abandoned the Agreement, that Thomas breached the Agreement, or that the Foundation waived its rights to enforce the Agreement.

The abandonment and breach arguments are predicated upon evidence of transfers made by Thomas before death and by Agnes after Thomas' death which the respondents contend violated the Agreement. These in include gifts to individuals and the creation and funding of the Unitrust. With regard to the cash gifts, the Court has construed the Agreement as permitting the transfer of income, and there was no proof adduced at the hearing that the gifts, by Thomas during his lifetime or by Agnes after his death, exceeded their available income.

Regarding the Unitrust, the Court finds that the creation of this trust was wholly consistent with the Carvels' estate plan to minimize taxes and preserve the value of their estate for themselves and the Foundation. Initially, the Court notes that the Unitrust is virtually a mirror image of the Carvels' wills, in that it provided the Carvels with income during their lives with the remainder [*7]payable on the death of the survivor to the Foundation. As a 10 percent Unitrust beneficiary, Agnes benefitted by receiving substantially greater income than she would have, had these same assets remained in Thomas' estate as an asset of the marital trust. Indeed, far from evincing a breach or abandonment of the Agreement, Agnes embraced the Unitrust by accepting its benefit for nearly eight years.

A waiver requires the voluntary and intentional abandonment of a known right, which but for the waiver, would have been enforceable (Dice v Inwood Hills Condominium, 237 AD2d 402). With no evidence that Thomas breached the Agreement or that Thomas or Agnes abandoned the Agreement, and instead, evidence showing that Agnes reaffirmed the Agreement after Thomas' death, the Court finds insufficient evidence to support a claim of waiver.

OVERREACHING/LACK OF CONSIDERATION

The Agreement was not procured by overreaching, nor is it invalid by virtue of the circumstances of its execution. Initially, the Court credits the testimony by Kaviar that he explained the Agreement and other documents to Agnes [Tr. 524]; that Agnes had no questions about the Agreement [Tr. 524]; and Agnes understood what was going on and what he was saying [Tr. 525].

The Court also finds that Agnes reaffirmed the Agreement and her understanding of its effect on several occasions following Thomas' death. On November 9, 1990, Agnes received advice of counsel that she could object to the probate of the conformed copy of Thomas' will. Agnes was further advised that, as Thomas' sole distributees, she would inherit his entire $45 million estate outright if the copy of his will was denied probate. Agnes opted to continue in the effort to probate Thomas' will [FEx. 17]. In September 1994, Agnes submitted to the Court an affidavit dated August 31, 1994 in which she referenced the Agreement, described its contents, explained its legal effect and confirmed that she was the sound mind when she executed it in February 1988 [FEx. 37]. Other documents evince Agnes' continuing belief in the validity and enforceability of the Agreement [see, FEx. 24; 55; 77].

The Court also finds that Agnes derived a significant benefit that could only have been secured by the Agreement. In this regard, the Court credits Newman's testimony that Agnes derived benefit from knowing that the mutual estate plan would be carried out by the survivor. Of equal or greater importance to Agnes was the guarantee that Thomas could not change his will during her lifetime. In fact, Thomas' will provided Agnes with a greater inheritance than required by the laws of testacy as they existed at the time. Under Thomas' will, Agnes received his entire estate in trust, whereas, under EPTL 5-1.1, Thomas' only obligation was to bequeath one-half his estate in trust for Agnes [FN6].

The cases cited by the respondents impose a requirement of fair dealing regarding separation agreements between husband and wife. It is the rule that inferences drawn from the circumstances surrounding such agreements can be overcome "if it appears that the ... agreement is fair and equitable" (Bartlett v Bartlett, 84 AD2d 800). Based upon the testimony and evidence adduced at trial, the Court finds that the Agreement was fair and equitable, and that Agnes was not only an equal beneficiary of the Agreement with Thomas, but was the primary beneficiary of the Agreement. [*8]Under the circumstances, the Court finds no overreaching on Thomas' part regarding the execution of the Reciprocal Agreement.

For these same reasons, the Court finds no merit to respondents' argument that the Agreement fails for lack of consideration. The record is replete with evidence of benefits derived by Agnes from the Agreement both prior to and subsequent to Thomas' death.

EPTL 13-2.1(b)

The Court finds that EPTL 13-2.12(b) is inapplicable to the Carvels' 1988 wills and, accordingly, rejects the respondents' contention that the Agreement is unenforceable because the Carvels' 1988 wills lack the express language required by EPTL 13-2.1(b).

EPTL 13-2.1(b) was enacted in 1983 to provide that a "contract to make a joint will or not to revoke a joint will ... can be established only by an express statement in the will that the instrument is a joint will" and that such a contract is intended (EPTL 13-2.1[b]).

The Practice Commentary to EPTL 13-2.1(b) provides that "a joint will is one will for two testators, offered for probate twice on their respective deaths" (Turano, Practice Commentaries, McKinney's Cons. Laws of NY, Book 17B, EPTL 13-2.1, at 450 [2001]). Further, the recommendation of the Law Revision Commission to the 1983 Legislature, defined a joint will as a "testamentary instrument that embodies the testamentary plan of two or more persons and is separately executed by each." On the other hand, mutual, reciprocal wills are "separate wills with reciprocal provisions for the other testator" (see, Warren's Heaton on Surrogate's Court [6th ed] §207.02[3]).

In addition to the definition of a joint will set forth in the legislative history, the statutory purpose also lends support to the Court's holding. The purpose of the amendment was to establish a uniform standard to determine the existence of a contract to make a joint will (see, Glass v Battista, 43 NY2d 620). Prior to the amendment, courts would enforce a joint will on the basis of whether the will contained the plural pronouns (we, our or us) as opposed to singular ones (I, my or me) (see, Glass v Battista, supra; see also, Matter of Lubins, 172 Msc2d 517). Furthermore, the growing consensus was that stricter proof requirements were critical because of the adverse estate tax consequences, such as the loss of the marital deduction and potential relinquishment of the right of election, which flowed from the finding of a contract to make a joint will. Mutual wills typically do not suffer from these infirmities.

"...[I]n interpreting statutes, words ... [should] not be expanded so as to enlarge their meaning to something which the Legislature could easily have expressed but did not" (Perry v Zarcone, 98 Misc 2d 899, 901). It is clear from the legislative history of EPTL 13-2.1(b), that the drafters of this statute were careful to limit the scope of its application to joint wills and not mutual wills. Under the circumstances, this Court declines the invitation to expand the statute beyond its intended application.

UNCLEAN HANDS

The Foundation is not barred from enforcing the Agreement by unclean hands. "[T]he doctrine of unclean hands is only available when the conduct relied upon is directly related to the subject matter of the litigation" (Goldberg v Goldberg, 173 AD2d 679, 680). Since much of the conduct complained of does not relate to the validity of the Agreement, is not supported by the proof, or is subject to conflicting interpretations, the respondents have failed to sustain their burden of proof as to this defense.

[*9]THE RECIPROCAL AGREEMENT

The basis for enforcing an express or implied agreement not to alter the terms of a joint or mutual will is historically rooted in the decisional law of this state (see, Matter of Cohen, 83 NY2d 148; Glass v Battista, 43 NY2d 620; Schwartz v Horn, 31 NY2d 275; Tutunjian v Vetzigian, 299 NY 315; Rastette v Hoenninger, 214 NY 66). Where the first party to die has performed the agreement by not revoking a joint or mutual will before death, courts have consistently enforced the agreement against the surviving party or the survivor's estate, and where the survivor executes an independent will, courts will require the executor under the latter will to perform the contract of the decedent (see, Glass v Gattista, supra; Schwartz v Horn, supra; Tutunjian v Vetzuguan, supra; Rastetter v Hoenninger, supra). The underlying rational has been expressed in many forms but the theme is the same: "[T]o permit the one who survives to gain the benefits of the joint will and then to flout its provisions in violation of the promise made to the other 'would be a mockery of justice" (Tutunjian v Vetzigian, supra, at 319, quoting, Mutual Life Ins. Co. v Holladay, 13 Abb. N.C. 16, 24).

Thomas honored the Agreement by not changing his will. His will was admitted to probate with Agnes' support, and she succeeded to a lifetime interest in Thomas' entire estate. She never disclaimed the benefits of her devise and has consistently asserted her inheritance rights under the instrument. Furthermore, the evidence shows that Agnes repeatedly reaffirmed the Agreement after Thomas' death. Under the circumstances, the Agreement between Thomas and Agnes Carvel is a valid agreement enforceable by the Foundation. Accordingly, the fiduciaries of Agnes' estate are directed to perform the contract of the decedent.

Regarding the "Realities" proceeding, the record amply demonstrates that the transfer of the four properties by Agnes to Realities and/or Realities DBT was a gratuitous transfer in violation of the Agreement. First, there was no consideration for these transfers. Second, unlike the cash gifts of income routinely made by the Carvels, the "sale" of the Realities Properties constituted a large transfer of Agnes' principal assets.

While the facts regarding the transfers from Realities to Lartrym are more obscure, they are sufficient to support the conclusion that these too were sham transactions without consideration. In this regard, the Foundation is entitled to an adverse inference against respondents regarding allegations of Agnes' indebtedness to Lartrym based upon a prima facie showing that documents pertaining to the loan transaction, although duly demanded, were not produced (see, Wilkie v New York City Health and Hospitals Corporation, 274 AD2d 474).

Moreover, both Realities DBT and Lartrym were properly served with process and defaulted. By defaulting, Realities and Lartrym "admit all factual allegations of the complaint and all reasonable inferences therefrom" (Fleet Bank v Powerhouse Trading Corp., 267 AD2d 276, 277). The Petition states a valid cause of action against Realities DBT and Lartrym and alleges sufficient facts to support a finding that equitable title remains with Realities. Accordingly, the deeds from Realities and/or Realities DBT to Lartrym are voided, and Realities and/or Realities DBT and Lartrym are permanently enjoined from conveying and/or encumbering the four properties that are the subject of this proceeding. Title to the properties is awarded to the Foundation for the reasons and subject to the conditions addressed hereafter.

The Foundation's demand that the "subject assets" be distributed to it pursuant to SCPA § 1610, as a domestic creditor of Agnes' estate, is granted subject to the payment of reasonable debts [*10]and administration expenses. SCPA § 1610 authorizes the Court to direct an ancillary fiduciary to pay the assets received by him to the creditors who reside in this state.

The Foundation is correct that agreements, such as the Reciprocal Agreement, are enforceable in equity. It is also correct that the Court may not set up Agnes' 1988 or 1990 will as her last will and testament (see, Tutunjian v Vetzigian, supra, 315). However, the Foundation's contention that the equitable remedy for breach of the Reciprocal Agreement is to deem it a creditor of Agnes' estate is correct only to the extent of Agnes' residuary estate. The proper remedy is an order directing the fiduciary to perform the obligation which the testator had assumed. Agnes' obligation under the Reciprocal Agreement was to name the Foundation as the residuary beneficiary of her estate. Accordingly, the Foundation's remedy is to received the residue of Agnes' estate. This was the relief accorded in Tutunjian v Vetzigian, 299 NY 315, 319, supra, where the beneficiaries under the decedent's later will were "deemed to hold half of her estate as a resulting trust in favor of the husband's relatives - those who, though the beneficiaries of the joint will, were cut off by the wife's later will".

As the recipient of Agnes' residuary estate, the Court grants the Foundation's application for transfer of the Realities properties directly to it. In doing so, the Court rejects the respondents' contention that these properties may be required to pay the debts and administration expenses of Agnes' estate. Aside from the naked assertion that Agnes' obligation may exceed her assets, neither Ross nor Pamela have provided any information as to the identify of Agnes' creditors or the amounts of their claims, despite the fact that nearly four years have elapsed since Agnes' death. Moreover, any claim by Ross or Pamela that these properties may be needed to pay debts or administration expenses of Agnes' estate is clearly undercut by their efforts to oppose the Foundation's attempts to recover these assets. In addition, there has been no showing by Ross or Pamela that the assets of Agnes' 1991 Trust will be insufficient to pay the obligations of Agnes' estate.

Finally, the Court notes that Ross lacks the authority to marshal real property out of state. To obtain that authority would require another proceeding in Florida in an estate that already suffers from too many proceedings. The receipt of these properties by the Foundation is, of course, subject to the requirements of SCPA § 2215(3) which obligate the Foundation to return assets to the estate in excess of the amounts due it.

The Foundation's application for a direct distribution of other assets of Agnes' estate is denied. However, pursuant to SCPA § 1610, Ross shall hold such assets subject to the further Order of this Court regarding payment of creditors and expenses and such other disposition as justice may require.

THIS IS THE DECISION AFTER TRIAL OF THE COURT.

Settle Decree.

Dated:White Plains, New York

April 1, 2002

HON. ANTHONY A. SCARPINO, JR.

Westchester County Surrogate

TO:

Footnotes

Footnote 1:The conflicting claims of ownership to the stock of Chain Locations of America, Inc. were recently tried before this Court, and a Decision After Trial was rendered on December 24, 200l.

Footnote 2:The conflicting claims of ownership to the Hedge Farm Property were recently tried before this Court, and a Decision After Trial was rendered on March 20, 2002.

Footnote 3:Neither Realties nor Lartym filed appearances or opposed the relief sought by the Foundation, and they are in default in these proceedings. However, "Realties, a Delaware Business Trust" (Realties DBT") did make a special appearance and moved for an order dismissing the proceeding claiming lack of personal jurisdiction. The motion was denied by this Court's Decision dated March 29, 2002.

Footnote 4:Although this is respondents' current position, they had previously pled, as an affirmative defense, that "[t]he terms of the alleged Reciprocal Agreement are too indefinite, uncertain and vague to be enforced..." (Verified Amended Answer dated January 4, 2002). This defense was subsequently withdrawn.

Footnote 5:The date Agnes signed the deeds.

Footnote 6:EPTL 5-1.1-A, which enhanced the inheritance rights of surviving spouses, was not enacted until September 1992, nearly two years after Thomas' death.