Haffenreffer v. Haffenreffer

994 A.2d 1226, 2010 R.I. LEXIS 64, 2010 WL 1978579

• Court: Supreme Court of Rhode Island
• Decided: May 18, 2010
• Docket: 2008-276-Appeal
• Status: Published

Opinions

OPINION

Justice ROBINSON for the Court.

This case comes before us on the defendant’s appeal from two grants of summary judgment entered in accordance with Rule 56 of the Superior Court Rules of Civil Procedure in favor of the plaintiff, David H. Haffenreffer. The defendant, Karl Haffenreffer, raises two principal issues on appeal. First, Karl¹ contends that the hearing justice in the Superior Court erred in ruling (a) that an offer document authored by the coexecutors administering the Estate of Carolyn B. Haffenreffer was clear and unambiguous and should be understood as David would have it and (b) that the offer document correspondingly precluded Karl from using a credit, against his anticipated share in Carolyn’s overall estate, as a portion of the purchase price in acquiring three parcels of real estate from the estate. Secondly, Karl contends in the alternative that the hearing justice erred in failing to order a reformation of the offer document so as to comport with the actual preexisting intention of the co-executors, at whose behest the offer document was drafted. For the reasons set forth below, we reverse and vacate the judgment of the Superior Court.

I

Facts and Travel

David and Karl are brothers. Their mother, Carolyn B. Haffenreffer, passed away on December IB, 2003. Carolyn’s estate plan was reflected in a will executed in 1995. Having set forth a plan for the distribution of her probate estate, Carolyn’s will then provided that the residue and remainder of her estate should be transferred, or should pour over, into a trust established in 1982 and subsequently amended some sixteen times, most recently in 1999 (the Trust Agreement or trust). Carolyn’s will named David and Karl as coexecutors of her estate; it also provided that Attorney Noel M. Field, Jr. should serve as a coexecutor.²

A

The Probate Estate

Carolyn’s probate estate consisted mainly of various parcels of real property and various items of personal property. Carolyn bequeathed all her tangible personal property in roughly equal shares to be divided amongst Karl, David, and David’s wife. Carolyn directed that three parcels of real estate in Little Compton be devised to David. She also instructed the coexecu-tors to sell one parcel of real estate on Congdon Street in Providence.³

Additionally, Carolyn directed the coex-ecutors to sell several other parcels of real estate located in Little Compton; it is these parcels that lie at the core of the instant controversy. Section 10 of the will governed the preconditions for the sale of these parcels. Essentially, section 10 required that the coexecutors first offer to sell the parcels to a select group of family members for “the lowest price which the seller would be willing to accept for such parcel;” then, if any of the parcels remained unsold, the coexecutors were to offer them for sale to the public.

B

The Trust Agreement

Carolyn’s will provided that the residue and remainder of her estate should be transferred into her trust. Carolyn had established in 1982 a Trust Agreement with Fleet National Bank (now Bank of America) to serve as trustee.⁴ The Trust Agreement provided that, after accounting for taxes, debts, and expenses, Karl would receive one-third of the remainder of the estate and David would receive the balance.

In May of 2004, several months after Carolyn’s death, Attorney Field (one of the coexecutors) created a spreadsheet to better explain what assets would ultimately constitute the Overall Estate⁵ and would be distributed in accordance with the Trust Agreement. He opined that the value of the assets would amount to a total sum of $29,442,438.70. After deductions for estate taxes, specific gifts, and expenses, Attorney Field calculated that $11,847,788.13 would be available to Karl and David. Ultimately, Karl could expect to receive approximately $3.9 million and David could expect to receive approximately $7.9 million. This estimate was updated in May of 2005 so as to indicate that Karl could expect to receive approximately $4.1 million and that David could expect to receive approximately $8.3 million.

C

The Offer Document

On March 2, 2005, the three coexecutors (Karl, David, and Attorney Field) caused to be created a document (Offer Document) that would be used to facilitate the sale of the six Little Compton parcels as directed by Carolyn’s will; in that document, the coexecutors mutually agreed to sell the six parcels in four saleable units. The Offer Document permitted Karl, David, and David’s three children to make offers to purchase the four units in accordance with section 10 of Carolyn’s will. What ultimately lies at the heart of the instant dispute is the language in the so-called “credit provision” of the Offer Document which sets forth the terms of payment for the units. That provision reads as follows:

“Payment shall be made in the form of cash, certified check, bank check or wire transfer, with or without financing, excepting however, seller financing, in the full amount of the purchase price, subject to customary adjustments and pro-rations as of the date of transfer and subject to adjustment or credit for shares or amounts due to such offeree from the Estate of Carolyn B. Haffen-reffer pursuant to the terms of the Will.”

The Offer Document required that any family member who wished to purchase a unit return his or her response by May 2, 2005.

On May 2, 2005, Karl submitted his response to the Offer Document — accepting the offer by indicating that he wished to purchase three specific units of the four that had been offered; those three units had been appraised as having a total value of $5,215,500. Karl indicated that he would pay most of the purchase price by using, in the form of a credit, the approximately $4.1 million that was due to him from Carolyn’s Overall Estate to be distributed in accordance with the Trust Agreement.⁶

Almost a month later, on June 1, 2005, Attorney Field responded to Karl’s acceptance of the coexecutors’ offer to sell the parcels. Attorney Field did so in a memorandum to the coexecutors and their counsel; he asserted that the credit provision set forth in the Offer Document did not permit Karl to purchase the three units by using a credit reflective of the amount due to him from the Overall Estate. Attorney Field indicated that Karl would have to pay for the properties in the form of cash, certified check, bank check, or wire transfer.

Less than a week later, on June 7, 2005, Karl, through his attorney, responded to Attorney Field and David, demanding that the sale take place and asserting that he was entitled to use a credit reflective of the amount due to him from Carolyn’s Overall Estate. It is undisputed that David and Attorney Field, in their capacities as coexecutors, ultimately refused to consummate the sale.

D

The Superior Court Actions

On May 6, 2005, David commenced the instant action in Newport County Superior Court by filing a verified complaint seeking (1) a declaratory judgment and (2) a temporary restraining order to prevent the sale of the properties. On June 22, 2006, David filed an amended verified complaint, again requesting declaratory relief pursuant to the Uniform Declaratory Judgments Act.⁷ In count 3 of his amended complaint, David sought a declaration that Karl had breached the contract to purchase the three units because he had failed to “close on the properties within the time set forth in the Will (as extended by agreement of the Co-Executors) [which] * * * negates the Estate’s duty to sell him any of the subject parcels.”

Karl answered the amended complaint and also filed a counterclaim and cross-claim, asserting that it was David and Attorney Field who, when they refused to convey the three parcels to him, had breached the contract that had come into existence when he accepted the offer set forth in the Offer Document. Karl contended that, in drafting the Offer Document, the coexecutors had intended that the credit provision in the Offer Document would allow him to use his intended distribution from Carolyn’s Overall Estate as a credit for a portion of the purchase price. The parties thereafter filed cross-motions for summary judgment.

On May 3, 2007, the parties appeared in Superior Court and participated in a hearing on their cross-motions for summary judgment. On July 27, 2007, the hearing justice issued a written decision and ruled that the credit provision clearly and unambiguously permitted Karl to use a credit from his anticipated share of Carolyn’s probate estate only — and not from the Overall Estate. Notably, the hearing justice stated that she did not “resort to analysis of extrinsic evidence” in reaching her decision; after having made reference to the parole evidence rule, she expressed her view that such analysis would be “both unnecessary and impermissible.” She therefore granted summary judgment in favor of David with respect to count 3 of his amended verified complaint.

In the wake of the just-referenced ruling, Karl was granted leave to amend his counterclaim. He then added a count 3 to his original counterclaim. In count 3 of Karl’s counterclaim, he sought reformation of the contract on the basis of mutual mistake; he again argued that the coexec-utors had intended that, in purchasing such parcels as he might choose to purchase, he could use a credit from his expected share of the Overall Estate. David and Karl again filed cross-motions for summary judgment.

On May 23, 2008, the same hearing justice as had ruled on the earlier cross-motions addressed the most recent cross-motions for summary judgment; she once again ruled in favor of David and declined to allow reformation of the contract. The hearing justice again declared that the Offer Document was clear and unambiguous and should be understood as David would have it. She held that the phrase “pursuant to the terms of the Will” in that document meant that, in seeking to purchase the subject properties, Karl was entitled to use a credit only with respect to his shares of Carolyn’s probate estate and not with respect to shares due to him from the Overall Estate as would be distributed in accordance with the Trust Agreement. The hearing justice also found no evidence of mutual mistake, stating that “[the coex-ecutors] understood the terms of payment * * * in the offer document to read and mean exactly what [was] stated as written.” Partial final judgment was entered in accordance with Rule 54(b) of the Superior Court Rules of Civil Procedure on July 18, 2008. Karl filed a timely notice of appeal.

II

Standard of Review

This Court employs a de novo standard in reviewing a hearing justice’s decision on a motion for summary judgment pursuant to Rule 56 of the Superior Court Rules of Civil Procedure. Estate of Giuliano v. Giuliano, 949 A.2d 386, 391 (R.I.2008). We carry out such a review in the same manner as did the hearing justice, “reviewing the evidence and drawing all reasonable inferences in the light most favorable to the nonmoving party.” Fiorenzano v. Lima, 982 A.2d 585, 589 (R.I.2009); see also Planned Environments Management Corp. v. Robert, 966 A.2d 117, 121 (R.I.2009); Chavers v. Fleet Bank (RI), N.A., 844 A.2d 666, 669 (R.I.2004). This Court “will affirm a summary judgment if there is no genuine issue of material fact and we conclude that the moving party is entitled to judgment as a matter of law.” O’Sullivan Rhode Island Hospital, 874 A.2d 179, 182 (R.I.2005); see also Alves v. Hometown, Newspapers, Inc., 857 A.2d 743, 750 (R.I.2004).

Further, since the instant dispute involves contract interpretation, it should be recalled that “this Court reviews the trial justice’s interpretation of contracts de novo.” Zarrella v. Minnesota Mutual Life Insurance Co., 824 A.2d 1249, 1259 (R.I.2003). In addition, whether or not a contract is ambiguous is a question of law. Gorman v. Gorman, 883 A.2d 732, 738 n. 8 (R.I.2005); see also Young v. Warwick Rollermagic Skating Center, Inc., 973 A.2d 553, 558 (R.I.2009). Accordingly, our review of the hearing justice’s ruling as to that issue is conducted on a de novo basis. Young, 973 A.2d at 558.

Ill

Analysis

On appeal, Karl contends that the hearing justice should not have granted summary judgment in David’s favor. He asserts that the credit provision in the Offer Document is ambiguous, in that (in his view) it is susceptible to more than one possible meaning. Karl further contends, however, that there is only one reasonable interpretation of that provision — viz., that the provision contemplates a credit being taken with respect to the Overall Estate and not just Carolyn’s probate estate (as is contended by David). Karl further alleges error in the hearing justice’s failure to look to extrinsic evidence in interpreting the provision in question. Karl contends that extrinsic evidence demonstrates that, at the time of the drafting of the Offer Document, the coexecutors intended that the credit provision refer to the Overall Estate. Karl therefore asserts that summary judgment should have been granted in his favor.⁸

For the reasons that follow, it is our conclusion that the phrase “Estate of Carolyn B. Haffenreffer” as used in the credit provision of the Offer Document unambiguously refers to Carolyn’s Overall Estate.⁹

The credit provision expressly allows an offeree who is a potential purchaser to make payment through an “adjustment or credit for shares or amounts due to such offeree from the Estate of Carolyn B. Haf-fenreffer pursuant to the terms of the Will.” Our case law is clear that “instruments referred to in a written contract may be regarded as incorporated by reference and thus may be considered in the construction of the contract.” Rotelli v. Catanzaro, 686 A.2d 91, 94 (R.I.1996). Accordingly, since the Offer Document expressly references the will, we shall look to the language of Carolyn’s will as we construe the just-quoted provision of the Offer Document.

In reviewing the terms of Carolyn’s will, it is immediately apparent that the will transfers a large portion of the decedent’s estate to a trust, as Carolyn’s will expressly provides that the residue and remainder of her estate should be transferred “to Fleet National Bank as trustee under [Carolyn’s] 1982 Trust Agreement * * In the law of wills and trusts, such a provision is commonly referred to as a pour-over provision. See, e.g., Filippi v. Filippi, 818 A.2d 608, 615 (R.I.2003); see also Notarantonio v. Notarantonio, 941 A.2d 138, 141 (R.I.2008). When such a pour-over provision is utilized, the decedent’s will and her trust become inextricably linked. See Merrill v. Boat, 47 R.I. 274, 283, 132 A. 721, 725 (1926) (“Very frequently a trust agreement * * * is later incorporated by reference into a will and serves as a part thereof.”); see also 79 Am.Jur.2d Wills § 196 (2009) (“[T]he general rule of incorporation by reference is applicable to permit the incorporation in a will wherein a bequest is made in trust of an extrinsic trust instrument to supply the terms of the trust.”). Since it employs a pour-over provision, Carolyn’s will not only provides for the distribution of her probate estate, but it also directs that a large portion of her estate be distributed through a trust. Therefore, it is our conclusion that the shares to which Karl is entitled “pursuant to the terms of the Will” include shares from Carolyn’s probate estate and from her trust.¹⁰ Accordingly, we hold that the term “Estate of Carolyn B. Haffenreffer” as used in the credit provision of the Offer Document unambiguously refers to Carolyn’s Overall Estate. Consequently, we further hold that, in purchasing the three units that he wished to purchase, Karl was entitled to use, in the form of a credit, the amount due to him from the Overall Estate.¹¹

Even though what we have written thus far suffices to resolve the instant controversy, we believe it worthwhile to note that our interpretation of the credit provision as unambiguously allowing Karl to use as a credit his shares from Carolyn’s Overall Estate is entirely consistent with the intentions of the parties in preparing the Offer Document, as reflected in the copious extrinsic evidence in the record. This Court has long held that, in construing the terms of a contractual provision, our primary objective is to ascertain the intent of the parties. The Elena Carcieri Trust-1988 v. Enterprise Rent-A-Car Co. of Rhode Island, 871 A.2d 944, 947 (R.I.2005). With respect to determining the intent of the parties, this Court in Hill v. M.S. Alper & Son, Inc., 106 R.I. 38, 256 A.2d 10 (1969) quite clearly summarized as follows certain basic principles:

“In interpreting [an] instrument it is basic that the intention of the parties must govern if that intention can be clearly inferred from its terms and can be fairly carried out consistent with settled rules of law. * * * In ascertaining what the intent is we must look at the instrument as a whole and not at some detached portion thereof. * * * And, although there is no ambiguity, we will nonetheless consider the situation of the parties and the accompanying circumstances at the time the contract was entered into, not for the purpose of modifying or enlarging or curtailing its terms, but to aid in the interpretive process and to assist in determining its meaning.” Id. at 47, 256 A.2d at 15 (emphasis added).

Accordingly, this Court may “consider extrinsic evidence where relevant to prove a meaning to which the language of the instrument is reasonably susceptible * * *.” Harrigan v. Mason & Winograd, Inc., 121 R.I. 209, 213, 397 A.2d 514, 516 (1979);¹² see also LPP Mortgage. Ltd. v. Sugarman, 565 F.3d 28, 31-32 (1st Cir.2009).¹³

The pertinent extrinsic evidence (much of it consisting of sworn testimony by David and by Attorney Field and members of Attorney Field’s law firm) indicates that, until some point in time after the Offer Document was tendered and then accepted by Karl, all parties understood the term “Estate of Carolyn B. Haffenref-fer” to refer to the Overall Estate.

The transcript of the deposition of Attorney Field that was conducted on July 28, 2005 contains the following significant dialogue:

“Q. But back in March, when you as a co-executor, made the offer * * * your understanding of the meaning of the phrase taking credit against shares and so forth, your understanding of that and your intention of that was that the share would be the share against the entire estate, including the trust?

“A. Yes* * *.”

Similarly, in his deposition taken on August 2, 2006, David acknowledged that he understood the credit provision of the Offer Document as referring to “the trust and the will put together.”¹⁴

In addition, Attorney David I. Lough (the lawyer in Attorney Field’s office who actually drafted the Offer Document) stated in an affidavit that he drafted the credit provision of the Offer Document “with the objective of carrying out the intention of the executors * * * as [he] understood it.” Attorney Lough stated that his understanding of the intention of the coexecu-tors was as follows:

“The executors stated that they would permit a family member who was a beneficiary of Mrs. Haffenreffer to utilize a credit if available for amounts due from the estate to pay for such a purchase. I did not hear any executor, or any other person, state at this meeting, or at any other time, that he intended that the credit was to be limited to amounts due from Mrs. Haffenreffer’s probate estate, as opposed to the assets that were in Mrs. Haffenreffer’s Trust. I cannot recall any executor or any other person ever distinguishing between these two aspects of Mrs. Haffenreffer’s estate.”

Despite the prior understanding of the parties, David acknowledged in his deposition that he took the position that Karl could not use a credit from his anticipated distribution from Carolyn’s Overall Estate at the time “when Karl made his election to accept the offers of the property and tried to use his share from the trust as part of the purchase price.”¹⁵

In summary, we conclude as a matter of law that the phrase “Estate of Carolyn B. Haffenreffer” unambiguously refers to Carolyn’s Overall Estate, and not solely to her probate estate.¹⁶ We thus hold that summary judgment was improperly granted in favor of David on this issue. Rather, in our view, Karl was entitled to summary judgment.

IV

Conclusion

For the reasons set forth in this opinion, we reverse and vacate the Superior Court’s grants of summary judgment in favor of David. We remand this case to the Superior Court.

Chief Justice SUTTELL did not participate. Justice INDEGLIA took no part in the consideration or decision of this appeal.

1 . For the sake of simplicity, we shall frequently refer to members of the Haffenreffer family by their first names. We of course intend no disrespect.

2 . Noel M. Field, Esq. was named as a defendant in his capacity as a coexecutor of the Estate of Carolyn B. Haffenreffer. He is, however, only a nominal defendant in this action.

3 . The three particular parcels of real estate in Little Compton that were devised to David are not at issue in the instant case, nor is the parcel on Congdon Street in Providence.

4 . Bank of America was originally a defendant in this action, but that institution has since been dismissed.

5 . In this opinion, the term "Overall Estate” refers to the probate estate coupled with the assets encompassed by the Trust Agreement.

6 . Karl indicated that he would pay the remaining $1,115,500 of the purchase price in cash by means of funds from a bank in Maine.

7 . G.L.1956§ 9-30-1.

8 . We note that the instant case "is a case in which the [Super.R.Civ.PJ 56 option was entirely appropriate; there was no dispute between the parties as to the material facts, but rather only as to the legal conclusion to be drawn.” See O’Sullivan v. Rhode Island Hospital, 874 A.2d 179, 183 (R.I.2005).

9 . It is undisputed that a contract was created when Karl submitted his response to the Offer Document; he thereby accepted (with respect to three of the four offered units) the coexecu-tors' offer to sell the units. See E. Allan Farnsworth, Farnsworth on Contracts § 3.13 (3d ed.2004); see also 17A Am.Jur.2d Contracts § 1 (2009). Thus, our analysis of the language in the Offer Document’s credit provision will be "governed by the well-settled rules on the interpretation of contracts.” See McBurney v. Teixeira, 875 A.2d 439, 443 (R.I.2005) (internal quotation marks omitted).

10 . Further, an interpretation of the credit provision as referring only to Carolyn's probate estate would render the provision meaningless, as Attorney Field stated in his memorandum of June 1, 2005 to the coexecutors and their counsel:

“As the will leaves the entire residue of the probate estate (which includes the proceeds of any sale of real estate) to a trust, there are no adjustments or credits for shares or amounts due to any offeree from the [probate] estate of Carolyn B. [I-IaffenrefferJ." (Emphasis added.)

11 . Although the dissent proclaims that we have departed in this case from Rhode Island's "long-standing” and "venerable” contract interpretation doctrines, that charge is without foundation. Conducting the requisite de novo review of the Superior Court’s summary judgment ruling, it became clear to us that the "pursuant to the terms of the Will” phrase in the Offer Document required us to look to the language of the will. An examination of the will immediately reveals that it contains a "pour-over” provision and that therefore Carolyn's will and trust are inextricably linked. This is a complex analysis, but it is in no way unfaithful to this state's longstanding and venerable doctrines governing contract interpretation.

12 . In his opinion for the Court in the case of Harrigan v. Mason & Winograd, Inc., 121 R.I. 209, 213, 397 A.2d 514, 516 (1979), Justice Weisberger cited approvingly to the seminal case of Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641 (1968).

We consider the following language from the opinion of Chief Justice Traynor of the Supreme Court of California in the Pacific Gas case to be particularly enlightening:

"A rule that would limit the determination of the meaning of a written instrument to its four-corners merely because it seems to the court to be clear and unambiguous, would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained." Pacific Gas, 69 Cal.Rptr. 561, 442 P.2d at 644.

13 . The hearing justice declined to look at extrinsic evidence in conducting her analysis of the hermeneutic problem that this case poses; David has contended that the parol evidence rule barred the hearing justice from considering such evidence, since she did not find the credit provision of the Offer Document to be ambiguous on its face. It is true that "the parol evidence rule bars the admission of any previous or contemporaneous oral statements that attempt to modify an integrated written agreement.” Garden City Treatment Center, Inc. v. Coordinated Health Partners, Inc., 852 A.2d 535, 542 (R.I.2004). It is our judgment, however, that the parol evidence rule is inapplicable to the instant case, since the extrinsic evidence at issue is being used to provide insight into the parties' intent at the time of the drafting of the credit provision, and not to modify or contradict its terms. See Hill v. M.S. Alper & Son, Inc., 106 R.I. 38, 47, 256 A.2d 10, 15 (1969).

14 . We also see some significance in the fact that David acknowledged in his deposition that he understood language in a memorandum regarding an unrelated parcel of property to the effect that property “descending to [him] under Section 4 of the will would be allocated as a part of David's share of the estate" as meaning that "that would be taken as a credit against what would be coming to [David] under the trust.”

15 . We note that in his brief David states that "Karl's Offer Response Form [accepting the offer to purchase three parcels] took David and Attorney Field by complete surprise." At the time the Offer Document was created, they had expected him to purchase only one parcel, which was valued at $93,100-far lower than the $5,215,500 total purchase price for the three parcels Karl eventually opted to purchase. (Significantly, it is apparently undisputed that David and Attorney Field would have allowed Karl to use a credit from Carolyn's Overall Estate for that lesser amount.) However, the inaccurate prediction by David and Attorney Field as to Karl's potential future decisions does not affect our contractual analysis.

16 .In view of the conclusion that we have reached as to the meaning of the credit provision, we need not (and therefore do not) reach the issue of contractual reformation, which was the subject of the second cross-motions for summary judgment.