IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE September 8, 2004 Session GEORGE HASKEL STEWART v. DEMPLE L. SEWELL, ET AL. Appeal from the Chancery Court for Franklin County No. 15,704 Buddy D. Perry, Judge No. M2003-01031-COA-R3-CV - Filed April 14, 2005 Plaintiff, stepson of Clara Stewart, contends that attorneys-in-fact of Mrs. Stewart acted in violation of Tenn. Code Ann. 34-6-108(c)(6) and their confidential relationship with Mrs. Stewart, which deprived him of inheriting real property formerly owned by his father under the will of Mrs. Stewart. The attorneys-in-fact (Fiduciaries) are the daughter and son of Mrs. Stewart. They sold the property while their mother was mentally and physically incapacitated, living in a nursing home. The property was sold for substantially less than the appraised value to a daughter and son-in-law of one of the Fiduciaries and two of their friends. Mrs. Stewart, who inherited the property from Plaintiff’s father, was the sole owner of the property at the time of the sale. The Fiduciaries, however, invested the proceeds in certificates of deposit with themselves identified as co-owners with Mrs. Stewart with right of survivorship. The Fiduciaries became sole owners of the entire sales proceeds upon the death of Mrs. Stewart. During the administration of Mrs. Stewart’s estate, the Fiduciaries, now executors, advised Plaintiff that his devise adeemed by extinction. Plaintiff brought this action to recover the real property or the fair market value thereof from the Fiduciaries and/or the buyers. The trial court dismissed the complaint without making findings, stating only that it was not sustained by the proof. Plaintiff appealed. We reverse finding that the Fiduciaries acted in contravention of the power of attorney and Tenn. Code Ann. 34-6-108(c)(6) and breached their fiduciary duties to Mrs. Stewart, and award Plaintiff a judgment against the Fiduciaries for the net proceeds resulting from the sale of the devised property plus pre-judgment interest from the date of sale. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed in Part, Affirmed in Part and Remanded FRANK G. CLEMENT, JR., J., delivered the opinion of the court, in which WILLIAM B. CAIN, and PATRICIA J. COTTRELL, JJ., joined. Hudson Owen Maddux, Chattanooga, Tennessee, and John Mark Stewart, Winchester, Tennessee, for the appellant, George Haskel Stewart. James C. Thomas and Jerre Michael Hood, Winchester, Tennessee, for the appellees, Demple L. Sewell and Bobby L. Judkins (Co-Executors of the Estate of Clara B. Stewart), The Estate of Clara B. Stewart, Robert E. Blocker, Rhonda S. Blocker, Tom A. Paul and Diana L. Paul. OPINION James Stewart was a widower1 when he married the then Clara Judkins, a widow, in 1974. Both had children from prior marriages. Plaintiff, George H. Stewart, is the son of James Stewart and his first wife. Defendants Demple L. Sewell and Bobby L. Judkins (the “Fiduciaries”) are the children of Clara (Judkins) Stewart and her first husband. During the marriage of James Stewart and Clara (Judkins) Stewart, they both executed wills which were mutual to the limited extent that they each incorporated a devise in each will so that Plaintiff would inherit real estate on Little Hurricane Road that his father, James Stewart had owned since 1939. The property was 6.8 acres and a house on Tims Ford Lake of which 260 feet was valuable lakefront property. In his will, James Stewart devised the property to his wife, Clara Stewart, provided she survived him, and to Plaintiff if she did not. In Clara Stewart’s will, the property was also devised to Plaintiff.2 James Stewart predeceased Clara Stewart, thus she inherited the property.3 After the death of James Stewart, Mrs. Stewart executed a new will.4 Though she made some changes in her estate plan, Mrs. Stewart reaffirmed the intended devise of her deceased husband’s property to Plaintiff. Under Mrs. Stewart’s new will, the devise to Plaintiff of the property on Little Hurricane Road was identified as “the property formerly owned by James Haskell Stewart.” Plaintiff remained the intended devisee of the property at the time of Mrs. Stewart’s death. As Mrs. Stewart’s health began to decline, she executed a general durable power of attorney in which she designated her children, Demple L. Sewell and Bobby L. Judkins (the “Fiduciaries”), as her attorneys-in-fact. The power of attorney was executed in November of 1994. Mrs. Stewart’s mental and physical health continued to decline. By January of 1997, Mrs. Stewart needed full time care, thus plans were made to move her into a nursing home. Demple Sewell testified that when the Fiduciaries “went to sign the papers at the nursing home, they told us that [Mrs. Stewart] could keep assets in the – she could keep her home that she had lived in the last five years, $2,000 and a car. Everything else, all her other resources, they wanted a list of them. This is the property, this house, everything was in mother’s name, that was her resources. And we had given it to the nursing home. It would have been tied up forever.” The Fiduciaries then refused 1 His first wife died in 1971. 2 Plaintiff was the alternate devisee in the event his father did not survive Mrs. Stewart. In their respective wills, Mr. and Mrs. Stewart each devised the disputed property to each other, provided the other survived. Plaintiff was listed as the alternate devisee under each will. Thus, both Mr. and Mrs. Stewart intended for Plaintiff to be the devisee of the property following the latter of their deaths. 3 He died on December 30, 1981. 4 The will was executed in August of 1994. -2- to sign the financial statement of Mrs. Stewart’s assets required by the nursing home. Demple Sewell explained that they refused to do so because “we didn’t want to open up the whole thing [Mrs. Stewart’s assets]. We were trying to save some portion.” Immediately prior to being admitted to the nursing home, $19,500 that had been in Mrs. Stewart’s bank account was “given” to the Fiduciaries, arguably as gifts to her two children. Then, on February 7, 1997, the Fiduciaries, acting as her attorneys-in-fact, sold most of the property James and Clara Stewart had devised to Plaintiff, indeed the most valuable portion, the lakefront property. All that remained was a modest house which was a good distance from the lake. Mrs. Stewart did not authorize or participate in the sale. The purchasers of the disputed property were Diane Paul, the daughter of Demple Sewell, and her husband Tom Paul, and their friends, Robert and Rhonda Blocker. The appraised value of the property that was sold was $110,000. The purchase price stated in the affidavit of consideration on the deed was a mere $40,000; however, the Fiduciaries, in their answer to the complaint, stated that the true purchase price was $80,000. The property was sold without the assistance of a real estate agent and without public advertising. The property was solely owned by Mrs. Stewart when it was sold by the Fiduciaries; however, the Fiduciaries deposited the entire proceeds of the sale into certificates of deposit. The Fiduciaries were identified as co-owners with Mrs. Stewart of all of the certificates, with right of survivorship. Mrs. Stewart did not authorize, nor participate, in the manner by which the Fiduciaries deposited or titled the proceeds. Mrs. Stewart died on May 9, 1998, fifteen months after the Fiduciaries “gifted” the proceeds to themselves by listing themselves as joint owners with right of survivorship. Moreover, none of the proceeds were needed for the care of Mrs. Stewart. Thus, all of the proceeds from the sale of the disputed property remained on deposit at Mrs. Stewart’s death. As a consequence, all of the proceeds along with accumulated interest went to the Fiduciaries by right of survivorship. The Fiduciaries were appointed Co-Executors of Mrs. Stewart’s probate estate. During the administration of her estate, the attorney for the Fiduciaries sent a letter to Plaintiff informing him that he had inherited “the house” pursuant to Mrs. Stewart’s will. The key to the house was enclosed. No mention was made of the disputed property that adeemed by extinction due to the sale orchestrated by the Fiduciaries or the proceeds the Fiduciaries received upon the death of Mrs. Stewart.5 5 “Ademption” has been defined as “the extinction, alienation, withdrawal, or satisfaction of the legacy by some act of the testator by which an intention to revoke is indicated; the doing of some act with regard to the subject matter which interferes with the operation of the will.” (emphasis added) Pritchard on Wills and Administration of Estates, § 486 (Jack W. Robinson, Sr. & Jeff Mobley, 5th ed. 1994). -3- Thereafter, Plaintiff filed this action seeking to recover the property, or a constructive trust and/or damages resulting from the Fiduciaries’ acts in contravention of the power of attorney and Tenn. Code Ann. § 34-6-108(c)(6) and the breach of their fiduciary duties. Plaintiff contended that he would have inherited the disputed property but for the ultra vires, self-serving acts by the Fiduciaries. He asserted that he was deprived of inheriting the disputed property, or the value thereof, as a direct result of the Fiduciaries’ actions. Defendants denied they violated any fiduciary duties and contended that Plaintiff was entitled to no relief. At the conclusion of a lengthy bench trial, the trial court requested counsel to submit proposed findings of fact and conclusions of law.