Borotka v. Boulay

Barnes, J., delivered the opinion of the Court. Two questions are presented for determination in this appeal from the Circuit Court of Baltimore City (Cardin, J.) : (1) whether the appellants, Leonard P. Borotka and Ralston B. Thompson, trustees under an Irrevocable Deed of Trust executed by the late Robert T. Phipps, divorced husband of Rita Ann Phipps Boulay, are entitled to the proceeds of certain life insurance policies insuring Mr. Phipps and (2) whether the trustees are entitled to commissions and their attorneys reasonable counsel fees regardless of the decision reached in regard to the first question. The facts are not in dispute. Mrs. Boulay and her former husband, Robert T. Phipps, had marital difficulties in 1967 and separated.

On October 1, 1967, they entered into a Separation Agreement—both being represented by counsel—in which Mr. Phipps agreed that his wife should have the custody and guardianship of their two sons, Stephen John Phipps and Michael Earle Phipps, with the right in the husband to visit them at reasonable times. Mr. Phipps further agreed to pay his wife $550 a month for her maintenance and support and for alimony. He also agreed to pay for support of the two minor chil ²⁴⁶ dren, the amount being apportioned at $300 for alimony and $250 for child support. The alimony for the wife would continue until her death or remarriage, whichever first occurred.

The husband also agreed that he would furnish gasoline for his wife’s automobile at the company pump of Phipps’ Paving Company, to maintain in full force the Blue Cross and Blue Shield medical insurance covering the wife and children, to pay for all medical and dental care of the two children and the cost of educating the children. Paragraph 6—of particular importance to the decision of the present case—was as follows: “6. Husband agrees to maintain in full force all life insurance policies on his life which are owned and in effect at the time of this Agreement in which Wife shall be named as primary beneficiary and his sons as contingent beneficiaries. Husband agrees to furnish Wife with certificates of such insurance and to maintain the policy or policies in full force and effect.

In the event of Wife’s death or remarriage Husband agrees to maintain the insurance in effect for the benefit of his sons until they die, attain the age of twenty-one (21) years, become self-supporting or Husband’s death, whichever shall first occur.” Paragraph 10 provided: “10. In the event that any action for a divorce shall be brought by either party hereto against the other, it is covenanted and agreed that this Agreement shall be submitted to the Court having jurisdiction thereof for its approval and the Court shall be requested by the parties to incorporate this Agreement in any decree or judgment that may be entered in any such action.” On November 15, 1967, Mr. Phipps obtained an uncon ²⁴⁷ tested Mexican divorce, Rita having entered an appearance in the case by counsel. The Mexican Court provided in the decree divorcing the parties a vinculo matrimonii the following: “Third-—It is approved in all its parts, the Separation Agreement entered into by the parties on October first, nineteen hundred and sixty seven, in the City of Baltimore, State of Maryland, United States of America, which has been incorporated by reference into this decree, same as if it were recited in full, in order that it survive and be in full force and legal effect, after the final judgment without merging it with same.” On March 29, 1968, Mr. Phipps consulted Mr. Borotka, a member of the Maryland Bar, and requested him to prepare a Will and an Irrevocable Trust Agreement for him. They met again in early April; and on April 30, 1968, Mr. Phipps signed the Trust Agreement naming Mr. Borotka and Ralston B. Thompson, secretary and general manager of Robert T. Phipps, Inc. as trustees.

The instrument, designated “Irrevocable Trust Agreement,” recites that the grantor, Mr. Phipps, “wishes to create a Trust for his two sons MICHAEL EARLE PHIPPS and STEPHEN JOHN PHIPPS.” By the Irrevocable Trust Agreement, Mr. Phipps did “irrevocably assign, convey, grant, transfer and deliver” to the trustees, their survivor and successors “certain insurance policies on the life of the Grantor” of which $15,000 base amount was held by the Mutual Life Insurance Company of New York (Mutual), $30,000 in Guardian Life Insurance Company of America (Guardian) and $20,000 face amount in the National Asphalt Paving Association Trust Fund operated by the Continental Assurance Company (Continental). By the Trust Agreement, Mr. Phipps agreed to pay all premiums on the policies mentioned, but retained no “elements of ownership in said policies as long as this Trust shall exist and they are held by ²⁴⁸ the Trustees.” He also agreed to prepare the necessary-documents for the insurance companies, “advising them of said Trust and also cause to be made the beneficiaries of said insurance policies the Trustees.” Mr. Phipps stated that it was his intention to create the trust because he wished to take care of his two children until they are 21 years of age and wished to keep the policies separate from any estate he might have in order that the trustees could maintain “the children in the way the Grantor would have done had he been alive.” He also expressed the intention that the trustees would take the monies in the trust to pay allowances for the education of his children, for their medical expenses and “to see that they are maintained in the best manner possible until they have attained the age of twenty-one (21) ... when this Trust shall cease and the remaining principal if any, shall be paid over to them share and share alike on their twenty-first (21st) birthday.” Mr. Phipps also expressed the “wish” that the trustees not pay Rita, the mother of the children, more than $200 a month for both sons as board and lodging so long as they are in the custody of “the divorced wife and their mother,” Rita; but the trustees were authorized to pay or not to pay Rita board and lodging “in their sole discretion without recourse to any court of any kind.” The trustees were directed to pay directly to the children or to Rita for board and lodging in their sole discretion and not to pay the money to any creditor or guardian, except the board and lodging money to Rita. They were given the power to invest and reinvest the trust property in their own judgment and to treat the minors as if they were their own children, but to bear in mind that the proceeds should, if possible, be “spread out” so that they would be sufficient to last “until the twin boys are twenty-one (21) years of age.” If one son died, all of the income should be paid to the survivor and if both died prior to becoming 21 years of age, the trust property should go into the grantor’s estate and pass by his will. No bond was required of the trustees ²⁴⁹ and the trust powers passed to the surviving trustee.

There was also a covenant by the grantor to make such other assignments and execute such other instruments the trustees should deem requisite and proper to effectuate the purposes of the Trust Agreement. Mr. Phipps, as grantor, and Mr. Borotka and Mr. Thompson, as trustees, signed and sealed the Trust Agreement. It was recorded among the Land Records of Baltimore City on June 19, 1968, in Liber RHB 2386, folio 108. Mr. Borotka testified at the hearing in the lower court that Mr. Phipps had informed him at the first meeting in March 1968 that he had been divorced from his wife but did not mention any Separation Agreement.

Mr. Borotka was not aware of any such agreement when the Trust Agreement was executed on April 30, 1968. In June 1968, Mr. Phipps told him about a Separation Agreement, his copy of which he said had been lost, but did not mention the clause in the Separation Agreement in regard to the insurance policies. Mr. Phipps died on August 23, 1968, as a result of an airplane crash into the Chesapeake Bay. Counsel for the surviving former wife, Rita, telephoned Mr. Borotka in September 1968 and the subject of the insurance policies and the Trust Agreement was discussed.

It was then that counsel for Rita told Mr. Borotka about the clause concerning insurance policies in the Separation Agreement and this was the first time that Mr. Borotka knew of the existence of that clause. A copy of the Separation Agreement was sent to Mr. Borotka; and on September 28, 1968, Rita Ann Phipps (She did not marry her present husband, Stanley C. Boulay, until February 14, 1969, during the pendency of the present suit.) filed a bill of complaint for declaratory and other relief against the trustees and the three life insurance companies, praying that the Trust Agreement and the designation of the trustees as beneficiaries in the life insurance policies “be declared null and void and of no legal effect.” It was also prayed that Rita be ²⁵⁰ declared to be primary beneficiary under the policies and, as such, entitled to receive all proceeds payable under them and further that the three defendant insurance companies be requested to pay the insurance proceeds to Rita and that the trustees be required to pay over and deliver to Rita “any and all proceeds of said policies which may have or will come into their possession.” There was also a prayer for other and further relief. Copies of the Separation Agreement and Trust Agreement were attached as exhibits. After a demurrer by the trustees to the bill of complaint was overruled, they filed an answer admitting many of the allegations in the bill, alleging lack of knowledge of others and claiming their right as trustees to the insurance proceeds.

Stipulations were entered into by Rita and the trustees with Continental and Guardian, whereby those insurance companies would continue to hold the insurance proceeds and pay 44/2 % interest on them until the final decision in the pending case and would pay them over in accordance with an order of court or the stipulation of Rita and the trustees. Mutual, however, filed an answer in the suit and also a counterclaim against Rita and cross-claim against the trustees, seeking that Rita and the trustees be restrained from instituting or prosecuting any action against Mutual in any court arising out of the death claims under its two policies then amounting to $20,225.10 and further that Rita and the trustees be required to interplead to settle between themselves their rights to the insurance money and that Mutual be discharged from all liability, after depositing of the money with the Clerk of the Circuit Court of Baltimore City to be deposited by him in a federally insured bank to the credit of the case and the payment to Mutual of its costs and reasonable counsel fees. Thereafter, a Stipulation was entered into between Rita, the trustees and Mutual and filed in the suit on February 19, 1969, in which it was agreed: ²⁵¹ (1) Mutual would make “immediate payment” of $20,125.10 to the trustees. (2) The $20,125.10 represents the full sum payable under the Mutual policies less $100 which Mutual should “retain as a contribution toward the payment of its counsel fee in this case.” (3) Mutual is dismissed and discharged as a defendant in the pending case; the counterclaim and cross-claim for interpleader was dismissed by Mutual; and, upon payment of the $20,125.10 Mutual was “discharged and released from all further liability under said policies of insurance.” (4) The Stipulation “is without prejudice to the respective claims” of Rita and the trustees “to the proceeds of the above policies; that said Trustees shall hold and disburse the above funds only in accordance with a separate Stipulation executed simultaneously herewith on their behalf and on behalf of the Plaintiff.” The separate Stipulation between Rita and the trustees filed in open court at the hearing on the merits on January 25, 1972, recited the simultaneous execution of a separate Stipulation with Mutual under which Mutual would pay $20,125.10 to the trustees without prejudice to the claims of the parties to the present Stipulation and that the trustees should hold and disburse the money only in accordance with a further Stipulation.

The separate and further Stipulation provided: 1. The $20,125.10 paid by Mutual to the trustees should be deposited in a federally insured Savings and Loan Association “in their names as Trustees.” 2. The trustees should pay immediately upon receipt of the money and its deposit $1,200 to Rita, representing $200 a month for the months of September, October, November and December of 1968 and for the months of January and February of 1969; Rita would pay the $1,200 to the Bohemian Building and Loan Association (Bohemian), the holder of the mortgage on the property, 1809 Vista Lane, to be applied on account of the mortgage on that property. ²⁵² 3. The trustees should pay $200 a month, commencing March 1, 1969, to Rita to be considered as the “board and lodging” of the two children of Rita and Mr. Phipps, deceased, and such payments should be continued each month during the pendency of the case and so long as Rita has the care and custody of the two children during such pendency. 4.

Rita would pay the $200 monthly payments to Bohemian to be applied to the mortgage so long as it remains unpaid during the pendency of the case and if not paid and extinguished. The Stipulation then provided: “5. That upon the final determination of this pending court case, any sum of money which the aforesaid Trustees shall have received.from the Mutual Life Insurance Company of New York, remaining on deposit or in the hands of said Trustees, shall be paid in accordance with an Order of Court or an agreement of all parties, as the case may be. “6. Tha't said Trustees