Lopez v. Lopez

Singley, J., delivered the opinion of the Court. On 23 December 1961, Alejo Lopez (Alejo), a successful contractor, died domiciled in Prince George’s County, as a result of a tragic accident which had occurred on one of his company’s construction jobs. Mr. Lopez is no stranger to this Court, since his domestic problems had been before us in Lopez v. Lopez, 206 Md. 509 , 112 A. 2d 466 (1955), to which some reference should be made. In that case, an appeal from a decree of divorce a vinculo matrimonii awarded by the Circuit Court for Prince George’s County to Lopez’ first wife, Soledad Leirado Lopez (Soledad), the following facts were developed: Alejo and Soledad were both born in Spain.

He emigrated to Cuba in 1918; she followed him in 1921 and they were married in Havana on 4 February 1921. Three children were born of this marriage: two sons, Alejo Lopez, Jr. and Francisco Lopez, and one daughter, Ofelia Lopez, now Ofelia Lopez Costa. All three were complainants below in the case now before us: Alejo, Jr., in his own right, and Francisco and Ofelia as next friend of their infant children. In 1929, Alejo came to the United States, leaving his wife and three children in Cuba, and later, in 1931, arranged for them to return to Spain, promising that as soon as he was able, he would “come to Spain and get his family or else send for them to come to the United States.” Alejo’s interest in this project seems to have waned, however.

In 1937, he met Helen Grace Cammarata (Helen) in Connecticut; on 26 July 1946, they were married; and five children: Donald Lopez, Alejo Lopez, 1 Carol Lopez, Anthony Lopez and Helena Lopez were born of this marriage. ⁴⁹⁵ Iii 1947, and again in 1952, Alejo and Helen took title to parcels of Maryland real estate as tenants by the entirety. In April, 1954, Soledad, the first wife, arrived in the United States, having been preceded by her children, Alejo, Jr., Francisco and Ofelia. She immediately instituted an action for divorce, and on 17 September 1954, was granted a decree a vinculo, permanent alimony of $50 per week, and counsel fees of $500. She appealed from the decree, complaining because she was not awarded a share of her husband’s personal property, a contention which was rejected by our predecessors because there was no proof that she had made any contribution to her husband’s personal estate.

On the contrary, there was evidence that Helen had contributed some $3,000 2 of her own funds to the purchase of the home which she shared with Alejo and toward the establishment of his business, in which Helen contended she was a partner. On 26 September 1954, a little more than a week after Soledad had obtained her divorce decree, Helen and Alejo were married for the second time, this time in Prince George’s County. Sometime prior to the marriage, Lopez Construction Company, l’nc. (the Company) had been organized, 3 and it would appear that subsequent to the marriage, certificates for 320 preferred shares and 395 common shares of the Company’s stock were issued to Alejo and Helen as tenants by the entirety.

Oil 12 June 1957, just as they were about to leave for Spain, without changing the form in which the certificates were registered, Alejo and Helen entered into an agreement reciting that the shares were held by them as tenants in common. Although in applications for corporate bonds filed in 1958 and 1962, and in the Company’s income tax return for 1959, Alejo had asserted that he was the owner of all of the Company’s outstand ⁴⁹⁶ ing stock, from 1957 until the time of his death, Alejo had owned 330 shares of the preferred stock and 292shares of the common; and Helen owned 160 shares of the preferred and 197 shares of the common. On the same day that the agreement was entered into respecting the stock, Alejo executed the will which was ultimately admitted to probate. It left household effects and $3,000 to Helen, and placed the residue of the estate in a trust of which Helen was named trustee, “the corpus and income of [the] estate to he used for the support maintenance of [his] wife Helen G. Lopez, and the support, maintenance and education of [his] said minor children [whom he described in the will as “Alejo, Elaine [Helena], Caroline [Carol], Donald and Anthony”, the five children of the marriage to Helen] until each of them shall attain the age of 19 years, or until each of them shall finish high school, whichever occurs last * * *.” On 1 June 1976, the trust will terminate, and the estate will be divided into nine equal shares.

Helen; each of the five children of the second marriage; Alejo, Jr. (a son of the first marriage) ; the children of Francisco (another son of the first marriage) ; and the children of Ofelia (the daughter of the first marriage) will receive one share each. Helen is named as executrix, and there is a further provision: “In the event that my said wife, Helen G. Lopez, should predecease me, or die at or about the same time, or become incapacitated, I then nominate and appoint my son, by my first wife, Alejo Lopez, as trustee of my estate and executor of my Last Will and Testament.” On 15 December 1961, just eight days before his death, Alejo entered into a contract for the purchase of the Bunker Hill property, a transaction which proved to be the genesis of the dispute before us. The contract is on a printed form; it recites that a deposit of $5,000 has been received from “Alejo Lopez, president of Lopez Construction Co.”; covers 65 building lots in Moyers Park and 13.3622 acres; provides that the purchase price shall be $55,000 computed on a basis of $2,000 per acre, subject to adjustment after survey; is signed, “Lopez Construe ⁴⁹⁷ tion Co., Inc. by Alejo Lopez, president”; and bears the corporate seal oí the Company, attested by “Helen Lopez, Secretary.” Below Helen’s signature and opposite the signatures of the sellers is the date “12/22/61” but it is uncertain (and of no particular consequence) whether this relates to the execution by the purchaser or the sellers. In fact, Helen said she signed “before my husband was hurt.” The sellers were, respectively, the trustee of a trust estate and the conservator of the estate of an incapacitated individual, and the latter signed subject to court ratification.

On 11 January 1962, the conservator filed a report oí sale in the Circuit Court for Prince George’s County; an order nisi was entered on 3 April, and ordered published; and in the report, the order, and the publication, the sale was described as having been made to Alejo Lopez, and no notice was taken of the fact that Alejo had died on 23 December 1961. Exceptions to the ratification of the sale were filed by Henry F. Long, Jr., who, after the signing of the contract, had offered $65,000 for the property; the matter was set for hearing on 31 May; and on 1 June 1962, the court entered an order, ratifying the sale to Lopez Construction Co., Inc. Thereafter, negotiations were commenced with Long, who, unsuccessful in his attempt to block the ratification of the sale of the Bunker Hill property to the Company, was now threatening to take an appeal. An agreement was ultimately reached with Long on 23 June 1962. Briefly stated, Long agreed to pay $55,000, the full contract price, for 51 of the building lots and a 50% interest in the remainder of the property.

The Company sold to George A. Leathers, a real estate broker, a 3% interest for $1,500, which was ultimately used for settlement costs. This meant that the Company recovered its $5,000 deposit, and retained a 47% interest in 13 building lots and the acreage, for which it had paid nothing. At the same time, Long agreed to assign 3% of his 50% interest to George Leathers, reducing his interest to 47%. On 15 August 1962, Bunker Hill was conveyed to the Company, which in turn, conveyed the 51 building lots and a 47% interest in the remainder to Long; 3% of Long’s interest and 3% of the Company’s interest to ⁴⁹⁸ Leathers; 4 and 9% to Theodore L. Miazga and Matilda M. Miazga, leaving the Company with a 38% interest.

Miazga’s interest was in satisfaction of the participation promised him by Alejo for his part in negotiating the deal. When the Company was liquidated in late 1964, its 38% interest was conveyed 15.2% to Helen individually and 22.8% to Helen as trustee, reflecting the approximate proportionate interests of Helen (40.306%) and the trust estate (59.693%) in the Company’s common stock. Meanwhile, the owners had been successful in having the 13.3622 acre tract zoned R-10, which made it available for high-rise apartment construction, and on 8 October 1964, entered into a contract to sell the property to Herbert A. Himmelfarb for $22,500 per acre. Because the will contained no power of sale and a portion of the remainder interest was vested in minors, it became necessary to conduct an equity proceeding to convey a marketable title, and Helen filed an ex parte petition in the Circuit Court for Prince George’s County.

It was the institution of this proceeding on 11 February 1965 which brought the appellants into the case. Initially, their intervention took the form of an objection to the ratification of the sale to Himmelfarb, filed by Alejo Lopez, Jr. (Alejo, Jr.) in his own behalf and by Francisco Lopez (Francisco) as natural guardian of his minor children. Later, they were joined by their sister, Ofelia Lopez Costa (Ofelia) in her capacity as natural guardian of her minor children, with the result that all three of Alejo’s children by his first marriage, the appellants in the case before us, who will hereafter be referred to as “the beneficiaries”, were active participants in the litigation. The beneficiaries assigned as reasons for their objection to the sale to Himmelfarb the inadequacy of the purchase price, and the allegation that the Company’s conveyances to Long, Leathers and Miazga were “in fraud of the beneficiaries under the will” of Alejo. ⁴⁹⁹ Although the lower court, on 22 April 1965, ratified the sale to Himmelfarb, the beneficiaries moved to set aside the order on the ground that the infant remaindermen had not been properly joined, and their motion was granted on 21 May 1965.

An amended petition was then filed by Helen, joining her own children and the children of Ofelia and of Francisco and Alejo, Jr. as defendants. While this was pending, and on 21 June 1965, the beneficiaries instituted another action in equity which sought: (1) to set aside the conveyances of interests in the Bunker Hill property to the Miazgas, to Long, to Leathers, to Rohrback, and to National Fence Manufacturing Co., all of whom were joined as defendants with the Company and Helen, in her individual capacity and as trustee; (2) to require a re-conveyance of the Bunker Hill property to Helen, as trustee of Alejo’s estate; (3) to determine that title to two parcels of real estate purchased by Helen and Alejo as tenants by the entireties before they were validly married was vested in Alejo at the time of his death; (4) to require an accounting by Helen as trustee; and (5) to remove Helen as trustee. Helen and her co-defendants answered, generally denying the allegations of the beneficiaries' bill of complaint. In the interim, guardians ad litem had been appointed for the infant defendants in the proceeding instituted by Helen for the ratification of the sale to Himmelfarb; answers had been filed; and counsel for the guardians ad litem obtained independent appraisals of Bunker Hill.

The two cases, the first brought by Helen for the ratification of the sale to Himmelfarb, and the second, brought by the beneficiaries which challenged the validity of the Company’s sale to Long and the conveyances to Leathers and Miazga, were consolidated on 1 October 1965. After the trial of the case was concluded, an appeal from the order ratifying the sale to Himmelfarb was withdrawn with the result that the appeal before us relates solely to the second suit, instituted by the beneficiaries, although by stipulation the proceeds of the Himmelfarb sale are being held in escrow, pending the outcome of this appeal. The beneficiaries urge the reversal of the orders entered by the court below', ratifying the conveyances to Long, Leathers ⁵⁰⁰ and Miazga; determining that Helen is the sole owner of the two parcels of real estate which she held jointly with Alejo; appointing Plenry F. Leonnig substitute trustee under Alejo’s will; determining that the Bunker Hill property was an asset of the Company, and not of Alejo’s estate; and decreeing that Helen owned individually 160 shares of the Company’s preferred stock and 197^ shares of its common stock at the time of Alejo’s death. The beneficiaries assign the following reasons for the reversal of the orders, which we have rephrased and renumbered in an attempt to achieve brevity and clarity: i.

The burden of proof was on Helen, as executrix and trustee, and not on the beneficiaries, to remove any doubts and obscurities existing in connection with her transactions. ii. The contract for the purchase of the Bunker Hill property was entered into by Alejo for his own account and not for the account of the Company and the property was therefore an asset of Alejo’s estate. iii. Miazga has the burden of proving the fairness and propriety of the conveyance to him of a 9% interest in Bunker Hill because the interest was controlled and conveyed by a trustee whose attorney he was. iv. Since the will named Alejo, Jr., as successor trustee, upon Helen’s resignation Alejo, Jr., should have been appointed to give effect to Alejo’s intentions. v. It was error for the court to accept Helen’s resignation and to appoint a substitute trustee without requiring a full accounting from Helen. vi.

When the beneficiaries produced evidence that Alejo claimed to be the sole owner of the stock of the Company, this raised a presumption which must be rebutted by Helen by proving true ownership from the corporate records. vii. The parcels of real estate conveyed to Alejo and Helen as tenants by the entirety prior to their valid marriage vested sole ownership in Alejo, who provided the full consideration. We shall now consider each of these contentions, adding such additional facts as may be required for amplification. ⁵⁰¹ 1. The burden oj proof was on Helen, as executrix and trustee, and not on the beneficiaries, to remove any doubts and obscurities existing in connection with her transactions.

Although Helen makes no point of this, it should be noted that the beneficiaries brought their bill of complaint against Helen individually, and in her capacity as trustee, and not as executrix. Their prayers for relief are directed against LTelen as trustee. Under this posture of the case, Helen’s transactions as executrix are not before us, except tangentially. Helen’s position, as stated in her brief, is that the beneficiaries, who were the plaintiffs below in the case attacking Helen’s administration of the trust, have the burden of proving that they are entitled to relief; that if “doubts and obscurities” were raised by the beneficiaries, they were resolved by testimony offered by or in behalf of Helen; and that a consideration of each of the challenged transactions will bear this out.

Helen’s position is well taken. “A beneficiary seeking to obtain relief for a breach of trust must plead and prove facts which show the existence of a trust duty, the failure of the trustee to perform it and that consequently the court should grant the requested remedy. * * * If the cestui shows a prima facie case, the burden of contradicting it or showing a defense will shift to the trustee.” Eogert, Trusts and Trustees (2d Ed. 1962) § 871 at 89-90. Putting this another wTay, the person who challenges the conduct of a trustee, must first allege that the trustee has a duty and has been derelict in the performance of this duty, and offer evidence in support of this allegation. Then, and not until then, does the trustee have the burden of rebutting the allegation. In the absence of such proof, there is no duty on the trustee to prove a negative: i.e., that he has not been derelict in the performance of his duties.

We think that the beneficiaries’ reliance on “doubts and obscurities” as a reason for shifting the burden of proof is misplaced. This is a concept peculiarly applicable to trust account ⁵⁰² ing, Berlage v. Boyd, 206 Md. 521, 532 , 112 A. 2d 461 (1955); Hatton v. Weems, 12 G. & J. 83, 109 (1841); Bogert, supra, § 962 at 11, and there is no doubt that a trustee who fails to keep proper accounts has the burden of proving entitlement to the credits he claims. Restatement (Second), Trusts (1959) § 172, comment b at 377; Berlage v. Boyd, supra. Here the principal thrust is against Helen’s transactions. ii.

The contract for the purchase of the Bunker Hill property was entered into by Alejo for his own account and not for the account of the Company and the property was therefore an asset of Alejo’s estate. The beneficiaries mount a dual argument in support of this contention. First, they say that the ribbon copy of the Bunker Hill contract in its first two lines recited the receipt of a $5,000 deposit from “Alejo Lopez” and that the identifying phrase “president of Lopez Construction Co.” was inserted by the use of carbon paper and consequently must have been added at some unspecified later date. In any event, they say that the identifying phrase was merely descriptio personae.

They stress the fact that the sale was originally reported to the court by one of the vendors as having been made to Alejo as an individual, and that this posture was maintained almost to the conclusion of the ratification proceeding which leads them to the conclusion that the sale was made to Alejo. The beneficiaries’ second argument rests on the assumption that Alejo was the sole owner of the Company, or, if he was not the sole owner, that he had, in fact, such dominion and control over the Company’s business and affairs that the Company’s interests and Alejo’s interests were synonymous, and that the court should ignore the corporate entity, as was done in Bauernschmidt v. Bauernschmidt, 101 Md. 148, 161-62 , 60 A. 437 (1905). We take a somewhat different view of the matter. To us, a contract signed “Lopez Construction Co., Inc., Alejo Lopez, president” to which the corporate seal has been affixed and attested “Helen Lopez, secretary” is clearly the contract of the corporation, since Alejo and Helen signed in their representative ⁵⁰³ capacities.

The treatment accorded similarly executed commercial paper is analogous. Security Insurance Co. v. Mangan, 250 Md. 241 , 242 A. 2d 482 ; Uniform Commercial Code § 3-403(3), Code (1957, 1964 Replacement Volume) Art. 95B § 3-403(3). The ratification proceeding was conducted by the conservator, who may well have been