The opinion of the court was delivered by: ROBERT L. CARTER
On May 2, 1990, plaintiff Pauline L. Harrison, then 72 years of age, had a cerebral infarction caused by a blood clot originating in the left atrium of her heart which travelled to the middle cerebral artery, obstructing the blood flow to the portion of the brain supplied by that artery and causing damage to the brain tissue, along with the accompanying neurological symptoms and signs. She was hospitalized until May 9. On a subsequent visit to her attending neurologist, Dr. Mark Horwich, the physician, warned of the possibility of a second stroke.
On June 6, 1990, plaintiff established an irrevocable trust which provided her with income from her assets for life and on her death divided her estate among her four children and Boyd deBrossard, her then soon-to-be husband. On June 12, she funded the trust by personally delivering 360,000 shares of DuPont stock to her lawyers and signed an amendment to the trust which allowed for changes in the terms of the trust only on the unanimous consent of all the trustees. On June 20, 1990, she married Boyd deBrossard. On July 5, 1990, she and deBrossard visited her then lawyers, at a meeting that had been arranged a week before for the purpose of making a marital gift to deBrossard. At that meeting deBrossard learned for the first time about the trust. Plaintiff asserts that this was also the first time she knew that she had created an irrevocable trust and that she no longer was able to control and dispose of her assets without the consent of others.
Plaintiff now seeks to have the trust declared void, contending that she did not have the requisite capacity on June 6 or June 12 to create the trust; that she did not understand its terms; that she was under duress and undue influence when she executed the trust; and in any event the the terms of the trust are unconscionable.
Plaintiff asserts five theories under which she seeks to have the trust invalidated: (1) incapacity; (2) mistake, or that the trust was not the document she thought she was signing; (3) duress; (4) undue influence; and (5) unconscionability. We will deal with each claim seriatim.
Under New York law the settlor's legal capacity to execute the conveyance creating a trust is requisite to its validity. George Gleason Bogert, Trust & Trustees, § 44 (2d ed. 1984). Plaintiff and defendants differ as to the correct standard for determining whether a settlor had capacity to execute a trust. Plaintiff argues that the capacity test the court should use is that applied for contracts, citing In re Estate of ACN, 133 Misc. 2d 1043, 509 N.Y.S. 2d 966, 969 (Surr. Ct. 1986). Defendants on the other hand claim that the proper test for capacity is that applied for testamentary instruments, citing In re Estate of Gearin, 132 A.D.2d 799, 517 N.Y.S.2d 339, 341 (3d Dept. 1987). The court need not decide which standard applies, however, since under either standard Harrison had the requisite capacity to establish the trust.
The parties agree that the contractual standard for capacity is more exacting than the testamentary standard.
Accordingly, the court considers only the contractual standard, since if Harrison is deemed capable of establishing the trust under the contractual standard, she must necessarily meet the less demanding testamentary standard.
Contractual capacity is lacking where the contracting party (in this case the settlor) is "'wholly and absolutely incompetent to comprehend and understand the nature of the transaction.'" Ortelere v. Teacher's Retirement Board, 25 N.Y.2d 196, 202, 303 N.Y.S.2d 362, 367, 250 N.E.2d 460 (1969) (quoting Aldrich v. Bailey, 132 N.Y. 85, 89, 30 N.E. 264, 265 (1892)). See also Wagner v. Wagner, 156 A.D.2d 963, 549 N.Y.S.2d 256, 258 (4th Dep't. 1989) ("the test is whether the party was so deprived of her mental faculties as to be wholly unable to comprehend the nature of the transaction"). Framed as a positive, instead of a negative, test, the critical inquiry is whether the party was capable of making "a rational judgment concerning the particular transaction." Ortelere, supra, 25 N.Y.2d at 203, 303, N.Y.S.2d at 367.
"A party's competence is presumed and the party asserting incapacity has the burden of proving incompetence", Feiden v. Feiden, 151 A.D.2d 889, 542 N.Y.S.2d 860, 862 (3d Dept. 1989) (citation omitted). Incapacity must be demonstrated at the time of the disputed transaction. Id. The cases demonstrate that under New York law that burden is an extremely heavy one.
A further review of the case law demostrates that this rigorous standard is consistently applied. See In re Ford's Estate, 279 A.D. 152, 108 N.Y.S.2d 122 (1st Dep't. 1951) (fact that settlor suffered a stroke, leaving him bedridden three weeks before execution of the inter-vivos trust and two and one half months before execution of amendment to the trust did not alone sustain burden of evidencing settlor's incapacity.); In re Chollar's Will, 200 Misc. 948, 107 N.Y.S.2d 192 (Surr. Ct. 1951) (even though her mental state was "diminishing" and she was committed to a mental hospital "some weeks after" the relevant transaction, donor was held to have had the requisite capacity to make an inter-vivos gift of a bank account. The court found her to have been "clear-minded" at the time of the conveyance.); Broat v. Broat, 18 N.Y.S. 2d 709, 712, 713 (Sup. Ct. 1940) (despite testimony that grantor was "childish" and "forgetful" and suffered from "senile deterioration," grantor held to have legal capacity to convey property by deed. "To avoid a deed under circumstances such as these, it is not enough to show that the grantor was old and feeble, that he had certain eccentricities, that he was forgetful and that his mental faculties were somewhat impaired. It must be shown that he was wholly, absolutely, and completely unable to understand or comprehend the nature of the transaction.").
We now apply this contractual standard of capacity to the facts of the instant case. In late May, 1990, Harrison had a telephone conversation with Craigh Leonard. Leonard is a member of the law firm of Richards & O'Neill, is plaintiff's godson, and was her legal advisor throughout the period relevant to this controversy. Harrison told him that she wanted to discuss management of her affairs in light of her stroke and he told her that he had been considering the feasibility of an inter vivos trust. (Tr. 241). She came to his office on June 5 with a yellow piece of paper from which she read. Jean Angell, Leonard's partner, later joined them. A draft of a proposed trust had been prepared. Harrison told Leonard she desired to provide for deBrossard and for her children, and that she wanted to make certain that neither her children nor deBrossard, in case of her incapacity, could alter the provisions she had made or amend them to defeat her beneficial intent. (Tr. 245-46). She was advised by both Leonard and Angell that the draft instrument being prepared provided for revocation only with the consent of the trustees. (Tr. 245). During this meeting Leonard learned for the first time that plaintiff's children and deBrossard were not getting along. (Tr. 243). Although he did not go over the document with her line by line, in the course of the June 5 meeting Leonard discussed the terms of the drafted inter vivos trust he had prepared.
Leonard agreed to become a trustee because Harrison wanted the instrument to become operative immediately (Tr. 256), but he told her he would only stay on as trustee for a short time and that the permanent trustees would be her daughter, Ruth, her son, Alfred, plaintiff herself, and the Wilmington Trust Co. (Tr. 245). Leonard advised the plaintiff that once she signed the document, any alterations required the consent of the trustees. (Tr. 249-50).
Harrison wanted to sign the documents creating the trust at once, but they were not ready for signature. Her concern was that she might suffer another stroke if effectuating the trust was delayed and that deBrossard's right to continue residing in her apartment might be at risk. She was told that the documents would be ready for signature the next day, June 6. (Tr. 294, 295, 299, 300, 321, 599).
(1) Yellow pad List of questions
(2) Spoke of tax consequences of marriage to Boyd. His request that he be given apartment now and that 120,000 shares of duPont be put in Fred Alger account. She says she doesn't want to do this. Spoke of need for asset management if she goes ga ga. Need to provide for Boyd in this period. She agrees it's necessary. Realizes children and Boyd do not really get along--so irrevocable. Need for speed--she's worried about going ga ga and going to dinner for the maker of RU486--told there may be violence at the meeting. Says Boyd wants: if remarried to be able to leave $ to his new wife/she doesn't agree. Wants to protect assets for her heirs.
Two paramount concerns (1) to provide reasonable (not lavish) amount for Boyd during her ga-ga ness and on her death-1/2= enough. And (2) ensure that enough goes to her family. Realizes that no child will have 4,000,000 on her death and that Boyd asking for more.
We discussed ante-nuptial agreement. Nothing if there is a divorce. He won't sign she says.
Plaintiff returned to Leonard's office the next afternoon. The documents were still being typed. While she was waiting, she was given a copy of the trust, and Leonard pointed out the significant provisions in the document and left her in his office with the copy for her to review while he finished working on other documents. When the documents being typed were ready, Leonard reviewed their provisions with her. She then signed the trust instrument itself (D. Ex. M), her will (D. Ex. N), a separate document entitled "AGREEMENT" assigning various assets to the trust irrevocably (D. Ex. O), a letter to Leonard stating that she had executed the trust agreement and awarded him power of attorney. The letter stated that her intention in executing the trust was to ensure that deBrossard and her children would share in the estate in accord with the terms of the trust agreement in the event she became incapacitated, and she admonished the trustees in exercising their powers to keep in mind her objectives as expressed in the letter and further authorized Leonard to make any additional assignment of assets to the trust if it could be done without undue difficulty. (D. Ex. P). The effect of all of this was to provide income to Harrison from the trust during her life and to dispose of her assets on death in accord with her current will, executed on March 9, 1990. The named trustees in the June 6 instrument were plaintiff, Leonard and the Wilmington Trust Co., but Leonard's trustee status was only temporary since he intended to step down, at which point Alfred and Ruth would become trustees.
Leonard, Angell and Nancy Niedt, an associate in the firm, who drafted some of the trust documents, and Elaine Barry, Leonard's secretary are the only court witnesses to Harrison's demeanor, appearance and attitude on June 5 and June 6. They testified that she appeared to understand everything that was going on, that they were certain that she had testamentary capacity (Leonard Tr. 304, 335; Angell Tr. 606; Niedt Tr. 183; Barry Tr. 763), and that she understood the nature of the documents she was signing and the consequences of signing them (Leonard Tr. 304; Angell Tr. 607). Angell testified that "we explained the substantive terms of the instrument to her. We reviewed the substantive terms [of] the instruments on June 5, and we reviewed [them] again with her ...