Plaintiff Fails To Establish An Inter Vivos Gift and Award of Counsel Fees Reversed

McDermott-Guber v. Estate of McDermott, 2017 N.J. Super. Unpub. LEXIS 1240, Docket No. A-1210-15T3 (N.J. Sup. Ct. App. Div. May 19, 2017).

This is an unpublished Appellate Division decision arising out of Morris County, New Jersey.  This case pertains to whether plaintiff adduced sufficient evidence to establish a valid inter vivos gift.

Here, a vacant lot in Parsippany was owned by Mabel McDermott (“Mabel”) and her husband Bartholomew McDermott (“Bartholomew”), who are the parents of Joy McDermott (“Joy”) and Alan McDermott (“Alan”), both of whom are adults.  Bartholomew died in 1992 and his wife acquired his half interest in the property by right of survivorship.  Joy owned the other half interest pursuant to a deed her parents executed in 1986 (“the first deed”); this deed was not in dispute.  Mabel executed a second deed in 1993 (“the second deed”) conveying her half interest in the property to Joy.  The second deed was not recorded nor given to Joy.  The attorney who prepared the deed kept the deed in his files.

Mabel later noticed that the second deed was printed on a legal form with a 1996 copyright date, even though it was signed in 1993.  Realizing the second deed was backdated, Mabel decided to execute a new deed.  The attorney for whom Mabel retained to prepare the second deed also prepared the new deed (“the third deed”).  The third deed was neither recorded nor given to Joy; rather Mabel gave the third deed to Alan to retain.  Thereafter, in 2011, Mabel executed a fourth deed, wherein she conveyed her half interest to Alan.  The fourth deed was recorded.

Joy filed a quiet title action against Mabel and Alan for a declaration that she was the sole owner of the entire property.  Mabel and Alan filed motions for summary judgment.  The trial court found that Joy failed to establish any elements of a valid inter vivos gift, and thus Alan owned Mabel’s half interest in the property.

The burden of proving an inter vivos gift is on the party who asserts the claim.  Bhagat v. Bhagat, 217 N.J. 22 (2014). The recipient must show by clear and convincing evidence that the donor intended to make a gift.  Id.  However, when the transfer is from a parent to a child, the initial burden of proof on the party claiming a gift is slight and such transfer is presumed to be a gift.  Id. at 41.  Nonetheless, as the child matures and acquires experience and independence the presumption weakens and at last ceases.  Peppler v. Roffe, 122 N.J. Eq. 510 (E & A 1937).

The trial court found that Joy had the burden of establishing that Mabel intended to make a gift.  To prove a valid inter vivos gift, Joy had to satisfy each element:  donative intent, delivery, and acceptance.

First, the Court found there was no donative intent.  Although Mabel indicated it was her intention for Joy to possibly receive the property on her death, Mabel changed her intent when she executed and recorded the fourth deed conveying her half-interest to Alan.  Thus, Joy failed to prove donative intent.

Second, the trial court found there was no actual or constructive delivery of any deed to Joy.  The court noted there was nothing in the record to indicate that Mabel authorized the attorney or Alan to deliver the second or third deeds to Joy on her behalf.

Third, the trial court found there was no acceptance by Joy.   The record showed that Joy was not even aware of the second and third deeds until after litigation commenced.  As she was unaware of the deeds, she was in no position to accept them.

Joy appealed the Court’s order.  The Appellate Division affirmed the trial court’s ruling that Alan was entitled to Mabel’s half interest in the property.  However, the appellate court applied a slightly different analysis.  The Appellate Division agreed that Joy failed to adduce sufficient evidence to establish the elements of delivery and acceptance, but the Court found there was donative intent.

The Court relied on the following evidence to find that Mabel had the intent to gift Joy her half interest in the property:  (1) the second and third deeds conveyed Mabel’s half interest to Joy; (2) the list of properties prepared by Mabel in 2002 named Joy as the owner of the subject property; and (3) Mabel’s letter of 2011 states, “Joy, I have seen to it that you got this house free and clear.”  Based on these facts the Court found sufficient evidence to establish donative intent.

Nevertheless, the Appellate Division noted that Mabel did not absolutely and irrevocably relinquish control of her remaining half interest in the property to Joy.  Additionally, Joy failed to satisfy the elements of delivery and acceptance.  Since all three elements are necessary to establish a valid inter vivos gift and Joy failed to satisfy all the elements, the Appellate Division affirmed the trial court’s ruling.

Moreover, the Appellate Division addressed two other claims on appeal.  First, following the trial court’s denial of Joy’s quiet title action, Joy amended her Complaint and sought partition of the property and an accounting of partition credits for costs associated with improvements she made on the property.  Mabel and Alan moved for summary judgment on the partition credits only.  The trial court found that Joy was not entitled to partition credits from Alan for any expenses and costs made to the property before Alan took title to the property.

The Appellate Division affirmed and found that Joy’s action for partition credits could properly be brought against her mother’s estate, but not against Alan since any expenses she paid were before Alan took title to a portion of the property.  The Appellate Court noted that partition is an equitable doctrine and a court may equitably reduce a tenant’s share in the property when the co-tenant has made expenditure’s for taxes, repairs, and other items necessary to maintain the value of the property.  Newman v. Chase, 70 N.J. 254 (1976).

Also on appeal was the trial court’s ruling on Mabel and Alan’s frivolous litigation claim.  Mabel and Alan moved for frivolous litigation sanctions pursuant to N.J.S.A. §2A:59.1 and Rule 1:4-8.  They submitted a request for attorney’s fees totaling $263,121.16.  The trial court awarded counsel fees in the amount of $20,000 because Joy sought to impose costs on Alan relating to the house at a time that he did not own the house.  The Appellate Court reversed this finding.

The appeals court noted that to support an award of sanctions, the court must find that the claim was pursued in bad faith, solely for the purpose of harassment or delay.  The rule and statute must be interpreted strictly against the applicant seeking an award of fees.  The Appellate Court found that Joy’s claims had some legal and factual foundation.  Although the trial court ultimately disagreed and dismissed a portion of those claims on summary judgment, the Appellate Court found that such dismissal did not establish that such claims were made in bad faith so as to necessitate an award of attorney’s fees for frivolous litigation.