BGH, judgement of 10.06.1968 - III ZR 15/66
(Treatment of trust assets at an American bank)
Official guiding principle:
By concluding the savings contract with an American bank in the State of New York, the testator expresses the fact that he wishes the legal relationship established by this savings contract to be assessed in accordance with the law applicable at the bank's domicile. If this law - as is the case here - provides for the equalisation obligation of this trust balance, then the establishment of the legal relationship governed by such a law also expresses the testator's intention to subject the trust balance to the equalisation obligation (BGB § 2050 para. 3).
For the reasons:
1 The parties are brothers and legal heirs of their mother, the widow Wilhelmine P., who died on 24 April 1959 in Süddorf on Amrum, their permanent and last place of residence.
2 The decedent, who was a German citizen, was the owner of the land registered in the land register of N. (Amrum). Volume ... Sheet ... . She also had a credit balance of DM 1,970.52 at a bank in W. on Föhr, which the plaintiff had paid out except for a remaining balance of DM 69.63.
3 Furthermore, the testatrix had opened a savings account with the Yorkville Savings and Loan Association under the name „Wilhelmine P. in trust for George and Mary P.“, which had a balance of 4,261.15 $ at the testatrix's death. Mary P. is the wife of the defendant.
4 On 4 August 1959, the parties entered into an agreement on the distribution of the estate before the notary Joseph M. C. in New York, which states in German translation, inter alia:
„1.
Henry P. [plaintiff] is to waive all claims in respect of a certain savings account held at the Yorkville Savings and Loan Association under account number 2328. This account is in the name of „Wilhelmina M. P. in trust for George and Mary P. and has a balance of $ 4,261.15.2.
cancelled3.
Henry P. shall assume and pay all monetary debts, liabilities, funeral expenses and the gift and inheritance taxes owed by Wilhelmina M. P. or her estate.4.
George P. [Defendant] shall - and hereby does - transfer, disclose and surrender to Henry P. his claims, rights and interests, if any, in the property and appurtenances belonging to the said Wilhelmina M. P. in Süddorf on Amrum.5.
The undersigned agree to execute forthwith any and all deeds and papers or documents and to do any and all further acts which may be necessary to fulfil and carry out the aforesaid items, conditions and agreements.“
5 On the basis of these agreements, the plaintiff wishes to be entered in the land register as the sole owner of the property left by the deceased and demands that the defendant submit the corresponding declaration of conveyance.
6 He further argued that it was in accordance with his mother's wishes that he should become the sole owner of the land. She had been conceivable to him for considerable expenses that he had made in her favour.
7 In contrast, the defendant, who asked for the action to be dismissed, argued that the contract of 4 August 1959 was legally invalid. The contract concerned the disposal of a co-heir's share of the estate, but did not fulfil the German formal requirements of § 2033 para. 1 sentence 2 BGB (German Civil Code), which are decisive pursuant to Art. 24 EGBGB. Apart from this, the contract was also void pursuant to §§ 125, 139 BGB because the declaration of conveyance made in the contract could only be accepted by a German official body. Furthermore, an effective obligation to make a declaration of conveyance was not created for him, the defendant, by the contract because the local statute, in this case the law of the State of New York, is only decisive for the form of the creation of such obligations under the law of obligations if it knows the intended legal transaction at all. In American law, however, there was neither a legal concept corresponding to the German community of heirs nor a distinction between obligation and disposition. Finally, he, the defendant, had effectively declared the avoidance of the contract: when the contract was concluded, he had assumed that the dollar balance also belonged to his mother's estate. In reality, however, according to New York State law, the trust note on the savings account had the effect that he, the defendant, had immediately acquired ownership of the respective credit balance when the account was opened, albeit under the resolutory condition that the testatrix did not dispose of the credit balance in any other way until her death. The dollar balance had therefore already belonged to his, the defendant's, personal assets and not to the estate at the death of the testatrix. If the plaintiff had also assumed an incorrect idea in this respect, the basis of the division agreement had ceased to exist.
8 As a precautionary measure, the defendant asserted a right of retention on the grounds that he was entitled to half of the bank balance left by the deceased in Germany.
9 The Regional Court dismissed the action and stated, among other things, the grounds for its decision: The contract of 4 August 1959 was formally invalid. This was because, in terms of its wording and meaning, it contained not only a transaction involving an obligation, but also a disposal of an object (property) without complying with the relevant German formal requirements. The declaration of obligation could not be separated from the - formally invalid - declaration of disposal, so that the contract as a whole was null and void.
10 The plaintiff lodged an appeal against this and also referred to a declaration by the defendant - also recorded by a notary on 4 August 1959 - before the Higher Regional Court, which was aimed at the in rem enforcement of the defendant's obligations assumed in the contract.
11 After obtaining an expert opinion from the Hax Planck Institute for Foreign and International Private Law in Hamburg, the Higher Regional Court amended the judgement of the Regional Court and ordered the defendant to make the following declaration of intent:
„I agree with the plaintiff that the ownership of the real property in the land register of N. (Amrum) volume ... sheet ... shall pass from the community of heirs formed by myself and the plaintiff to the plaintiff, and I authorise the transfer.“
12 With its appeal, the defendant seeks the restoration of the judgement of the Regional Court. The plaintiff requests that the appeal be dismissed.
13 1. The starting point of the Court of Appeal that the mother of the parties is inherited in accordance with German law (Art. 24 para. 1 EGBGB) and therefore the legal relationship between the parties as co-heirs after their mother must be assessed in accordance with German law is correct. Likewise, there is no reason to doubt the opinion of the Court of Appeal that the object of the contract of 4 August 1959 is not the transfer of the defendant's entire share of the inheritance to the plaintiff (§ 2033 para. 1 BGB). In this respect, the appeal also raises no objections.
14 2.
a) Contrary to the opinion of the Court of Appeal that the contract of 4 August 1959 contained both declarations of obligation and a transaction for the disposal of the estate, the appeal on points 4 and 4 of the contract, in contrast to the opinion of the Court of Appeal, contained - solely - the execution of a distribution of the estate of the mother of the parties, but not an obligation of the defendant to be considered separately from this. Therefore, in view of the wording of No. 4 of the contract, the splitting off of an underlying transaction obliging the defendant to fulfil the contract was a breach of the laws of reasoning.
15 This complaint on appeal is unfounded. In agreement with the expert opinion of the Max Planck Institute, the Court of Appeal itself assumes on the basis of the wording of the contract that the contract in No. 4 - also - contains the disposal of the defendant over his property rights and in this respect the execution of a distribution of the estate. If the Court of Appeal further interprets the contract on the basis of the wording („George P. shall and does hereby convey“) and again in accordance with the aforementioned expert opinion to the effect that, in addition to the transfer of the rights themselves, it also contains the obligation to do so, i.e. an obligation and disposal transaction, then this does not reveal an error of law that is relevant in the appeal instance. In view of the wording of the contract, the result of the Court of Appeal did not require any further justification, especially since the defendant himself also took the view before the Higher Regional Court (statement of 4 January 1965 p. 1/2) that clause 4 of the contract „was not merely intended to establish a claim under the law of obligations, but to transfer the property right in question itself“.
16 b) The Court of Appeal also correctly assumed that, with regard to the formal requirements for the transaction of obligation pursuant to Art. 11 para. 1 sentence 2 EGBGB, compliance with the forms prescribed by the laws of the place where the legal transaction was carried out is sufficient, but that the provisions of German law must be observed for the transaction of disposal (Art. 11 para. 2 EGBGB). Accordingly, if the Court of Appeal did not consider the form prescribed by § 925 BGB to be complied with for the transaction of disposal (conveyance) as a result of the activity carried out by the American notary when concluding the contract of 4 August 1959, this cannot be objected to from the point of view of appeal law.
17 Likewise, there is no objection on appeal (§ 549 ZPO) to the conclusion of the Court of Appeal that the formal requirements existing in the State of New York were complied with for the transaction of obligation in question here (for the transfer of rights to land). This also applies to the question of whether the contract contains the obligation of the defendant to provide consideration, which is necessary for the validity of the contract. Whether this is a formal requirement - which the Court of Appeal did not expressly decide - (according to Keßler in the Festschrift für Rabel Band 1 (1954) p. 250 ff, 273 with detailed justification; also Neuhaus, Die Grundbegriffe des Internationalen Privatrechts, 1962 p. 92) or whether the requirement of consideration is to be counted as one of the substantive requirements of a legal transaction (according to Kegel in Soergel-Siebert, BGB, 9th ed, Art. 11 EGBGB para. 20; Becker in the Festschrift der Juristischen Fakultät der Freien Universität Berlin zum 41. Deutschen Juristentag (1959) p. 34, both without further justification), can be left open. For, as will be explained below, the Court of Appeal's conclusion that the trust assets are subject to equalisation under US law and that the contract accordingly contains sufficient consideration in the plaintiff's waiver of all rights from the trust assets cannot be shaken from the point of view of appeal law. In that case, however, the formal validity of the declarations of obligation contained in the agreement cannot be called into question due to the absence of consideration, even if this were a formal requirement.
18 c) The appeal further contests the opinion of the Court of Appeal that the (formal) nullity of the transaction of disposition (conveyance) did not result in the nullity of the entire contract because it must be assumed that the parties would have concluded the contract even without the null and void part, i.e. the obligatory transactions even without the transaction of disposition. In this connection, the appeal complains that the defendant had provided evidence in the statement of 13 February 1963 (testimony of the acting American notary) that the contract dealt with the distribution of the estate. The Court of Appeal was obliged to follow up this offer of evidence as part of its enquiry into the presumed intentions of both parties. However, the appeal cannot win anything with this complaint. On page 3 of the defendant's pleading it says: „The contract obviously deals with the distribution of the estate. This was also the intention of the parties. Evidence: testimony of ...“ However, the Court of Appeal also assumes that the contract deals with the distribution of the estate. However, the defendant has not asserted that the contract - contrary to the wording - was intended to deal exclusively with the distribution itself and the corresponding disposition transactions, but not to contractually stipulate the corresponding declarations of obligation. For the question - answered in the affirmative by the Court of Appeal - of whether the parties would have carried out the obligatory transactions even without the invalid disposition transaction, the assertion reproduced and proven by the defendant, the correctness of which the Court of Appeal itself also assumed, was of no decisive importance. Furthermore, the result of the Court of Appeal that the parties would have carried out the transaction of obligation even without the transaction of disposal does not give rise to any doubts under appeal law.
19 3. The Court of Appeal considered the defendant's argument that the trust assets allocated to him and his wife in the contract of 4 August 1959 were not part of the estate at all and therefore could not have been the subject of a division, and the legal claims derived from this (avoidance on the grounds of error or deception, frustration of the basis of the transaction): In examining the legal character of a trust estate, which is necessary in the context of considering this objection, the law of the State of New York should be assumed. Whether an estate value existed at all at the time of the inheritance, as represented by the trust assets, was to be assessed according to the law applicable to this asset, the law of obligations or the law of contract. This also corresponded to the will of the testator expressed with the investment of a savings account at an American bank.
20 In the case of American trust assets, a distinction is to be made between three types: 1. the beneficiary does not acquire a right of his own, it falls into the estate, 2. he finally acquires the full right, it no longer falls into the estate, 3. he acquires the full right at the time the trust is created, but under the resolutory condition that the testator does not make any contrary provision until his death. Nothing was known about a revocation by the testator in the present case, so that the credit balance was definitively due to the defendant and his wife at the latest on her death. However, the trust assets - which are not part of the estate under German inheritance law and are not subject to equalisation - are subject to equalisation under New York State law.
21 On the other hand, the appeal complains of a violation of Article 24 EGBGB on the grounds that the law of succession (in principle the deceased's home law at death) applies to all questions of inheritance law, in particular also to the question of equalisation, If the Court of Appeal had applied German law, as it should have done, it would have had to come to the conclusion, in accordance with its own opinion, that the trust assets did not belong to the estate and were not subject to equalisation. In this case, the Court of Appeal would have had to further assess the defendant's contract, he had challenged the contract on the grounds of deceit and error, and the contract also lacked a basis.
22 The question of which law must be used to assess whether the trust assets are included in the estate or are subject to equalisation must be addressed:
23 The claim asserted in the action is not derived from the trust agreement, but from the settlement agreement between the parties as heirs of their mother. The question of whether the trust assets have become part of the estate or are subject to the equalisation obligation is merely a preliminary question for the claim asserted, which may be of significance for the question of whether the avoidance of the contract is effective or whether the basis of the transaction has ceased to exist. Even if the plaintiff's claim derived from the settlement agreement as co-heirs pursuant to Art. 24 EGBGB may have to be assessed according to the law of succession (in this case German law), this does not mean, however, that the above-mentioned submissions must also be decided according to German law. This is because an element of the facts giving rise to the claim can and must be subject to a separate conflict-of-law connection if a special conflict-of-law rule exists for the claims (see Kegel loc. cit. Vorbem. 46-49 before § 7 EGBGB; Knauer in Rabels Zeitschrift 25 (1960), 332 note 60). The question of interest here, whether a certain claim (here: trust assets at the American bank) was due to the deceased at the time of death and constitutes an object of the estate, is based on the legal relationship underlying this claim, in this case therefore on the legal relationship between the American bank and the deceased. However, this legal relationship is also to be assessed under German private international law in accordance with the law governing it (see Kegel loc. cit. Preamble 7 before Art. 24 EGBGB; also Knauer loc. cit. p. 330 centre). In this case, however, this is the law of the State of New York. The Court of Appeal assumed - without this giving rise to legal concerns - that the testator, when she concluded a savings contract with a bank in the State of New York - moreover in the legal form of a trust - which is foreign to German law - was subject to the law applicable at the seat of the bank (cf. on this Kegel loc. cit. pref. 167 ff, especially 182 before Art. 7 EGBGB). The Court of Appeal also evidently assumed that the trust assets in question in the jurisdiction of the State of New York are such that the beneficiary acquires the full right at the time the trust is created, but subject to the condition subsequent that the testator does not make any provisions to the contrary until his death. This starting point cannot be criticised on appeal. The same applies to the extent that the Court of Appeals, interpreting the law of the State of New York, came to the conclusion that trust assets of the type at issue here are subject to equalisation as an „advance“.
24 Even if the question of the equalisation obligation were to be assessed in accordance with German law, the result would not change. It may be assumed with the Court of Appeal that the trust assets did not form part of the estate under German law and were not subject to equalisation by operation of law. However, as mentioned above, by concluding the savings contract with an American bank, the testator expressed her wish to have the legal relationship established by this savings contract assessed in accordance with the law applicable at the bank's domicile. However, if this law, as is the case here, provides for the equalisation obligation of this trust credit balance, then the establishment of the legal relationship governed by such a law also expressed the testator's intention to subject the trust credit balance to the equalisation obligation (§ 2050 para. 3 BGB). The trust assets are therefore subject to the equalisation obligation in any case.
25 4. With regard to the right of retention asserted by the defendant, the Court of Appeal stated: According to the entire arrangement made by the parties, there was much to suggest that the German bank balance should go to the plaintiff. In any case, however, the agreement made in No. 5 of the contract, which was aimed at immediate execution, made it clear that there was no room for a right of retention against a request for execution based on this, because in this respect a different right arose from the contractual obligation (§ 273 para. 1 BGB).
26 Accordingly, the Court of Appeal interpreted the provision made between the parties in the contract of 4 August 1959 as meaning that a right of retention, on which the defendant now relies, could not be asserted against a demand by the plaintiff for performance of the agreement based on that provision. This assessment of the contract made by the court of fact does not reveal an error of law which would have to be taken into account by the appellate court.
27 5. In view of the above, the appeal proves to be unfounded and must be dismissed with regard to the decision on costs in accordance with § 97 ZPO.