Peter Timmer and Hermina Schipper decided to get married. Both of them had been previously married; both had grown children from their prior marriages; and both owned separate property.2
Prior to their marriage, Peter and Hermina executed a prenuptial agreement (the “Agreement”), prepared by Peter’s brother, an attorney.3
In the Agreement, the couple stated their intention to purchase a condominium unit, where they would reside.4
They also expressed their intentions as to how they would own the condominium unit.5
Specifically, the Agreement provided as follows with regard to ownership of the condominium unit:
Jointly Held Property. Any property acquired by Husband and Wife during their marriage, and expressly held as tenant by entireties or as joint tenants with full rights of survivorship shall pass to the survivor of them by operation of law and shall not be subject to any of the terms and conditions of this Agreement, no matter by whom purchased or acquired. Husband and Wife each promises to act in good faith toward the other in the management of their joint property, if any. Husband and Wife contemplate that they will be purchasing a condominium after marriage. It is their intent that the condominium be held by them as tenants by the entireties or joint tenants and that the surviving spouse shall have a life estate in said condominium as long as the surviving spouse shall occupy said condominium.6
The Agreement also included a termination provision: “‘Termination. Husband and Wife may terminate this Agreement only by a written document, dated, witnessed and signed by both. It shall automatically terminate upon the deaths of both Husband and Wife, unless revoked sooner under the specific terms of this Agreement.’”7
After signing the Agreement, Peter and Hermina were married. After the marriage, the couple purchased a condominium unit (the “Condominium”).8
In the deed of conveyance, the grantees were identified as “Peter J. Timmer and Hermina J. Timmer, husband and wife[.]”9
On January 17, 2008, Hermina died.10
Weeks later, Peter deeded the Condominium to the trustee of his revocable trust.11
On June 21, 2009, Peter died.12
Litigation ensued between Hermina’s estate (which sought a 50-percent interest in the Condominium) and Peter’s trust (which opposed the claim of Hermina’s estate).13
Peter’s trust moved for summary disposition on the claim of Hermina’s estate, but the Probate Court denied the motion, finding that the Agreement was ambiguous.14
The Probate Court conducted a bench trial. Hermina’s son testified that Peter kept ledgers listing his and Hermina’s assets, and that the ledgers showed that Hermina had a one-half interest in the Condominium.15
Hermina’s estate also offered the testimony of an expert in probate law. The expert opined that the jointly held property provision was ambiguous, because granting the survivor a life estate in the Condominium was inconsistent with the couple’s expressed intention to hold the Condominium as jointly held survivorship property.16
The expert also opined that the termination provision, providing that the Agreement remained in effect until the death of the survivor, would not have been necessary if the Condominium was survivorship property.17
The expert concluded that the couple intended to hold the Condominium as tenants in common, subject to a life estate in the survivor.18
Peter’s son testified that Peter had told him “that if he died first, the condominium would go to Hermina[,]” indicating that Peter believed the Condominium to be survivorship property.19
As to Peter’s ledgers, Peter’s son (an accountant) testified that it would be appropriate to record each spouse as holding a one-half interest in the Condominium while both were alive, even if they believed it to be survivorship property.20
He admitted, however, that it would also be appropriate to record each spouse as holding a 100-percent interest in the Condominium under such circumstances.21
The Probate Court made brief findings of fact, which did not include any findings as to what Peter and Hermina intended as to ownership of the Condominium when they executed the Agreement.22
In resolving the ambiguity, the Probate Court noted that it “must do its best to give effect to all of the words in the agreement[,]” and that it was “not at liberty to rewrite[,]” or add language to, the Agreement.23
The Probate Court then proceeded to construe the ambiguity based solely on the terms of the Agreement itself, without reference to any extrinsic facts or circumstances. According to the Probate Court, it was significant that the Agreement contained absolutely no suggestion that the parties intended to hold the Condominium as tenants in common:
Nowhere in the agreement does it mention the word common or tenancy in common. Nowhere does it say that the parties are to divide the property either upon the death of Hermina or upon the death of Peter. Nowhere in the agreement does it say that the parties are to divide the property either upon the death of Hermina or upon the death of Peter. Nowhere in the agreement does it say that the survivor is to transfer one half the value of the property in cash to the other. [N]one of those things are remotely suggested by any language in that agreement. [T]here’s nothing in there that suggests what the percentage interest of the joint tenants are. And there’s nothing that says that when one dies the other one gets paid off.24
Accordingly, the Probate Court ruled that, under the Agreement, the parties intended to take ownership of the Condominium as joint tenants with right of survivorship, that the life estate language was “surplusage[,]” and that Hermina’s estate had no interest in the Condominium.25
Hermina’s estate appealed.
The Michigan Court of Appeals agreed with the Probate Court’s finding that the Agreement was ambiguous: “The language ‘tenants by the entireties or joint tenants’ is in direct conflict with the very next phrase, ‘the surviving spouse shall have a life estate.’ [A] joint tenancy [w]ould entail survivorship rights, rendering the additional [life estate] language unnecessary.”26
However, the Court of Appeals concluded that the Probate Court had failed to consider extrinsic evidence in order to determine the parties’ intentions and resolve the ambiguity:
Because of the ambiguity, the court needed to look beyond the express language to the context and circumstances to determine the intent of the parties, and it was appropriate to review the extrinsic evidence presented by the parties in doing so. However, after reviewing the trial court’s decision we note that the trial court did not make explicit findings of fact[.] Instead, it appears that the trial court attempted to decide the parties’ intent solely by reference to what was included, or not included, in the language of the prenuptial agreement itself, and concluded that, because the document did not contain a reference to tenancy in common with respect to ownership of the condominium, it could not find that such was their intent.27
The Court of Appeals therefore remanded the case, directing the Probate Court to make detailed factual findings as to the parties’ intent and to consider extrinsic evidence in order to resolve the ambiguity in the Agreement: “[C]onstruction of the ambiguous prenuptial agreement depended on a factual determination of the parties’ intent, derived from both extrinsic evidence and the words the parties selected. [W]e reverse the trial court’s ruling and remand for the trial court to make findings of fact and a determination of the parties’ intent based upon those findings.”28
III. IN RE ESTATE OF TIMMER II29
On remand, the Probate Court made the following factual findings:
6. . . . [Hermina Timmer] entered into the marriage with Peter Timmer in good health and with separate assets which included a cabin in Northern Michigan and a mobile home in Florida.
7. Peter Timmer worked as an accountant. He understood the concepts of joint ownership and survivorship. When he married Hermina Timmer, he was also in good health, but was six years older than she was. Kenneth Timmer testified that his father, Peter, expressed soon after the marriage that ownership of the condominium would pass to Hermina Timmer upon his death. Thus, he viewed the property as jointly owned with a right of survivorship. The Court believes this testimony and finds that the intention of Peter Timmer in signing the pre-nuptial agreement was to create a tenancy by the entireties with right of survivorship.
8. A ledger showing the value of assets owned separately and jointly by the parties listed the value of the condominium as owned 50 percent by each of the parties. Kenneth Timmer, who works as an accountant, testified that this is not an unreasonable method of showing assets of the parties if they are held jointly with a right of survivorship. The Court finds his testimony to be credible.
9. The evidence concerning the ledger does not contradict the conclusion that the parties intended to own the property with a right of survivorship. It is just as accurate to list half of a jointly-held asset in each person’s ledger as it is to list 100 percent of it in both ledgers. Either method would be a valid way for parties to keep track of a jointly-held asset. Each method has its own drawbacks.
10. There was no evidence presented that Hermina Timmer, during her life, ever expressed her intention that the survivor would own a life estate in the property, or that the property would be sold and the proceeds divided between the estates of Hermina Timmer and Peter Timmer. The Court also finds that Peter Timmer never expressed anything like this. The only expression of intent was the one made by Peter Timmer to his son, Kenneth Timmer, that the property was held jointly as an entireties estate, with the survivor owning it in fee. The Court finds this to be the intention of both Peter Timmer and Hermina Timmer.
11. Mr. Robert Brouwer testified as an expert witness for the petitioners in the field of estate planning. He testified that his opinion was that the parties ‘likely’ intended to take title to the condominium with each holding a separate interest subject to a life estate in the survivor. He based this testimony on his experience that most couples in this situation would want to do this. Thus, most pre-nuptial agreements which he has seen follow this plan. It was his opinion that the Court should construe the ambiguous provision as creating a tenancy in common for Mr. and Mrs. Timmer, subject to a life estate in the survivor.
12. The Court notes that Mr. Brouwer did not hear the testimony of Kenneth Timmer and was not aware of the absence of testimony about Hermina Timmer’s intentions. He based his opinions only on his review of the documents, and was not aware of any other testimony considered by the Court.
13. The Court respectfully disagrees with the opinion of Mr. Brouwer. These documents need to be evaluated based on the facts of this case, and without significant weight being given to what other marital couples might have intended.30
Based on these findings, the Probate Court again concluded that the “[t]he language in the pre-nuptial agreement indicating that the condominium would be held ‘as tenants by the entireties or as joint tenants’ expressed the intention of the parties[,]” and that the life estate language was “surplusage which must be disregarded by the Court in order to effectuate the intent of the parties.”31
Hermina’s estate appealed again.
The Court of Appeals began its analysis by reciting the legal principles that govern resolution of an ambiguity in a legal instrument. Quoting Klapp v United Ins Group Agency
, the Court of Appeals applied the following principle to the case at hand: “‘[C]ourts must also give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage or nugatory.’”32
Based on this principle from Klapp
, the Court of Appeals concluded that the Probate Court’s ruling was facially erroneous because it had deemed the life estate language to be surplusage: “Instead of interpreting the ambiguous agreement in a manner that was consistent with the extrinsic evidence, without having to render any language in the agreement surplusage or nugatory, the court admittedly reached a conclusion that rendered language of the contract surplusage and then elected to rewrite the agreement to conform with its conclusion.”33
The Court of Appeals concluded, based on the terms of the Agreement and the extrinsic evidence, that the parties intended to create a tenancy in common in the Condominium, subject to a life estate in the survivor:
The expert testified that lay people seldom understand such terms; and that the language used, when coupled with the provision concerning separate property and the fact that the two used separate property to purchase the condominium, indicated to him that the Timmers’ intent was place the property in a form that would enable them to hold the property jointly, albeit while retaining its character as separate property similar to the assets used to purchase it, and in such a way as to ensure protection for the survivor of the life estate. This opinion was certainly consistent with the ambiguity in the prenuptial agreement[.] Even if we disregard this testimony [b]ecause there is no external evidence that this couple intended to do that, the fact is that they wrote a prenuptial agreement with the life estate language in it. Thus, the contrary language written to specifically address the condominium itself provides the evidence that the couple intended something other than a standard tenancy by the entirety. Moreover, had the parties intended to hold the condominium with rights of survivorship, no additional language describing the condominium would have been necessary. It would instead have been treated as joint property with rights of survivorship under the remainder of the jointly held property provision, unless the couple specifically took the property as tenants in common. Likewise, the termination provision supports the conclusion [t]hat some rights and obligations were to pass to the estate of the first-deceased spouse. In addition, a conclusion that the parties intended the property to be held as tenants in common explains both Hermina’s will, which leaves her property equally to her children, and Peter’s deed transferring the condominium to the trust, which explicitly references a life estate. Finally, the ledger shows that the property was evenly divided between Hermina and Peter.34
Accordingly, the Court of Appeals held (1) “that the evidence [s]hows that Hermina and Peter Timmer intended at the time that they entered into their prenuptial agreement that they would take title to a condominium during marriage, hold it jointly, that the survivor would have the opportunity to remain in the home for his or her life, and that fee would then revert equally to their estates upon both of their deaths[,]” and (2) that Peter breached the Agreement by conveying the Condominium to his trust at Hermina’s death.35
The Court of Appeals’ analysis in this case appears flawed in one respect. Recall that the meaning of the jointly held property provision in the Agreement was unclear. Certain terms in this provision suggested that the parties intended to own the Condominium as survivorship property: “It is their intent that the condominium be held by them as tenants by the entireties or joint tenants. . . .”36
Other terms suggested that they intended to own the Condominium as non-survivorship property (i.e., tenancy in common, subject to a life estate in the survivor): “. . . and that the surviving spouse shall have a life estate in said condominium as long as the surviving spouse shall occupy said condominium.”37
The Agreement was thus ambiguous as to whether or not the parties intended to own the Condominium as survivorship property.
The determination of the parties’ intentions was an either-or proposition; either they intended survivorship property, or they intended non-survivorship property. It was not possible for the Condominium to simultaneously constitute both survivorship and non-survivorship property. The ambiguity could be resolved by deciding that the parties intended survivorship or non-survivorship property – but not both. The language supporting survivorship property irreconcilably conflicted with the language supporting non-survivorship property.
Once the Probate Court decided that the parties intended a certain type of ownership, then the language in the Agreement supporting the opposite conclusion could not be given effect. Specifically, if the Probate Court decided that the parties intended the Condominium to be survivorship property, then the language suggesting that the parties intended it to be non-survivorship property (“. . .and that the surviving spouse shall have a life estate in said condominium as long as the surviving spouse shall occupy said condominium.”38
) had to be disregarded. Conversely, if the Probate Court decided that the parties intended the Condominium to be non-survivorship property, then the language suggesting that the parties intended it to be survivorship property (“It is their intent that the condominium be held by them as tenants by the entireties or joint tenants. . . .”39
) had to be disregarded. There was no way to resolve the ambiguity without disregarding the language in the Agreement that supported the opposite conclusion. In other words, in order to resolve the ambiguity, the Probate Court had to treat certain language in the Agreement as surplusage.
After the Court of Appeals decreed that the Probate Court had erred by deeming certain language to be surplusage, the Court of Appeals proceeded to do exactly the same thing in reverse. By ruling that the parties intended the Condominium to be non-survivorship property, the Court of Appeals disregarded, did not give effect to, and treated as surplusage the language that suggested that the parties intended to own the Condominium as survivorship property. The only apparent difference between the Probate Court and Court of Appeals’ decisions is that the Probate Court openly admitted that it was disregarding certain language.
Consequently, the Court of Appeals’ ruling that the Probate Court’s decision was facially erroneous because it treated certain language in the Agreement as surplusage was not well-founded. There was no way to resolve the ambiguity without treating some language as surplusage, and the Court of Appeals implicitly treated certain language from the Agreement as surplusage in order to reach its own holding.
The Court of Appeals started down this “every word given effect” path when it declared that the resolution of the ambiguity was subject to the following principle from Klapp v United Insurance Group Agency
: “‘[C]ourts must also give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage or nugatory.’”40
The “every word given effect” principle appears counterintuitive in the ambiguity context, considering that an ambiguity often arises when language in the instrument suggests two or more alternate meanings. If, as in Timmer
, there is language suggesting two opposite meanings, how can “every word” be given effect? In fact, the “every word given effect” principle does not apply to the resolution of ambiguities in legal instruments, and the Court of Appeals seems to have erred by holding otherwise.
By way of background, there is a long-established principle under Michigan law that a court must give effect to every word in construing a contract, so far as practicable. “In the construction of a contract all its parts must be examined, and effect given to every word and phrase if practicable.”41
“A cardinal axiom in the construction of a written contract is that all its parts must be examined, and effect given to every word and phrase, if practicable.”42
“[I]n construing a contract the endeavor should be to arrive at the intention of the parties, and that in doing so all its parts must be examined and effect given to every word and phrase, if practicable[.]”43
“A contract will be construed so as to give effect to every word or phrase as far as practicable.”44
This principle has been applied in the context of interpreting an unambiguous contract. A recent Court of Appeals decision makes clear that the “every word given effect” principle applies before, not after, an ambiguity is identified:
Where the language of a contract is clear and unambiguous, construction of the contract is a question of law. A contract is not ambiguous if it fairly admits of but one interpretation. A court must give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage or nugatory. However, if provisions of a contract irreconcilably conflict the contractual language is ambiguous, and the ambiguous contractual language presents a question of fact to be decided by a jury.45
Indeed, the qualifier “so far as practicable” suggests that this principle cannot be applied when two provisions of a contract are irreconcilable and therefore ambiguous.
The Michigan Supreme Court again invoked this long line of authority in Klapp
There, plaintiff insurance agent sued defendant insurance agency for breaching the parties’ contract by failing to pay the agent certain commissions.47
Defendant moved for summary disposition on the ground that plaintiff was not contractually entitled to the commissions.48
In support of its motion, defendant relied on a contract provision requiring that an agent must either be 65 years old or have completed ten years of service, in order to be entitled to receive the commissions.49
It was undisputed that plaintiff did not satisfy either condition.50
However, the trial court found that the parties’ contract was ambiguous as to the plaintiff’s right to the commissions, because a separate contract provision set forth a vesting schedule showing that agents with two to nine years of service were entitled to receive specified percentages of the commissions.51
Accordingly, the trial court denied the defendant’s motion.52
The case went to trial; the jury found for plaintiff; and defendant appealed.53
The Court of Appeals found that the parties’ contract was not ambiguous and ruled that the trial court should have granted defendant’s summary disposition motion.54
However, the Michigan Supreme Court found that the Court of Appeals’ interpretation of the contract was unsupportable, because the appellate court had simply ignored portions of the contract in order to avoid finding an ambiguity.55
“‘[C]ourts cannot simply ignore portions of a contract in order to avoid a finding of ambiguity or in order to declare an ambiguity. Instead, contracts must be ‘construed so as to give effect to every word or phrase as far as practicable.’”56
“The Court of Appeals attempted to avoid a finding of ambiguity [by] ignor[ing] another portion of the contract[.]”57
“If the contract is read, as the Court of Appeals read it, to require an agent to be at least sixty-five years old and to have served as an agent for defendant for at least ten years to be considered retired, years two through nine of the vesting schedule[ ] are rendered meaningless.”58
“Because there is no way to read the provisions of this contract in reasonable harmony, the language of the contract is ambiguous.”59
The Supreme Court’s statements about giving effect to every word arose in the section of the decision that addressed interpreting the contract and determining whether it contained an ambiguity. The subsequent section of the Supreme Court’s decision dealt with how to resolve an identified ambiguity, and there was no mention in that section about giving effect to every word. And in resolving the ambiguity, the jury, whose verdict was affirmed by the Supreme Court, treated as surplusage the contract provision relied upon by the defendant: “Plaintiff argues that the [65 years old/10 years service provision] was unintentionally left over from a time before defendant’s Agent’s Agreement contained a vesting schedule. [T]he trial court did not err in instructing the jury to consider this evidence.”60
Moreover, the Supreme Court’s assigned the “every word given effect” function to courts: “[C]ourts must also give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage or nugatory.”61
If giving effect to every word were part of the ambiguity resolution process, then the Supreme Court would have assigned the task to the finder of fact: “It is well settled that the meaning of an ambiguous contract is a question of fact that must be decided by the jury.”62
Finally, the Supreme Court described the ambiguity in question thus: “If two provisions of the same contract irreconcilably conflict with each other, the language of the contract is ambiguous.”63
Obviously, it would be nonsensical to try and give effect to every word of “two provisions of the same contract [that] irreconcilably conflict with each other[.]”64
stands for the proposition that a court, in construing a contract, must give effect to every word or phrase as far as practicable – and may not refrain from this duty in order to avoid finding an ambiguity. Klapp
does not stand for the proposition that the court must give effect to every word or phrase in resolving an identified ambiguity.65
The Court of Appeals therefore seemingly erred in Timmer
by applying the “every word given effect” principle to find that the Probate Court had erred by finding certain language surplusage.
The Probate Court is routinely called upon to exercise various functions with respect to different types of legal instruments, including construction, resolution of ambiguity, modification and reformation. Distinct legal principles govern each type of proceeding, and such principles are not necessarily transferrable from one to another type of proceeding. Courts and practitioners should exercise care to ensure that the appropriate principles for the proceeding in question are being applied. The Court of Appeals’ decision in Timmer
– that a Probate Court may not treat language as surplusage when resolving an ambiguity in a legal instrument that contains conflicting and irreconcilable provisions – appears to have been mistaken and should not be relied upon in future cases.
ABOUT THE AUTHOR: David L.J.M. Skidmore is a partner in the Grand Rapids office of Warner Norcross & Judd LLP. A member of the firm’s Litigation Practice Group, he specializes in trust and estate disputes, real property litigation, and creditors’ rights cases. He also is a member of the State Bar of Michigan Probate and Estate Planning Council.