Stanford v. Paris
2011 N.C. App. LEXIS 64, 209 N.C. App. 173, 703 S.E.2d 488 (2011)
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Rule of Law:
A specific bequest of corporate stock does not adeem when the corporation is dissolved and its assets are transferred to a partnership, if the testator's resulting partnership interest represents the same proportional ownership of the same underlying assets and business.
Facts:
- In 1970, Charles Whitson Stanford, Jr. ('testator') executed a holographic will, devising his stock in a closely-held corporation, Redfields, Inc., to his sisters, Jean Stanford Mann and Jane Stanford Paris.
- The testator and his four siblings (or their heirs) each owned an equal number of shares in Redfields, Inc.
- In 1975, the five shareholders of Redfields, Inc., including the testator, mutually agreed to dissolve the corporation.
- Simultaneously, the same five individuals formed a partnership named 'Redfields' for the express purpose of carrying on the business formerly conducted by the corporation.
- All assets of Redfields, Inc. were transferred directly to the new Redfields partnership as its initial capital.
- Each of the five partners received a one-fifth interest in the Redfields partnership, giving them the same proportional ownership and management rights they previously held as shareholders.
- The testator died in 1990, still holding his one-fifth interest in the Redfields partnership.
- Plaintiffs, the children of the testator's predeceased brothers, were not beneficiaries of this specific devise and would inherit the property if the devise failed and it passed through intestacy.
Procedural Posture:
- Plaintiffs, the testator's nephews and nieces, filed a Complaint for Declaratory Judgment in Orange County Superior Court (a state trial court) against the testator's sisters and others.
- All defendants filed motions to dismiss plaintiffs' complaint for failure to state a claim upon which relief can be granted.
- The trial court granted the motions to dismiss all claims related to the real property that originated from the Redfields business.
- In a subsequent order, the trial court granted summary judgment in favor of the defendants regarding the testator's interest in the Redfields partnership, explicitly ruling that the devise of Redfields, Inc. stock 'did not adeem.'
- Plaintiffs filed a motion seeking relief from the summary judgment order, which the trial court denied.
- Plaintiffs (as appellants) then appealed the trial court's dismissal and summary judgment orders to the Court of Appeals of North Carolina.
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Issue:
Does a specific devise of corporate stock adeem when, after the will is executed, the corporation dissolves and its assets are transferred to a partnership in which the testator holds an interest identical in proportion and substance to the prior stock ownership?
Opinions:
Majority - Martin, Chief Judge.
No. The devise of the corporate stock did not adeem because the testator's interest in the subsequent partnership was a change in form, not in substance. Ademption occurs when a specific legacy is disposed of or so changed in substance that it no longer remains 'in specie' in the testator's estate at death. Here, the testator's partnership interest represented the same proportional ownership in the same underlying assets as his previous stock holdings. The partnership was formed by the same individuals to carry on the exact same business. Therefore, the testator's gift of his Redfields, Inc. stock remained in his estate 'in specie' as a personal property interest in the partnership and passed to his sisters as directed by the will.
Analysis:
This decision reinforces the 'form versus substance' exception to the doctrine of ademption, particularly in the context of business reorganizations. The court demonstrated a willingness to look beyond the technical change in the legal form of an asset (from corporate stock to a partnership interest) to ascertain its underlying substance. This provides a precedent that protects a testator's intent from being frustrated by formal corporate restructurings that do not materially alter the testator's ownership interest. It signals that courts will not apply the ademption rule mechanically where the bequeathed property, though altered in form, continues to exist in a substantially identical state within the testator's estate.
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