Mutual wills - a cautionary tale

Mutual wills

Mutual wills are made by two or more persons who agree to dispose of their property in a certain way and not to revoke or alter their wills without the consent of the other(s).  As such, the wills create a binding contract between the testators, which effectively restrict the usual testamentary freedom under English law.  Usually, the terms of the agreement will be set out in the wills themselves, but as the Colicci case demonstrates, these types of arrangements can be equally effective when included in other documents.

 

Background

Ernesto and Josephine Colicci married in 1982. They had two children, Roberto and Rosanna (“their children”) and together they established and managed a successful ice cream and catering business known as ECSI Limited (“ECSI”).

The couple divorced in 2011. They negotiated a clean break settlement within their divorce proceedings and signed a shareholders’ agreement in respect of the business.

In 2014 Ernesto married Nora Grinberg, and they went on to have another child together. Josephine also started a second family with her new partner.

In 2016, Ernesto and Josephine entered into a deed in which they covenanted to leave their respective shares in ECSI, which were held jointly by them, to their children and to make wills to that effect.

In 2017, they then entered into a shareholders’ agreement together with their children, which effectively replaced the 2011 agreement. This agreement gave each of their children a portion of shares in ECSI and promoted Roberto to director. It also stated “this Agreement, and any documents referred to in it … constitute the whole agreement between the parties and supersede any … previous agreement between them relating to the subject matter they cover, including the 2011 shareholders’ agreement” (clause 18).

In 2021 Ernesto died unexpectedly, leaving a will in which he bequeathed all his shares in ECSI to Nora, contrary to the terms of the 2016 deed.

 

Court proceedings

Josephine, Roberto, and Rosanna contested Ernesto’s will.  They issued proceedings wherein they sought to enforce the terms of the 2016 deed asserting that it had not been revoked by the 2017 shareholders’ agreement or, if it had been, that the 2017 agreement should be rectified accordingly.

Nora defended the proceedings on the basis that the 2017 shareholders’ agreement had superseded the 2016 deed, and that this was made clear by virtue of clause 18 thereof.

 

Judgment

The court held that the 2016 deed created a binding obligation on Ernesto and Josephine, prohibiting them from dealing with their shares on death other than as agreed in the deed. The judge stated that “the subject matter of the 2016 deed was a mutual promise that any shares still held by Ernesto and Josephine at death would pass to the adult children, and a promise to make wills to that effect. It created testamentary obligations. It removed Ernesto’s and Josephine’s freedom to dispose of their shares on death.”

The court also concluded that the 2017 shareholders’ agreement did not supersede the 2016 deed because the “subject matter” of the agreement was the “rights and obligations of the parties as shareholders”, whereas the 2016 deed imposed “obligations on Ernesto and Josephine as testators” and conferred “benefits upon the adult children as beneficiaries”.

As drafted, the court said that clause 18 could not reasonably be interpreted as ousting the 2016 deed.  A key factor in the court’s decision was the fact that whilst clause 18 specifically referenced the previous shareholders’ agreement in 2011 it did not refer to the 2016 deed at all.  Logically, the court stated, if Ernesto and Josephine had intended to remove the 2016 deed as well it would have done so.

In the circumstances, the court concluded that the shares in ECSI should pass to Roberto and Rosanna in accordance with the 2016 deed and not to Nora pursuant to the terms of Ernesto’s will.

 

Conclusion

This case serves as another useful reminder about the potential dangers of mutual wills. This judgment is a salutary reminder that if you enter into an agreement of your own accord, the court will uphold the agreement, regardless of whether or not a testator later changes his mind and even if, as was the case here, the testator has not executed a will recording the agreement. It is clear that such agreements do not need to be contained in the wills themselves in order for it to be binding; a separate document can be just as effective.

Whilst testamentary freedom remains the starting point for distribution of estates in England and Wales, testators are able to knowingly restrict their own rights in this regard and if they do, the court will uphold any agreement. Testators should therefore ensure that due consideration is given to the question of mutual wills, and only enter into the same at their peril!

If you think you might have a claim to uphold an agreement contained in a mutual will (or separate document) and would like to receive advice in relation to the same, then please contact Ally Tow in our firm’s Dispute Resolution team by phone on 07894 512 991 or by email at [email protected].