Facts: Father and Mother divorced in 1975. During the marriage, Father funded trusts for their four older children. As part of the divorce agreement, Father agreed to provide an inheritance for the youngest—and fifth—child (“Son”). The marital dissolution agreement (“MDA”) says:

It is acknowledged that [Son] was not born when the above Trusts were created, and in order to equalize the inheritance, [Father] has arranged to provide life insurance for his benefit. In order to confirm this arrangement, [Father] will create an irrevocable life insurance trust to receive insurance proceeds for [Son’s] benefit. This trust will provide that, from the first proceeds paid on death, the Trustee will hold for [Son’s] benefit an amount equal to the average of the after-taxes funds received from the other four Trusts.

[Father] hereby acknowledges that none of his five children will be arbitrarily disinherited.

[Father] shall have no further responsibility with regard to life insurance except (a) to maintain the insurance for the benefit of [Son], above-described, and (b) to fund an amount necessary to complete the periodic alimony payments due hereunder, in the event of [Father’s] death before such payments have been completed.

As a third-party beneficiary of the MDA, Son sued Father for breaching the MDA regarding the irrevocable life insurance trust. During the litigation, Father died, and the trustees of the Father’s revocable living trust were substituted as parties.

Competing motions for summary judgment followed. Son argued the undisputed facts established that his father had breached the MDA. The trustees argued:

• the MDA is too vague and uncertain to be enforceable because there is no way to determine whether Father breached the agreement;
• the MDA does not identify a trustee, a specific life insurance policy, or specify the amount of life insurance, without which there is no way to measure Father’s obligation; and
• the MDA does not have a deadline related to the trust contemplated for Son.

Son responded that the amount of life insurance to fund the trust was specified as an amount equal to the after-tax distributions that had been made to the older siblings from their trusts up to Father’s date of death.

The trial court granted the trustee’s motion for summary judgment. First, the trial court held the provisions were not enforceable because “there is no way to determine the parties have a meeting of the minds about what was required of [Father] to achieve the intended result,” specifically the mechanism for quantifying Son’s inheritance, the time for Father to fund the trust, or the amount of insurance he was to procure. Second, even if the MDA were enforceable, the trial court found Father could have had cause to disinherit Son.

Son appealed.

On Appeal: The Court of Appeals affirmed the trial court.

In Tennessee, third parties may enforce a contract if they are intended beneficiaries of the contract.

However, an enforceable contract must result from a meeting of the minds and must be sufficiently definite to be enforced. Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted to form a contract unless the terms of the contract are reasonably certain. The contract terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. That one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

Tennessee law requires that a contract must be sufficiently explicit to enable a court to determine the respective obligations of each party. The terms must not be so uncertain as to prevent the court from deciding whether the agreement has been kept or broken.

The Court found the MDA was too unclear to be enforceable:

We agree with the trial court that the provisions at issue are unenforceable. Namely, it is respectfully unclear to us how to assess what exactly was required of [Son’s] father, especially with respect to the amount of insurance he was required to procure. The MDA’s terms do not chart a clear or specific course for him to follow. In our view, the widespread uncertainty that exists as to this matter is primarily attributable to the absence of a specific life insurance amount and the otherwise generalized, nonspecific reference included in the MDA regarding “an amount equal to the average of the after-tax funds received from the other four Trusts.”

Indeed, it is initially clear that the MDA does not itself articulate a specific monetary amount of life insurance that [Son’s] father is obligated to procure regarding the contemplated trust….

The amount of insurance required to fund the contemplated trust, in [Son’s] own view of the case, relates to the amount of funds “received” from the other four referenced trusts. Yet, even accepting that premise as true, the question begs: received as of when? Received as of the MDA’s signing? Received as of some earlier other point in time? When is the valuation made? The MDA does not provide any immediate direction regarding this issue, and it is thus unclear as to how we are to assess what the purported obligation of [Son’s] father was regarding the life insurance he had “arranged.”

It appears to be [Son’s] position that the referenced funds “received” should themselves be measured, for the purpose of determining the totality of the required insurance funding, as of the date of the death of his father…. His position appears to be reliant on the notion that his father was required to ensure that the amount of insurance itself increased as funds were received from [Son’s] siblings’ trusts, even after insurance had already been procured in connection with the contemplated obligation to create the life insurance trust under the MDA.

*     *     *     *     *

The [trustees argue that Son’s] father had no further responsibility to buy life insurance but instead simply needed to maintain what had already been arranged. Again, based on the language of the MDA, we agree that the MDA does not contemplate the ongoing purchase of insurance….

The MDA does not specify an amount of life insurance that [Son’s] father is obligated to procure, and again, even if the yardstick for measuring the amount of required life insurance is, as [Son] generally submits, “an amount equal to the average of the after-tax funds received,” received as of what date? That question is left open through an absence of sufficient specificity in the contracting terms, and the lack of reasonable certainty regarding an insurance amount term inhibits us from being able to determine the existence of a breach and forgiving any appropriate remedy to [Son]….

[The trustees] characterize the MDA as simply “an agreement to agree on the future terms of the trust.” Indeed, even assuming, arguendo, that we were able to discern the amount of insurance that was required to be held in trust, in what specific way was [Son] to benefit from it? In what respect should relief be granted to him now?

In our view, the MDA is simply so unusual and unbusinesslike regarding how the contemplated trust is to be funded by insurance, and in light of our conclusion that it is fundamentally too vague and indefinite to be enforceable, we find no error in the trial court’s decision to enter summary judgment in favor of the [trustees].

The Court affirmed the trial court’s decision to grant summary judgment to the trustees.

Source: Dunavant v. Dunavant Revocable Living Trust (Tennessee Court of Appeals, Western Section, September 17, 2024).

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