New York Estate Planning & Elder Law Blog
The Supreme Court of North Dakota recently ruled on the issue of a fiduciary self-dealing when he was one of the heirs inheriting from an estate. The case highlights the importance of creating clear boundaries when delineating responsibilities of an estate as well as ensuring that all of the proper documents are processed in any type of real property or estate dealings.
Facts of the Case
In the case of Broten v. Broten, James Broten, Louise Broten, and Linda Shuler were all children of Olaf and Helen Broten. The parents owned around 480 acres of farmland, and in 1979 they executed a quitclaim deed that gave Olaf Broten sole ownership in the real estate. He then entered into a contract for deed with his son, James, agreeing to convey the farmland for $200,000 plus six percent interest paid through 2006. The contract was prepared by James’ attorney but never recorded. At the same time, the parents executed a will that placed the farmland in trust, with the mother receiving income for life, and the principal to be distributed to the children equally upon her death.
After his father’s death, James became the personal representative of the estate. He filed an informal probate of his father’s estate and granted himself the farmland with his mother receiving a life estate. The deed was recorded, and James continued to pay for his mother’s living expenses until her death in 2010. After her death, James’ sisters were appointed as the personal representatives of her estate, and it was only then that the sisters learned of the contract and conveyance of the farmland to their brother.
The sisters sued their brother for breach of fiduciary duty in their father’s estate, conversion, deceit, and breach of contract. At the trial level, the court found that James had violated his fiduciary duty and that the land transfer was void. They awarded the mother’s estate $103,054 in damages for the use of her property following her death and $1,197,000 for the current value of the property. James then appealed the case up to the North Dakota Supreme Court.
Ruling of the Court
At the state Supreme Court level, the judges found that there was no reversible error in the district court’s judgment of a breach of fiduciary duty and therefore upheld the lower court’s decision. The court did not agree with James’ arguments that he took exclusive possession of the property, made substantial improvements, and maintained the expectation of the property. The judges found that in North Dakota all contracts for real estate must be in writing, and an oral agreement for land may only be used in cases of partial performance.
Cases in North Dakota that allow for partial performance include paying the contract price, taking possession of the property, and making improvements. The Supreme Court found that James failed in all three because James’ payments were made through the farm’s bank account or for gratuitous tax purposes. In addition, he and his father jointly farmed the land, and there was no evidence that his father did not also make substantial improvements to the property. Therefore, the district court’s ruling that there was a breach of fiduciary duty is upheld.