Muhlbauer v. Estate of Olson , 801 N.W.2d 446 ( 2011 )

#25761-a-DG
2011 S.D. 42IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
* * * *
JARED MUHLBAUER and
LUKE MUHLBAUER, Plaintiffs and Appellees,
v.
ESTATE OF GLENN E. OLSON, Defendant,
and
JAMES W. OLSON and
GARY E. OLSON, Intervenors and Appellants,
v.
ESTATE OF GLENN E. OLSON, Defendant.
* * * *
APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
CLAY COUNTY, SOUTH DAKOTA
* * * *
HONORABLE STEVEN R. JENSEN
Judge
* * * *
SHEILA S. WOODWARD of
Johnson, Miner, Marlow
Woodward & Huff, LLP
Yankton, South Dakota Attorneys for appellees.
ROBERT W. KLIMISCH of
Goetz and Klimisch
Yankton, South Dakota Attorneys for appellants.
** * *
CONSIDERED ON BRIEFS
ON APRIL 25, 2011
OPINION FILED 07/27/11
#25761
GILBERTSON, Chief Justice
[¶1.] The personal representative of an estate sold real property that had
been specifically devised to several heirs. This Court ruled in a previous appeal
that the personal representative lacked the authority to sell the property. We
remanded the case to allow the buyers of the real property to intervene to protect
their interests. After remand, the buyers filed suit against the estate. The heirs
who objected to the sale intervened. The buyers moved for summary judgment,
which the trial court granted. The intervening heirs appeal. We affirm.
FACTS
[¶2.] The underlying facts can be found in In re Estate of Olson (Olson I),
2008 S.D. 4, 744 N.W.2d 555, and In re Olson (Olson II), 2008 S.D. 126, 759 N.W.2d
315. The facts are not disputed. Consequently, they are only briefly recited now.
Glenn Olson died testate in 2002. Wayne Olson was appointed personal
representative of Glenn’s estate (Estate). In the will, Glenn specifically devised his
real estate to James Olson and six other nieces and nephews. The Estate was
informally probated in accordance with the Uniform Probate Code. Without notice
to the heirs in violation of SDCL 29A-3-715(b), Wayne sold part of the specifically
devised real property at public auction to Jared and Luke Muhlbauer. The
purchase agreement did not indicate that court approval of the sale was needed. At
the time of the sale, Wayne held letters of administration. Two to three months
after closing, Muhlbauers were informed that some of the heirs questioned the sale
of the land they had bought at auction.
-1-
#25761
[¶3.] James objected to the confirmation of the sale to the Muhlbauers.
Jared Muhlbauer was asked to testify at the hearing confirming the sale. Despite
James’ objection, the trial court confirmed the sale. The objecting heirs appealed.
Muhlbauers were not informed of the appeal confirming the sale until after our
decision was issued. On appeal, this Court determined that Wayne lacked the
power to sell the specifically devised land and “reverse[d] the trial court order
confirming the sale of specifically devised real estate and remand[ed] for further
proceedings[.]” Olson I, 2008 S.D. 4, ¶ 29, 744 N.W.2d at 564. This Court also
instructed that on remand the third-party purchaser would have “the opportunity to
intervene to protect his or her interests.” Id.[¶4.] “Following remand, Muhlbauers intervened and filed a claim against
the Estate seeking to confirm the sale that this Court had previously voided. In the
alternative, Muhlbauers asserted a damage claim that they contended would arise
if the sale were not confirmed.” Olson II, 2008 S.D. 126, ¶ 2, 759 N.W.2d at 317.
James and another heir, Gary Olson (collectively Heirs), moved to intervene in the
proceedings. Id. ¶ 3, 759 N.W.2d at 317-18. The trial court denied their motion to
intervene, but this Court reversed that decision on appeal, and remanded to allow
the heirs to intervene. Id. ¶ 12, 759 N.W.2d at 321.
[¶5.] On remand, Muhlbauers filed a motion for summary judgment. Heirs
filed a motion for partial summary judgment. The Estate then filed a response to
the cross-motions for summary judgment, agreeing that summary judgment was
-2-
#25761
appropriate but declining to advocate for either side. 1 The trial court granted
summary judgment in favor of Muhlbauers, stating that “[b]ecause there is no
factual dispute that the Muhlbauers were good faith purchasers for value from the
Estate and that they had no knowledge of the Personal Representative’s lack of
authority to sell, the Muhlbauers are protected by SDCL 29A-3-714 as a matter of
law.”
[¶6.] On appeal, the issue presented is:
Whether, under the facts of this case, Muhlbauers were good faith
purchasers for value of specifically devised land protected by SDCL
29A-3-714.
STANDARD OF REVIEW
[¶7.] This Court’s standard of review of a grant or denial of a motion for
summary judgment is well settled.
In reviewing a grant or a denial of summary judgment under
SDCL 15–6–56(c), we determine whether the moving party has
demonstrated the absence of any genuine issue of material fact
and showed entitlement to judgment on the merits as a matter
of law. In considering a trial court’s grant or denial of summary
judgment, this Court will affirm only if all legal questions have
been decided correctly.
Bertelsen v. Allstate Ins. Co., 2011 S.D. 13, ¶ 15, 796 N.W.2d 685, 692-93 (internal
citations omitted).
ANALYSIS
[¶8.] Heirs argue that Olson I determined that the sale to Muhlbauers was
void, specifically relying on our language that “[t]he sale should have been voided as
1. The Estate of Wayne Olson, the personal representative for Glenn Olson’s
estate, is not a party to this action.
-3-
#25761
the personal representative did not have authority to sell the specifically devised
property[.]” Olson I, 2008 S.D. 4, ¶ 28, 744 N.W.2d at 563. Because the property
vested in the Heirs at the time of Glenn’s death, the Estate did not have an interest
in the land that the personal representative could sell. Id. ¶ 15, 744 N.W.2d at 560.
Heirs assert that Olson I contemplated a remedy for Muhlbauers directly against
the personal representative, not the confirmation of the sale. Muhlbauers respond
that Olson I did not determine their title to the land because it “determined the
rights of the personal representative vis-à-vis the heirs, not the rights of the
Muhlbauers as innocent third party purchasers for value.” They point out that this
Court remanded precisely to allow Muhlbauers an opportunity to assert their
rights. Muhlbauers contend that a sale can be void in one context and valid in
another. See, e.g., Hauck v. Crawford, 75 S.D. 202, 69 N.W.2d 92 (1953) (discussing
void versus voidable title).
[¶9.] The trial court found that this “Court recognized the lack of an
indispensable party [the Muhlbauers] to afford the complete relief sought by the
Heirs and remanded the matter back to the trial court to permit the Muhlbauers to
intervene and hold further proceedings consistent with Olson I.” The trial court
framed the issue it was addressing on remand as whether the “sale is void as to the
Muhlbauers as third party purchasers[.]” In other words, the trial court did not
read Olson I as determining any of Muhlbauers’ rights.
[¶10.] Today, we affirm on more narrow grounds. At the time Muhlbauers
purchased the property at auction, the law was not clear as to whether a personal
representative possessed the power to sell specifically devised land when the power
-4-
#25761
of sale was not contained in the will and the sale was not necessary to pay estate
debts; that was the subject of Olson I. 2008 S.D. 4, ¶ 9, 744 N.W.2d at 559. This
Court extensively reviewed our Territorial Probate Code, the effect of the enactment
of the Uniform Probate Code, and case law regarding the power of personal
representatives to sell property. See id. ¶¶ 11-29, 744 N.W.2d at 559-64. This
Court held that “the personal representative did not have authority to sell the
specifically devised property[.]” Id. ¶ 28, 744 N.W.2d at 563. Muhlbauers could not
have known the outcome of Olson I at the time they purchased the property.
[¶11.] Muhlbauers seek the protection of SDCL 29A-3-714, which provides:
A person who in good faith either assists a personal
representative or deals with a personal representative for value
is protected as if the personal representative was properly
authorized to act. The fact that a person deals with a personal
representative with knowledge of the representative capacity
does not alone require the person to inquire into the existence of
a power or the propriety of its exercise. Except for restrictions
on powers of supervised personal representatives which are
endorsed on letters as provided in § 29A-3-504, no provision in
any will or order of court purporting to limit the power of a
personal representative is effective except as to persons with
actual knowledge thereof. A person is not bound to see to the
proper application of estate assets paid or delivered to a
personal representative. The protection here expressed extends
to instances in which some procedural irregularity or
jurisdictional defect occurred in proceedings leading to the
issuance of letters, including a case in which an alleged decedent
is found to be alive.
[¶12.] In order to be protected by SDCL 29A-3-714, Muhlbauers must be good
faith purchasers for value. We conclude they are good faith purchasers for value for
two reasons. First, as discussed above, Muhlbauers could not have known the
outcome of Olson I at the time they purchased the property. Second, since its
-5-
#25761
beginnings, this Court has viewed “a definition sometimes given of ‘good faith’ . . .
[as] ‘without notice.’” Hawke v. Deffenbach, 4 Dak. 20, 22 N.W. 480, 490 (1885),
aff’d, 115 U.S. 392, 6 S. Ct. 95, 29 L. Ed. 423 (1885). At the time of the purchase,
Muhlbauers did not have notice of the Heirs’ interest in the land or the law at issue
in Olson I. Based on this lack of notice and the unique facts of this case, we
conclude that Muhlbauers were good faith purchasers for value. As such,
Muhlbauers are protected by SDCL 29A-3-714.
[¶13.] Muhlbauers contend that title must vest in them under SDCL 29A-3-
714, “[o]therwise every purchaser of any asset from an estate . . . will demand a
court order approving the sale, thereby inundating the circuit courts with
unnecessary probate pleadings.” Heirs respond that SDCL 29A-3-714 states that
“the protection here expressed extends to instances in which some procedural
irregularity or jurisdictional defect occurred in proceedings leading to the issuance
of letters[.]” Consequently, Heirs argue that SDCL 29A-3-714 does not protect
Muhlbauers because there was not a procedural or jurisdictional defect. Instead,
the personal representative sold property that he did not have authority to sell.2
2. Muhlbauers argue that “when a personal representative sells land
improperly, the beneficiaries have a remedy against the defaulting fiduciary
under SDCL 29A-3-712, but not against the innocent third parties who dealt
with the personal representative in good faith.” Heirs respond that
Muhlbauers have a remedy against the personal representative for damages
under the same statute. SDCL 29A-3-712 provides: “If the exercise of power
concerning the estate is improper, the personal representative is liable to
interested persons for damage or loss resulting from breach of fiduciary duty.
The rights of purchasers and others dealing with a personal representative
shall be determined as provided in §§ 29A-3-713 and 29A-3-714.” Neither the
Muhlbauers nor the Heirs were granted relief under SDCL 29A-3-712.
(continued . . .)
-6-
#25761
[¶14.] SDCL 29A-3-714 protects persons who deal in good faith with a
personal representative for value as if the personal representative was properly
authorized to act. Because there is no factual dispute that Muhlbauers are good
faith purchasers for value and had no knowledge that the personal representative
lacked the authority to sell the land, Muhlbauers are entitled to summary judgment
confirming the deed under SDCL 29A-3-714.
CONCLUSION
[¶15.] We affirm because at the time Muhlbauers purchased the land, Olson I
had not been decided, and as a result, they could not have known that the personal
representative lacked the authority to sell them the land. Muhlbauers were good
faith purchasers for value, and therefore, protected by SDCL 29A-3-714. We leave
for a future case the more general issue of the status of those who purchased real
property under similar circumstances after Olson I.
[¶16.] MEIERHENRY, Retired Justice, concurs.
[¶17.] KONENKAMP, ZINTER, and SEVERSON, Justices, concur in result.
SEVERSON, Justice (concurring in result).
[¶18.] I concur only in the result. The Muhlbauers are good faith purchasers
for value under SDCL 29A-3-714. No restrictions were endorsed on the letters of
appointment as provided in SDCL 29A-3-504, and they had no actual knowledge of
________________________________
(. . . continued)
Whether either party is entitled to relief is not an issue on appeal at this
time.
-7-
#25761
any will provision or court order limiting the authority of the personal
representative. The deed from the personal representative thus transferred title
free from the claim of any heir with a specific devise in the will.
[¶19.] I do not join that part of the opinion that relies on In re Estate of Olson
(Olson I), 2008 S.D. 4, 744 N.W.2d 555. Before the South Dakota Legislature
adopted the Uniform Probate Code (UPC), one who purchased property from an
executor needed to examine the will, court records, or other relevant sources to
confirm the executor’s authority to complete the transaction. See 1994 S.D. Sess.
Laws ch. 232 (enacting the UPC in South Dakota effective July 1, 1995). This
requirement changed with the enactment of SDCL 29A-3-714 and SDCL 29A-3-
715(a)(23):
Section 3-714 explicitly protects purchasers from allegations
that a sale from a personal representative was unnecessary or at
too low a price or even against the terms of a will. The
purchaser is expressly excused from examining the terms of the
will, court records relating to the appointment, or other sources
that might be relevant to the question of whether the sale is
proper as between the fiduciary and those entitled to the
inheritance. The only restriction on the power of sale
contemplated by the Code is when supervised administration (§§
3-501 et seq.) has been ordered. In this setting, the court is
authorized to endorse restrictions on the personal
representative’s power on the letters of authority the court
issues to the personal representative. A purchaser does take
subject to these restrictions. In the ordinary case, however, a
title examiner would only need to see that letters were issued
and in effect when a personal representative gave a deed to a
purchaser.
3 Patton and Palomar on Land Titles § 521 (3d ed. & Supp. 2010).
[¶20.] Limiting SDCL 29A-3-714 would significantly impact marketable title
to real estate and personal property. A buyer or other person relying on the validity
-8-
#25761
of title documents could only be certain of title by examining the will, court records,
or other relevant sources. The buyer could not rely on the validity of transfers by
personal representatives as SDCL 29A-3-714 allows. Yet under the UPC, many, or
even most transactions, do not require court approval. And unless a probate
proceeding is conducted as a formal proceeding with court supervision, its probate
file would not contain the documents necessary to confirm the personal
representative’s authority.
[¶21.] Furthermore, Olson I does not follow this Court’s settled precedent in
In re Estate of Kappenmann, 82 S.D. 91, 141 N.W.2d 780 (1966). In Kappenmann,
we held that an executor may sell specifically devised real property under a power
of sale in a will, even if there is not a directive in the will to sell the property and
the sale is not necessary to pay debts and costs of administration. Id. Although
Kappenmann was decided before the Legislature adopted the UPC, there is no
reason to conclude that the UPC dictates a different result. Nothing distinguishes a
power of sale in a will and a power of sale granted by statute.
[¶22.] The Olson I majority concluded that a statutory power of sale is
inherently inconsistent with a specific devise. 2008 S.D. 4, ¶ 20, 744 N.W.2d at 561.
That conclusion is logically flawed. It assumes as a premise a difference between a
power of sale in a will and a power of sale granted by statute. See SDCL 29A-3-
715(a)(23). But I believe, based on this Court’s holding in Kappenmann, that
conclusion is contrary to precedent. Indeed, Justice Zinter, in his dissent, explained
that the authority the Olson I majority cited does not support its conclusion. Id. ¶
-9-
#25761
44 (discussing Kappenmann, 82 S.D. 91, 141 N.W.2d 780). Because Justice Zinter’s
dissent is a persuasive statement of the law, I would have joined it.
[¶23.] Thus, I concur in the result that the Muhlbauers are good faith
purchasers for value under SDCL 29A-3-714 and take title free from the claim of
any heir with a specific devise in the will. But I do not agree with that part of the
opinion that implies a different result in future cases based on the holding in Olson
I. Olson I was not decided in accordance with settled precedent and should not be
relied upon as authority.
[¶24.] KONENKAMP and ZINTER, Justices, join this special writing.
-10-