A Fiduciary May Not Engage in Self-Dealing
1. Introduction
The rule mentioned in the title is such a basic and well-known rule that you would think it would not merit a comment. It means, among other things that a fiduciary may not purchase property from the estate. A fiduciary can avoid the rule if the testator gives her an option to purchase property below market value. So also, if all the beneficiaries are sui juris and consent to the proposed sale, it can proceed. And if the court concludes that a purchase is clearly for the benefit of the beneficiaries it can authorize the sale. But otherwise, the rule is applied strictly. However, fiduciaries will occasionally try to bypass the rule, as in Re Dewberry Estate.[1] So perhaps a blog will not be amiss.
2. Facts
The deceased, William Dewberry, died intestate in 2016, survived by his three daughters, Angela, Tracey, and Elaine. Angela obtained a grant of administration. She sold the deceased’s truck and the contents of his house, and the only main asset remaining was the deceased’s home. It was encumbered by two mortgages in the total amount of $70,000. In 2017 Angela obtained an appraiser’s report that valued the property on the date of death at $170,000. She listed the property for sale, but the highest offer received was only $155,000, so she withdrew the house from the market. Then she moved onto the property but did not pay any rent to the estate. The mortgages had to be refinanced in 2020. To accomplish the refinancing, three appraisals were obtained which valued the property at $145,000, $152,000, and $284,000. Angela would like to purchase the property from the estate. She entered negotiations with her sisters, but they could not agree on the price. So, she brought an application for an order authorizing the sale of the property to herself of $179,600. Tracey opposed the application on the ground that there was no basis for selling the property at less than the current fair market value of $284,000, and Elaine apparently agreed with Tracey.
3. Analysis and Judgment
The court held that, as a fiduciary, Angela owes a duty of loyalty to the beneficiaries. She is in a conflict of interest if she purchases the property, and the purchase would amount to a breach the duty of loyalty. Angela argued that her sisters would be unjustly enriched if she were forced to purchase at the higher price, since she had expended much time and effort, as well as her own funds to protect the property. However, as the court noted, recovery of her expenses and her right to compensation could be dealt with when she passed her accounts, although at that time she might also be assessed for the non-payment of rent during the time she occupied the property. But the court could not approve a sale of the property at a price that was more than $100,000 below the appraised value. A sale that price would in any event clearly not be in the best interests of the beneficiaries.
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[1] 2023 BCSC 1325, 88 ETR 4th 154.
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Written by: Albert Oosterhoff
Posted on: February 14, 2024
Categories: Commentary, WEL Newsletter
1. Introduction
The rule mentioned in the title is such a basic and well-known rule that you would think it would not merit a comment. It means, among other things that a fiduciary may not purchase property from the estate. A fiduciary can avoid the rule if the testator gives her an option to purchase property below market value. So also, if all the beneficiaries are sui juris and consent to the proposed sale, it can proceed. And if the court concludes that a purchase is clearly for the benefit of the beneficiaries it can authorize the sale. But otherwise, the rule is applied strictly. However, fiduciaries will occasionally try to bypass the rule, as in Re Dewberry Estate.[1] So perhaps a blog will not be amiss.
2. Facts
The deceased, William Dewberry, died intestate in 2016, survived by his three daughters, Angela, Tracey, and Elaine. Angela obtained a grant of administration. She sold the deceased’s truck and the contents of his house, and the only main asset remaining was the deceased’s home. It was encumbered by two mortgages in the total amount of $70,000. In 2017 Angela obtained an appraiser’s report that valued the property on the date of death at $170,000. She listed the property for sale, but the highest offer received was only $155,000, so she withdrew the house from the market. Then she moved onto the property but did not pay any rent to the estate. The mortgages had to be refinanced in 2020. To accomplish the refinancing, three appraisals were obtained which valued the property at $145,000, $152,000, and $284,000. Angela would like to purchase the property from the estate. She entered negotiations with her sisters, but they could not agree on the price. So, she brought an application for an order authorizing the sale of the property to herself of $179,600. Tracey opposed the application on the ground that there was no basis for selling the property at less than the current fair market value of $284,000, and Elaine apparently agreed with Tracey.
3. Analysis and Judgment
The court held that, as a fiduciary, Angela owes a duty of loyalty to the beneficiaries. She is in a conflict of interest if she purchases the property, and the purchase would amount to a breach the duty of loyalty. Angela argued that her sisters would be unjustly enriched if she were forced to purchase at the higher price, since she had expended much time and effort, as well as her own funds to protect the property. However, as the court noted, recovery of her expenses and her right to compensation could be dealt with when she passed her accounts, although at that time she might also be assessed for the non-payment of rent during the time she occupied the property. But the court could not approve a sale of the property at a price that was more than $100,000 below the appraised value. A sale that price would in any event clearly not be in the best interests of the beneficiaries.
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[1] 2023 BCSC 1325, 88 ETR 4th 154.
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