943 N.W.2d 826
N.D.2020Background
- Geraldine and her son Philip jointly owned Sande Music; they sold it in 2010 for $800,000 and Philip executed a $55,000 promissory note to Geraldine.
- Geraldine died in October 2012; her son Fred was appointed personal representative (PR). Philip died in 2014; his wife Paulette later acted for his estate.
- Fred filed an inventory listing real property, sale proceeds, and the $55,000 note; Philip objected, alleging misallocation of sale proceeds, unpaid note, undervalued/removed assets from real property, and that Fred diverted estate assets and failed to pay rent.
- Fred sought confirmation of a distribution plan and fees and relied on a forensic accounting (Eide Bailly) to claim Philip received excess sale proceeds. Philip counterclaimed for breach of fiduciary duty and raised affirmative defenses including accord and satisfaction and waiver.
- The district court found (inter alia) that: the $90,000 paid by Philip to Fred after Geraldine’s death settled Fred’s interest in the estate; the $55,000 note and prior accounting meeting constituted accord/waiver of other sale-proceeds claims; Fred transferred estate real property to himself, breached fiduciary duties, and damages equal to half the property value were awarded to Philip; many claimed fees were denied.
Issues
| Issue | Plaintiff's Argument (Fred) | Defendant's Argument (Philip) | Held |
|---|---|---|---|
| Whether unpled affirmative defenses were applied | Court erred by raising/applying defenses not argued | Philip pleaded accord and satisfaction and waiver; defenses were litigated | Defenses were pled and argued; no error treating them as tried by consent |
| Character of $90,000 payment | It was a capital contribution to a partnership (Philip‑Frederick Enterprises) | It was payment in settlement of Fred’s inheritance/interest | Court found $90,000 was accord & satisfaction of Fred’s estate interest; affirmed |
| Effect of $55,000 promissory note and alleged shortfall from Sande Music sale | Note was repayment for misallocated $100,000 and not a full settlement of claims | Geraldine knowingly accepted the note after meeting with accountants; past practice and payments show waiver/accord | Court found accord and satisfaction/waiver: Geraldine was satisfied and ~$53,000 was paid on the note; no proven additional debt |
| Weight of Eide Bailly forensic accounting | Report proves Philip received excess sale proceeds and supports Fred’s distribution plan | Report relied on unwarranted assumptions and ignored parties’ business practices and accountings | Court permissibly discounted the report as a credibility/weight determination; no reversible error |
| Breach of fiduciary duty re: real property transfer | Fred did not breach or Philip suffered no proximate damage | Fred transferred the property to himself, failed to timely inventory, possibly removed/altered assets, and acted for personal benefit | Court found Fred breached fiduciary duties and awarded Philip damages equal to half the property’s value at decedent’s death |
| Entitlement to PR fees and attorney’s fees | PR is entitled to fees and litigation costs incurred | Much of the work and fees primarily benefited Fred personally, not the estate | Court did not abuse discretion denying/limiting fees because services were largely for Fred’s personal interest |
Key Cases Cited
- Smestad v. Harris, 796 N.W.2d 662 (N.D. 2011) (failure to plead affirmative defenses ordinarily waives them)
- Johnson v. Mark, 834 N.W.2d 291 (N.D. 2013) (unpled affirmative defenses may be treated as tried by consent when evidence received)
- Mougey v. Salzwedel, 401 N.W.2d 509 (N.D. 1987) (burden of proof for affirmative defenses; definition of accord and satisfaction)
- Wheeler v. Southport Seven Planned Unit Dev., 821 N.W.2d 746 (N.D. 2012) (clearly erroneous standard for factual findings)
- Campbell v. Beaton, 117 N.W.2d 849 (N.D. 1962) (definition and components of accord and satisfaction)
- Wachter Dev., Inc. v. Martin, 931 N.W.2d 698 (N.D. 2019) (waiver as voluntary, intentional relinquishment of known right)
- In re Estate of Vendsel, 891 N.W.2d 750 (N.D. 2017) (standards for proving breach of fiduciary duty in estate context)
- In re Estate of Brandt, 924 N.W.2d 762 (N.D. 2019) (attorney’s fees for estate litigation require good faith and benefit to the estate)