DD 4/12/06 Purchasing Cotenant Has No Fiduciary Disclosure Duty to Seller Cotenant

Daily Development for Wednesday, April 12, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

COTENANTS: FIDUCIARY OBLIGATIONS OF COTENANTS; SALE OF INTEREST: Where one cotenant purchases another cotenant’s interest, the purchasing cotenant has no obligation to inform the selling cotenant of special factors known to the buyer and undiscoverable by the seller that affect the value of the property.

Gray v. Caldwell, 904 So. 2d 212 (Miss. 2005) 

Gray was a cotenant by heirship of certain property on which Caldwell had resided for many years.  Caldwell had resolved to acquire the interests of the other family members who had inherited interests in the property from her parents.  Gray was Caldwell’s nephew, and he had inherited his interest from his father, Caldwell’s brother, along with five other children.  Caldwell alleged that, some 20 years before, Caldwell had reached a verbal agreement with Gray’s father to acquire the father’s interest for $600.  The deal had never been consumated.

Many years later, Caldwell’s son, acting in her behalf, contacted Gray and sought to acquire his one sixth of his father’s interest.  Ultimately, it was agreed that Gray would receive $100 plus interest from 1980, the date of the alleged prior agreement, for a total of $400, and Gray executed and delivered a deed to Caldwell.

Subsequently, Gray learned from a sister that Caldwell had arranged a lucrative lease on the property for a cell tower, and an action had been instituted against Gray’s siblings to “confirm” Caldwell’s title to the property.  It is not clear whether this lawsuit was intended to fulfill the alleged agreement of sale with their father, to effect a partition, to establish adverse possession, or for some other reason.  In any event, Gray attempted to intervene in the suit, claiming that Caldwell had fraudulently induced him to sell her the deed he executed.  In essence, he alleged that she had a duty to disclose to him the new special value of the property.

The court acknowledged the general rule that “because of the mutuality of their interests, possession and obligations, the relationship between cotenants is confidential and fiduciary in nature and each has a duty to sustain, or at least not to assail, the common interest, and to sustain and protect the common title.  It is a relationship of trust and confidence between co-owners of property.”

But this rule is subject to an exception when cotenants undertake a sale of the interest one to another.  “In transactions of sale of their interests, cotenants do not stand in a relationship of mutual trust and confidence.”

The court held that, absent any special relationship, Gray had no case.  Caldwell didn’t withhold information about the lease specifically to mislead Gray.  She had been trying to buy the property for twenty years and simply carreid out an agreement at a price she believed had been negotiated years before.

Comment 1:  We are seeing an increasing number of tenancy in common partition disputes in situations quite similar to this - so many that the ABA has established a task force to propose legislation.  The problem arises, as here, where one cotenant heir occupies property and relies upon it as a homestead, but numerous others have inherited small interests due to the failure of their common ancestors to prepare wills.  Now that urban population is sprawling into the countryside, especially in the South, speculators are buying up and attempting to exploit these previously ignored fractional tenancies in common.  In this case, if appears, the right result has been reached (so far), but there is still the quiet title action against the other cotenants.   Is partition the right answer here?  Is an auction sale?  What else works?

Also see:  Douglas v. Jepson, 945 P.2d 244 (Wash. App. Div. 1 1997) (the DIRT DD for 5/4/98) Tenants in common have no per se duty of disclosure and, therefore, a cotenant may not have to reveal information regarding the terms of an offer to purchase the property, even in the context of negotiations by that cotenant to acquire the other cotenant's  interest.  

Comment 2: The editor has seen arguments that courts ought to differentiate between cotenant heirs and business cotenants.  Business cotenants are more like partners, in fact many of them likely are de facto partners.  In such cases, the fiduciary responsibilities are more evident. 

Readers are encouraged to respond to or criticize this posting.

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