Daily Development for
Wednesday, December 20, 2000
By: Patrick A. Randolph,
Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu
VENDOR AND PURCHASER;
PAYMENT; DEBT FORGIVENESS: : Exercise of an option to purchase real property
held jointly by a married couple is ineffective where option holder attempts to
exercise the option by discharging the personal debt of one spouse without the
knowledge or consent of the other spouse.
Abrahamson v. Abrahamson,
613 N.W.2d 418 (Minn. Ct. App. 2000).
Gordon and his wife
Beatrice gave to Gordon's brother Ronald a fixed price option to acquire
certain property they owned. Although stated as an option, the agreement
appeared to have some characteristics of an installment land contract. Ronald
had 30 months in which to perform the option by paying the price. Ronald also
had to pay interest, insurance and taxes. Ronald had alternative method of
performing by giving notice of intent to exercise and then producing the
purchase price within sixty days. The court does not disclose who had
possession of the property during the option period.
Just before the end of the
option period, Ronald gave notice to Gordon and Beatrice of his intent to
exercise the option. Instead of paying cash, however, Ronald thereafter
credited Gordon for a debt that Gordon owed to Ronald arising out of a failed
stock investment. Gordon was interested in keeping Beatrice unaware of this
debt, and neither he nor Ronald told her anything about the method by which the
brothers intended to permit the option price to be paid.
Gordon died two years
later, long after expiration of the option period. Beatrice, unaware of
Ronald's claim that he had in fact paid the price, conveyed the property into a
trust. Soon thereafter, Ronald claimed he was going to perform the option price
(long after the expiration of the period) and set up an escrow, but later
abandoned that effort. Two years after that the trust sold the property to
third parties under an installment land contract. Ronald sued for specific
performance of a contract for sale of real property claiming that discharge of
a debt owed an option holder by one joint tenant (in this case the husband)
provided necessary consideration for the exercise of the option. The trial
court granted summary judgment to the wife finding that the Minnesota Married Woman's
Act, Minn. Stat. =A7 519.02, protected the wife from being divested of her
joint interest in the property in consideration for a partial satisfaction of
her husband's personal debts.
On appeal: held: Affirmed,
but on other grounds.
The court held that,
although the language of the Married Woman's Act might be construed to protect
Beatrice from having her property sold in satisfaction of her husband's death,
in fact the act had no impact on the post marital real estate interest acquired
by a spouse. Instead, the Act protects only the interests of the spouse
existing at the time of the marriage or any separate property acquired
thereafter. Since this property was held jointly with Ronald, the Married
Woman's Act gave Beatrice no special protection.
The court, however,
proceeded to rule that there was another basis for protecting Beatrice. As a
case of first impression, at least in Minnesota, the court ruled that an obligor
of joint obligees cannot satisfy its obligation by offsetting a debt against
one of the obligees without the knowledge and consent of the other. It cites
cases from other jurisdictions in which such a device was used to work a fraud
on the non debtor obligee. Here, the parties stipulated, for purposes of
summary judgment that Gordon did not intend to share with his wife the benefit he
realized from the forgiven debt, and that Ronald had reason to know of Gordon's
plans and Beatrice's ignorance of the whole scheme.
Comment 1: Because of all
the assumptions of Ronald complicity with Gordon in some kind fraudulent scheme
to strip Beatrice of her interest in the property, it is difficult to know what
value this case has as precedent. In many cases, both parties in a husband and
wife relationship would benefit from the forgiveness of a debt owed by one
spouse and certainly could find such forgiveness to be valuable consideration
for the exercise of an option, even of one of the spouses' had no personal obligation.
Comment 2: In most cases,
the sale by a joint tenant of that tenant's interest in property establishes a
severance and leaves the party purchase that interest as a tenant in common
with the nonagreeing tenant. Why didn't that result obtain here? The court
seems to take the view that Ronald's debt forgiveness either bought the entire
property or didn't buy any property. It is unclear what rationale the court
used to reach this conclusion.
Maybe some of our
Minnesota DIRTers can explain.
Readers are urged to respond, comment, and argue with the daily
development or the editor's comments about it.
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