April 2000

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

ESTATES -SALES BY PERSONAL REPRESENTATIVE PURSUANT TO POWER CONTAINED IN A WILL AND RELATED PROBLEMS 

Ambiguities in Chapters 28A and 32 of the North Carolina General Statutes have caused conflicting opinions regarding when a "personal representative" (for example, an executor) can sell real property pursuant to a power of sale set forth in the testator's probated will. A review of relevant statutes and cases is helpful.

G.S. 28A-13-3(a) states that, except as qualified by express limitation in the will or in a court order, a personal representative ("P.R.") has the power to reasonably and prudently perform every act incident to collection, preservation, liquidation, or distribution of a decedent's estate so as to accomplish the result of estate settlement and distribution, including, but not limited to, G.S. 28A-13-3(a)(1)'s power to take custody or control of real property, subject to G.S. 28A-13-3(c)'s petition and order requirements. G.S.28A-13-3(a)(27)'s power to sell or lease real property also references the court procedures specified in Article 17 of Chapter 28A pertaining to a petition to sell property under G.S. 28A- 15-1 to pay estate debts and claims and the resulting order of sale specified in G.S. 28A-17-7. Heirs and devisees are necessary parties. G.S.28A-17-4. If this is not done, the heir or devisee not joined can subsequently assail the proceeding's validity. Dickens v. Long, 109 N.C. 165, 13 S.E. 841 (1891). An adverse claimant, such as a party holding a judgment lien against the decedent, may be made a party: G.S. 28A-17-6. If such a claimant is made a party. he is bound by the order. If he is not made a party, he is not so bound. Since Chapter 28A does not outline a "sale free and clear" procedure, it is wise to join such a claimant and ask for an order selling the title free and clear of the claimant's interest. G.S. 28A-13-3(a)(31) states that the P.R. can exercise such additional lawful powers as contained in the will.

G.S. 28A-17-8 states that a sale of real property made pursuant to authority given by will may be either public or private and may be on such terms as in the opinion of the P.R. are most advantageous to the estate. The statute contains no requirement for a court order. The statute does not require the sale to be for making assets to pay debts of the estate. However, the statute seems to include such a sale.                                 

G.S. 28A-15-1 pertains to assets of the estate generally. G.S. 28A-15-1(a) provides that real property of the decedent is available for discharge of debts and other claims against the estate, if it is in the best interest of estate administration. G.S. 28A-15-1(b) is phrased with a similar predicate regarding sale to make assets to pay debts of the estate. G.S.28A-15-1(c) states that if the P.R. determines that it is in the best interest of estate administration to sell real property to pay estate debts and claims, the P.R. shall institute a special proceeding under G.S. 28A-17-1, et seq. to do so, except that no such proceeding is required for a sale made pursuant to authority granted by the will. In 1985, a last sentence was added to G.S. 28A-15-1(c) as follows: "A general provision granting authority to the personal representative to sell the testator's real property, or incorporation by reference of  the provisions of G.S. 32-27(2) shall be sufficient to eliminate the necessity for a proceeding under Article 17." The italicized part of the quote is consistent with G.S.28A-17-8.

Before discussing this last sentence's reference to G.S. 32-27(2), a threshold issue must be addressed. G.S. 28A-15-1's reference to assets being available for discharge of debts and other claims, including the references in G.S. 28A-15-1(c), and the statement that a court order to do so is not required for a sale made pursuant to authority set out in the will, merely establishes the rule for a sale to make assets to pay debts and claims. These references do not mean that other express powers set out in the will pursuant to which the P.R. can sell real property for reasons other than to make assets to pay debts and claims cannot be exercised without a court order.  The terms of the will would control.  See G.S. 28A-13-3(a)(31); G.S. 28A-17-8. Therefore, if Testator devised property to Adams in clause 1 of the will but in clause 3 appointed Barber as executor and stated, "my executor has full power and authority to sell, mortgage and convey my real property without court authority," no court order to sell the property devised in clause 1 would be needed.  This would also seem to be the case if the words "without court authority" were omitted.  If there is not such an express power in the will and, for example, the only power granted is that found in G.S. 32-27, further analysis is required.

The case of Montgomery v. Hinton, 45 N.C. App. 271, 262 S.E. 2d 697 (1980), should be noted. The case dealt with a will that left the property to the beneficiary and granted the P.R. all G.S. 32-27 powers. The court held that G.S. 32-27(2) was not applicable since the P.R. was not devised title. Therefore, the P.R. did not "hold" title under G.S. 32-27(2). The P.R. could not use the power to sell and should have pursued a special proceeding to sell. (G.S. 28A-15-2(b) should be noted. It vests title in the beneficiaries upon probate of the will. However, this is subject to the will's terms.)

In Hinton, the court dealt specifically only with G.S. 32-27(2)'s power entitled, "Sell and Exchange Property." The court did not specifically deal with G.S. 32-27(3)'s power, entitled "Invest and Reinvest." This power includes the power to "invest and reinvest" in any real or personal property and other assets. Should the Hinton court have held that G.S. 32-27(3) allowed the sale? The threshold question is, under G.S. 32-27, when it comes to the sale of real property, is G.S. 32-27(2) exclusive, or can G.S. 32-27(3) be considered? The answer is uncertain. G.S. 32-27(2) clearly refers to a power to sell, whereas such power under G.S. 32-27(3) would have to be implied as is discussed in the case analysis below. On the other hand, G.S. 32-27(2) could be construed to be limited to when the executor "holds" title and so, if otherwise appropriate, a power to sell when title is not so held could be implied under G.S. 32- 27(3). And, there is nothing in G.S. 32-27 or G.S. 32- 27(2) to indicate that G.S. 32-27(2) is the only portion of G.S. 32-27 that can be utilized. If G.S. 32-27(3) should have been considered in Hinton, a review of possibly relevant cases is in order.

In Morris v. Morris, 246 N.C. 314, 98 S.E. 2d 298 (1957), the testator's devise was to his wife of "all of property both real and personal to provide for my son…and herself."  The Supreme Court held that the wife held the property in trust for her son and herself but that she had no power to sell realty except by virtue of a court order.

In First Union National Bank of North Carolina v. Broyhill, 263 N.C. 189, 139 S.E. 2d 214 (1964), the will created a trust.  The devise to the trustees required the trustees to divide assets into four equal shares and be administered as four separate trusts.  The children were entitled to the income during life.  In addition, the trustees, in their exclusive discretion, had the power to invade and payout of the principal such amounts as may be necessary to provide each child with sufficient funds for support provided that the trustees took into consideration other resources that the child had available to him. The trustees had the power to disburse to grandchildren for support. The will conferred-d no express power of sale. The issue was whether a power to sell without a court order was implied. The power can be implied; it need not be express. The court noted that the executor was granted the power to sell an or any part of the real property at public or private sale on such conditions deemed expedient to the executor, but no such express power was given to the trustees. And, the trustees were given no power or direction to invest and reinvest the estate assets as in other reported cases. Therefore, the court held that there was no express or implied power of sale. Among the cases cited was Hall v. Wardell, 228 N.C. 562, 46 S.E. 2d 556 (1948).

In Hall, the will provided that (1) the property was devised to the wife to be held and income to be used by her during her life, the principal to be invested and kept invested by her as she deemed best; and (2) the property after the death of the wife passed to two trustees to keep the property invested as they deemed best; and (3) the wife may use the property as she wished for certain purposes with the residue to be used by the trustees as set out above. The court held that a power of sale was implied from the will's language and stated that the power to invest and consume the principal, or to invest and manage the estate or to invest and keep invested the consumed principal implied a power to sell.

In sum, it would appear that the Hinton court could have utilized the principles in G.S. 32-27(3) which statute, based on the above cases, seems to imply a power of sale. However, the court may have been disinclined to do so because it may have believed that G.S. 32-27(2) was exclusive as to such matters, which it is not, expressly; G.S. 32-27 should be clarified. And, to the extent that Hinton is a problem, G.S. 28A-15-1(c) does not fix it in reference to G.S. 32-27(2) since, under G.S. 32-27(2), the executor must still "hold" title.

Obviously, the will must be read carefully, In James v. James, 58 N.C. App. 371, 293 S.E. 2d 655 (1982), the will gave the executors: "the full power and authority to sell in such manner as they in their sole and absolute discretion may determine to be proper any and all property described in the second item of my will and to convey good title to the purchaser or purchasers." 58 N.C. App. 371, 374. If the will had stopped here, the executors could have sold the property without a court order. However, the will also stated: "This authority shall not be obligatory upon my executors but can be exercised by them if in their judgment such a procedure will facilitate the settling of my estate." 58 N.C. App. 371,374. The Court held that since the executor's discretion to sell was limited to matters which would facilitate the settlement of the estate, the sale, to avoid a partitioning proceeding, was not a valid exercise of the power of sale and did not divest the petitioners of their interest in the real estate. Id. at 375.

Pursuant to G.S. 28A-17-9, if a decedent has contracted to sell real property his P.R. may execute and deliver a deed pursuant to the contract. No court order is required.

G.S. 28A-17-10 states that when real property is conveyed to a P.R. for the benefit of the estate he (or a successor representative) may sell and convey it upon terms that the P.R. deems just for the estate pursuant to Article 29A of Chapter 1 entitled "Judicial Sales." But, it would seem that a power of sale set forth in a devise in a will is not governed by this statute.

See G. S. 28A-13-6 (exercise of powers of joint personal representatives).  

Other powers in G.S. 32-27, which can be incorporated by reference into a will or trust, are G.S. 32-27(8) (management of real property) and G.S. 32-27(12) (borrowing money and mortgaging).  Other provisions of G.S. 28A-13-3 which should be noted are G.S. 28A-13-3(a)(7) (relinquishing rights in property when it is valueless or of no benefit to the estate) and G.S. 28A-13-3(a)(12) (borrowing money and mortgaging, which is subject provisions of G.S. 28A-17-11).

With respect to borrowing money as permitted b G.S. 28A-13-3(a)(12) and G.S. 28A-15-1(c) as well a under other authority such as G.S. 32-27, Hunter v. Newsom, 121 N.C. App. 564, 468 S.E. 2d 802 (1996) should be noted. The court held that a deed of trust given by an executor as executor and individually was invalid since it did not secure a debt of the estate incurred for purposes of paying estate debts and taxes. The court cited the following will provision: "I hereby grant to my Executor...continuing absolute discretionary power to deal with any property, real or personal, held in my estate..., as freely as I might in the handling of my own affairs. Such power may be exercised independently and without prior or subsequent approval of any court or judicial authority and no person dealing with the Executor...shall be required to inquire into the propriety of any of. ..[his] actions." (Emphasis added.) The court held that "we do not read this language as extending any addition of authority or power to the executor and cannot be interpreted to authorize any act which is not otherwise authorized."

In conclusion, Chapters 28A and 32 are in need of clarification. Any effort to clarify should concentrate on the issues discussed above as well as the P.R. selling leasing or mortgaging the property free and clear (liens or subject to liens, with or without a court order and specify under what circumstances a grantee, lessee or lender can rely upon the executor's transfer of the property. However, G.S. 28A-17-8 and G.S. 28A-15-1(c) seem to mean that a power to sell, mortgage or convey real property granted to the executor, without any restriction, should be enough to permit the executor to sell, mortgage or convey, without a court order, for any reason and even if the land has been devised to a devisee elsewhere in the will and has not been devised to the executor. The will can expressly change thin result. And, more express will drafting (for example, by making "clause 1" in the example in the sixth paragraph of this article expressly subject to the power in "clause 3") can reduce interpretation problems.  Will construction is a matter of ascertaining the testator's intent from the four corners of the will, as opposed to arbitrary interpretation of statutes.

                        -Ed Urban

 

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