Opinion ID: 1314079
Heading Depth: 1
Heading Rank: 5

Heading: Liability of Other Defendants.

Text: A. Terry and Sharon Willers. The plaintiffs assert in their application for further review that the district court and court of appeals erred in failing to impose liability on Terry Willers and his spouse, Sharon, and in refusing to make the judgment a lien against the property. This court has recognized that a third party may be liable for a trustee's breach of fiduciary duty. See Coster, 468 N.W.2d at 809. In Coster, we quoted the following rule from the Restatement (Second) of Trusts: A third person who, although not a transferee of trust property, has notice that the trustee is committing a breach of trust and participates therein is liable to the beneficiary for any loss caused by the breach of trust. Id. (quoting Restatement (Second) of Trusts § 326, at 124) (emphasis omitted). A similar rule exists for a transferee of trust property who takes with notice of the breach of trust. Restatement (Second) of Trusts § 288, at 55. The first issue is whether Terry and Sharon had notice that the sale to them was a breach of trust by Nancy. A person has notice of a breach of trust if ... he knows or should know of the breach of trust. Id. § 297, at 74. A transferee knows or should know of a breach of trust if he knows or should know (1) of the existence of a trust, (2) the terms of the trust, and (3) that the trustee is improperly deviating from the terms of the trust. Id. § 297 cmt. c, at 76. Here, Nancy's breach lay not in the transfer of the property, since it was anticipated in Dilley's letter that Nancy would at some point sell the property. Nancy's primary breach was of her fiduciary duty to ensure that all siblings shared equally in the proceeds of the sale. The governing principle of law for this situation is set forth in the Restatement: If a trustee in the proper exercise of a power of sale sells trust property, and the purchaser pays the purchase price to the trustee without notice that the trustee intends to misapply the purchase price, the purchaser is not liable although the trustee misapplies the purchase price. Id. § 321 cmt. b, at 113. The plaintiffs have not proved that Terry and Sharon had notice that Nancy did not intend to make the required payments to her siblings. Therefore, the Willers are not liable for the sums received by Nancy, but which she failed to turn over to the other trust beneficiaries. This conclusion does not, however, dispose of possible liability based on the deficient purchase price. As noted above, to establish the liability of a transferee, a beneficiary must prove the transferee knew or should have known the trustee was violating the trust. We cannot find under the present record that Terry and Sharon Willers knew or should have known that the sale to them was a violation of the trust terms. The evidence showed that Terry Willers notified his sister, Connie Alexander, of his impending purchase of the property. Together they went to an attorney to discuss the impact of their mother's letter on the sale. Shortly after this meeting, Alexander wrote a letter to that attorney, with a copy of the letter sent to Terry, in which she stated that it was satisfactory to the other siblings that Terry be allowed to purchase this home. She further emphasized that she did not want the siblings' efforts to share in the proceeds to in any way cause Nancy to back out of her signed commitment to sell the property to Terry. It is opportunistic for the plaintiffs to claim now, after encouraging Terry's purchase of the property, that he was a joint tortfeasor with Nancy and should be held liable for her breach of trust. The plaintiffs themselves led the Willers to believe that the sale to them was not itself a breach of Nancy's fiduciary duty to the siblings. Consequently, we agree with the trial court that there is no basis upon which to impose liability on Terry and Sharon Willers. Therefore, we affirm the trial court's judgment in their favor. B. Bruce Groth. As noted above, a third party may be liable for a trustee's breach of duty if the third party has notice that the trustee is committing a breach of trust and participates therein. Restatement (Second) of Trusts § 326, at 124. Bruce Groth was not a seller of the property, nor was he a buyer. His only participation in the transfer of the property was releasing any rights in the property he held as Nancy's spouse. We do not think his involvement in the transaction in this capacity is participation so as to subject him to liability for Nancy's breach of trust. Therefore, we also affirm the judgment entered by the district court in favor of Bruce Groth.