Laying Down the Law: Personal Representatives Must Disclose Their Capacity in Purchase Contracts

Christopher J. Charles, Esq. & Brian L. Eastin
Founder/Managing Partner & Attorney, Provident Law

Personal Representatives are required to perform a myriad of duties in administering a decedent’s estate. These duties often include selling real estate.  While performing their duties and when acting in their representative capacity, Personal Representatives are generally shielded from the estate’s liabilities.[1] Said another way, only the estate is responsible for the outcome of the transaction, as long as the Personal Representative acts properly within their representative capacity.

This can be confusing because lawsuits brought against estates are commonly filed in the name of the Personal Representative. This is because the estate is not viewed as a legal entity, but rather as a collection of assets and liabilities of the decedent. Instead, it is the Personal Representative who is sued or brings the lawsuit on behalf of the estate. Where the estate is found liable, any judgment is entered against the estate and not against the Personal Representative, individually or against their personal assets.

A recent case, Gordon v. The Estate of George Brooks, Sheri Sanborne and Maribel Maza, 242 Ariz. 440, 397 P.3d 1040 (App. 2017), highlights the disclosure requirements for maintaining the protections granted to Personal Representatives when administering an estate. In the Gordon case, the co-personal representatives (the “Personal Representatives”) were approached by a buyer with an offer to purchase a house belonging to the decedent of the estate. The Personal Representatives accepted the offer the next day and executed a purchase contract, which listed the deceased person as the seller (but not stating he was deceased) and was signed by the Personal Representatives without stating they were co-personal representatives of the decedent’s estate.

About a month later, the Personal Representatives recorded a warranty deed conveying the house to the buyer signed by them as “Co-Personal Representatives of the estate of George W. Brooks, deceased…” and identifying the probate case number. A dispute arose, and the buyer filed a lawsuit, including individual claims against the Personal Representatives.

The Personal Representatives asserted that they were not individually liable because they were acting in their representative capacities at the time and relied on the protections of A.R.S. § 14-3808(A), which states, “A personal representative is not individually liable on a contract properly entered into in his fiduciary capacity in the court of administration of the estate unless he fails to reveal his representative capacity and identify the estate in the contract.”

Prior to this decision, there were no reported decisions interpreting A.R.S. § 14-3808(A), and the statute is silent as to when disclosure of the representative capacity needs to be made. The Court of Appeals found that using only the initials “P.R.” and the personal representative’s signature was not enough to put someone on notice, and additionally found that there was nothing sufficiently indicating whom or what the “P.R.” represented. Looking to agency law, the Court stated that the disclosure requirements of A.R.S. § 14-3808(A) mirrors agency case law requiring disclosure of the agency and the identity of the principal, and that the requirement to disclose must be done at the time of the transaction per the established common law of agency.

Thus, the Court of Appeals held that the disclosure requirements of A.R.S. § 14-3808(A) were not complied with because the Personal Representatives failed to disclose their representative capacity at the outset of the transaction, and because the estate was not identified in the contract. As a result, the Court concluded the Personal Representatives were not entitled to the statute’s protection against individual liability.

In reaching this conclusion, the Court specifically rejected arguments that the buyer was put on notice because the decedent’s name was listed in the purchase contract, underneath which the Personal Representatives signed. The Court further rejected the argument that the buyer was put on notice about the estate via the Warranty Deed recorded a month later.

Here are the key take-aways from the Gordon decision:

1. Disclose, disclose, disclose. REALTORS^® know this and the Gordon case is just another reminder of this important principle. When in doubt, disclose, including the parties and their roles.
2. REALTORS^® should be familiar with A.R.S. § 14-3808(A). Remember, disclosure of the representative capacity of a personal representative is not enough. You must also expressly identify the estate in the contract itself.
3. Do not use short-cuts. Using the abbreviation “P.R.” was held to be insufficient to give legal notice of the representative capacity. Spell it out — write out the person’s name followed by a comma, followed by “Personal Representative of the Estate of John Smith.” Also consider stating in the contract that the seller is the estate and that the Personal Representative is selling in their representative capacity.
4. The timing of disclosure is important. Disclosure after the fact is not sufficient and will not maintain the protections of A.R.S. 14-3808(A). The disclosure must be at the very outset of the transaction (i.e. at the time the purchase contract is signed).

If you or someone you know have questions regarding transactions concerning personal representatives, or any other disclosure or real estate question, please call our office today to schedule a consultation. For additional information, please visit Provident Law’s website at www.ProvidentLawyers.com

Bryan L. Eastin is an Attorney with Provident Law^® practicing in the areas of trust and estate administration and litigation, guardianships and conservatorship, and real estate. Bryan’s practice includes representation of private fiduciaries appointed by the court to serve as guardians, conservators, personal representatives and/or as trustees. Bryan is admitted to practice in Arizona’s state and federal courts, and he is currently a member of the Arizona State Bar Association and Maricopa County Bar Association. He can be reached via email at Bryan@ProvidentLawyers.com.

Christopher J. Charles is the founder and Managing Partner of Provident Law^®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS^® (the “AAR”). Mr. Charles holds the AV^® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system, which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes, and he served on the State Bar of Arizona’s Civil Jury Instructions Committee, where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.

Christopher is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at Chris@ProvidentLawyers.com or at 480.388.3343.

[1] As an exception to this general rule, a personal representative may be personally liable for any torts such as fraud or misrepresentation.