## Facts

- Rice Ranch was a 362‑acre parcel in Yuba County, California, used primarily for rice farming and also for duck hunting.
- In March 1969, Walter E. Fazzio (for himself and his wife, Elvira) and Jack Sellers purchased the property for $362,000, paying $100,000 cash and financing the balance with two promissory notes secured by deeds of trust (a first deed of trust to Federal Land Bank and a second to Michaels & Sullivan). Fazzio and Sellers agreed to split the loan payments equally.
- In 1970, Fazzio and Sellers conveyed one‑eighth tenant‑in‑common interests to Dr. Ivan Rarick and Jan Rarick and to another purchaser (Larry E. Tripp), creating a multi‑owner cotenancy.
- The cotenants agreed to share maintenance expenses and loan obligations in proportion to their ownership interests, and they also agreed that Fazzio would oversee rice farming operations so income from the land could be applied to property expenses.
- Dr. Rarick died in 1977, and Jan Rarick inherited his one‑eighth interest.
- Over time, Fazzio acquired the interests of the other cotenants, leaving Fazzio with a seven‑eighths interest and Jan Rarick with a one‑eighth interest.
- After Fazzio became the majority owner, he and Jan Rarick disagreed about allocation and payment of expenses. Fazzio then chose to farm the ranch “for his own account.”
- From roughly 1979 through 1989, Fazzio operated the rice farming and used farming income to pay carrying costs and maintenance expenses (reported as averaging about $2,100 per year). The record also reflected payments on the second deed of trust (including two payments of $11,835) treated as cotenancy obligations.
- The Fazzios later filed a Chapter 11 bankruptcy case. After Rice Ranch was sold, an adversary proceeding was tried in the bankruptcy court to determine how to divide the sale proceeds between the bankruptcy estate (standing in Fazzio’s shoes as the seven‑eighths cotenant) and Jan Rarick (the one‑eighth cotenant).
- Fazzio sought reimbursement (contribution) from Rarick for her share of the expenses he paid; Rarick responded that she was entitled to share in the income generated by Fazzio’s farming operations.

## Issues

1. Whether a cotenant who paid mortgage and other necessary carrying costs may obtain contribution from a nonpaying cotenant when the paying cotenant funded the payments using income produced from operating the commonly owned land.
2. Whether an out‑of‑possession cotenant is entitled to an accounting for, and a proportionate share of, income or profits generated by the in‑possession cotenant’s farming operations.
3. How the court should perform an equitable accounting to allocate the sale proceeds between cotenants by netting expense contribution claims against any amounts owed for profits or benefits attributable to the common property.

## Decision

- The court held that Fazzio (and therefore the bankruptcy estate) was entitled to contribution from Jan Rarick for her one‑eighth share of agreed and necessary cotenancy expenses and loan obligations that Fazzio paid to preserve the property.
- The court also held that Rarick was entitled to an accounting for the economic benefit derived from use of the ranch, and that any amounts owed to her would be based on net benefit/net profits attributable to the property rather than a share of gross farming receipts.
- The court balanced the parties’ competing claims through an equitable accounting, offsetting Rarick’s profit/benefit share (if any) against her share of expenses, and then dividing the sale proceeds consistent with the resulting net allocation.

## Legal Principles

- Under California cotenancy rules, a cotenant who pays more than his proportional share of necessary expenses (including mortgage obligations, taxes, and essential maintenance) may obtain contribution from other cotenants, commonly by charging the nonpaying cotenant’s share of sale proceeds.
- Cotenants may be required to account to each other when one cotenant realizes rents or profits from the common property; the proper measure is generally net profits or net benefit attributable to the property after appropriate expense deductions, not gross receipts.
- When one cotenant both pays carrying costs and receives the primary benefit of operating the property, equity permits a single accounting that nets the expense reimbursement claim against any profit/benefit claim to avoid an unfair result to either side.
- In bankruptcy, the estate’s interest in sale proceeds arising from co‑owned real property is determined by applying the same state‑law cotenancy accounting rules that would govern between nonbankrupt cotenants.

## Conclusion

In Re Fazzio applied California cotenancy accounting in a Chapter 11 adversary proceeding to divide Rice Ranch sale proceeds: the estate could recover Jan Rarick’s proportional share of necessary carrying costs, while Rarick could claim only a proportional share of net benefits from Fazzio’s farming, with the court offsetting the competing amounts to reach the final allocation.


In Re Fazzio, 180 B.R. 263 (1995)