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Bauman v. Day (11/25/94), 886 P 2d 608
<![CDATA[
Notice: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501.
THE SUPREME COURT OF THE STATE OF ALASKA
ROBERT J. BAUMAN and )
JUDY A. BAUMAN, ) Supreme Court Nos. S-5350/5368
)
Appellants and ) Superior Court No.
Cross-Appellees. ) 4FA-92-123 CI
)
v. )
)
JAMES R. DAY and )
HELEN B. DAY, )
) O P I N I O N
Appellees and )
Cross-Appellants.) [No. 4147 - November 25, 1994]
______________________________)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks,
Richard D. Savell,
Judge.
Appearances: Robert John, The Law
Office of William R. Satterberg, Jr.,
Fairbanks, for Appellants and Cross-
Appellees. Zane D. Wilson, Jo A. Kuchle, A.
Ren‚ Broker, Staley Delisio & Cook,
Fairbanks, for Appellees and Cross-
Appellants.
Before: Moore, Chief Justice,
Rabinowitz, Matthews, Compton, Justices, and
Bryner, Justice, pro tem.*
COMPTON, Justice.
MOORE, Chief Justice, dissenting in part.
BRYNER, Justice pro tem, dissenting in
part.
After discovering permafrost on land that they
purchased from James Day and Helen Day (the Days), Robert Bauman
and Judy Bauman (the Baumans) stopped making payments on the
promissory note with which the purchase was financed. The Days
started foreclosure proceedings on the deed of trust that secured
the note. On the day of the foreclosure sale, the Baumans filed
a complaint alleging fraud and breach of contract as to the
original transaction. The superior court set aside the
foreclosure and ordered the Baumans to pay a "cure" amount to
cover the missed payments and other costs. Later, the superior
court dismissed the Baumans' fraud and contract complaints on the
ground that the statute of limitations for each cause of action
had run. The Baumans appeal, inter alia, the dismissal of their
fraud and contract claims and the denial of their motion to file
a second amended complaint. The Days cross-appeal the setting
aside of the foreclosure sale.
We affirm the trial court's use of its equitable powers
to set aside the nonjudicial foreclosure sale. We also affirm
the trial court's rulings that the Baumans' tort claims are
barred by the applicable statute of limitations, and that the ten-
year statute of limitations for actions involving an interest in
real property does not apply here. Additionally, we affirm its
denial of the Baumans' motion to file a second amended complaint.
We reverse the trial court's dismissal of the Baumans' contract
claims.
I. FACTUAL AND PROCEDURAL BACKGROUND
In July 1984 the Days conveyed to the Baumans, by means
of a warranty deed, a lot in the Green Acres subdivision near
Fairbanks. The Baumans made a downpayment of $2,000 on the
$20,000 purchase price. They also signed a promissory note under
which they agreed to pay the remaining $18,000, plus interest, in
monthly installments of $150 until September 1, 1999, "at which
last mentioned date the entire outstanding balance [would be] due
and payable in full." To secure payment of the promissory note,
the Baumans executed a deed of trust on the property and made the
Days the beneficiaries.
Before purchasing the property, Robert Bauman allegedly
asked James Day if the lot was laden with permafrost. Mr. Day
responded that there was no permafrost and that the lot was
suitable for building a home. Accordingly, after purchasing the
lot from the Days, the Baumans built a home on it.
In 1986 permafrost-related problems began to develop.
They increased over the next few years. At first the house
merely settled somewhat, and the Baumans paid little mind to this
because they expected some settling to occur. However, over the
next few years thawing permafrost caused holes to appear on the
land, forcing the Baumans to fill or barricade them, and
ultimately requiring relocation of the driveway. In addition,
the house shifted constantly, preventing the installation of
glass windows and sheetrock.
According to an affidavit that the Baumans filed with
the superior court, the "apparent permafrost dilemma"led them to
stop paying their property taxes to the Fairbanks North Star
Borough in 1988: "We felt we were paying more than our fair
share on property taxes and in protest thereof postponed paying
the assessed taxes starting in 1988 pending reevaluation of the
land due to the permafrost discovered on the land." In 1992 the
Borough readjusted the assessed land value down to $4,422.
In early 1991 the Baumans stopped making payments on
the promissory note, in protest of a lack of action by the Days
on the permafrost issue. In August the Days' counsel warned the
Baumans that their loan was delinquent, and threatened
foreclosure. This letter, as the Baumans acknowledge, notified
them of their right to cure the default and prevent foreclosure
by paying the amount owed. In October the Days sent the Baumans
a Notice of Default and Election to Sell, scheduling a
foreclosure sale for January 22, 1992.
During 1991 the Baumans allegedly made numerous
attempts to discuss matters with the Days. Robert Bauman
contacted Helen Day several times by phone, informing her of the
permafrost difficulties and asking that they renegotiate the
original sales contract. Ms. Day repeatedly told him that she
and her husband were too busy to discuss these issues, but that
she would get back to him later. The last of these phone calls
occurred in July. In September, after receipt of the letter from
the Days' counsel but before receipt of the Notice of Default,
the Baumans sent the Days a letter detailing the problems with
the land and again asking to settle them without resorting to
legal proceedings. The Days did not reply to the letter. There
is no evidence in the record of any discussions between the
Baumans and the Days after receipt of the Notice of Default.
On January 22, 1992, the day of the foreclosure sale,
the Baumans filed a complaint pro se. They alleged various
claims for breach of contract arising from the Days' failure to
deliver suitable building ground and failure to inform the
Baumans before or at the time of the sale about the presence of
permafrost. The Baumans also alleged tort claims for fraud and
misrepresentation, arising from the Days' willful failure to
inform the Baumans of the presence of permafrost. In addition,
the Baumans moved for a temporary injunction stopping the
foreclosure sale.
The Days' counsel postponed the foreclosure sale from
10 a.m. to 2 p.m., and filed an opposition to the Baumans'
request for the temporary restraining order. The court denied
the Baumans' motion as moot,1 and the foreclosure sale took place
at 2 p.m. The Days repurchased the property by filing an offset
bid.
The Days served the Baumans with a notice to quit, and
filed an answer and counterclaim to the Baumans' complaint. The
counterclaim sought summary eviction of the Baumans under
Alaska's forcible entry and detainer statute, AS 09.45.060-.160.
The Baumans answered the Days' counterclaim pro se, alleging
affirmative defenses that included promissory estoppel, fraud,
and fraudulent concealment.
In March the court conducted the forcible entry and
detainer hearing, at which the Baumans appeared pro se. Though
the foreclosure had already gone through, the superior court used
its equitable powers to stay the Baumans' eviction, provided that
the Baumans paid the amounts they owed on the promissory note and
posted a $5,000 bond to cover the Days' costs and attorney's fees
in the event that foreclosure was proper:2
In other words, legally, you can't have
your cake and eat it too. . . . I'm
permitting, because of the equitable powers I
have, you to go back a few steps as if the
foreclosure hadn't been completed, and give
you your reinstatement rights so that you may
preserve the house and litigate it.
Otherwise, if you sue for the value of the
house and your damages, you can't live in it
too. . . .
. . . .
. . . I'm going back and granting what
you asked for before the foreclosure sale, as
if it had never happened. I'm doing this
without giving [the Days' counsel] a chance
to have argued me out of it today.
Under protest, the Baumans deposited with the court the $5,000
bond, plus $1,950 to cover the arrearages. The court ordered a
stay of the eviction. The order directed the Baumans to
"reinstate and pay to [the Days] in full their arrearages under
the land purchase contract . . . and timely make each monthly
payment falling due while this litigation is pending."
The Days moved for reconsideration. The trial court
allowed additional briefing on the stay of the eviction, and held
oral arguments on the Days' motion in April. However, Judge
Savell permitted the Baumans to exercise reinstatement by paying
both the deficiency on the promissory note and the costs and
attorney's fees that the Days incurred carrying out the
foreclosure sale.
The Baumans moved to have the court determine the
amount necessary to cure the deficiency and to have the court pay
this sum from the funds that they had already deposited. The
court issued an order setting aside the nonjudicial foreclosure
and determining the amount for cure to be $6,287.58.3 The order
directed payment of the cure amount from the funds that the
Baumans had deposited with the court, and return of the balance
remaining thereafter to the Baumans.
Meanwhile, the Days moved for summary judgment on the
Baumans' tort and contract claims, arguing that they were barred
under the applicable statutes of limitations. At the same time,
the Baumans obtained counsel and moved to file an amended
complaint. The amended complaint presented contract claims based
on the Days' alleged breach of express and implied warranties as
to the presence of permafrost on property. The amended complaint
contained no tort or fraud claims. The court allowed the amended
complaint. Shortly thereafter, the Baumans filed a brief
opposition to the Days' motion for summary judgment on the tort
claims, arguing solely that the motion was "moot, the complaint
having been amended, and that the [Days' alleged] fraudulent
conduct . . . , while it may be called a tort, is also certainly
a basis for relief with respect to the contract . . . ." The
Baumans also opposed the summary judgment motion on the contract
claims, urging that the court use the "discovery rule" to
determine when the statute of limitations started to run.
The superior court issued a memorandum decision on the
summary judgment motions. The court determined that the Baumans
discovered or reasonably should have discovered the existence of
permafrost in 1988, the time at which they stopped paying their
property taxes. The court concluded that the two-year statute of
limitations for tort claims started to run at that time and that
the Baumans' fraud action was thus untimely. The trial court
also found that the Baumans' contract claims were untimely under
the applicable six-year statute of limitations. It concluded
that the limitations period began to run at the formation of the
contract in 1984, not at the time when the Baumans discovered the
permafrost. Finally, it barred the Baumans from raising their
fraud and contract claims as affirmative defenses to the
foreclosure.
The Days filed motions for final judgment and
attorney's fees, which the Baumans opposed. In their opposition,
they said that they would move to file a second amended complaint
with new fraud claims, based on evidence allegedly discovered in
1992. The court granted final judgment to the Days on August 25.
The Baumans next filed a combined motion for relief
from the judgment and leave to file a second amended complaint.
They argued that the ten-year statute of limitations for real
property claims applied to their case. The proposed second
amended complaint raised new fraud claims. It included an
allegation that, according to an inspection of Borough records
that the Baumans conducted in 1992, the Days did not give the
Baumans a portion of the plat that showed the presence of
permafrost-laden soils on the land. In addition, the proposed
complaint alleged facts unrelated to the permafrost issue. The
Baumans alleged that the Days concealed the fact that the monthly
payments on the promissory note went primarily to interest, not
equity, and that the Baumans did not discover the concealment
until 1992.4 The Baumans also claimed that their inspection of
Borough files revealed that the Days improperly altered the
preliminary subdivision plat to create three smaller lots, one of
which was the lot purchased by the Baumans. The superior court
denied the Baumans' combined motion.
Both parties appeal. The Baumans appeal, inter alia,
the granting of the Days' summary judgment motions, the award of
attorney's fees, and the denial of the combined motion for relief
from the judgment and leave to file a second amended complaint.
The Days cross-appeal the setting aside of the foreclosure.
II. DISCUSSION
A. SETTING ASIDE THE FORECLOSURE SALE
In their cross-appeal, the Days argue that the superior
court erred by setting aside the foreclosure sale. They contend
that AS 34.20.090(a) specifically denies the Baumans a right of
redemption after a valid non-judicial foreclosure has taken
place.5 Alaska Statute 34.20.090(a) provides:
The sale and conveyance transfers
all title and interest that the party
executing the deed of trust had in the
property sold at the time of its execution,
together with all title and interest that
party may have acquired before the sale, and
the party executing the deed of trust or the
heirs or assigns of that party have no right
or privilege to redeem the property, unless
the deed of trust so declares.
(Emphasis added).
The Days correctly point out that the cases the Baumans
rely on to support setting aside a non-judicial foreclosure are
based on defects in the foreclosure sale rather than substantive
defects in the underlying sales contract. See, e.g., Rosenberg
v. Smidt, 727 P.2d 778, 783-84 (Alaska 1986) (sale set aside
because of failure to provide proper notice); McHugh v. Church,
583 P.2d 210 (Alaska 1978) (discussing setting aside sale if
inadequacy of price shocks the conscience or sale itself is
otherwise unfair or fraudulent); Harris v. Alaska Title Guaranty
Co., 510 P.2d 501 (Alaska 1973) (error in notice of default
insufficient to set aside sale). The Days conclude that because
the foreclosure sale was conducted without irregularities, the
superior court lacked any equitable powers to set the sale aside.6
The Baumans do not allege any defects in the foreclosure
proceeding itself; they concede that the sale was conducted in
accordance with AS 34.20.070-.080.7 Rather, the Baumans counter
that the Days' alleged wrongful conduct makes their pursuit of
foreclosure an improper response to the Baumans' refusal to make
payments on the deed of trust. See Rosenberg, 727 P.2d at 783-84
("substantial defects such as the lack of a substantive basis to
foreclose in the first place will make a sale void") (citation
omitted). Because of the Days' alleged misrepresentations and
the alleged unfairness of the underlying land sale, the Baumans
contend that the foreclosure sale was properly set aside. We
agree.
The Days' reliance on AS 34.20.090(a) is misplaced.
The Baumans are not attempting to redeem property. Rather, the
Baumans are suing on the underlying sales contract. They are
seeking, among other remedies, to have the purchase contract,
including the note and deed of trust, reformed to reflect the
true value of the property. It follows that if the underlying
sales contract as written is invalid, the sale of the property is
likewise invalid.8 We see no reason why the personal defenses of
an owner cannot result in invalidating a non-judicial sale just
as they can result in invalidating the obligation on which the
sale was based.9 The Days are not disadvantaged by this holding.
They are protected by means of the "cure"amount ordered by the
court. Additionally, if the Days are successful in this
litigation and the Baumans fail to make subsequent payments, the
Days still have the right to foreclose on the property. However,
if the Baumans are successful on their causes of action, they
will be able to keep the house that they built and have lived in
if they so choose. They would not be limited to money damages.
Therefore, we hold that the trial court did not err in using its
equitable powers to set aside the foreclosure sale. In re Alsop,
14 B.R. 982, 988 (Bankr. D. Alaska 1981), aff'd, 22 B.R. 1017 (D.
Alaska 1982) (An action to set aside a foreclosure sale is indeed
equitable in nature).
B. REQUIRING A "CURE"OF THE DEFAULT
The Baumans challenge Judge Savell's order that they
cure the default, on the ground that the cure amounts to a bond
requirement that unconstitutionally restricted their access to
the courts. In support of their argument, the Baumans cite
several cases barring courts from requiring parties to deposit
funds as a precondition to litigation. See Cameron v. Hughes,
825 P.2d 882, 884-85 (Alaska 1992); Patrick v. Lynden Transp.,
Inc., 765 P.2d 1375, 1376-77 (Alaska 1988); Stokes v. Van
Seventer, 355 P.2d 594, 597 (Alaska 1960); G.B.B. Invs., Inc. v.
Hinterkoff, 343 So. 2d 899, 899 (Fla. App. 1977).
These cases are not on point because at all times the
Baumans were free to pursue their contract and tort claims
whether or not they paid the cure amount. The cure order was
part of Judge Savell's equitable arrangement to set aside the non-
judicial foreclosure. Therefore, the court did not err in
requiring a "cure"of the default.
C. STATUTE OF LIMITATIONS ISSUES
1. Standard of Review.
The superior court decided all of the statute of
limitations issues on the Days' motions for summary judgment.
When reviewing a grant of summary judgment, this court determines
if any genuine issue of material fact exists and if the moving
party is entitled to judgment as a matter of law. Wright, 824
P.2d at 720. We make all inferences of fact in favor of the
nonmoving party. Id. We review questions of law de novo,
adopting the rule of law that is most persuasive in light of
precedent, reason, and policy. Langdon v. Champion, 745 P.2d
1371, 1372 n.2 (Alaska 1987).
2. The Statute of Limitations for
Real Property Claims.
The Baumans first contend that their action is one "for
the determination of a right or claim to or interest in real
property," AS 09.10.230, and that the ten-year statute of
limitations for real property actions therefore applies.10 The
Baumans rely on Carter v. Hoblit, 755 P.2d 1084 (Alaska 1988),
which holds that a fraud victim need not have acted reasonably in
order to obtain the benefit of AS 09.10.230's statutory discovery
rule.11 Id. at 1087. The Baumans argue that the fraudulent
conduct in Carter is similar to the Days' alleged fraudulent
conduct.
Alaska Statute 09.10.230 contemplates a dispute over an
interest in real property. For example, in Carter a group of
three individuals intended to purchase a piece of property and
hold title jointly, but the group member who conducted the
transaction took the deed in his name alone, without informing
the others. Id. at 1085. Thus, the nature of the ownership
interest was in fact the central issue: Was there a tenancy in
common or partnership requiring the one party to convey one-third
interests to the other two? Id. at 1085-86.
The Baumans' fraud and contract claims do not concern
any interest in the Green Acres property. Rather, the dispute
here, as the Baumans themselves admit in their brief, is whether
the Days' misrepresentations "induced the Baumans to obtain an
interest in real property which the Baumans would otherwise have
had no interest in obtaining." At issue is not the ownership
interest itself but improprieties in the bargaining that resulted
in the conveyance of that interest to the Baumans. Therefore
this action is not one to which the statute of limitations for
real property actions applies.
The Baumans also contend that because they seek to
retain title and possession to the Green Acres property, their
action concerns an interest in real property. They misconceive
the relationship between the foreclosure and their other claims.
The dispute over title and possession arose from the foreclosure
sale, while the contract and fraud claims arose from the original
sale of the property.
3. The Baumans' Fraud Claim.
Claims for fraud and misrepresentation are tort claims,
and thus are subject to the two-year statute of limitations
provided in AS 09.10.070.12 Sharrow v. Archer, 658 P.2d 1331,
1333 n.3 (Alaska 1983); Austin v. Fulton Ins. Co., 444 P.2d 536,
539 (Alaska 1968). For tort claims, the "discovery rule"
establishes when the limitations period starts to run:
Where the plaintiff does not
actually know of the existence of elements
essential to her cause of action, . . . the
limitations period does not begin to run
until "a reasonable person [in like
circumstances would have] enough information
to alert that person that he or she has a
potential cause of action or should begin an
inquiry to protect his or her rights."
Lee Houston & Assocs. v. Racine, 806 P.2d 848, 851 (Alaska 1991)
(quoting Mine Safety Appliances Co. v. Stiles, 756 P.2d 288, 291
(Alaska 1988)); see also State, Dep't of Corrections v. Welch,
805 P.2d 979, 981-82 (Alaska 1991) (statute of limitations does
not begin to run until the plaintiff discovers or reasonably
should discover the "existence of all elements of his cause of
action").13 The trial court concluded that the statute of
limitations barred the Baumans' tort claims, because the point at
which the Baumans reasonably should have discovered that the land
was laden with permafrost was 1988, when the Baumans stopped
paying their property taxes.
The Baumans first argue that because they made
contradictory statements about the discovery of the permafrost,
summary judgment as to when the limitations period started was
improper. A court must deny a motion for summary judgment if
"there is contradictory evidence, or the movant's evidence is
impeached on material matters,"because in such cases an issue of
credibility exists. Wilson v. Pollet, 416 P.2d 381, 384 (Alaska
1966). Nonetheless, in order to defeat a summary judgment
motion, the nonmovant must present evidence that reasonably tends
to dispute or contradict the movant's evidence. Yurioff v.
American Honda Motor Co., 803 P.2d 386, 389 (Alaska 1990).
The evidence presented in support of the summary
judgment motion included the affidavit in which the Baumans
admitted that they stopped paying property taxes because of the
permafrost problems. The allegedly contradictory evidence comes
from Robert Bauman's deposition testimony, in which he states
that he first became aware of the permafrost in 1989 or 1990.
Significantly, he did not deny the truth of the statements in the
affidavit, and the affidavit remains uncontradicted. In order
for his testimony to be contradictory, it would have to dispute
or contradict the earlier affidavit. See, e.g., Wilson, 416 P.2d
at 383-85 (finding a genuine issue of fact as to the identity of
the driver involved in an auto accident, where the movant stated
in her affidavit that though she was not the driver, she had told
the police otherwise). Because Bauman's deposition statement was
a mere equivocation, it did not reasonably tend to dispute or
contradict the affidavit. See Yurioff, 803 P.2d at 389.14
Therefore, summary judgment on the tort claims was proper.15
4. The Baumans' Contract Claim.
The Baumans urge this court to apply the discovery rule
to the six-year statute of limitations for contract claims.16
Generally, the statute of limitations for an action in contract
starts to run at the time of the breach. Howarth v. First Nat'l
Bank, 540 P.2d 486, 490-91 (Alaska 1975), aff'd on reh'g, 551
P.2d 934 (Alaska 1976). If the general rule applied here, the
statute of limitations would have begun to run when the Baumans
purchased the property in 1984. Their claims would be untimely.
If the discovery rule applied instead, the limitations period
would have begun in 1988. The Baumans' contract claims would be
timely.
The Days contend that this court rejected extension of
the discovery rule beyond tort claims in Armour v. Alaska Power
Authority, 765 P.2d 1372 (Alaska 1988). In Armour, this court
concluded that the Uniform Commercial Code (U.C.C.), as adopted
under Alaska statutory law, did not permit application of the
discovery rule to a U.C.C. claim for breach of warranty: "We
have created a discovery rule . . . for certain tort causes of
action. However, we have never extended the discovery rule to
contract causes of action for breach of warranty under the
U.C.C." Id. at 1375. Armour recognized a compelling reason for
not extending the discovery rule in that specific situation. Its
application would "effectively repeal AS 45.02.725(b)," which
states that a breach of warranty occurs at the time that the
seller tenders the defective goods to the buyer. Id. The Armour
court was silent on whether the discovery rule might apply to a
common law contract action, such as that which the Baumans raise
here.
Other jurisdictions are divided on extending the
discovery rule to contract claims. Many retain the general rule
that the statute of limitations starts to run at the time of the
breach, and that the plaintiff's ignorance as to the existence of
a cause of action is irrelevant. See, e.g., Stephens v. Crell,
429 So. 2d 278, 280 (Ala. 1983); Pizel v. Zuspann, 795 P.2d 42,
54 (Kan.), modified on other grounds, 803 P.2d 205 (1990); State
v. Holland Plastics Co., 331 N.W.2d 320, 325 (Wis. 1983). Utah
has crafted a very narrow exception for cases where applying the
general rule would be "unjust or irrational,"such as when the
plaintiff has no choice but to bring suit after the limitations
period has run. Brigham Young Univ. v. Paulsen Constr. Co., 744
P.2d 1370, 1373-74 (Utah 1987). Many other states have extended
a limited but broader discovery rule to contract claims, and
especially to suits for breach of a construction contract, where
the plaintiff neither knew nor reasonably should have known about
the breach. See, e.g., Matusik v. Dorn, 756 P.2d 346, 348 (Ariz.
App. 1988); April Enter. v. KTTV, 195 Cal. Rptr. 421, 434-37
(App. 1983); McKinley v. Willow Constr. Co., 693 P.2d 1023, 1026
(Colo. App. 1984); Swaw v. Ortell, 484 N.E.2d 780, 789 (Ill. App.
1984); Poffenberger v. Risser, 431 A.2d 677, 680 (Md. 1981);
Puritan Medical Ctr. v. Cashman, 596 N.E.2d 1004, 1009-10 (Mass.
1992); Hebron Pub. Sch. Dist. v. United States Gypsum Co., 475
N.W.2d 120, 126 (N.D. 1991); Boghossian v. Ferland Corp., 600
A.2d 288, 290 (R.I. 1991); Santee Portland Cement Co. v. Daniel
Int'l Corp., 384 S.E.2d 693, 696 (S.C. 1989).
Jurisdictions that have extended the discovery rule to
breach of contract cases often balance the traditional purposes
for statutes of limitation against the plaintiff's interest in
pursuing an action and asserting her rights. See, e.g.,
Poffenberger, 431 A.2d at 680; Santee Portland Cement, 384 S.E.2d
at 694. The most common policy argument for extension is that
the defendant should not be able to profit from the plaintiff's
ignorance in cases where
[t]he injury or the act causing the
injury, or both, have been difficult for the
plaintiff to detect[, particularly where] the
defendant has been in a far superior position
to comprehend the act and the injury . . .
[or] had reason to believe the plaintiff
remained ignorant he had been wronged.
April Enter., 195 Cal. Rptr. at 436; see also Hebron Pub. Sch.
Dist., 475 N.W.2d at 122-23.
These situations are easily distinguishable from the
typical breach of contract cases that come within the ambit of
the U.C.C:
In the typical contract for purchase of
widgets, for example, the buyer is well aware
the contract has been breached when the date
for delivery arrives and he has not received
his widgets. Similarly, the seller knows
when payment is due under the contract. If
that time passes without receipt of the
amount due he is easily aware that the
contract has been breached.
April Enter., 195 Cal. Rptr. at 436. However, in a case where,
for example, the plaintiff alleges faulty construction of a
house, the defect in question may remain hidden for some time.
We find the policy reasons supporting application of
the discovery rule to common law contract cases persuasive. A
defendant should not be allowed to profit from a plaintiff's
ignorance merely because the plaintiff's cause of action is based
on a common law contract theory rather than a tort theory.
Therefore, we hold that in the absence of a statute directing a
contrary rule, the discovery rule is applicable to common law
contract causes of action.
Construed in the light most favorable to the Baumans,17
the evidence indicates that the Days offered for sale land that
they represented to be free of permafrost. In reality, the land
was not permafrost free, and the Baumans did not receive the
benefit of their bargain. They did not discover this fact until
they built on the property and problems began to arise, because
the presence of permafrost is not something that they could
ascertain merely by observing the property. The Baumans were
cognizant of the permafrost problems in 1988. They had six years
from that time to bring their contract causes of action. They
filed suit in 1992. Accordingly, their contract causes of action
are not time barred. Therefore, the trial court erred in
dismissing the Baumans' contract claims on summary judgment.
D. THE BAUMANS' MOTION FOR RELIEF FROM JUDGMENT
AND LEAVE TO FILE A SECOND AMENDED COMPLAINT
The Baumans argue that a new development in the law,
occurring after entry of judgment but before the expiration of
the time that they had to appeal, mandates relief from the
judgment under Alaska Civil Rule 60(b)(1) or (5).18 See Lawrence
v. Lawrence, 718 P.2d 142, 145-47 (Alaska 1986) (discussing the
general requirements of Rule 60(b)(1) & (5)). This court will
reverse the trial court's denial of a Rule 60(b) motion only for
an abuse of discretion. Gregor v. Hodges, 612 P.2d 1008, 1009-10
(Alaska 1980) (per curiam).
The new development in the law that the Baumans cite is
McGill v. Wahl, 839 P.2d 393 (Alaska 1992). The Baumans claim
that McGill supports their contention, discussed supra, that the
ten-year statute of limitations of AS 09.10.230 would apply to
their action. The Baumans are wrong. McGill involved a
prescriptive easement claim, and thus an interest in real
property. Id. at 396. No such interest is at issue here.
Again, the Baumans have improperly tied the foreclosure action
with their tort and contract claims, when in fact the foreclosure
is unrelated to them.
In the alternative, the Baumans argue that because they
allegedly discovered additional acts of fraud in 1992, the
judgment should not have prospective application, and relief is
appropriate under Rule 60(b)(5) or (6). While Rule 60(b)(5) can
apply to any final judgment with prospective effect, Lawrence,
718 P.2d at 146, by definition it cannot apply to a judgment that
simply offers a present remedy for a past wrong. See 11 Charles
A. Wright & Arthur R. Miller, Federal Practice and Procedure
2863, at 205 (1973).
The Baumans do not explain how the final judgment here
has prospective effect. Presumably they refer to the fact that
the final judgment dismissed their complaint with prejudice.
However, the preclusive effect of a dismissal with prejudice is
not a prospective effect for the purposes of Rule 60(b)(5). See,
e.g., Twelve John Does v. District of Columbia, 841 F.2d 1133,
1138-40 (D.C. Cir. 1988) (interpreting identical federal rule).
The Baumans also claim that even if relief is improper
under Rule 60(b)(5), it is proper under Rule 60(b)(6). Relief
under Rule 60(b)(6) is available only in extraordinary
circumstances, and only when clauses (1)-(5) of the rule do not
apply. Village of Chefornak v. Hooper Bay Constr. Co., 758 P.2d
1266, 1270 (Alaska 1988). Because the Baumans offer no reason at
all for relief under Rule 60(b)(6), their contention is
groundless.19
E. ATTORNEY'S FEES
The superior court awarded the Days $6,700 in
attorney's fees and $1,620.62 in costs, without comment. Because
we reverse a substantial portion of the superior court's decision
we vacate its award of attorney's fees. A determination of who
is the prevailing party and the proper amount of attorney's fees
to be awarded will need to be determined by the superior court
after a final decision is made on the merits of the case.
III. CONCLUSION
We AFFIRM the trial court's use of its equitable powers
to set aside the non-judicial foreclosure as well as its
requirement of a "cure." We also AFFIRM the trial court's
rulings that the Baumans' claims for fraud are barred by the
applicable statutes of limitations and that the ten-year statute
of limitations for actions involving an interest in real property
does not apply here. Additionally, we AFFIRM the denial of
relief from judgment and the denial of leave to file a second
amended complaint. We REVERSE the trial court's ruling that the
Baumans' contract claims are barred by the applicable statute of
limitations. We also VACATE the award of attorney's fees.
MOORE, Chief Justice, dissenting in part.
I dissent from parts II.A and II.C.4 of the majority
opinion. The majority's willingness to set aside a valid deed of
trust sale and to adopt a broad discovery exception to the
statute of limitations for contract actions will decrease
certainty in commercial transactions in Alaska. This case does
not necessitate deviation from the clear statutory language
governing both issues.
I.
The majority accurately cites AS 34.20.070-.090, the
relevant statutes governing the foreclosure sale. Alaska Statute
34.20.070(b) specifically gives the party executing the deed of
trust (in this case, the Baumans) the right to cure a default
before the foreclosure sale. However, AS 34.20.090(a) states
that after the foreclosure sale, "the party executing the deed of
trust or the heirs or assigns of that party have no right or
privilege to redeem the property, unless the deed of trust so
declares." (Emphasis added).
As the majority recognizes, the Baumans concede that
the foreclosure sale in this case was conducted in accordance
with AS 34.20.070-.080. Op. at 12. The majority attempts to get
around this fact by stating that "[t]he Baumans are not
attempting to redeem property. Rather, the Baumans are suing on
the underlying sales contract." Op. at 12-13. This distinction
is meaningless in this case. It is true that the Baumans are not
simply trying to cure the default to get their property back;
they are instead seeking to have the purchase contract reformed
to reflect the true value of their property. However, the
majority cites absolutely no authority for the proposition that a
complaint based on the underlying contract is grounds for
overturning a valid foreclosure.
The majority cites Rosenberg, 727 P.2d at 783-84, for
the proposition that "substantial defects such as the lack of a
substantive basis to foreclose in the first place will make a
sale void." If the majority is implying that there was not a
substantive basis to foreclose in the present case, then it is
mistaken. The Days had a right to foreclose because the Baumans
defaulted. The Baumans could have avoided the foreclosure by
paying the debt owed on the property while pursuing their
contract and tort actions for damages. Instead, they exercised
impermissible self-help by unilaterally deciding to stop making
payments. It is a short-sighted policy decision to encourage
such self-help in the future by creating doubt as to the finality
of foreclosure sales.20
The deed of trust is a device designed to make
foreclosure simpler and less costly than judicial foreclosure for
both the secured party and the judicial system. Its use will be
disfavored if the secured party can no longer rely upon a validly
executed foreclosure following non-payment of the note. Under
the majority opinion in this case, a secured party would be
forced to try to unload the collateral as quickly as possible to
a bona fide purchaser, possibly at less than market value, to
prevent having the foreclosure sale overturned. I see no
compelling reason to risk such a result by ignoring Alaska's
nonjudicial foreclosure statutes, particularly when the Baumans
had adequate remedies which they failed to exercise.
II.
I also dissent, on several grounds, from the majority's
decision to adopt a broad discovery rule for contract actions.
First, I would charge the Baumans with constructive notice of the
permafrost in 1984, thus barring their claim even under the
discovery rule adopted by the majority. Secondly, I find the
majority's discovery rule to be far too broad in both the type of
claim to which it applies and the length of the extension of time
in which to file.
A.
In their second amended complaint, the Baumans alleged:
During the summer of 1992, while
researching records at the Fairbanks North
Star Borough, the [Baumans] first discovered
that while [the Days] had only provided [the
Baumans] with a copy of a small portion of
the sub-division plat, that pertaining to
Tract L, the sub-division plat on file at the
Borough indicated that the property was
underlaid with Minto soils, which are well-
known to harbor significant amounts of
permafrost.
The Baumans thus admitted that they could have discovered the
existence of permafrost on the land in 1984 simply by examining
the subdivision plat. The deed of trust even described the
property as "Tract 'L' of the GREEN ACRES SUBDIVISION, according
to the plat filed October 3, 1976 as Plat no. 76-126, Records of
the Fairbanks Recording District." (Emphasis added). It is not
unreasonable to expect the Baumans to have examined the
subdivision plat, given that the deed of trust's description
specifically referenced that plat, and given that the Baumans
claim to have been extremely concerned at the time of purchase
with the issue of permafrost. Therefore, I would hold that the
Baumans had constructive notice of the permafrost as of the time
of purchase in 1984, and the six-year statute of limitations
began to run at that time.
B.
The majority holds that the discovery rule is
applicable to all common law contract causes of action, absent a
statute to the contrary. Op. at 25. Under this approach, the
plaintiff has six years to file suit, regardless of the nature of
the claim or the time that has elapsed before discovery. I find
two major faults with the majority's liberal approach to the
contract discovery rule.
First, I would distinguish between allegations of
knowing versus innocent misconduct by the breaching party. A
person who knowingly takes advantage of the other party by
failing to disclose relevant information is not worthy of
protection. However, I do not believe that the discovery rule
should be extended to innocent breaches of a contract. The
rights of an innocent, aggrieved plaintiff must be balanced
against the defendant's right to achieve finality in contracts.
Such finality is only achieved when a party who has not knowingly
taken advantage of the other party is entitled to peace of mind
upon arrival of a certain day. Furthermore, as time passes, the
defendant's ability to mount a viable defense may be weakened.
This problem of prejudice to the defendant's case is
further exacerbated by the second major problem with the
majority's approach: the provision for a six-year period in
which to sue regardless of when "discovery"occurs. According to
my interpretation of the majority's approach, if a buyer of a
home discovered a breach in the contract fifteen years after the
purchase, the buyer could sue the seller as late as 21 years
after the purchase. As previously discussed, part of my
objection to such a scenario is that the seller should not be
subjected to litigation for innocent breaches more than six years
after the sale -- i.e., the discovery rule should not apply at
all to such a case. In addition, I vigorously object to the
allowance of six additional years to sue.
We have previously recognized that "statutes [of
limitation] are intended to encourage prompt prosecution of
claims and thus avoid injustices which may result from lost
evidence, faded memories and disappearing witnesses." Lee
Houston & Assocs. v. Racine, 806 P.2d 848, 855 (Alaska 1991)
(citing Haakanson v. Wakefield Seafoods, 600 P.2d 1087, 1090
(Alaska 1979)). Regardless of whether the claim "discovered"
sounds in tort or in contract, any tolling of the statute of
limitations under the discovery rule will necessarily increase
the very prejudice to the defendant that the statute is designed
to avoid. Therefore, the amount of additional time for which the
limitation period is extended should be minimized.21
The statute of limitations is six years for contracts
but only two years for torts because an action on a contract is
based on documentary evidence which is less likely to grow stale.
See Lee Houston, 806 P.2d at 855. The legislature, weighing
potential prejudices to both the plaintiff and defendant, has
arrived at the six-year limitation period for contract actions.
Presumably, once this period has expired, the prejudice to the
defendant outweighs the prejudice to the plaintiff. Therefore,
even if circumstances call for the application of the discovery
rule to a contract claim, I would not allow the plaintiff to file
beyond the later of two years from discovery or the expiration
date for the original six-year period.22 I find it ridiculous to
allow an additional six years from whenever discovery occurs.
BRYNER, Justice pro tem, dissenting in part.
I concur in Chief Justice Moore's dissent to Part II.A.
In all other respects, I agree with the opinion of this court.
_______________________________
* Sitting by assignment made pursuant to article IV,
section 16 of the Alaska Constitution.
1 The Baumans remark that the superior court based its
decision on mootness even though the foreclosure sale had not yet
occurred. However, the Baumans do not challenge this decision on
appeal.
2 Judge Savell initially characterized this bond as the
bond required under Alaska Civil Rule 65(c) in order for a party
to obtain a preliminary injunction. Since Judge Savell
ultimately set aside the foreclosure permanently, whether or not
the initial stay of eviction was intended to be a preliminary
injunction is irrelevant at this point.
3 The "cure"amount is apparently a sum which the Days'
counsel had calculated and submitted to the Baumans a few days
earlier.
4 This allegation was made prior to the proposed second
amended complaint. In fact, the Baumans alleged this particular
act of fraud as early as March 1992, in support of a motion to
set aside the foreclosure sale. This allegation does not appear
in the first amended complaint.
5 Alaska Statute 34.20.070(a) allows the nonjudicial sale
of property encumbered by a deed of trust, if the party who
executes the deed of trust defaults on the obligation it secures.
AS 34.29.070(a) states in part:
If a deed of trust is executed
conveying real property located in the state
to a trustee as security for the payment of
an indebtedness and the deed provides that in
case of default or noncompliance with the
terms of the trust, the trustee may sell the
property for condition broken, the trustee,
in addition to the right of foreclosure and
sale, may execute the trust by sale of the
property, upon the conditions and in the
manner set forth in the deed of trust,
without first securing a decree of
foreclosure and order of sale from the court,
if the trustee has complied with the notice
requirements of (b) of this section.
If the party who executes the deed of trust defaults
the obligation, the party nonetheless has a right of redemption.
In other words, the party has the opportunity to cure the default
at any time before a nonjudicial sale:
At any time before the sale, if the
default has arisen by failure to make
payments required by the trust deed, the
default may be cured by payment of the sum in
default other than the principal which would
not then be due if no default had occurred,
plus attorney fees or court costs actually
incurred by the trustee due to the default.
AS 34.20.070(b).
6 In the alternative, the Days allege that the superior
court denied them due process of law at the forcible entry and
detainer hearing and that the court's action prevented them from
protecting their interest in the property. At the hearing the
court stated that it was "going back and granting what [the
Baumans] asked for before the foreclosure sale, as if it had
never happened. I'm doing this without giving [the Days'
counsel] a chance to have argued me out of it today." As a
result, the Days contend they were not given the chance to argue
the merits or to present documents evidencing the fact of
foreclosure. While we do not condone the court's action, we
agree with the Baumans' contentions that ultimately the Days were
not prejudiced: "Any problem was cured by the Days' subsequent
motion and hearing on the motion for reconsideration, through
which the Days were allowed to present any arguments and
materials in support of evicting the Baumans."
7 At one point, the Baumans argued before the superior
court that the conduct of the foreclosure sale itself was
improper on several grounds. The Baumans do not raise these
issues on appeal.
8 We do, however, acknowledge that a beneficiary who bids
in his debt and purchases secured property at a deed of trust
sale has a right to convey clear title to a bona fide purchaser.
Two of the main purposes of AS 34.20.090 are (1) to
protect the foreclosure sale purchaser, and (2) to ensure a fair
bid price. "If innocent purchasers at foreclosure sales had to
face the risk that debtors could easily set aside the sales, then
it takes little imagination to realize that participation at
foreclosure sales would be significantly and unacceptably
chilled." Rosenberg, 727 P.2d at 787 (Moore, J. & Rabinowitz,
C.J., dissenting).
The specter of this uncertainty of
title [would] severely inhibit participation
at the foreclosure sale by anyone other than
the original creditor, thus depressing bid
prices to the general detriment of debtors.
[This] would further reduce the willingness
of creditors to lend on the security of a
deed of trust, to the general detriment of
borrowers.
Id. (citations omitted).
These concerns are not at issue in this case. The Days
themselves purchased the property at the foreclosure sale by
means of an offset bid. There is no innocent third-party
purchaser involved. When there are no third-party purchasers,
the concerns that accompany the setting aside of a non-judicial
foreclosure sale do not exist.
9 The Days cite an article, Frank Nosek, The Beginning of
Alaska Mortgages and Deeds of Trust, Alaska J. of Commerce, Feb.
15, 1993, at 2B, that refers to an earlier version of the
redemption statute -- 22-5-3 Alaska Compiled Laws Annotated
(ACLA) (1949). The first paragraph of the statute is almost
identical to AS 34.20.090(a). The second paragraph contains
language providing that
[n]othing herein contained shall prevent
the person executing such deed of trust, or
his successor in interest, from instituting a
proper action, within the time allowed by the
statute of limitation, to contest the
validity of the deed of trust or the right to
the possession of the property sold
thereunder.
The article indicates that this legal challenge
provision was eliminated in 1957 because it would make non-
judicial foreclosure sales final and more attractive to lenders.
We conclude that the 1949 version of the redemption statute is
ambiguous. Additionally, we have found no legislative history
indicating the purpose for the elimination of the legal challenge
language. Most importantly, as stated earlier, the Baumans'
cause of action is based on the underlying contract, not the
redemption statute.
10 Alaska Statute 09.10.230 provides in part: "No person
may bring an action for the determination of a right or claim to
or interest in real property unless commenced within the
limitations provided for actions for the recovery of the
possession of real property." The limitations period for a suit
to recover possession of real property is ten years. AS
09.10.030.
11 Alaska Statute 09.10.230 expressly provides a discovery
rule: "In an action upon a . . . fraud, or mistake, the running
of the time within which an action may be commenced starts from .
. . the discovery of the fraud or mistake." It is unclear why
the Baumans rely on this discovery rule, because if their fraud
claim is otherwise within the scope of AS 09.10.230, it will not
be barred by the ten-year statute of limitations of AS 09.10.030.
12 Alaska Statute 09.10.070 provides in part: "No person
may bring an action (1) for libel, slander, assault, battery,
seduction, false imprisonment, or for any injury to the person or
rights of another not arising on contract and not specifically
provided otherwise . . . unless commenced within two years."
13 The Baumans allege that in actions for fraud, this
court's decision in Palmer v. Borg-Warner Corp., 838 P.2d 1243
(Alaska 1992), replaces the Lee Houston "reasonable person"
standard with an "actual knowledge"standard. In the context of
a due diligence requirement for equitable estoppel, Palmer states
that "a party should be charged with knowledge of [a] fraudulent
misrepresentation or concealment only when it would be utterly
unreasonable for the party not to be aware of the deception."
Id. at 1251 (emphasis added). However, nothing in Palmer relaxes
the "reasonable person"standard so much as to allow the statute
of limitations to run only when the person has actual knowledge
of the fraud.
Moreover, even if we were to require actual knowledge,
the requirement would be satisfied by "express cognition, or
awareness implied from _knowledge of circumstances which ought to
have put a person of ordinary prudence on inquiry._"
Poffenberger v. Risser, 431 A.2d 677, 681 (Md. 1981) (citations
omitted). The Baumans certainly had this sort of knowledge by
1988, the year that they stopped paying their property taxes in
the belief that permafrost had reduced the value of their
property.
14 In Yurioff, the driver of an all-terrain vehicle filed
a products liability claim after suffering injuries in an
accident. The defendants sought summary judgment, arguing that
the statute of limitations barred the action. Id. at 388. An
issue critical to the court's consideration was whether the
accident occurred on March 19 or March 20. The defendants
presented the following evidence in support of their allegation
that the accident occurred on the earlier date: records from the
medical clinic that treated the driver, deposition testimony from
medical personnel authenticating the records, and the driver's
own deposition testimony. In rebuttal, the driver presented only
his own deposition testimony stating that he thought the accident
took place on the later date. This court concluded that this
testimony, though it "rendered equivocal Yurioff's admission that
the accident occurred on March 19,"did not reasonably tend to
dispute or contradict the defendants' authentic documentation of
the date of the accident. Id. at 389.
Unlike the defendants in Yurioff, the Days rely solely
on the Baumans' affidavit to establish that the Baumans knew
about the permafrost in 1988, and do not provide further
documentary evidence. Nonetheless, because Robert Bauman's
equivocal deposition testimony does not directly challenge or
deny the statements in the affidavit, the Yurioff rule is
applicable here.
15 The Baumans also argue that they delayed filing suit in
reliance on the Days' representations that the matter could be
resolved without litigation, and that principles of equitable
estoppel thus bar the Days from relying on the statute of
limitations. As the Days correctly note, the alleged
representations occurred in 1991, well after the statute of
limitations had run. The Baumans offer no evidence of similar
representations made before 1988. Therefore, the equitable
estoppel argument must fail.
The Baumans also argue that in 1992 they discovered
evidence of further fraudulent conduct. The evidence that the
Baumans allege to be newly discovered relates to the fraud issues
that they attempted to raise in their second amended complaint.
To the extent these claims are related to the permafrost issue,
they merely attempt to revive the time-barred fraud claims. To
the extent they are unrelated to the permafrost issue, we need
not address them, since we also affirm the superior court's
denial of leave to file the second amended complaint. See infra.
Finally, the Baumans argue that the trial court erred
in entering final judgment, because their defensive claims were
not subject to the statute of limitations and still remained to
be litigated. The only affirmative defenses that the Baumans
raised were in response to the Days' February counterclaim for
eviction, a counterclaim possible since the foreclosure sale had
not yet been set aside. Since we uphold the superior court's
decision to set aside the foreclosure, these defenses are no
longer relevant. Once the superior court set aside the
foreclosure, the Days no longer had an action for eviction, and
the affirmative defenses were no longer relevant to the case.
Therefore, final judgment was proper.
16 According to AS 09.10.050, "[n]o person may bring an
action (1) upon a contract or liability, express or implied . . .
unless commenced within six years."
17 See Wright v. State, 824 P.2d 718, 720 (Alaska 1992).
18 Alaska Civil Rule 60(b) states in part:
On motion and upon such terms as
are just, the court may relieve a party or
his legal representative from a final
judgment, order, or proceeding for the
following reasons:
(1) mistake, inadvertence,
surprise or excusable neglect;
. . . .
(5) . . . it is no longer
equitable that the judgment should have
prospective application; or
(6) any other reason justifying
relief from the operation from the judgment.
The motion shall be made within a
reasonable time, and for reasons (1), (2) and
(3) not more than one year after the date of
notice of the judgment or orders as defined
in Civil Rule 58.1(c).
19 The Baumans also moved for leave to file a second
amended complaint under Alaska Civil Rule 15(a). The trial court
denied them leave to amend. The Baumans make no argument as to
the application of Rule 15(a) in their appellate brief. Though a
section of the brief purports to raise issues under both Rule 15
and the provisions for relief from judgment under Rule 60, the
Baumans discuss only Rule 60 issues. The Baumans' first
arguments regarding entitlement to file their second amended
complaint appear in the reply brief. We find that, since the
Baumans argued this point on appeal only in the reply brief and
not in the opening brief, the Baumans have waived this argument.
See Adamson v. University of Alaska, 819 P.2d 886, 889 n.3
(Alaska 1991).
20 The Baumans may have been able to avoid foreclosure
without making payments by asking the court in a timely manner to
enjoin the foreclosure sale. The Baumans moved for a temporary
injunction on the day of the foreclosure sale. The superior
court denied their motion as moot. Although it is unclear
whether the foreclosure sale had already occurred when their
motion was denied, the Baumans do not challenge the court's
mootness decision on appeal.
21 When the discovery rule is applied to tort actions, the
plaintiff is given two additional years from the time of
discovery in which to file. Similarly, Alaska's disability
statute, AS 09.10.140, gives a formerly under-age or incompetent
plaintiff two years to sue upon reaching the age of majority or
becoming competent.
22 I understand that my recommendation may appear to
encroach on the function of the legislature. My proposal,
however, is at least consistent with the policies underlying the
legislature's adoption of a six year statute of limitation. The
majority is engaged in wholesale judicial legislation by
extending the limitations period to six years from discovery and
thereby ignoring the policy considerations behind a six-year
statute.
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