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D.M. v. D.A. (12/2/94), 885 P 2d 94
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Notice: This opinion is subject to 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
D. M., )
) Supreme Court No. S-5576
Appellant, )
) Superior Court No.
v. ) 3PA-91-434 CI
)
D. A., ) O P I N I O N
)
Appellee. ) [No. 4153 - December 2, 1994]
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Palmer,
Beverly W. Cutler,
Judge.
Appearances: Allison E. Mendel, Mendel
& Huntington, Anchorage, for Appellant.
Kathleen C. Barron, Wasilla, for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Matthews, Compton and Eastaugh,
Justices.
MATTHEWS, Justice.
D.M. and D.A. were involved in a personal relationship
from 1985 to 1991 and engaged in a business partnership from 1987
to 1991. This case involves the dissolution and winding up of
the partnership and the ownership of a house in which both lived.
D.M. claims that the trial court erred in awarding the house to
D.A. despite a quitclaim deed from D.A. to D.M. and D.A. and in
failing to account for and distribute the assets of the
partnership properly.
I. FACTS AND PROCEEDINGS
D.M. and D.A. began an intimate personal relationship
in 1985. Except for a period between March and June 1986, they
lived together from early 1985 until March 1991. They originally
lived in D.M.'s home and moved into D.A.'s house in Palmer (the
Palmer property) in November 1986. The Palmer property consists
of a house and two barns on approximately twenty acres, and is
encumbered by two mortgages, with monthly payments of $685 and
$350. D.M. made the larger of the two mortgage payments for most
of the time that she lived at the Palmer property. She took a
tax deduction in 1987 for payments made on the property. D.M.
also contributed labor and money to improvements to the property.
On December 30, 1988, D.A. quitclaimed her interest in
the property to herself and D.M., "in consideration of love and
affection." At the time of the trial, the Palmer property was
appraised at $147,500, with $60,000 owed on the mortgages.
During the period in which D.M. and D.A. lived
together, D.M. was the primary wage earner. She earned
approximately $50,000 per year. D.A. earned approximately
$10,000 per year.
In 1987, D.M. and D.A. entered into a horse breeding
partnership called W.R. Arabians (W.R.). Each purchased an
Arabian stallion for $5,000 to start the business. In 1988, W.R.
purchased R.H. Almaz, an Arabian mare, for $35,000, plus the
right to the firstborn mare. This purchase price included the
right to breed Almaz back to a particular stallion. At the time
of trial, W.R. had delivered the foal promised as part of the
purchase price of the mare, and retained two other foals produced
by Almaz. A fourth foal had been sold. W.R. had liabilities of
approximately $16,000 to $17,000. D.M. and D.A. stipulated at
trial that D.M. owned 73% of the partnership and D.A. owned 27%.1
D.M. and D.A. separated in March 1991. Both signed an
agreement dividing their accumulated property in April 1991.
This contract was never performed. Instead, D.A. filed a
petition for dissolution of the partnership in May 1991. D.M.
counterclaimed for enforcement of the April contract, division of
any remaining partnership assets, possession of personal
property, and partition of the Palmer property.
Following trial, the court held that the April contract
was void because D.A. signed it under duress.2 The court also
concluded that D.M. was not entitled to any interest in the
Palmer property, based on a finding that it was the parties'
intent to transfer the property only for tax purposes. Finally,
the court held that D.M.'s contributions to the Palmer property
above and beyond its rental value to her approximately equaled
the value of D.A.'s interest in W.R. Therefore, the court
awarded D.A. the Palmer property and D.M. W.R. The court also
divided the parties' personal property.
On appeal, D.M. argues that the trial court erred 1) in
failing to award her a half interest in the Palmer property based
on the deed; 2) in failing to account for and distribute the
assets of the partnership; and 3) in valuing the horses owned by
the partnership. We address each argument in turn.
II. DISCUSSION
1. The Palmer Property
The deed D.A. executed on December 30, 1988, conveyed
her interest in the Palmer property to herself and D.M. It does
not specify the particular interest that each was to receive. A
deed to two or more people of a single piece of property creates
a tenancy in common in that property. AS 34.15.110(a). Tenants
in common are presumed to take equal undivided interests in the
property, although this presumption may be rebutted. Sanders v.
Knapp, 674 P.2d 385, 387 (Colo. App. 1983); Sack v. Tomlin, 871
P.2d 298, 304 (Nev. 1994); Cummings v. Anderson, 614 P.2d 1283,
1287 (Wash. 1980); see also Annotation, Presumption and proof as
to shares of respective grantees or transferees in conveyance or
transfer to two or more persons as tenants in common, silent in
that regard, 156 A.L.R. 515, 516 (1945) [hereinafter, Annotation,
Shares of tenants in common]. Therefore, on its face and without
additional evidence, the deed D.A. executed conveyed undivided
one-half interests in the Palmer property to both D.A. and D.M.
The trial court held that D.M. received no interest, however,
because it found, by a preponderance of the evidence, that D.A.
only intended to allow D.M. to be able to take legal tax
deductions on the property. Although neither the parties nor the
court identified a legal basis for denying the grantee on a deed
her interest in the property based on a finding that the grantor
only intended to allow for tax deductions, we assume that the
court intended to reform the deed.3 Reformation of an instrument
is the proper remedy where it is alleged that the instrument does
not conform to the actual intentions of the parties.4 See
Oaksmith v. Brusich, 774 P.2d 191, 197 (Alaska 1989)
("Reformation is a means of correcting mutual mistakes and of
conforming a contract to the clear intention of the parties.");
Riley v. Northern Commercial Co., 648 P.2d 961, 969 (Alaska
1982).
Reformation may be granted, however, only when it is
shown by clear and convincing evidence that it is appropriate.
Fireman's Fund Mortg. Corp. v. Allstate Ins. Co., 838 P.2d 790,
797 (Alaska 1992); Oaksmith, 774 P.2d at 197. The trial court
did not apply this evidentiary standard. Instead it repeatedly
stated that it found the parties' intent "by a preponderance of
the evidence." Remand is therefore necessary so that the
superior court might consider D.A.'s reformation claim under the
proper evidentiary standard.
On remand, the trial court should first determine
whether the deed was executed in accordance with a contract
between the parties or was a gift conveyance.5 D.A.'s claim for
reformation of the deed depends on the resolution of this
question. If the property was conveyed by contract, then D.A.
must prove by clear and convincing evidence 1) that the actual
agreement between herself and D.M. did not call for conveyance of
an undivided one-half interest in the property, as the deed
indicates, and 2) what specific interest the parties had agreed
that D.A. would convey. Oaksmith, 774 P.2d at 197. If the
conveyance to D.M. was a gift conveyance, then D.A. must prove by
clear and convincing evidence 1) that she did not intend to
transfer an undivided one-half interest in the property and 2)
what specific interest she did intend to convey. See Yano v.
Yano, 697 P.2d 1132, 1135-36 (Ariz. App. 1985) ("[R]eformation
may be granted on the application of the grantor of a voluntary
conveyance on the basis of unilateral mistake."); 66 Am. Jur. 2d
Reformation of Instruments 45 (1973); 76 C.J.S. Reformation of
Instruments 10 (1952).
If, on remand, the trial court determines that D.M. did
receive some interest in the property, it must partition or sell
the property. AS 09.45.260, .290. As part of this action, the
court must determine the rights of each party in the property.
AS 09.45.280. In this regard, if the court has not reformed the
deed to show the specific interest D.M. and D.A. each received in
the property, it must determine the respective interests of the
two parties in accordance with the regular rules of cotenancy as
modified by Wood v. Collins, 812 P.2d 951, 956-57 (Alaska 1991).
As already stated, the initial presumption is that each
of the parties owned an equal undivided share. Tomlin, 871 P.2d
at 304. If, however, it is shown in rebuttal that the parties
contributed unequally to the equity in the property, a
presumption arises that they intended to share the property in
proportion to their respective contributions.6 Id. at 304-05;
Cummings, 614 P.2d at 1287; Annotation, Shares of tenants in
common, at 517-18. Where the parties cohabit, the court must
also examine the intent of the parties with respect to the
ownership of the property. Wood v. Collins, 812 P.2d at 956. If
an intent to hold the property in a particular proportion or to
determine the proportion by a particular method can be
discovered, this intent controls over the regular rules of
cotenancy.7 Id.; see also Beal v. Beal, 577 P.2d 507, 510 (Or.
1978). Therefore, D.A.'s intention of allowing D.M. to take
legal tax deductions is relevant as one possible indicator of
whether she intended to transfer an equal or lesser interest in
the Palmer property to D.M. Other relevant factors in
determining the intent of the parties regarding their respective
interests in common property, in the absence of an express
agreement, include their cohabitation; other joint financial
acts, such as joint savings or checking accounts; and the manner
in which they treated other property held individually at the
beginning of their relationship. See, e.g., Beal, 577 P.2d at
510.
2. W.R. Partnership
The superior court's written findings value the
partnership at approximately $30,000. These findings also list
assets of the partnership at a total value of $35,500 and
liabilities of the partnership at $17,437. The court's oral
findings do not contain this inconsistency, but fail entirely to
account for the partnership's remaining liability on the purchase
price of Almaz, and do not list values for the assets of the
partnership other than the horses. Moreover, the court's oral
findings merely approximate the value of the partnership. Both
sets of findings also misstate each party's interest in the
partnership. We therefore remand to the superior court for the
entry of consistent findings on the value of W.R.'s assets and
liabilities.
On remand, the superior court must order the
partnership's accounts settled in accordance with AS 32.05.350.
See Parker v. Northern Mixing Co., 756 P.2d 881 (Alaska 1988).
3. Value of the Horses8
The parties presented widely disparate estimations of
the value of the various horses owned by the W.R. Partnership.
D.M.'s expert valued the horses at a total value of $4,500.9
D.M. herself testified that she thought Almaz was worth at least
$7,500 and that the two foals, Anna and Jewel, were worth $4,000
to $5,000 and $1,500 respectively. D.A. valued Almaz at $20,000,
Anna at $15,000, and Jewel at $15,000. The court found that
Almaz was worth $10,000, that Anna was worth between $7,500 and
$10,000 and that Jewel was worth $7,500. The court placed the
value of an unborn foal of Almaz at $2,500.10 Given the range of
values placed on these horses and the difficult nature of
valuation in the Arabian horse market, we cannot say that the
values chosen by the court were clearly erroneous.
III. CONCLUSION
The judgment of the superior court is AFFIRMED in part,
REVERSED in part, and REMANDED for further proceedings consistent
with this opinion.
_______________________________
1 The superior court's findings state that the division
was 77/23, in favor of D.M. Although D.M. cites this finding in
her brief, she agreed to 73/27 at trial and 73/27 is consistent
with the partnership tax returns and the numbers discussed in
D.M.'s testimony.
2 The finding of duress was based on a history of
domestic violence between D.M. and D.A., including an incident
two days prior to the signing of the contract. D.M. does not
challenge this conclusion on appeal.
3 The choice of the proper standard for resolving
these property disputes is a question of law which is reviewed de
novo. Wood v. Collins, 812 P.2d 951, 956 n.5 (Alaska 1991);
Langdon v. Champion, 745 P.2d 1371, 1372 n.2 (Alaska 1987).
Where an instrument of conveyance is silent as to the
respective shares of two or more grantees, reformation of the
deed to supply a (mistakenly) missing term is one of two
alternative means of determining the respective interests of the
grantees. The party claiming an unequal share might also attempt
to rebut the presumption in favor of equal interests and prove
that unequal shares were intended. See, e.g., Tomlin, 871 P.2d
at 304; Sanders, 674 P.2d at 387; Annotation, Shares of tenants
in common, at 517. This approach requires a lesser burden of
proof because it does not involve changing the terms of the
instrument as written. Instead, it involves interpretation of
the parties' understanding in the face of a silent instrument.
Of these two alternative approaches, however, only reformation of
the deed could justify holding that one of the purported grantees
received no interest. Therefore, we presume that the superior
court intended to reform the deed to reach this result.
4 Because D.A. sought reformation of the deed, the
trial court did not err in admitting parol evidence concerning
the parties' intentions in executing the deed. Parol evidence is
admissible to establish a claim for reformation. Diagnostic
Imaging Center v. H & P, 815 P.2d 865, 867 (Alaska 1991); Kupka
v. Morey, 541 P.2d 740, 750 (Alaska 1975); Gablick v. Wolfe, 469
P.2d 391, 394 (Alaska 1970). Parol evidence is also admissible
to rebut any presumptions concerning the fractional interests of
tenants in common. See Annotation, Shares of tenants in common,
at 517.
5 The superior court's findings imply that the conveyance
to D.M. was a gift, but the court did not explicitly resolve this
issue.
6 If the court finds that the parties intended to
own equal interests, but in fact contributed unequally to the
acquisition costs without intending to make a gift of any excess
contributions, then the court should credit the party making
excess contributions with those contributions in the division of
the property. See 4A Richard R. Powell & Patrick J. Rohan,
Powell on Property 607[6] at 50-60 to 50-61 (1993).
7 This rule is best understood not as an exception
to the general rules of cotenancy, but as a particular
application of those rules. The common law has long recognized
that presumptions concerning the respective interests of tenants
in common where one contributes unequally to the purchase price
are not applicable where the relationship between the parties
indicates that one might have intended to make a gift to the
other. See, e.g., People v. Varel, 184 N.E. 209, 211 (Ill.
1932). Wood v. Collins merely recognizes that where the parties
cohabit and share an intimate relationship, it is more likely
than otherwise that one party may contribute more of the
acquisition or upkeep costs and still expect only an equal share
of the property. The excess contributions are "like a gift" to
the other party. 812 P.2d at 956. The court must still find,
however, that it was in fact the intent of the party making the
excess contribution to give it to the other. See, e.g., Tomlin,
871 P.2d at 305 (upholding finding that original owner of
property, who transferred property to herself and cohabitant as
tenants in common, did not intend to make a gift of one-half of
her accumulated equity to her cohabitant).
8 The value of the horses is a factual finding which
may be reversed only if clearly erroneous. Alaska R. Civ. P.
52(a).
9 Almaz was valued at $2,500 and the two foals were
valued at $1,500 and $500, respectively.
10 D.M. estimated that the foal would sell for $2,500.
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