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Groff v. Kohler (8/2/96), 922 P 2d 870
<![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, telephone (907) 264-0607, fax (907)
264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
ROBERT W. GROFF and )
ANNA GROFF, ) Supreme Court No. S-6300
)
Appellants, ) Superior Court No.
) 4FA-92-176 Civil
)
v. )
) O P I N I O N
JOHN P. KOHLER, BARBARA E. )
KOHLER, MARTIN E. HORN, ) [No. 4378 - August 2, 1996]
SANDRA S. HORN, and ALASKA )
STATE EMPLOYEES FEDERAL )
CREDIT UNION, )
)
Appellees. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Fourth Judicial District, Fairbanks,
Mary E. Greene, Judge.
Appearances: Barry Donnellan, Fairbanks, for
Appellants. Brett M. Wood, Fairbanks, for
Appellees.
Before: Rabinowitz, Matthews, Compton,
Eastaugh and Fabe, Justices. [Moore, Chief
Justice, not participating.]
COMPTON, Justice.
MATTHEWS, Justice, with whom RABINOWITZ,
Justice, joins, dissenting.
I. INTRODUCTION
Robert and Anna Groff (the Groffs) seek to reform a deed
to property that they sold to John Kohler and his business
associates (Kohler). The Groffs claim that despite the clear
intent of the parties to the transaction, an easement was
mistakenly omitted from the deed. The superior court ruled against
the Groffs in their suit to reform the deed, and they appeal. We
affirm.
II. FACTS AND PROCEEDINGS
The Groffs owned six contiguous lots in Fairbanks,
bounded by Cushman Street on the west, Ninth Avenue on the north,
and Tenth Avenue on the south. On lots one and two, the Groffs
built a commercial office building addressed as 901 Cushman. On
lot three they built a second office building addressed as 911
Cushman. Lots 5 and 6 also contain structures, and lot 4 is
vacant.
In 1988 the Groffs and John Kohler entered into
discussions concerning Kohler's establishment of an insurance
business in the building on lots one and two. Although Kohler's
purchase of the property was briefly discussed, and the parties
signed an earnest money agreement (EMA), in the end they agreed
that Kohler would lease the property for thirteen months.
The EMA stated: "Driveways are a common area for 901 and
911 Cushman and 540 10th and 541 9th."(EN1) After the lease
expired, Kohler agreed to buy the property, and the parties signed
a second EMA which also contained this "common driveways"clause.
The Groffs intended the "common driveways"clause to
create two easements needed to facilitate traffic flow through
their property and allow sufficient parking for their building at
911 Cushman. Traffic from Cushman Street enters the lots by means
of a driveway which straddles the south end of lot two and the
north end of lot three. Consequently, the Groffs desired an
easement over the relevant portion of lot two. Additionally, the
Groffs dedicated parking spaces on lot four to the office building
at 911 Cushman, in order to comply with Borough zoning regulations
regarding off-street parking. (EN2) They claim that exit from
these parking spaces can only occur by use of the driveway which is
located along the east edge of lots one and two and opens onto
Ninth Avenue. Accordingly, the Groffs also intended their sale of
the property to be subject to an easement over the east edge of
lots one and two.
The sale of lots one and two was closed by the
TransAlaska Title Insurance Company ("TransAlaska"). Although
TransAlaska's office manager testified at trial that the language
of the deed was taken from the EMA, the EMA's "common driveways"
clause did not make its way into the deed. TransAlaska first
prepared a deed that contained no reference to easements. Anna
Groff then requested that a change be made, and the deed was
amended -- but only to provide that the conveyance of the property
from the Groffs to Kohler was "SUBJECT TO AN EASEMENT FOR INGRESS
AND EGRESS OVER, ACROSS AND UPON THE COMMON DRIVE AS IT EXISTS ON
Lots 2 and 3." TransAlaska's office manager testified that a
"clerical error"resulted in the omission of the description of an
easement over the east side of lots one and two.
Anna Groff signed the deed, without recognizing that it
did not mention an easement over the driveway onto Ninth Avenue
across lots one and two. Mrs. Groff also signed an acknowledgement
of Title Report, which stated that she approved the legal
description contained in the deed.
A year later, Kohler decided to move his business to a
larger building, and he entered into negotiations with the Alaska
State Employees Credit Union ("the Credit Union") to sell lots one
and two. The Credit Union requested a definition of the width of
the easement between lots two and three, which was mentioned in the
deed. This prompted Bruce Wammack, Kohler's real estate agent, to
contact the Groffs in an attempt to reach an agreement regarding
the dimensions of that easement. The Groffs expressed surprise and
concern that the deed did not contain an easement across the east
side of lots one and two.
Kohler was surprised by the Groffs' claim of an easement,
but was willing to recognize the easement across lots one and two
as long as the Credit Union would purchase the property subject to
that burden. The Groffs asked Wammack to supplement the document
he had prepared to record the dimensions of the lot two/lot three
easement with a provision stating that an easement also existed
over lots one and two. Wammack drafted the document (referred to
by the litigants as "the Agreement") with the understanding, shared
by Kohler, that its validity was conditioned on its acceptability
to the Credit Union. (EN3) Kohler and the Groffs signed the
Agreement, but it was never recorded. The title agency that closed
the Kohler/Credit Union sale destroyed the document after learning
that the Credit Union would not accede to it.
The day after the signing of the Agreement, the Groffs,
Kohler, and a Credit Union representative met on the property in an
attempt to settle the dispute regarding the lot one/lot two
easement. The Credit Union would not agree to an easement across
the east portion of the property. Thus when the Kohler/Credit
Union sale was closed immediately thereafter, the Credit Union
received a deed with the same language as Kohler's: it spoke only
of the lot two/lot three easement. Additionally, Kohler agreed to
indemnify the Credit Union for any damages that might ensue from
the Groffs' claim that an easement existed.
At some point after the problem was discovered, the
Groffs contacted TransAlaska, whose manager agreed that since
Kohler's deed was based on the EMA, it should have included a
description of an easement over the eastern portion of lots one and
two. TransAlaska prepared a corrected deed, which the Groffs
initialled and brought to Kohler. Kohler refused to sign, however,
as he had already conveyed the property to the Credit Union.
The Groffs subsequently filed suit seeking reformation of
the deed. They testified that both they and Kohler had intended to
create an easement over the lot one/lot two driveway. In support
of their contention, they cited the EMA's "common driveways"
clause, and the never-recorded Agreement between themselves and
Kohler.
Kohler testified that he had always understood the
Groffs' need for the lot two/lot three easement mentioned in the
deed, but said that he "knew nothing about"an easement across the
Ninth Avenue driveway on lots one and two until the Groffs raised
the subject shortly before his sale to the Credit Union.
Kohler claimed that he did not know what the "common
driveways"clause in the EMA meant, and his testimony generally
indicated that he had never given the issue much thought. He did
allow during cross-examination, however, that the language of the
"common driveways"clause seemed to mean that "everybody can use
every driveway."
Kohler's testimony indicated that, even at trial, he
failed to understand the importance the Groffs attached to that
driveway. He thought that the parking spaces next to the planter
box were on his property, so he failed to appreciate the Groffs'
need for an easement that would allow people parking in those
spaces to exit onto Ninth Avenue. Additionally, Kohler disputed
the Groffs' account of how traffic moved through the property. He
testified that there were three or four possible ways of exiting at
the rear of the property; that the Cushman curb cut was used for
both ingress and egress; that the Ninth Avenue curb cut was
infrequently used; and that "the majority of people [who parked on
the property] would exit on 10th Street." He therefore disputed
their account of the "missing easement's"importance.
The court observed that reformation of a deed is proper
when necessary to reflect the actual intentions of the parties, and
that the Groffs had the burden of demonstrating by clear and
convincing evidence that the easement had been omitted from the
deed through a mutual mistake. (EN4) The court found no mutual
mistake that justified reformation; it was "not convinced that it
was [Kohler's] intent to provide for an easement [across the east
side of lots one and two]." This conclusion stemmed from the
court's factual findings that
Mr. Kohler incorrectly believed that the [six]
parking [spaces on the west side of Lot 4
were] on his property [lots one and two],
therefore he did not understand the Groffs'
need for an easement across Lots 1 and 2.
Additionally, in Kohler's experience, the
driveway was not used very much. Mr. Kohler
relied on the language of the deed and
believed that it reflected the parties'
intent. . . .
Consequently, the court declined to reform the deed or to grant the
Groffs damages. The Groffs appeal.
III. DISCUSSION
A. Introduction
As a general rule, rights under a contract to convey
property are merged into a subsequent deed and thereby
extinguished. See South Utsunomiya Enters. v. Moomuku Country
Club, 866 P.2d 951, 968 (Haw. 1994); Scott v. Curtis, 798 P.2d 248,
250 (Or. App. 1990); see generally 2 Milton R. Friedman, Contracts
and Conveyances of Real Property  7.2, at 887 (5th ed. 1991).
Execution and delivery of a deed by the seller
. . . usually constitute full performance on
his part, and acceptance of the deed by the
buyer manifests his acceptance of that
performance even though the estate conveyed
may differ from that promised in the
antecedent agreement. Therefore, in such a
case, the deed is the final agreement and all
prior terms, whether written or verbal, are
extinguished and unenforceable.
Stubbs v. Hemmert, 567 P.2d 168, 169 (Utah 1977) (footnote
omitted).
However, merger does not occur in cases where "through
fraud or relievable mistake the grantee has been induced to accept
something different from what the contract required." Scott, 798
P.2d at 250 (quotation omitted). Professor Corbin has observed:
The doctrines of "merger"or "estoppel by
deed"have never prevented the reformation of
a deed in which the words of description or of
conveyance fail to describe correctly or to
convey the land or interest that was agreed
upon.
3 Arthur L. Corbin, Corbin on Contracts  604, at 631 (1960).
In line with this authority, we have previously held:
Reformation of a writing is justified when the
parties have come to a complete mutual
understanding of all the essential terms of
their bargain, but by reason of mutual mistake
. . . the written agreement is not in
conformity with such understanding . . . .
AMFAC Hotels v. State, Dep't of Transp., 659 P.2d 1189, 1192
(Alaska 1983), overruled on other grounds by Atlantic Richfield Co.
v. State, 723 P.2d 1249, 1252 (Alaska 1986).
B. Were the Lower Court's Findings Regarding Reformation
Erroneous?
1. Standard of review
The trial court in this case correctly noted that the
party seeking to avoid merger bears the burden of establishing, by
clear and convincing evidence, that the instrument does not conform
to the intent of the parties. Oaksmith v. Brusich, 774 P.2d 191,
197 (Alaska 1989); see also Embassy Group v. Hatch, 865 P.2d 1366,
1371-72 (Utah App. 1993) (citing Mabey v. Kay Peterson Constr. Co.,
682 P.2d 287, 290 (Utah 1984)).
Whether "the evidence does establish the existence of a
prior agreement"that justifies the reformation of an instrument
"is a question of fact,"and will be reversed on appeal only if
clearly erroneous. AMFAC Hotels, 659 P.2d at 1192. We will deem
such a lower court finding clearly erroneous only when we are
"'convinced, in a definite and firm way, that a mistake has been
committed.'" Id. at 1192-93 (citations omitted).
2. The finding that there was no mutual mistake
justifying reformation was not clearly erroneous.
As the trial court noted, reformation is available to the
Groffs if they can demonstrate, by clear and convincing evidence,
that the easement over lots one and two was omitted from the deed
because of mutual mistake.
Mutual mistake in relation to reformation
means a mistake shared by both parties. . . .
The mistake cannot be mutual if the minds of
the parties to the instrument did not meet in
a common intent. . . . [T]he evidence of the
mutuality of mistake must relate to the time
of the execution of the instrument, and show
that at that particular time the parties
intended to say a certain thing and by mistake
expressed another.
Shoulderblade v. Osborn, 652 P.2d 836, 838 (Or. App. 1982) (citing
Frick v. Hoag, 559 P.2d 879, 881-82 (Or. 1977)) (quotations
omitted).
Therefore, as we have previously explained, a party will
be able to obtain reformation of an instrument only if that party
can clearly and convincingly show that "both parties [had] an
identical intention as to the terms to be embodied in [the]
proposed written conveyance . . . and [the] writing executed by
them is materially at variance with that intention." Martin v.
Maldonado, 572 P.2d 763, 768 n.12 (Alaska 1977) (citing Restatement
of Contracts  504 (1943)) (emphasis added). (EN5)
The Groffs offer a three-part argument in an attempt to
demonstrate that Kohler shared their intent to create a lot one/lot
two easement: (1) they point out that Kohler signed the EMA's and
emphasize his trial testimony that the plain language of the EMA's
indicated that "everyone can use every driveway;"(2) they observe
that the title company that drew up the deed did so by referencing
the EMA; (3) they conclude that Kohler intended that the deed
provide for an easement over the driveway along the eastern edge of
lots one and two.
As Kohler notes, "in substance [the Groffs] argue that
these facts, standing alone as a matter of law, establish what
[Kohler's] intention was." Kohler rejects the contention that his
statement concerning the "common driveways"clause in the EMA
inexorably leads to the conclusion that when he signed the deed he
intended to reserve an easement across lots one and two. He
asserts that there was ample evidence to support the trial court's
decision to the contrary, and notes that the lower court's ruling
was based on its evaluation of the credibility of the witnesses --
a task within the exclusive domain of the trial judge. Parker v.
Northern Mixing Co., 776 P.2d 881, 892 (Alaska 1988).
We conclude that the Groffs have not shown the trial
court's factual findings to be clearly erroneous. The Groffs were
required to prove by clear and convincing evidence that Kohler
actually intended that the easement be reserved when he accepted
the deed. Oaksmith, 774 P.2d at 197; Shoulderblade, 652 P.2d at
838. Kohler's testimony at trial, which the trial court accepted,
contradicted this contention. (EN6) While we might have reached a
different conclusion than the trial court, we cannot say that its
decision was clearly erroneous.
3. Was reformation required by "the interests of
justice"?
The Groffs also argue briefly that reformation is
justified under a principle set forth in Fireman's Fund Mortgage
Corp. v. Allstate Ins. Co., 838 P.2d 790 (Alaska 1992):
[W]e have also recognized a more expansive use
of the tool of reformation to allow our courts
to alter the terms of a contract when the
interests of justice so require.
Id. at 797 (citing Vockner v. Erickson, 712 P.2d 379 (Alaska
1986)). The Groffs contend that they will suffer more than
$260,000 in damages if they cannot obtain a lot one/lot two
easement. They argue that under such circumstances, reformation is
required under Fireman's Fund.
This argument is not mentioned in the trial court's
opinion, because the Groffs did not raise it below. They gave
testimony regarding damages, but did not argue, as they do here,
that because they would allegedly suffer these damages, they should
be granted reformation of the deed. To the contrary, they claimed
in their complaint that they were entitled to those damages "[i]n
the event that reformation cannot be had."(Emphasis added).
Neither in opening nor in closing arguments did the Groffs contend
that the testimony regarding damages supported their claim for
reformation. (EN7) Since the Groffs' Fireman's Fund argument was
not raised below, it cannot be pursued on appeal.
IV. CONCLUSION
While some testimony at trial supported the Groffs'
argument that Kohler intended to create an easement across lots one
and two, other portions of testimony contradicted this claim. That
the lower court decided to give more credence to the latter
testimony cannot be termed clearly erroneous. We therefore affirm
the lower court decision.MATTHEWS, Justice, joined by RABINOWITZ, Justice, dissenting. (EN1)
For the reasons that follow I conclude that the superior
court clearly erred in finding that there was no mutual mistake.
I begin with the earnest money agreements (EMA's). Both
EMA's contained language specifying that "[d]riveways are a common
area"for the buildings on the Groffs' property. Both parties
signed both EMA's, and Anna Groff apparently read both EMA's aloud
to Kohler before he signed them. Kohler testified at trial that
easements did not particularly concern him during the term of his
lease, and that when he signed the second EMA he did not fully
understand the "common driveways"language. (EN2) Nevertheless, he
later testified that he understood the language to mean "that
everybody can use every driveway or something like that."
Kohler argues, and the trial court apparently agreed,
that he could not have understood the need for an easement over the
driveway along the eastern edge of Lots One and Two because he
mistakenly thought that the parking spaces to the west of the
planter box were contained within those lots, which he later
bought. The logic of this escapes me. Kohler never contradicted
the testimony that the spaces by the planter box were dedicated to
911 Cushman, and he admitted that he was told that he could use the
spaces for "overflow"parking. Even if he had owned the property
up to the planter box, then, he had to know that the parking spaces
to the west of the planter box were dedicated to 911 Cushman, and
that cars parked there could exit only onto Ninth Avenue. The
ownership of the land on which the parking spaces were located does
not affect the existence of an easement over the driveway.
I next look to the deed. The deed was prepared by
TransAlaska, which was apparently chosen to act as closing agent by
the bank through which Kohler obtained financing. At the time of
the transaction, Bill Standard was the office manager for
TransAlaska. He testified that the deed's description of the
easements was taken from the earnest money agreement, and that
"through clerical error, there was an easement left off of the
subject Lot One."
Finally, and most importantly, I consider the physical
characteristics of the area itself. Kohler was aware of the
orientation of the parking spaces abutting the planter box and was
aware that cars in those spaces had to back out and exit onto Ninth
Avenue. Kohler never testified that there were no arrows
indicating the traffic flow, and never contradicted Anna Groff's
testimony regarding directional arrows and zoning restrictions.
(EN3) While he testified that some cars exited onto Cushman Street
from Lot Four, and Anna Groff also testified that cars
"occasionally go against"the arrows, there is no evidence to
contradict the Groffs' claim of traffic restrictions for use of the
curb cuts or the testimony that the cars parked at the planter box
could only exit at Ninth Avenue.
All of the evidence points to a mistake in the
preparation of the deed by TransAlaska following an agreement
between the Groffs and Kohler to convey the property subject to an
easement on the eastern ten feet of Lots One and Two. Kohler
himself never actually testified that there was not a mistake. He
may not have initiated the reservation of the easement, and he may
not have wanted the easement; but when he agreed to purchase the
property, he agreed to purchase it subject to the easement. The
deed failed to reflect that agreement only by mistake of the title
company.
I conclude that the trial court's determination that
Kohler did not intend for there to be an easement over the driveway
leading to Ninth Avenue on Lots One and Two at the time he
purchased the property from the Groffs was clearly erroneous, and
that the Groffs were entitled to reformation of the deed. APPENDIX A
Block 109, Fairbanks
(not to scale)
E
³
³
NÄÄÄÅÄÄÄS ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÂÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿
³ ³ 5 ³ 6 ³
³ ³ ³ ³
W ³ ³ ³
³ ³ ³
³ 541 Ninth ³ 540 Tenth ³
³ ³ ³
³ ³ ³
³ ³ ³
³ ³ ³
³ ³ ³
³ ³ ³
Ninth ÃÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÁÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ´ Tenth
Avenue ³ 4 ³ Avenue
³ ³
³ ³
³ ³
³ ÄÅÄ
³ ³curb cut
³ ÄÅÄ
³ \\\\\\\ planter ³
³ °°°°°°° box (angled ³
³ \\\\\\\ parking) ³
³ ³
ÄÅÄÄÄÄÄÄÄÂÄÄÄÄÄÄÂÄÂÄÂÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ´
curb cut³ ³ þ ³ þ ³
þ³þþþþþþþ³þþþþþþþ ³ þ ³
³ ³ þ ³ þ ³
³ ³ þ ³ þ ³
³ 901³ þ ³ þ 911 ³
³ ³ þ ³ þ ³
³ ³Cushman ³ þ Cushman ³
³ ³ þ ³ þ ³
³ ³ þ ³ þ ³
³ ³ þ ³ þ ³
³ 1 ³ 2 þ ³ þ 3 ³
ÀÄÄÄÄÄÄÄÁÄÄÄÄÄÄÂÄÁÄÂÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ
þ þcurb cuts
Cushman Street
ENDNOTES:
1. The second EMA added the abbreviation "Ave."at the end. In
an apparent typographical error, the November 1994 stipulation
between the parties as to undisputed facts reproduced this language
but replaced "9th"with "11th."
2. The spaces on lot four are located on the west side of a "rock
wall"(also referred to at trial as a "planter box").
3. Wammack claimed the Groffs were aware of this fact, but the
Groffs testified to the contrary. The trial court made no findings
on this issue.
4. The court correctly held that reformation is generally
available only in cases of mutual mistake. As the court explained,
reformation is also available in a case of unilateral mistake if
the non-mistaken party to the transaction knew of the mistake.
That exception was held inapplicable here, however, because the
court found that Kohler "did not know [that] the Groffs' intention
was to include an easement along the eastern portions of Lots 1 and
2."
5. See also Restatement of Contracts (Second)  155 cmt. a (1979)
("[R]eformation is available when the parties, having reached an
agreement and having then attempted to reduce it to writing, fail
to express it correctly in the writing.") (emphasis added).
6. In determining the intent of the parties who signed the deed,
the trial court was not constrained to focus on the EMA to the
exclusion of all other evidence. See, e.g., Janke v. Beckstead,
332 P.2d 933, 935-36 (Utah 1958) (reforming deed based on testimony
and actions of parties, even though language of deed accurately
reflected contract of sale); Neal v. Green, 426 P.2d 485, 487-88
(Wash. 1967) (reforming deed based on examination of EMA, witness
testimony and demeanor, corroboration from contemporary records,
and parties' subsequent conduct). Indeed, to focus solely on the
language of the EMA would have been an errant approach to the
inquiry, since the court's task was to determine the parties'
intent at the time the deed was executed. Shoulderblade, 652 P.2d
at 838.
7. In their opening argument, the Groffs' counsel merely
paraphrased their complaint, explaining: "If reformation is not
available to the Groffs, they will argue that they have sustained
damages." The whole of the Groffs' closing argument regarding
damages testimony was this statement by their counsel:
I'm not going to waste time talking about the
damages aspect, Your Honor. I think there's a
prima facie case for reformation here but the
Groffs testified about why the building would
be useless if they didn't have these parking
spaces because they're maxed out in their
zoning for parking. And there was no
testimony contradicting that whatsoever,
except now that [opposing counsel] argues
["W]ell, that's not very sensible.["]
ENDNOTES (DISSENT):
1. To facilitate the reader's understanding of this case, I have
attached as Appendix A a diagram of the property involved.
2. He testified:
What I recall is it said something like
driveways are common. And . . . I'm not
familiar with what that means. . . . I know
what an easement is. . . . I'm familiar with
the term of a utility easement or a natural
gas easement or this type of thing, but I
don't know what "driveways are common"means.
Kohler testified that he understood the meaning of "an
easement for ingress and egress over, across, and upon the common
drive as it exists on Lots 2 and 3, Block 109,"but did not under-
stand the meaning of "driveways are a common area for 901 and 911
Cushman."
3. Kohler testified that he could not recall "seeing a bunch of
arrows"but he mentioned "the possibility of a line on the Cushman
Street"driveway showing the direction of traffic.
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