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Joyner v. Vitale (11/22/96), 926 P 2d 1154
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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
J. MITCHELL JOYNER, )
) Supreme Court Nos. S-6692/6712
Appellant and )
Cross-Appellee, ) Superior Court No.
) 3AN-92-6908 Civil
v. )
) O P I N I O N
VINCENT VITALE, a )
professional corporation, )
and VINCENT P. VITALE, ) [No. 4432 - November 22, 1996]
individually, )
)
Appellees and )
Cross-Appellants. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Mark C. Rowland and Milton M. Souter, Judges.
Appearances: Susan D. Mack, James T. Stanley
Corp., P.C., Anchorage, for Appellant and
Cross-Appellee. Cabot Christianson, Bundy &
Christianson, Anchorage, for Appellees and
Cross-Appellants.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh and Fabe, Justices.
FABE, Justice.
I. INTRODUCTION
J. Mitchell Joyner brought an action to remove the deed
of trust from a property that he had purchased. The superior court
determined that the encumbrance remained and that Joyner continued
to owe its beneficiary, Vincent Vitale. Joyner appeals this
decision. Vitale cross-appeals the court's denial of his request
for actual attorney's fees. We affirm the superior court's
decisions granting partial summary judgment and judgment in favor
of Vitale after trial. We reverse the trial court's award of
partial attorney's fees and remand for an award of full attorney's
fees.
II. FACTS AND PROCEEDINGS
Walter Karpinia, Sr. (Karpinia) owned a home and land in
Eagle River that were encumbered by a deed of trust. On May 10,
1984, in exchange for services, Karpinia gave to his attorney,
Vincent Vitale, a "demand promissory note"for $14,101.56 at 12%
interest. A second deed of trust on Karpinia's property secured
the Vitale promissory note.
The second trust deed included a "dragnet clause,"
allowing Vitale to add subsequent charges to the debt. This clause
provided that "[t]his Deed of Trust is also given for the purpose
of securing full performance by the Trustor of all terms and
conditions of that certain Contract for Legal Services, of even
date herewith, entered into between Trustor and Beneficiary." The
deed also required Karpinia "to pay all costs and expenses,
including . . . attorney's fees in a reasonable sum . . . in any
suit brought by [Vitale] to foreclose this Deed." The promissory
note contained a similar attorney's fees provision.
Karpinia retained Vitale until November 1984. Vitale
later stated that as of October 31, 1984 Karpinia owed him a total
of $18,026, including the original $14,101.56, plus "several
thousand dollars"of post-note services, and post-note interest.
Karpinia never paid his debt to Vitale. In July 1991,
Karpinia died, and his estate listed the Eagle River property for
sale. Walter Karpinia, Jr. (Karpinia, Jr.), the executor of his
father's estate, did not challenge the estate's obligation to
Vitale and stated that the debt was "in my opinion in all respects
valid."
Peter Ginder, attorney for the Karpinia estate, asserted
in a November 8, 1991 letter to Vitale that the estate's obligation
to Vitale on the second deed of trust was approximately $40,000.
This figure was based on the $18,026 obligation as of October 31,
1984, plus 12% interest compounded annually, rounded to the nearest
$1,000. (EN1) Vitale "agreed to the $40,000 figure." Defects in
the home made a cash purchase impossible, so Ginder proposed that
Vitale accept an assumption of his debt by the purchaser of the
property.
J. Mitchell Joyner, an attorney, became interested in
buying the property. Although Joyner determined before he bought
the property that the Vitale debt might be time-barred and
concluded that he might not have to honor that debt, Joyner did not
tell the sellers this. In fact, Karpinia, Jr. understood from
Joyner's oral assurances, as well as from the contracts Joyner
signed, that Joyner would satisfy the estate's obligation to Vitale
if he purchased the house. This point was important to Karpinia,
Jr. and the other heirs because "the estate was legally and more
importantly morally indebted to Vince [Vitale] for his services on
behalf of my father." At trial, Karpinia, Jr. testified:
I know that Vince provided a service to my
father, which I couldn't do or neither could
any of the kids, and the estate -- my father
should have paid Vince, so we're obligated to
pay him. Whatever funds I receive out of this
will go to Vince, because he -- he deserves to
be paid.
Joyner agreed in an earnest money agreement to buy the
property for $130,000 and to "assume Seller's existing loan(s) in
the approximate amount of $98,000." Crossed-out figures on the
agreement suggest that the $98,000 represented a total obligation
of $103,000, which had been reduced by a $5,000 cash payment. The
initial total of $103,000 was comprised of $63,000 on the first
deed of trust and $40,000 on the Vitale deed of trust.
Joyner and Karpinia, Jr. signed an "escrow instructions
addendum"on January 2, 1992 that stated, "Buyer to assume Law
Office of Vincent Vitale loan # in the amount of $40,000.00.
Interest shall accrue from 01/17/92 and be paid at the rate of 5%
per annum. All due and payable 7/15/92." Joyner also signed a
Department of Housing and Urban Development settlement statement,
stating that his $130,000 purchase price included $40,000
"assumption balance"for the Vitale obligation.
Vitale drafted, and Joyner refused to sign, a promissory
note stating that Joyner owed Vitale $40,000 plus 5% interest.
Joyner said he refused to sign this note because he did not want to
create any new obligations.
On January 17, 1992, Joyner purchased the property. He
and Karpinia, Jr. executed a statutory warranty deed. The deed
stated that the conveyance was
FURTHER SUBJECT TO that certain deed of trust,
including terms and conditions thereof, to secure
an indebtedness, and more fully described below:
Trustor: Walter Karpinia
Trustee: Alaska Title Guarantee Agency, Inc.
Beneficiary: Law Offices of Vincent Vitale,
a professional corporation
Amount: $14,101.56
Dated: May 10, 1984
Recorded: May 11, 1984
Book/Page: 1094/325
WHICH DEED OF TRUST AND THE NOTE IT SECURES
THE GRANTEE HERETO ASSUMES AND AGREES TO PAY
AND TO HOLD HARMLESS THE GRANTOR THEREFROM.
After he purchased the property, Joyner filed an action
(EN2) seeking to remove the deed of trust from the title because
the six-year statute of limitations had expired or, in the
alternative, to redetermine the amount owed because $40,000
overstated that amount.
In January 1993 the superior court issued a preliminary
injunction prohibiting Vitale from foreclosing on the deed of
trust. On March 30, 1994, Superior Court Judge Mark Rowland
entered partial summary judgment on three issues. Judge Rowland
found that the deed of trust was enforceable against Joyner, since
Joyner had acknowledged the debt at the time of purchase; that the
12% interest should be calculated as simple interest; and that the
dragnet clause was enforceable. Issues left for trial were whether
the preliminary injunction should remain in effect, the amount of
the obligation under the dragnet clause, and attorney's fees.
At trial, Superior Court Judge Milton Souter, to whom the
case had been transferred, analyzed the obligation in a different
manner. Judge Souter based Vitale's right to recover from Joyner
not on the Vitale-Karpinia deed of trust but on the Karpinia-Joyner
purchase contract and Vitale's third-party beneficiary status under
that contract. Particularly significant to the court were Joyner's
expressed intentions to buy the property for $130,000 and to value
the debt unconditionally at $40,000. The court held that Joyner
owed Vitale $40,000, that the property secured the debt, and that
Vitale could foreclose on the deed of trust.
The court awarded Vitale, as the prevailing party,
$7,042.24 in attorney's fees under Alaska Civil Rule 82. At trial
and on motion for reconsideration, Vitale unsuccessfully sought
actual attorney's fees of $19,383 under the provisions for full
reasonable attorney's fees in the deed of trust and promissory
note.
Joyner appeals, asserting that the trial court erred in
finding him obligated to Vitale for $40,000. Vitale cross-appeals,
seeking compensation from Joyner for full attorney's fees.
III. DISCUSSION (EN3)
A. Joyner Created a New Agreement, with Vitale as a Third-
Party Beneficiary.
Judge Souter found that a valid contract existed between
Joyner and the Karpinia estate, that Vitale was a third-party
beneficiary of that contract, and that the contract required Joyner
to pay Vitale $40,000, unconditionally, at 5% interest. His
factual findings in this matter find ample support in the record,
and his decision is correct as a matter of law.
A valid purchase contract existed between Joyner and the
Karpinia estate, with consideration received by both sides.
"Consideration may consist of performance for . . . a third party."
Johnson v. Schaub, 867 P.2d 812, 817 (Alaska 1994).
The statutory warranty deed expressly provided that the
Karpinia-Joyner sale was subject to the Vitale deed of trust and
that Joyner assumed the obligation on the deed of trust. The
purchase deed was consistent with the language of the pre-deed
agreements, which included the earnest money agreement, the escrow
instructions addendum, and the settlement sheet. Walter Karpinia,
Jr. also testified that Joyner orally agreed to satisfy the debt to
Vitale. Each of the three pre-deed agreements indicates that
Joyner agreed to value the obligation to Vitale that he assumed at
$40,000.
When a purchaser assumes a mortgage, under the most
common view, the mortgagee is a third-party beneficiary of the
contract between mortgagor and purchaser. Grant S. Nelson & Dale
A. Whitman, Real Estate Finance Law 319 (3d ed. 1993); 4 Corbin on
Contracts  796 at 146 (1951); John D. Calamari & Joseph M.
Perillo, The Law of Contracts 703 (3d ed. 1987). A mortgagee may
recover, as a third-party beneficiary of the assumption agreement,
from a purchaser who assumed the mortgage. Cleveland Trust Co. v.
Elbrecht, 30 N.E.2d 433, 435-36 (Ohio 1939); Restatement (Second)
of Contracts,  304 & illus. 2 (1981); 2 Williston on Contracts 
382 at 1024 (3d ed. 1959). As a third-party beneficiary of the
Karpinia-Joyner contract, Vitale may recover from Joyner.
Furthermore, a third-party "beneficiary's right against
the promisor is not subject to claims and defenses of the promisee
against the beneficiary unless the contract so provides."
Restatement (Second) of Contracts  309, cmt. c & illus. 11 (1981);
see also Williston, supra,  386A at 1044-45. Under this rule, and
because the Karpinia-Joyner contract did not provide for Joyner to
invoke Karpinia's defenses against Vitale, Joyner may not do so.
Therefore, Joyner may not raise defenses, including those under the
statute of limitations, that Karpinia might have asserted against
Vitale.
Under the purchase and assumption agreements, Joyner
promised that he would honor the Karpinia estate's debt to Vitale.
He agreed to pay Vitale $40,000 at 5% interest. Karpinia's
attorney, executor and heirs believed that this payment would
satisfy the Karpinia estate's obligation to Vitale, as did Vitale.
Joyner kept private his doubts about the validity and amount of
that obligation. The law simply requires Joyner to honor his
contractual promise. Therefore, Joyner is obligated to pay Vitale
$40,000 at 5% interest.
B. Vitale is Entitled to Full Reasonable Attorney's Fees.
The trial court held that because Vitale could recover
from Joyner as a third-party beneficiary of the Karpinia-Joyner
contract, the attorney's fee provisions in the original deed of
trust and promissory note were inapplicable. The court granted
Vitale partial attorney's fees under Rule 82 instead of full
attorney's fees under the terms of the original agreements. Vitale
claims that this holding was erroneous.
Joyner took the property subject to the deed of trust
terms which provided security for the debt to Vitale which Joyner
promised to pay in an agreed amount. Joyner's contract with
Karpinia, therefore, incorporated the rights and obligations of the
Vitale-Karpinia deed of trust. Because the Karpinia-Joyner
contract did not revoke the attorney's fee provisions of the deed
of trust, those attorney's fee provisions bind Joyner. (EN4) We
reverse the superior court's award of attorney's fees under Rule 82
and remand for an award of full reasonable fees under the terms of
the Vitale-Karpinia deed of trust.
IV. CONCLUSION
Because Vitale was a third-party beneficiary of a valid
contract between Joyner and the Karpinia estate, Joyner may not
challenge the validity of the obligation or claim to owe an amount
other than $40,000. We AFFIRM the superior court's substantive
conclusion. We REVERSE its attorney's fees award, and REMAND for
an award to Vitale of reasonable attorney's fees under his
agreements with Karpinia.
ENDNOTES:
1. The value of $18,026 at 12% interest compounded annually for
seven years is $39,849.74.
2. The complaint was originally filed by Barton M. Tiernan, a
friend of Joyner whom Vitale describes as a "straw man." At the
parties' stipulation, Joyner was later substituted for Tiernan.
3. We review findings of fact under the clearly erroneous
standard. T. Ferguson Const., Inc. v. Sealaska Corp., 820 P.2d
1058 (Alaska 1991). We review conclusions of law under the
substitution of judgment standard. State, Dep't of Natural
Resources v. Transamerica Premier Ins. Co., 856 P.2d 766 (Alaska
1993).
4. Because Joyner may not reduce his obligations under the
Karpinia-Joyner purchase and assumption contract by asserting that
the statute of limitations period expired before he assumed
Karpinia's obligations under the Vitale-Karpinia deed of trust and
promissory note, the statute of limitations does not bar Vitale
from collecting full attorney's fees.
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