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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Allen v. Vaughn (06/22/2007) sp-6133
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, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| WESLEY S. ALLEN, | ) |
| ) Supreme Court No. S- 12080 | |
| Appellant, | ) |
| ) Superior Court No. | |
| v. | ) 3PA-03-00933 CI |
| ) | |
| BARBARA A. VAUGHN, | ) O P I N I O N |
| ) | |
| Appellee. | ) No. 6133 - June 22, 2007 |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District, Palmer,
Eric Smith, Judge.
Appearances: Ralph B. Cushman, Law Offices
of James H. McCollum, LLC, Anchorage, for
Appellant. Sarah J. Tugman, Anchorage, for
Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
FABE, Chief Justice.
I. INTRODUCTION
Wesley Allen and Barbara Vaughn were divorced in 1996.
Their property settlement called for the division of the proceeds
from two parcels of real estate that both parties expected to
sell soon. In 1997, when the parcels had not yet sold, Allen and
Vaughn reached a new agreement under which each party would
receive one of the parcels and buy the others interest in that
property. Because Allens property was worth significantly more
than Vaughns, Allen owed Vaughn a balance of $18,040. The
settlement agreement gave Allen until April 2002 to pay this
amount and specified that [i]f the note is not satisfied, . . .
Vaughn will maintain an interest of 50% in [Allens] . . .
property. Despite the five-year payment period and a reminder
from Vaughn approximately a month before the due date, Allen
failed to pay the amount owed. When Vaughn rejected Allens late
attempts to pay, claiming that he had forfeited a fifty percent
interest to her, Allen brought an action to quiet title to the
property.
The superior court found that the parties intended the
language at issue to operate as a forfeiture provision and
determined that equity favored enforcement of the provision. On
appeal, Allen argues that: (1) the court erred in looking beyond
the four corners of the document to determine the parties intent;
(2) the circumstances of the case warrant the creation of an
equitable mortgage, not the enforcement of a forfeiture
provision; (3) Vaughn should not have received any of the
proceeds from the subsequent sale of the property beyond the
original amount owed by Allen; and (4) the trial court erred in
awarding attorneys fees to Vaughn. Because equity does not favor
a forfeiture and the contract provision at issue did not
expressly provide for a forfeiture, we reverse the superior
courts decision.
II. FACTS AND PROCEEDINGS
A. Background and 1997 Agreement
Allen and Vaughn were married in 1990. At the time of
their marriage, Allen was a real estate broker and Vaughn was a
hairdresser, but later in 1990, Vaughn became a licensed real
estate agent. They divorced in 1996, and they agreed in their
property settlement to divide evenly the proceeds from two
parcels of real estate that they expected to sell in the near
future. But the two properties a residence in Palmer and a lot
in downtown Wasilla did not sell. In April 1997, with both
properties still unsold, Allen and Vaughn met to draft a new
agreement regarding these two properties. No attorneys were
involved in drafting the agreement.
Under the 1997 agreement, Vaughn was to receive the
Palmer residence and Allen was to receive the Wasilla lot, with
each buying out the others share of equity. Because they had
built more equity in the lot allocated to Allen than in the
property given to Vaughn, the amounts were offset, with Allen
paying the difference. The agreement, which was in Vaughns
handwriting, provided for Allens payment of this amount within
five years:
1. Barbara A. Vaughn will receive
$26,740.00 . . . in exchange for her
interest in the [Wasilla] property.
2. Wesley S. Allen will pay Barbara A.
Vaughn $8,500 . . . from the proceeds of
the sale of [a separate property] as a
down payment for this property.
3. The balance of $18,0401 . . . is to be
paid in full plus 5% interest per year
on or before April 28, 2002.
4. If this note is not satisfied, Barbara
A. Vaughn will maintain an interest of
50% in the above described property.
Vaughns interest in the property was transferred to Allen by
quitclaim deed.2
Vaughn and Allen both testified about the drafting of
the contract. According to Vaughn, they discussed each provision
in detail, and Allen helped her with the wording. Vaughn claimed
that she proposed the fourth paragraph and that she explained it
to Allen as follows:
[Y]ou have never paid the bills, you
have all of our property several times,
many times, all of the time in
foreclosure. There is nothing that you
have done to show me that you will pay
me this amount of money and so and Im
giving you five years and if you do not
pay me within that time frame, then I
will just resume my interest in my half
interest in the property.
Vaughn testified that her understanding of the fourth paragraph
was that if the debt was not paid by the deadline, [t]he property
would go half back into my name and it would be half mine. I
would be the legal half owner of it. Allen acknowledged that he
had promised to pay Vaughn to equalize the property distribution
but maintained that there was no discussion or agreement that
Vaughn would retain a fifty percent interest in the property if
he failed to pay on time. Allen asserted that he understood the
fourth paragraph to mean that [Vaughn] will maintain an interest
in the property until what I owe her is paid. Allen claimed that
if he had known that the agreement contained a forfeiture
provision, he would not have signed it.
In September 1997 Vaughns attorney sent Allen a deed of
trust note and escrow instructions. Although the agreement had
already been recorded, Vaughns attorney claimed that the proposed
deed of trust better set[] forth the intent of the parties and
[was] more in line with the sort of document title professionals
. . . are accustomed to working with. Allen did not respond.
After he received title to the property, Allens only
use of it was to place two railroad cars on it. Allen failed to
pay the taxes on the property, and the Matanuska-Susitna Borough
obtained a judgment of foreclosure in July 2001.3 Allen
testified that he was unable to pay the taxes at the time but
that he believed he could redeem the property at any time during
the ten years following the foreclosure. Vaughn ultimately paid
to redeem the property and was issued a repurchase quitclaim deed
by the City of Wasilla.
Approximately a month before the deadline, Vaughn
called Allen to remind him of his obligation. Allen promised to
pay but did not do so. On May 11, 2002 two weeks after the due
date Allen gave Vaughn a handwritten note promising to pay her
$22,000 in exchange for extend[ing] the agreement to July 1,
2002. Because of the five percent annual interest provision,
this was less than the amount that had been due in April 2002.
Vaughn did not respond to this offer. Further negotiations
happened between the parties, culminating on June 16, 2003, when
Allen offered to pay the entire amount due and to reimburse
Vaughn for her tax payments on the property. This offer was also
rejected by Vaughn.
B. Procedural History
Allen brought an action to quiet title on July 3, 2003.
Having heard testimony from both parties, the superior court
determined that Allens statements about his understanding of the
agreement were utterly without credibility. The court explained
this finding in detail:
Mr. Allen is a real estate broker. It is
inconceivable that given his training and
experience, he would not carefully have
reviewed the document before signing it,
especially since he concedes that Ms. Vaughn
raised her concerns about being paid at the
time he signed the agreement. Rather, the
court accepts as credible Ms. Vaughns
testimony that Mr. Allen helped her write the
agreement and that he knew full well that the
intent was that he would forfeit [] 50% [of
his] interest in the property if he did not
pay what he owed by the due date. Given Mr.
Allens demeanor and manner of avoiding or
putting off difficult questions on the stand,
the court frankly cannot escape the feeling
that Mr. [Allen] acceded to paragraph 4 in
part because he had no real intention of
paying Ms. Vaughn, he knew this paragraph was
inartfully drafted, and he figured he could
rely on the imprecise wording to escape
forfeiture if Ms. Vaughn tried to enforce the
agreement.
Based on its finding that the parties understood that a fifty
percent interest would revert to Vaughn, as well as its reading
of the fourth paragraph,4 the superior court determined that the
contract provided for forfeiture in the event of Allens failure
to pay.
Although the superior court conceded that forfeiture is
generally a disfavored remedy, it held that the circumstances of
this case including the agreements status as part of a property
settlement instead of an arms length bargain and the courts view
that Allen would not suffer a loss out of proportion to the
benefit obtained by Ms. Vaughn if forfeiture is allowed
justified enforcement of the agreement. The court therefore
ruled that Vaughn had a fifty percent interest in the property.
It then ordered the sale of the property, with the disputed
portion of the sale proceeds to be held in escrow pending a final
judgment.
In June 2005 the lot was sold for $191,716. Allen
received $89,426, the amount to which he would be entitled under
Vaughns theory of the case, following certain credits and debits
associated with the encumbrances on the property and credit back
for the $8,500 down payment . . . with interest. Vaughn received
$31,959, the amount to which she would be entitled under Allens
theory of the case. In September 2005 the court issued a final
declaratory judgment that awarded the disputed sum of $50,581 to
Vaughn. An attorneys fee award of $3,042.60 was partially funded
by $3,000 that had been set aside for that purpose. This appeal
followed.
III. DISCUSSION
A. Standard of Review
We will not set aside a superior courts findings of
fact unless those findings are clearly erroneous, and we give due
regard to the trial courts opportunity to evaluate the
credibility of witnesses.5 On questions of law, this court
applies its independent judgment, adopt[ing] the rule of law that
is most persuasive in light of precedent, reason, and policy.6 A
trial courts award of attorneys fees is reviewable for an abuse
of discretion.7
B. It Was Error To Find that the Agreement Operated To
Require a Forfeiture.
The trial court determined that the intent of the
parties when drafting paragraph four was that Allen would
immediately forfeit a fifty percent interest to Vaughn if he did
not pay her on time:
[T]he court finds the parties intended that
Mr. Allen would immediately receive full
title to Lot 5D and that paragraph 4 operated
to forfeit to Ms. Vaughn the 50% interest in
Lot 5D she had sold to him if Mr. Allen did
not pay her on or before April 28, 2002.
The trial court made this determination based on the testimony of
the parties at an evidentiary hearing.
Vaughn testified that she wanted to motivate Allen to
pay her for the property, that she was willing to take the risk
that the property would depreciate in value, and that she told
Allen that if he did not pay her the money he owed her, she would
resume her half interest in the property. Allen testified that
he did not read the document carefully before signing it and
understood paragraph four to mean that if he did not pay, then
Vaughn would retain her fifty percent interest in the property
until he paid her. Allen also testified that if he had known
that he could possibly forfeit his fifty percent interest to
Vaughn, he would not have signed the agreement.
The trial court did not find Allens testimony to be
credible and determined that, given Allens experience as a real
estate broker, he would have carefully reviewed the document.
The trial court further found that Allen agreed to paragraph four
because he had no intention of paying Vaughn and knew he could
rely on the imprecise wording of paragraph four to escape
forfeiture if Vaughn tried to enforce the agreement. The trial
court therefore found that the parties intended paragraph four to
operate to forfeit half of Allens interest in the property to
Vaughn in the event of nonpayment. The trial court also
determined that it would be equitable for Allen to forfeit half
of his interest in the property as a penalty for late payment.
Regardless of the trial courts findings on credibility
and intent, we must still determine whether paragraph four
creates an enforceable forfeiture provision. As we have
previously recognized: It is well settled in this jurisdiction
that equity abhors a forfeiture, and we have frequently relieved
a party therefrom. When the principles of equity and justice so
require, we may refuse to enforce even an express forfeiture
provision in a land sale contract.8 And we have repeatedly held
that a purchaser faced with forfeiture should be given time to
cure a default.9 For example, in Land Development, Inc. v.
Padgett, we refused to enforce a clause in a land sale contract
that provided that, in the event of non-payment, the seller would
retain all of the buyers payments as liquidated damages and the
buyer would be required to vacate the property.10 We affirmed the
ruling of the trial court which gave the buyer time to pay the
balance due on the contract.11
Although we have recognized that it may be appropriate
to enforce an express forfeiture clause in some extreme cases
[where] the purchasers history of performance is so inauspicious
that equity not only allows a forfeiture, it demands a
forfeiture,12 this is not such a case. Here, the forfeiture
clause was not express, and Allen made an attempt to cure his
default less than one month after Vaughn asserted that Allen was
trespassing on the property.
Other jurisdictions similarly disfavor forfeitures and
have allowed opportunities to cure.13 In BankWest, N.A. v.
Groseclose, the South Dakota Supreme Court held that it would be
unconscionable to allow repossession of land after default
without providing the defaulting party an opportunity to cure the
default.14 And in Lewis v. Premium Investment Corp., the South
Carolina Supreme Court refused to enforce a clear forfeiture
provision in an installment land contract, determining that it
would be inequitable to enforce the forfeiture provision without
a right to redeem.15
In this case, paragraph four does not clearly provide
for forfeiture in the event of Allens default. And even if it
did, it is unclear why, under the circumstances of this case,
Allen should not have been allowed to cure the default within a
month of Vaughn asserting that Allen was trespassing on the
property.
Because forfeitures are disfavored and paragraph four
does not explicitly provide for forfeiture, we decline to read
paragraph four as a forfeiture provision regardless of the
parties intent. It was error to conclude otherwise.
The trial court may have believed that the nature of
this agreement, as part of a divorce property settlement
agreement, provided an unusual circumstance justifying
forfeiture. The trial court emphasized that [i]t is important to
note at the outset that this agreement is not a typical arms-
length real estate transaction. Rather, it is more properly
viewed as an effort to implement a portion of the parties divorce
property settlement. Moreover, the trial court found that,
because the agreement was drawn up by the parties after the
original divorce and without the involvement of the attorneys, it
was inappropriate to interpret the agreement as creating an
equitable mortgage.
Settlement agreements that divide property in a divorce
case are generally treated under general contract law theories
and can be held invalid if there is fraud, duress, or undue
influence.16 A court also cannot enforce settlement agreements
that are unconscionable or unfair.17 But, in this case, there is
no claim of fraud or unfairness in the settlement itself but
merely a dispute as to what the agreement means and the intention
of the parties regarding the agreement.18 And there is thus no
basis to find that the agreement should not be enforced as if it
were an arms-length real estate contract.19 Thus, although
paragraph four was entered into as part of a divorce property
settlement, it is still analyzed under general contract
principles.
Rather than construe paragraph four as a forfeiture
provision, we believe it should be understood as creating an
equitable mortgage. A mortgage is [a] lien against property that
is granted to secure an obligation (such as a debt) and that is
extinguished upon payment or performance according to stipulated
terms.20 The Restatement (Third) of Property: Mortgages defines a
mortgage as a conveyance or retention of an interest in real
property as security for performance of an obligation.21 Vaughn
had an interest in the property, and while that interest was not
clearly defined, it was an interest that was used to secure an
obligation on Allens part: the payment of money due Vaughn under
their agreement. Given that Vaughn retained an interest in the
property to secure the payment of the note, the agreement is
properly viewed as an equitable mortgage.22 And because it is an
equitable mortgage, Allen had the opportunity to cure even after
Vaughn elected to proceed to foreclose in order to regain her
half-interest in the property.23 Allen offered in June 2003 to
pay Vaughn the full amount due under the contract, including the
tax payments Vaughn made. And, indeed, Vaughn is entitled to the
money originally due to her under the agreement, along with the
payments she made to redeem the property from the tax
foreclosure, and all associated interest. On remand, the trial
court should determine the amount due to Vaughn, which will
include any payments made when redeeming the property from
foreclosure and the associated interest.24
IV. CONCLUSION
For the reasons set forth above, we REVERSE and REMAND
the case to the superior court.
_______________________________
1 Although the difference between $26,740 and $8,500 is
$18,240, the parties agreement stated that the balance owed was
$18,040.
2 Allen recorded the deed immediately, and Vaughn
recorded the agreement in June 1997.
3 At that time, the owner of record was Studington
Fitzroy Brown. Allen testified that he had transferred it to
Brown for safekeeping during a bout of treatment for prostate
cancer. Allen held an unrecorded deed transferring the property
from Brown back to himself.
4 The court acknowledged that the agreement was not as
precise as it could have been, but maintained that it most
certainly does not present the transaction as a loan from Ms.
Vaughn to Mr. Allen, and does not otherwise . . . create any
security interest in the property on behalf of Ms. Vaughn pending
payment by Mr. Allen.
5 Horton v. Hansen, 722 P.2d 211, 215 (Alaska 1986)
(quotations omitted); see also Alaska R. Civ. P. 52(a), which
provides: Findings of fact shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of
the trial court to judge the credibility of the witnesses.
6 Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
7 Laidlaw Transit, Inc. v. Anchorage Sch. Dist., 118 P.3d
1018, 1038 (Alaska 2005).
8 Strack v. Miller, 645 P.2d 184, 187 (Alaska 1982).
9 Id. at 187; Moran v. Holman, 501 P.2d 769, 770 (Alaska
1972); Jameson v. Wurtz, 396 P.2d 68, 75 (Alaska 1964).
10 369 P.2d 888, 889 (Alaska 1962).
11 Id.
12 Curry v. Tucker, 616 P.2d 8, 13 (Alaska 1980).
13 Lewis v. Premium Inv. Corp., 568 S.E.2d 361, 364 (S.C.
2002); BankWest, N.A. v. Groseclose, 535 N.W.2d 860, 865 (S.D.
1995).
14 535 N.W.2d at 865.
15 568 S.E.2d at 364.
16 1 Brett R. Turner, Equitable Distribution of Property
3:14 (3d ed. 2005).
17 Id.
18 While the trial court found that Allen knew the
settlement provided for a forfeiture, had no intention of paying,
and intended to rely on imprecise wording to escape forfeiture,
Vaughn does not claim that Allen acted fraudulently in executing
the settlement agreement, and the trial court did not find actual
fraud on Allens part.
19 Although Vaughn is correct that the terms of the
settlement were intended to effect a fiftyfifty split of the
marital property, each received a separate parcel, and the
remaining payment due from Allen to Vaughn was required to
achieve an equal division.
20 Blacks Law Dictionary 1031 (8th ed. 2004).
21 1.1 (1997).
22 An equitable mortgage is [a] transaction that has the
intent but not the form of a mortgage, and that a court of equity
will treat as a mortgage. Blacks Law Dictionary 1032 (8th ed.
2004).
23 See Restatement (Third) of Property: Mortgages 3.1(a)
(1997).
24 Allen maintains that if this court reverses the trial
courts judgment, it should also reverse its award of attorneys
fees since that award is predicated on Vaughns status as the
prevailing party. Because we reverse the decision of the trial
court, we remand the issue of attorneys fees.
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