Drew et. al. v. Drew et. al., No. 174-6-10 Cacv (Te achout, J., Sept. 23, 2013).

[The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION
Caledonia Unit Docket No. 174-6-10 Cacv

BLAINE DREW and PAMELA DREW

v.

EVERETT DREW and NORMA DREW

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER

Plaintiffs seek recovery of $13,700 that both Plain tiffs and Defendants claim they are entitled to under a written Equity Reimbursemen t Agreement they made when Plaintiffs, who are a husband and wife, purchased f rom Defendants, who are the parents of the husband, the family home previously owned by Defendants.

The facts are largely undisputed; the dispute is ov er the interpretation of the rights and obligations of the parties under the terms of t heir agreement as applied to the circumstances that occurred after the agreement was signed in 2004. Plaintiffs also claim consequential damages for refusal to pay, and penal ties, punitive damages, and attorneys’ fees based on the Defendants’ failure to timely dis charge a mortgage. Defendants claim they are entitled to keep the $13,700, and that the y had no obligation to discharge the mortgage as long as the Agreement was in effect.

Plaintiffs are represented by Attorney Stephen J. C raddock. Defendants are represented by Attorney Charles D. Hickey. Oral ar gument was held on December 21, 2012 on Defendants’ Motion for Summary Judgment, atwhich time some rulings were made on the record. The evidentiary final hearing was held on March 14 and August 8, 2013. Based on the prior rulings and evidence admi tted, the Court makes the following findings of fact and conclusions of law.

Facts

In the spring of 2004, Plaintiffs Blaine and Pamela Drew, a married couple (hereinafter “Buyers”), agreed to buy from Blaine’s parents, Defendants Everett and Norma Drew (hereinafter “Parents”), the Parents’ fa mily home, and the Parents agreed to finance the purchase. The parties did not agree on the value of the property. The Parents believed that its value was $125,000, whereas the B uyers believed, based on an appraisal they obtained, that the value was $110,000. The pa rties reached a compromise and entered into a one page, handwritten purchase and s ales contract, signed by all parties, in which they agreed on a purchase price of $110,000 w ith specifically described financing from the Parents, but if the Buyers sold the house within 15 years for more than2

$110,000, they would owe the Parents an additional $15,000, the agreement to be secured by a mortgage. Lawyers were consulted and formal d ocuments prepared for a closing.

On July 1, 2004, the closing occurred. Buyers sign ed three documents: a Note for $110,000 payable to the Parents, an Equity Reimburs ement Agreement concerning terms applicable to the $15,000 conditional obligation, a nd a Mortgage in the amount of $125,000 securing performance of both the Note and the Equity Reimbursement Agreement obligations.

Pertinent terms of the Equity Reimbursement Agreeme nt are as follows:

FOR VALUE RECEIVED, we, Blaine Everett Drew and Pam ela Jean Drew, husband and wife, promise to Everett W. Drew and Norma S. Drew, husband and wife, that, having this day purch ased from Everett W. Drew and Norma S. Drew certain premises at 202 Rout e 2 East in Danville, Caledonia County, Vermont (“the premises” ), in the event that Blaine Everett Drew and Pamela Jean Drew, or either of them, shall close on the sale of the premises at any time prior to Ju ne 15, 2019, then they shall pay at closing to Everett W. Drew and Norma S . Drew, or the survivor of them, a sum as additional consideration for the initial purchase of the premises, the sum by which the gross sale pr oceeds exceeds a gross sale price of $110,000, but not more than $15,000.0 0, and upon the following additional terms and conditions:

(1) The payment obligations shall not apply to any conv eyance of the premises in mortgage, nor to any conveyance of util ity or other easements or right of way, unless such conveyance i s given for consideration, in which event all gross proceeds fr om such conveyance shall be paid over to Everett W. Drew an d Norma S. Drew at the time of such conveyance, up to a maximu m of $15,000.00

(2) In the event of any conveyance in fee of less than the entire premises, the gross proceeds from the sale, up to a maximum of $15,000 shall be paid to Everett W. Drew and Norma S. Drew.

(3) It is the intention of the undersigned that any pro ceeds received from the sale of any or any part of the these subje ct premises which is received prior to June 15, 2019 shall be p aid over to Everett W. Drew and Norma S. Drew, or the survivor of them, up to a maximum of $15,000.

The Buyers duly made mortgage payments to the Paren ts for 4 1⁄2 years.

In early January of 2009, the Buyers obtained appro val for refinancing. The refinancing mortgagee contacted the Parents for a p ayoff figure for the mortgage they held, which the Parents supplied on January 23, 200 9. It included not only the outstanding amount on the Note, but an additional $ 15,000 which the Parents claimed. The Buyers did not agree that they owed the additio nal $15,000, but wished to take3

advantage of the financing opportunity, even though in order to close that meant borrowing the additional $15,000 from the refinanci ng mortgagee so it could be paid to the Parents and paying interest on it at 5.5% over 30 years. There is no evidence that the Buyers ever waived their right to claim the return of the $15,000. Everett Drew testified that the purpose of the Agreement was to give him c ontrol of the property for 15 years, but the extent of control is defined by the documen ts.

The refinancing occurred on February 23, 2009. The parents were not present. No agreement was reached as to the consequences of the refinance on the issue of the status of the $15,000 conditional obligation under the Agreement. The property was deeded to Blaine Drew only, who executed a new note and mortgage to the refinancing mortgagee for $167,887, which included the payoff t o the Parents on the Note, the additional $15,000 the Parents claimed, and additio nal funds used to pay other obligations. On March 4, 2009, the Parents receive d a check for the payoff amount they claimed, which included the balance due on the Note and the additional $15,000.

Shortly thereafter, the Buyers sought the return of the $15,000 from the Parents, who refused to give it to them, and the dispute dev eloped. Time passed and no resolution was achieved. There was a great deal of animosity between the parties. They did not speak. Everett Drew was particularly angry and mad e rude gestures and insulting comments when he saw the Buyers in the community. Everett Drew testified that once he received the $15,000, it was his.

Although the Parents had been paid the full amount due on their note plus the $15,000, the Parents did not sign a discharge of th eir mortgage. It is unknown why the refinance company did not ensure that such a discharge was obtained and recorded. In October of 2009, the Buyers’ attorney prepared a dr aft complaint seeking recovery of $13,700 and communicated it to the Parents’ attorne y. The draft complaint did not make a claim for failure to discharge the mortgage. The re is disagreement about how and when the fact that the mortgage was undischarged came to the attention of the parties and their attorneys. However it happened, the Buyers’ attorn ey first became aware of the issue in April of 2010. This became an additional source of dispute between the parties. Once the issue was recognized, the Buyers were seeking a discharge and the Parents did not discharge the mortgage.

In the spring of 2010, the Buyers sold an easement to the State of Vermont for $1,300. All parties agree that under the terms of the Equity Reimbursement Agreement, the Parents were entitled to these proceeds as of t he date of closing on the easement. The Buyers nonetheless claimed entitlement to return of the balance of $13,700, as well as a discharge of the mortgage. On May 20, 2010, the Bu yers’ lawyer sent the Parents a mortgage discharge form to sign. In a responsive l etter dated May 31, 2010, the Parents acknowledged that the mortgage was not discharged. They refused to either return the $13,700 or discharge the mortgage.

Blaine Drew claims that as a result of the failure of the Parents to discharge the mortgage, he lost an opportunity to do another refi nance and obtain an even more4

favorable interest rate, but he never filed the app lication and has not proved specific consequential damages.

The complaint was filed on June 10, 2010 and assert ed four counts: unjust enrichment, breach of contract, a declaration that the agreement was void ab initio, and a claim for failure to discharge the mortgage. Short ly thereafter, on July 15, 2010, the Parents signed a discharge of the mortgage. Howeve r, the document sat in the file of the Parents’ attorney. During this period, the parties and their attorneys were discussing the issues. The Parents apparently took the position t hat they had no obligation to discharge the mortgage as long as the Buyers were seeking the return of the $13,700. The Buyers’ attorney thought that there was some validity to th is position, as the Parents were perhaps entitled to some form of security under the Equity Reimbursement Agreement. The mortgage discharge was finally recorded in the land records on July 11, 2011.

The Parents’ attorney filed a Motion for Summary Ju dgment, and at a hearing on the motion held on December 21, 2012, the Court gra nted summary judgment to the Defendants on the issue of the validity of the Agre ement, ruling that the Equity Reimbursement Agreement was an enforceable agreemen t. Summary judgment was denied on the other counts on the grounds that ther e were either disputed or insufficient
facts. The Court ruled on the record that the Pare nts were not entitled to full ownership of the $13,700 because the condition that would tri gger their interest in the money had not yet occurred: there had been no sale of the pr operty (except for the sale of the easement), and under the terms of the Agreement, th ey had no claim to ownership of the money unless and until that occurred. The possibil ity was discussed that they might have some claim to some form of security for the obligat ion, but resolution of that issue was left for final hearing.

The amount of interest that Blaine Drew paid on $15 ,000 from the date that sum was received by the parents, March, 2009 to the dat e of sale of the easement in May, 2010 is $955.53. The amount of interest that Blain e Drew paid on $13,700 from May, 2010 to the date of hearing in August, 2013 was $2, 394.95.

Buyers incurred attorneys’ fees from Attorney Clark e Atwell, who originally represented them, but Attorney Atwell has waived an y claim for fees. Buyers have incurred attorneys’ fees from Attorney Stephen Crad dock in the amount of $6,600. The

bill does not differentiate between the amounts att ributable to the Agreement issue and the amount attributable to the undischarged mortgag e issue.

Analysis

Unjust Enrichment, Breach of Contract

The parties’ rights and obligations with respect to the disputed $13,700 are dependent on the governing instrument, the Equity R eimbursement Agreement, which was executed by Buyers and accepted by the Parents at the closing on July 1, 2004. Its
terms are set forth above.5 At the time the Agreement was executed, there were at least five possible scenarios that could predictably occur:

1. Buyers would retain ownership of the property untilJune 15, 2019 . In this case, the Agreement would remain in effect and represent a conditional obligation on the part of Buyers until June 15, 2019, but as of t hat date, Buyers would have no further obligation under the Agreement, and the Par ents would never be entitled to an additional $15,000.

2. Buyers would sell all the property before June 15, 2019 for less than $110,000

. In this case, Buyers would not owe the Parents anyt hing under the Agreement.

3. Buyers would sell all the property before June 15, 2019 for more than $110,000. In this case, Buyers would owe the Parents the exce ss over $110,000 up to $15,000.

4. Buyers would sell a partial interest in the propert y before June 15, 2019 . In this case, Buyers would owe the Parents the entire gross proceeds from such a sale but not more than $15,000. This is what occurred with respect to the sale of the easement, and all parties agree that the Parents we re entitled to keep the $1,300 in proceeds from the sale of the easement in May of 20 10.

5. Buyers would refinance before June 15, 2019 . This was specifically permitted by the terms of the Agreement, which specified that a refinance would not trigger the conditional payment obligation.

The provision entitling the Buyers to refinance is a material term of the agreement. There are two ways a refinancing might have occurred during the Agreement period. One is that a new mortgagee would refinanc e the balance due on the $110,000 Note and take a second mortgage, junior to the Pare nts’ existing mortgage which would remain in place but would then secure only the Buye rs’ $15,000 conditional obligation under the Agreement. This might occur with private financing but is highly unlikely with any commercial mortgagee. It is axiomatic that com mercial lenders require, as a condition of the loan, that they hold a first mortg age on the property (except for home equity loans, which are not at issue in this case).

The second and predictable form of refinance is tha t the new lender would require that the Parents’ mortgage be discharged so that it , the new lender would have the first mortgage on the property. At the time of entering into the Agreement, the parties had the opportunity to anticipate this predictable situatio n and contract accordingly. They could have agreed on a form of substitute security for pe rformance of the Agreement in that event, such as that $15,000 would be placed in escr ow to secure performance. They did not do so. Instead, they simply provided that the Buyers were specifically authorized to refinance without triggering the conditional paymen t obligation. The fact that they failed to provide for substitute security in the scenario that was the most predictable one to occur out of all the possibilities does not change the other terms of the Agreement. They remain in place and are enforceable.

When the Parents were contacted for a payoff figure , they breached the Equity Reimbursement Agreement by claiming that they were owed $15,000 when they were6

not. The condition that triggered that obligation on the part of Buyers had not yet occurred, and may never occur. The Parents were no t entitled to that money. The Parents breached the Agreement a second time when t hey refused to return the $15,000 to the Buyers upon request.

The Parents counsel argued that when Blaine Drew pr oceeded with the refinancing that included a payoff to the Parents, a new agreement was reached between the parties, but there is no evidence that a new ag reement was reached, or what its terms were. There is no evidence that the Buyers ever ag reed that the Parents could keep all the money. There is no showing of a waiver on the partof the Buyers of their claim to ownership of the $15,000 that they borrowed from th e new lender. If the Parents’ argument is that the Buyers agreed that the Parents could hold the $15,000 as security for the conditional obligation under the Agreement, suc h an agreement could not be accomplished in one year and thus is not enforceabl e under the Statute of Frauds. Moreover, the evidence does not support a finding t hat such an agreement was made, either verbally or by conduct.

The Parents continue to be in breach of contract, b ecause the amount to which they are presently entitled is only $1,300. Under the Agreement, they are not entitled to the balance of $13,700 because the condition that w ould entitle them to it has not yet occurred. It may never occur, and their conditiona l right to those funds may expire.

While it is reasonable that the Parents may want to have some form of security, they did not contract to have any security in the e vent of refinance, which they explicitly agreed was permitted. Therefore, they do not have a contractual right to keep the money as security for a conditional obligation. They cer tainly do not have a right to keep the money as a matter of right, as Everett Drew seems t o claim.

Thus, based on both breach of contract and unjust e nrichment, Buyers are entitled to $13,700 from the Parents. They are also entitle d to consequential damages resulting from the wrongful retention of the funds by the Par ents. This is the $3,350.48 that the Buyers had to pay in interest from March of 2009 to the hearing date in August of 2013. If the Parents had returned the money, the Buyers c ould have paid that amount of the mortgage off, thereby relieving themselves of that interest cost. Thus, Plaintiffs are entitled to a judgment of $17,050.48 as of Septembe r 1, 2013. Interest shall run from that date forward on the principal balance of $13,700 atthe rate of 5.5% per annum (the rate that the Buyers are required to pay on the loan use d to borrow the money).

Undischarged mortgage

27 V.S.A. § 464(b) provides that “[w]ithin 30 days after full performance of the conditions of the mortgage, the mortgagee of record shall execute and deliver a valid and complete discharge . . . . If a discharge is not e xecuted and delivered within 30 days, the holder and any servicer shall be jointly and severa lly liable to any aggrieved party in a civil action for statutory damages equal to $25.00 per day after the expiration of the 30 days, up to an aggregate maximum of $5,000.00 for a ll aggrieved parties. . . .”7 27 V.S.A. § 464(d) provides that, “[i]n addition to any statutory damages, the mortgagee shall also be liable for consequential da mages, punitive damages, court costs, and reasonable attorney’s fees to any aggrieved par ty who substantially prevails in an

action under this section. . . .”

The parties disagree about when the Parents should have signed a mortgage discharge. There is no question, however, that a s pecific demand to sign and deliver a mortgage discharge was made to the Parents on May 2 0, 2010. Since they had received and retained not only all that was due them under t he Note, but an additional $15,000 to which they were not entitled, they had an obligatio n under the statute to sign and deliver a discharge of the mortgage no later than 30 days a fter May 20, 2010. They did not complete this until July 11, 2011, 385 days after t hey were required to do so. At $25 per day, the total would be $9,625, so, pursuant to § 4 64(b), Plaintiffs are entitled to the maximum of $5,000. This is a clearcut statutory re medy available to Plaintiffs under these circumstances, and not a matter of discretion

.

While Plaintiffs claim consequential damages for mi ssing an opportunity for a favorable refinancing opportunity due to the undisc harged mortgage, this aspect of their claim has not been proved by a preponderance of the evidence.

Plaintiffs claim punitive damages, but under the ci rcumstances of this case, in which the Parents were represented by an attorney w ho held the mortgage discharge in his file and Plaintiffs’ own attorney thought there may be a valid reason for the discharge not to be delivered until the dispute was resolved, punitive damages are not warranted.

Plaintiffs claim attorneys’ fees under the statute. There are no fees payable by Plaintiffs for Attorney Atwell’s work. The evidenc e does not show what portion of fees payable to Attorney Craddock were incurred for the claim of undischarged mortgage. However, he responded to Defendants’ Motions for Su mmary Judgment, which included the mortgage discharge issue, and argued and repres ented the Plaintiff at the motion hearing and evidentiary hearing. The mortgage disc harge issue was actively pursued by him on all those occasions. However, the bulk of t he legal work related to the claims based on the Equity Reimbursement Agreement. There fore, a reasonable portion of attorneys’ fees attributable to the mortgage discha rge issue is one-fourth, resulting in an amount for attorneys’ fees of $1,650.00.

ORDER

Plaintiffs’ counsel shall prepare a form of Judgmen t based on the foregoing findings of fact and conclusions of law. Defendant s’ counsel shall have five days to file any objection.

Dated at St. Johnsbury this 23rd day of September, 2013.

____________________________ Hon. Mary Miles Teachout Superior Court Judge