Opinion ID: 1747715
Heading Depth: 1
Heading Rank: 3

Heading: whether the special master erred in construing a property settlement agreement entered into by the parties in a divorce proceeding to require a wife to sign joint tax returns where the parties only agreed to cooperate with each other in the filing of all tax returns.

Text: In Kight v. Sheppard Bldg. Supply Inc., 537 So.2d 1355, 1358 (Miss. 1989), this Court set out the basic principles governing construction of documents: In interpreting the writing at issue, the cardinal rule of construction is to give effect to the mutual intentions of the parties. Where, as here, the writing is ambiguous, courts are obligated to pursue the intent of the parties by resort to parol evidence. In addition, the construction which the parties have placed upon the contract, or what the parties to the contract do thereunder, is relevant extrinsic evidence, and often the best evidence, of what the contract requires them to do. Finally, the vagueness and ambiguity found in the writing at issue is construed against the party preparing it. (citations omitted). This principle as set out in Kight has long been the standard of construction when terms of a contract are ambiguous. In Stampley v. Gilbert, 332 So.2d 61 (Miss. 1976), this Court stated: There is also the universal rule of construction that when the terms of a contract are vague or ambiguous, they are always construed more strongly against the party preparing it. Globe Music Corp. v. Johnson, 226 Miss. 329, 84 So.2d 509 (1956); Love Petroleum Co. v. Atlantic Oil Producing Co., 169 Miss. 259, 152 So. 829 (1934). 332 So.2d at 63. This Court recently adhered to this long standing principle in Merchants Nat. Bank v. Stewart, 608 So.2d 1120 (Miss. 1992), stating: We have construed written instruments narrowly against the drafter when there is uncertainty or ambiguity as to the intent of the parties. Clark v. Carter, 351 So.2d 1333 (Miss. 1977); Stampley v. Gilbert, 332 So.2d 61 (Miss. 1976); Miss. State, etc. v. Dixie Contractors, 375 So.2d 1202 (Miss. 1979); accord, Baton Rouge Contracting, Co. v. West Hatchie Drainage Dist., 304 F. Supp. 580 (N.D.Miss. 1969), aff'd per curiam 436 F.2d 976 (5th Cir.1971); United States v. American National Bank, 255 F.2d 504 (5th Cir.1958). 608 So.2d at 1125-1126. In the portion of the settlement agreement at issue, there is no clear statement that the parties were to execute joint tax returns. The language from which the Special Master derived this interpretation comes at the end of a paragraph discussing the exemptions which would be allowed to the parties for the children on separate returns prepared after the divorce. Thus, the language of the settlement agreement requires resorting to parol evidence to resolve this ambiguity. As the Special Master's report indicates, this is exactly what was done. The Special Master's Report states: The initial issue to be addressed by the court is whether the language in paragraph XII of the Property Settlement Agreement entered into by and between the parties, obligating the parties to ... cooperate with each other in the filing of all tax returns which may now be due through the tax year 1989, includes the obligation of both parties to cooperate with each other and file and sign joint tax returns under the filing category of married filing jointly. The Court finds that the parties did intend and anticipated that they would be filing joint tax returns under the category of married filing jointly during the period of time that they were married, and further, that the language entered into by and between the parties in paragraph XII of the Property Settlement Agreement, requiring that the parties ... cooperate with each other in the filing of all tax returns which may now be due through the tax year 1989, included the obligation for both parties to work with each other and file and sign joint tax returns  married filing jointly. Special Master's conclusion is supported by not only the language of the Property Settlement Agreement itself, but also by the fact that for each and every year during the course of the parties' marriage that the parties filed federal and state income tax returns; these tax returns were filed by the parties as married and filing jointly. Additionally, the evidence presented to the undersigned is undisputed that the parties, in particular Mr. Banks, would be unreasonably and unnecessarily penalized if the court were to permit Ms. Banks to refuse to cooperate with and sign the parties' tax return. Specifically, the evidence presented before the Special Master indicated that if Ms. Banks refused to execute the joint tax returns for the taxable years 1982-1986 which have been prepared in behalf of Mr. Banks as married and filing jointly; that Mr. Banks would suffer approximately $17,000-$20,000 in punitive sanctions as a result of Ms. Banks' refusal. The Court further finds that Ms. Banks has failed to present any evidence that would convince the court that it would be detrimental to her in any aspect for her to join in with Mr. Banks in the filing of joint state and federal income tax returns for the taxable years 1982-1989, particularly given the following conditions which the court imposes as a condition precedent to Ms. Banks's obligation to execute such income tax returns. Contrary to the Special Master's finding, there was nothing in the language of the agreement which would expand the language to include and sign or execute. There are other problems with the findings which are not consistent with the evidence presented to the Special Master. Although the same tax returns were filed on behalf of the Earle and Althea Banks during earlier years of their marriage as joint returns, the undisputed testimony from Mr. Banks and Mrs. Banks was that she did not sign any tax returns. In fact, Mrs. Banks contends that she never saw any tax returns and he did not contend otherwise. Mr. Banks testified that his tax attorney, Mr. Beacham, signed tax returns for him and Mrs. Banks. The most serious problem with the Special Master's report is the finding that both parties would be penalized if joint returns were not filed and that Mrs. Banks failed to present any evidence that ... it would be detrimental to her in any respect for her to join in with Mr. Banks in the filing of joint state and federal income tax returns. The clear proof was that Mrs. Banks would only suffer detriment if she signed and that by signing she was exposing herself to the full extent of tax liability for which Mr. Banks had made himself liable. In short, the proof showed that she could only be harmed by signing the joint returns. When Mrs. Banks characterizes the indemnity agreement in her brief as claiming to hold her harmless, Mr. Banks responded: The Indemnity agreement did not claim to do anything  it imposed a legal duty upon Mr. Banks to hold her harmless which Ms. Banks could have enforced in a court of law. Mrs. Banks already had experience with an enforceable legal duty in that Mr. Banks was under a legal obligation to pay child support, tuition, mortgage payments and insurance, which Mrs. Banks was having extreme difficulty in getting the court to enforce. At each hearing held in this case, Mr. Banks' non-compliance was raised. His delinquency in paying the mortgage was such that Mrs. Banks was forced to get a loan in order to prevent foreclosure. Mr. Banks' track record of complying with court ordered financial responsibilities was dubious at best. Mrs. Banks was justified in her concern for protection of her interests and rights. In addition to the indemnification agreement, the Special Master required Mr. Banks to deliver to his attorney certified funds to cover the taxes due. The testimony of Mr. Barnes clearly indicated that these funds were greatly insufficient to cover all the tax liability owed by Mr. Banks. Mr. Barnes testified that penalties and interest, which turned out to be a large part of what was owed, were not included in the calculations. Until the last hearing before the chancellor, the testimony had placed the difference in tax obligations between single filing and joint filing in the range of $10,000.00 to $20,000.00. The ultimate figure of over $32,000.00 shows how distorted the early figures actually were. The $14,000.00 held by Mr. Banks' attorney would still have been many thousands of dollars short of satisfying his tax obligation even under the most favorable tax situation. In short, Mr. Banks' failure to provide the entire amount that was owed to the IRS was not in compliance with the Special Masters' order, much less affording full protection to Mrs. Banks as required. At the October hearing it was revealed that none of the monies delivered as a condition precedent to Mrs. Banks' signing had actually reached the IRS. While requiring that monies be delivered to cover the taxes (not including penalties and interest), the Special Master made no provision that the monies had to actually be paid to the IRS. The whole scenario would have left Mrs. Banks with considerable potential liability and little or no real protection. During the whole of these discussions, Mr. Banks, by his own admission, was having financial problems and also was not fulfilling his obligations under the settlement agreement as to mortgage payments, tuition, child support and other money matters. Not discussed by the lower court is Mr. Banks' own culpability in his tax problems. At no point did he, prior to being brought into tax court, make any effort to resolve his tax obligations either during the marriage or prior to February 1992. Although his original tax attorney died in 1988, there was no explanation for the further delay. Even at the time of the final hearing before Judge Warner on October 13, 1992, no tax returns had been filed for Mr. Banks even though it was long past the time when joint returns could be filed. Most significantly, no taxes had been paid, even though more than $14,000.00 had been delivered to his attorney for this purpose in late February. Based on a fair reading of the evidence before the Special Master and comparing this with his findings, we reach the inescapable conclusion that the Special Master was manifestly wrong in construing the settlement agreement to require Mrs. Banks to sign joint tax returns. There is a question as to the propriety of the finding of contempt. The following is taken from Smith v. Smith, 545 So.2d 725, 727 (Miss. 1989): Civil contempt is coercive in nature. This type proceeding resembles an injunction, and is instituted by a party in order to force another party to act or cease to act in a particular manner. Jones v. Hargrove, 516 So.2d 1354, 1357 (Miss. 1987). There are several available defenses to a civil contempt charge. One is that whatever violation there may have been of a decree or order was not willful or deliberate such that the behavior in question may not be labelled as contumacious. Dunaway v. Busbin, 498 So.2d 1218, 1222 (Miss. 1986). Included in this defense may be an honest inability to perform according to the dictates of the order or decree. Prestwood v. Hambrick, 308 So.2d 82, 85 (Miss. 1975). Another available defense is the traditional notion of clean hands. Vockroth v. Vockroth, 200 So.2d 459, 463 (Miss. 1967). A third defense is that of an inability to obey an order which is vague or not sufficiently specific. 498 So.2d at 1222. Mrs. Banks raised variations of all these defenses. As discussed, Mrs. Banks contends that the language of the settlement agreement did not include the obligation to sign or execute joint tax returns and that this was not her intention at the time of the agreement. She also made her decision only after consulting with her attorney and her IRS representative. She raised her right to have the report of the Special Master reviewed by the chancellor. There are unanswered questions as to whether Mrs. Banks could comply with the report of the Special Master. At the time she was given the tax returns to sign, she had already filed separate returns herself for two of the years and been cleared of liability for the remaining years. The deadline imposed by the IRS was only days later and at that time there was no review or affirmation by the chancellor. Technically, at the time she could have signed there was no order or decree entered by the chancellor for her to disobey. Had she gone ahead and signed, any review or appeal would have been moot since she would have found herself bound by the federal tax court decree against which no state court decision would have had any effect. A part of our consideration is the question of whether the report or decision of the Special Master has the effect of being an order prior to its ratification by the chancellor. Rule 53 of the Mississippi Rule of Civil Procedure authorizes courts to appoint masters but sets limitations on powers and duties. Nowhere in the rule is the master given the authority to order parties to perform specific duties as a result of the hearing held. Rule 53(d) sets out the master's powers: The order of reference to the master may specify or limit his powers and direct him to report only upon particular issues or to do or perform particular acts or to receive or report evidence only and may fix the time and place for beginning and closing the hearing and for the filing of the master's report. Subject to the specifications and limitations stated in the order the master has and shall exercise the power to regulate all proceedings in every hearing before him and to do all acts and take all measures necessary or proper for the efficient performance of his duties under the order. He may require the production before him of evidence upon all matters embraced in the reference, including the production of all books, papers, vouchers, documents, and writings applicable hereto. He shall have the power to administer oaths, to take the examination of witnesses in cases pending in any court, to examine and report upon all matters referred to him, and to execute all decrees directed to him to be executed. Masters shall have the power to direct the issuance of subpoenas for witnesses to attend before them to testify in any matter referred to them or generally in the cause. If any witness shall fail to appear, the master shall proceed by process to compel the witness to attend and give evidence. The comment to the rule states that masters are not supernumerary judges and should not be utilized as such... . As set out in Massey v. Massey, 475 So.2d 802, 806 (Miss. 1985), 53(d) does not require that the order specify or limit the powers of the master, but only provides that the order `may' do so; otherwise, the powers of the master are broad. 5A, Moore's Federal Practice (2d Ed.), Ch. 53 (1994), discussing the federal version of the rule states: As indicated by the use of the word may in the first sentence and by the general grant of power given by the end sentence of subdivision (c), a reference containing no limitations is a general reference to report on all the issues, both of law and fact, involved in the litigation. However, the court cannot, without the consent of the parties, refer the whole case to the master for final decision. Nor may the district court merely rubber stamp the master's recommendations: it must respond to the particular facts of the case and address any objections to the recommendations made by the parties.       In discussing the powers of the master it should [be] made clear that although for many purposes this officer is an arm of the court, given the power necessary to control and expedite proceedings before him, the master lacks the powers of the court itself. Thus, it is the court, or the court and jury, as the case may be, and not the master, that decides all issues, and the court that renders judgment in the case. A master cannot, even with court consent, issue injunction or punish for contempt. The report entered both verbally and as filed by the Special Master goes beyond the scope of merely reporting and goes to fashioning a final decision. The language used by the Master indicates that he believed and acted as if he had the full power of the court subject only to appellate review. Prior to this case being referred to a chancellor, the Special Master stated at the May 9, 1992 proceedings: Of course, I ruled on March 9th that I felt like it was clear, interpreting the property settlement agreement, that you did have an obligation to cooperate with Mr. Banks, and inclusive within that was to execute joint tax returns for the taxable years at issue. I still believe that that ruling was proper and I still think you have that obligation, I am going to find that, in clarification, I believe my intent in my ruling, my bench ruling on March 9, 1992, and so as to clarify my Special Master's report, I will again rule that you were not in contempt as of March 9, 1992. I am going to find, however, that as a result of your conduct since March 9, 1992 you conduct has been willful and it has been intentional and you are in direct violation of the judgment of divorce and the settlement agreement, and I am going to find that you are in contempt of this court as of today. Later the Master directs that Mrs. Banks be incarcerated after the chancellor's review if she refuses to execute the joint tax returns. The chancellor on June 25, 1992, entered a judgment affirming the Special Master's report without any explanation and without holding a hearing even though Mrs. Banks had requested such a hearing immediately after the first report of the Special Master. Rule 53(g) states, in part: Within ten days after being served with notice of the filing of the report any party may serve written objections thereto upon the other parties. Application to the court for action upon the report and upon objections thereto shall be by motion and upon notice as provided by Rule 6(d). The court after hearing may adopt the report or modify it or may reject it in whole or in any part or may receive further evidence or may recommit it with instructions. In Kieffer v. Sears Roebuck & Co., 873 F.2d 954 (6th Cir.1989), the district court adopted the master's findings without a hearing despite plaintiff's motion for reconsideration of report. The court of appeals held that under Rule 53 the district court must hold a hearing when parties file objections to a master's report. In Vekamaf Holland B.V. v. Pipe Benders, Inc., 671 F.2d 1185 (8th Cir.1982), the court of appeals reversed and remanded a case where the district court accepted the recommendation of the master without explanation, holding that where the case involves complex issues the court must respond to the facts of the case and set forth its reasons for affirming. (A potential risk of the magistrate's report becoming a de facto magistrate's adjudication arises unless the district court renders a thorough judicial analysis of recommendations.) Id. at 1187. Contrary to the requirements of the rule, the chancellor in the present case did not conduct a hearing and set forth no reasons for adopting the Special Master's reports. When the chancellor finally did conduct a hearing the scope was limited. In this case the Special Master acted beyond the scope of his authority. The chancellor appears to have totally deferred to the Special Master or rubber stamped his ruling without holding the hearing which he should have under Rule 53. Even beyond the procedural irregularities, is the question of why this matter was referred to a special master. Given the extremely close deadline facing Mr. Banks at the initiation of this case, it should have been foreseen that this matter should have been referred directly to a chancellor. The rule clearly states that reference to a master shall be the exception and not the rule. A reference shall be made only upon a showing that some exceptional condition requires it. The Order Appointing Special Master gives no indication why Mr. Banks requested a special master and why one was appointed given the facts of the case. The other underdeveloped area is the question of clean hands. At several points this equitable doctrine was invoked by Mrs. Banks, but with little consequence. At the time Mr. Banks sought to have the court enforce the property settlement agreement by having Mrs. Banks sign the tax returns, he was not in compliance with the much clearer and explicit requirements of paying the mortgage or other provisions for child support or tuition. Although he had various explanations, there was a persistent problem with Mr. Banks and his financial obligations which continued throughout the whole course of this case in the lower court. The failure of the accusing party to come into court with clean hands is one of several defenses to a civil contempt action. Cooley v. Cooley, 574 So.2d 694, 698 (Miss. 1991); Smith v. Smith, 545 So.2d 725, 727 (Miss. 1989). On the doctrine of clean hands, Griffith, Mississippi Chancery Practice § 42 (1950) states: It is the meaning and purpose of this maxim to declare that no person as a complaining party can have the aid of a court of equity when his conduct with respect to the transaction in question has been characterized by wilful inequity, or illegality... . It may be described as such wilful misconduct, inequity or fraud with respect to the immediate transaction as would be condemned and pronounced wrongful by honest and fair-minded men. As between the parties, it cannot be said that Mr. Banks came into court with entirely clean hands. While seeking the aid of the court in enforcing language in the settlement agreement which at best was less than clear, he was persistently delinquent as to his own specific obligations under the agreement. While his behavior was not necessarily wilful and deliberate such that a finding of contempt would have been appropriate, his behavior was persistently inconsistent with one seeking equitable aid from the court. The Special Master was in error in construing the property agreement to include an obligation to sign joint tax returns under the facts of this case and in finding Mrs. Banks in contempt.