Kellogg v. Shushereba, 2013 VT 76
This case is a mess. And that’s exactly what the SCOV majority says at the outset, but the SCOV says it prettier. The dissent actually comes right out and call it what it is.
Plaintiff owns a house and land. That’s the simple part.
In the late ‘90s Plaintiff entered a $180k rent-to-own agreement regarding the house and land with some guy who’s not a party in this case. Said guy’s girlfriend moved in; girlfriend is Defendant here. After about five years, it seemed that guy and girlfriend would be co-owners at the end of the deal. Defendant came up with a $40k+ “down payment” toward the purchase price. Once the already-paid rent got added in, there was a balance of a little under $100k.
The parties entered into an agreement where the deed went to Defendant (guy had tax troubles), guy agreed to pay taxes, Plaintiff took a mortgage, and nothing got recorded.
So, guy and (presumably) Defendant made regular installment payments for four years. Then the relationship went south. Defendant eventually got a relief-from-abuse order against guy. And then Plaintiff and Defendant became sexually involved.
Plaintiff and Defendant were “together” from 2008 to 2010 and during that time Defendant did not pay rent or installment payments, nor did Plaintiff seek them. At some point in 2010, Plaintiff did seek and defendant paid two-to-four rental payments. Plaintiff paid the property taxes from 2008 forward.
In the meantime, Guy sued Defendant and she cross-claimed, but that went nowhere. Plaintiff testified during that trial about how he expected Defendant to “at some point” complete the purchase.
By late 2010, however, it was “over” between Plaintiff and Defendant. So he evicted her and sued her for unpaid “rent” to the tune of $26.6k (the “mortgage” payment times the number of months Defendant was there without paying “rent”) plus the property taxes he had paid. Defendant counterclaimed that she owned the property and, even if she didn’t, that it would unjustly enrich Plaintiff if he was allowed to keep her down payment and the improvements she made to the property. The trial court dismissed Defendant’s ownership claim pretrial on a res judicata—or in non-Latin terms a “y’already-litigated-this-‘member?”—theory.
After a bench trial, both parties “won”: Plaintiff prevailed on his claims for back rent and property taxes and Defendant prevailed on her claim for unjust enrichment. Defendant ended up with a $10kish net. Neither party was happy and they both appealed.
The SCOV frames the posture beautifully: “In summary, plaintiff wants rent and property taxes for the period defendant occupied the property, without returning defendant’s lump-sum payment or her capital contributions. Defendant wants return of the lump-sum payment and an amount equal to the capital contributions without paying any more for her occupancy after [guy] left.”
Standard of review for the SCOV is normal for mixed questions of fact and law: (1) for facts, they are upheld as long as supportable (deference to the trial court); (2) for law, they are whatever SCOV wants (no deference to the trial court); and (3) for the choice of equitable remedies, the SCOV also gives deference to trial court.
The SCOV begins by noting that the trial court’s assumption of a landlord-tenant relationship is flawed. So here’s something interesting. The SCOV’s first point is largely supported by a recent (February of this year) decision you can read about here. What happens is the SCOV concludes that this was not a lease-purchase contract, but a contract-for-deed situation.
A contract for a deed to land, according to the SCOV, is a bilateral (obligations on both sides) contract that has two important characteristics: (1) the prospective purchaser occupies and makes payments to the seller or lender until the delivery of the deed and execution of the mortgage; and (2) payments are applied to the purchase obligation. As they accumulate, they build equity (ownership).
A lease option to purchase, however, is a unilateral agreement that binds only the seller to keep the option open. The potential purchaser can take it or leave it. Lease option payments are not applied to the purchase and thus no equity is created. Here, the SCOV notes that Plaintiff understood his legal relationship with Defendant was that of mortgagee and mortgagor. And so the SCOV concludes that the contract between them was a contract for deed, and that the trial court botched it in finding a landlord-tenant relationship. The SCOV reasons that there was never an agreement to pay rent.
(If that sounds familiar, it’s because I copied and pasted it from the prior summary. I can plagiarize my own work if I want to—it’s still the same theory.)
Because there was no landlord-tenant relationship, Plaintiff cannot recover back rent. Plaintiff can, however, recover under an unjust enrichment or a mesne profits theory. Mesne profits, if you care to know, are ejectment-based damages and can be a fair rental value or more—including perhaps any gains prevented by a defendant. As the SCOV in the early 1950s put it: “Compensation being the basis of the recovery, the wrongdoer must respond for gains prevented as well as for losses sustained, so far as the same are sufficiently alleged and proved.”
The SCOV notes that either theory leads to the same damages and that there must be a factual inquiry on remand into the fair rental value, which is not controlled by the “mortgage” payment amount.
Regarding the taxes, the SCOV reasons that the property taxes are part of mesne profits and that Plaintiff is not entitled to property taxes on top. The SCOV explains: “It would be error for the court to award property taxes in addition to mesne profits.”
Plaintiff argues that Defendant’s counterclaim for unjust enrichment was barred by her cross-claim against him in the first proceeding. The SCOV notes that under some circumstances that’d be true, but in this case because Defendant was still living at the property and they both intended to go through with the sale that the claim wasn’t ripe at the time of the first trial. So, the claim for unjust enrichment is not barred.
But that doesn’t mean that Defendant gets her money back. The SCOV reasons that the agreement falls within the statute of frauds. The SCOV then pulls out a 150+ year-old case that says when an oral contract for the sale of land is unenforceable under the statute of frauds, as long as a seller is ready, able, and willing to perform under the oral contract, the buyer has no cause of action—apparently, even if a buyer made a $40k down payment. Ouch.
The SCOV reverses the trial court on this issue because though Defendant made a sizeable down payment, she did not make any follow-up payments and took no action to complete the purchase. Further, Defendant had the burden at trial of showing that Plaintiff was not able or willing to perform—and she didn’t.
There is a long discussion, quotes from treatises, and even some math in the decision as the SCOV discusses its reasoning. The SCOV notes that the down payment was 23.2% of the total purchase price, and concludes that while a high percentage it’s much like the $100-on-$450 forfeiture from an 1857 case. The takeaway is, more or less, that Defendant forfeits the down payment based on some 1800s cases.
But Defendant does get to keep her award for improvements made. Plaintiff challenges that award based on a notice provision in the landlord-tenant statutes. The SCOV says: no landlord-tenant relationship, no notice required; unjust-enrichment damages not barred.
The SCOV notes the interrelationship between necessary repairs and mesne profits and “suggests” that the trial court consider these factors on remand in reducing the mesne profits measure for those times when repairs were needed.
And so ends the majority opinion.
Justice Robinson writes separately, dissenting in part, and is joined by Justice Burgess. The dissent takes issue with the forfeiture of the down payment. The dissent opens with a colorful description of the problem: “In essence, the majority concludes that in cooking this equitable stew, the trial court should leave out one of the most important ingredients. From an equitable perspective, the resulting concoction just doesn’t taste right.” Beautiful.
The dissent takes issue with three of the majority’s conclusions: (1) that the underlying transaction between the parties was actually an unwritten contract for deed; (2) that the purchaser in such an unwritten contract for a deed generally is not entitled to a return of payments made toward the purchase if the purchaser defaults while the seller remains ready and willing to perform; and (3) that the dollars at stake in this case are not sufficiently high relative to the overall purchase price to take this case out of that general rule.
The dissent notes that the concept of a contract for deed does not fit squarely within the facts—there was no future transfer contemplated. Plaintiff viewed himself as mortgagee and Defendant as mortgagor. Additionally, the parties shifting interpersonal relationships (and resulting potential laxity on enforcing putative obligations) should be considered. The dissent admits that an appropriate legal categorization of the circumstances is difficult. The dissent writes: “Colloquially, I would simply call them a mess.”
The dissent, accordingly, would apply general equitable principles to Defendant’s unjust-enrichment claim.
The dissent reasons that the totality of the circumstances here dictates a different result. Defendant paid Plaintiff a lot of money—even if Plaintiff is entitled to some recovery for Defendant’s occupancy of the house and land that should be offset by Defendant’s sizeable down payment.
Even if this was a contract-for-deed situation, the dissent cannot accept the majority’s conclusion that when a contract for deed is unenforceable due to the statute of frauds, the buyer gets no equitable interest.
The dissent frames it as such: “Given that Vermont has departed from the majority rule in connection with executed contracts for a deed, I see no rationale for adhering to the majority rule when a contract for a deed is unenforceable at law, and the majority does not provide one.”
Finally, the dissent takes issue with the majority’s math. The dissent notes that “$41,793 is a lot of money to most Vermonters, and represents nearly a quarter of the purchase price of the property.” The dissent, taking the “mortgage” and “rent” payments into consideration concludes: “It appears that the outstanding debt due to plaintiff on the property was closer to $65,401—about a third of the original purchase price.” The dissent notes that this ends up being a significant windfall for Plaintiff.
The dissent concurs with the remainder of the majority opinion, but reiterates that “to the extent the Court treats defendant’s $41,793 payment to plaintiff as a nonrecoverable investment, not to be considered in the overall equitable balance,” the majority gets it wrong.
And so concludes the dissent.
Here are my thoughts, should you care to know them.
Equity is flexible. Its very purpose is to fill the void when application of legal remedies would lead to an unjust result. Yes, this is a complicated case. It’s further complicated by the majority’s rejection of the landlord-tenant theory used by the trial court. While it is likely correct, the majority’s choice of legal classification adds an element to Defendant’s unjust-enrichment claim (that the seller was not able and willing), that effectively negates the Defendant’s primary claim. Square pegs should be very narrow when you try to fit them in round holes.
No wonder this opinion has enough footnotes to qualify as a law review article.