Kathleen Welch, Respondent, vs. Andre Scott, et al., Appellants.

Kathleen Welch, Respondent, vs. Andre Scott, et al., Appellants. A04-722, Court of Appeals Unpublished, January 18, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-722

 

Kathleen Welch,

Respondent,

 

vs.

 

Andre Scott, et al.,

Appellants.

 

Filed January 18, 2005

Reversed and remanded
Klaphake, Judge

 

Hennepin County District Court

File Nos. UD 1031203504 & DC DJ 04-005737

 

Alan T. Tschida, 505 Tanglewood Drive, Shoreview, MN  55126 (for respondent)

 

Francis J. Rondoni, Mark J. Schneider, Rondoni & Schneider, Ltd., 505 North Highway 169, Suite 175, Minneapolis, MN  55441-6406 (for appellants)

 

            Considered and decided by Harten, Presiding Judge, Klaphake, Judge, and Stoneburner, Judge.

U N P U B L I S H E D   O P I N I O N

KLAPHAKE, Judge

            Appellants Andre and Winnie Scott challenge a judgment entered in an unlawful detainer action brought against them by respondent Kathleen Welch, granting respondent possession of property located at 2320 Dupont Avenue North in Minneapolis.  Respondent claimed that she was entitled to possession of the property because she properly cancelled the parties' contract for deed under Minn. Stat. § 559.21 (2002).  Appellants claim that respondent waived the right to cancel the contract by accepting and retaining payments made by them after expiration of the 60-day reinstatement period.  Appellants also claim that the parties' contract for deed must be construed as an equitable mortgage, thus requiring respondent to proceed by foreclosure.

            Because respondent's acceptance and retention of payments after cancellation of the contract for deed is inconsistent with her claim of forfeiture, we reverse and remand.

FACTS

            In 1999, the parties moved a house onto a vacant lot owned by respondent.  Respondent lived in another house on the same block and was interested in improving her neighborhood.  Respondent agreed to finance the move, make the house habitable, and sell it to appellants.  Appellants moved into the house, even though a certificate of occupancy had not yet been obtained.

            The parties did not have a written contract outlining their agreement or obligations, and the parties' relationship appears to have soured at some point.  Respondent claims that she spent over $106,000 moving the house and making it livable, and that appellants paid her nothing for over two years.  Appellants claim that respondent was responsible for obtaining a certificate of occupancy, but that she quit the project before repairs were complete.

            On October 1, 2002, the parties executed a contract for deed.[1]  Respondent's attorney, Edward Gearty, drafted the contract; appellants were not represented by an attorney.  Under the terms of the contract, appellants agreed to purchase the property for the sum of $106,770.65.  Of this amount, appellants were to pay respondent a $15,000 grant that they were to receive from the Neighborhood Revitalization Program (NRP); the remaining $91,770.65 was to be paid in monthly installments of $711.  Appellants further agreed to complete certain repairs as required by the Minneapolis Community & Development Agency (MCDA), including work to the exterior and roof.

            Appellants received the $15,000 NRP grant on February 10, 2003.  Under the terms of the contract for deed, appellants were to turn the money over to respondent within 30 days.

            On March 14, 2003, appellants were served with a notice of cancellation of the contract for deed.  The notice set out amounts overdue under the contract for deed, including the $15,000 NRP grant, at least one monthly payment on the contract, as well as payments for taxes and insurance.  On May 16, 2003, after expiration of the 60-day reinstatement period, respondent filed the notice of cancellation in the Hennepin County Recorder's Office.

            On May 29, 2003, appellant Andre Scott hand delivered two checks to respondent totaling $20,014, which appellants claim represented the amount due on the cancellation notice.  While this payment was made after the 60-day reinstatement period, respondent accepted and retained the payment.  Appellants claim that respondent reassured them that the contract remained in force and that everything was okay.

            Gearty, who was respondent's attorney at the time, testified that he advised respondent that she could retain the payment without waiving her right to cancel the contract for deed.  Gearty testified that on June 5, 2003, he sent a letter to appellants informing them that the contract for deed was cancelled and that the payment they had made did not reinstate the contract.  Gearty's letter further informed appellants that they were now month-to-month tenants, that their monthly rent for June and July would be $711, and that their monthly rent thereafter would be $1,250.  Gearty's letter finally stated that respondent would complete the repairs as required by the MCDA and put the property on the market.

            Appellants testified that they never received this letter and that they assumed that the contract was still in effect.  Appellants made payments of $711 in June and July 2003, which respondent accepted.  In August 2003, however, respondent refused to accept appellants' tendered payment of $711.

            In December 2003, respondent brought this unlawful detainer action.  Appellants answered, claiming that respondent had waived the right to cancel the contract when she accepted and retained payments made under the contract.  Appellants also brought a separate suit against respondent for breach of contract, unjust enrichment, equitable mortgage, consumer fraud, fraud, and breach of the duty of good faith and fair dealing.

            The two actions were consolidated for trial, which was held over five days in January 2004.  The district court issued an order in the unlawful detainer action, finding that although respondent had accepted the payments, she did not intend to reinstate the contract.  The district court also found that appellants failed to show fraud, equitable estoppel, or unjust enrichment.  The court further indicated that its order "does not address claims of amounts owed by and between the parties," issues that the court indicated would be addressed in subsequent proceedings.

            Issuance of the writ of restitution appears to have been stayed pending the outcome of this appeal.

D E C I S I O N

            A district court's findings of fact "shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the [district] court to judge the credibility of the witnesses."  Minn. R. Civ. P. 52.01.  A finding is clearly erroneous only if it is "manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole."  Randall v. N. Milk Prods., Inc., 519 N.W.2d 456, 458 (Minn. App. 1994) (quotation omitted).  Where material facts are not in dispute, however, we need not defer to the district court's application of those facts to the law.  Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989).

I.

            Appellants argue that the district court erred in determining that respondent did not intend to waive the right to forfeiture.  Appellants insist that by accepting and retaining three separate payments made after expiration of the 60-day reinstatement period, respondent waived the right to declare the contract for deed forfeited as a matter of law.  We agree.

            When there is a default in a contract for deed, the vendor has the option of canceling the contract under Minn. Stat. § 559.21, subd. 2a (2002).  Wayzata Enters., Inc. v. Herman, 268 Minn. 117, 119, 128 N.W.2d 156, 158 (1964).  When a vendor chooses to proceed by statutory cancellation, he or she is deemed to have elected a remedy and is thereafter prevented from receiving double recovery by seeking damages for breach of contract; in short, "one cannot ordinarily cancel a contract by the statutory procedure and then recover benefits due under it."  Rudnitski v. Seely, 452 N.W.2d 664, 666 (Minn. 1990); see also Kosbau v. Dress, 400 N.W.2d 106, 108 (Minn. App. 1987) ("If the seller chooses to cancel the contract, he cannot recover payments due under the contract.").

            Thus, a vendor may waive his or her right to insist on a forfeiture resulting from a statutory cancellation of the contract by accepting and retaining payments due under the contract after the cancellation proceedings are complete.  See Cohler v. Smith, 280 Minn. 181, 189, 158 N.W.2d 574, 579 (1968) (recognizing that acceptance of payment under contract after cancellation is inconsistent with claim of forfeiture and may constitute waiver).  A vendor's acceptance of the amount in default as a payment on the contract may constitute a waiver as a matter of law.  Jandric v. Skahen, 235 Minn. 256, 261, 50 N.W.2d 625, 628 (1951).

            In Jandric, the supreme court held that acceptance of payment after default under a contract for deed is inconsistent with the right to insist upon a forfeiture and constitutes a waiver of that right as a matter of law.  Id. at 260-61, 50 N.W.2d at 628.  In that case, after expiration of the reinstatement period, the vendors' attorney retained the payment made by the purchasers for 14 days and the vendors remained silent after learning that their attorney had received the payment.  Id. at 257, 50 N.W.2d at 626.  The supreme court noted that the mere transfer of money to one's attorney is insufficient by itself to establish waiver, and that "it is necessary to find that [the vendors] at some time formed an intent to accept the money as payment."  Id. at 261, 50 N.W.2d at 628.  The court concluded that the necessary intent was present, given the lapse of 14 days and the fact that the vendors remained silent, even though the parties were in "close proximity to each other" and "rapid means of communication were open to them."  Id.

            In Odegaard v. Moe, 264 Minn. 324, 328, 119 N.W.2d 281, 283 (1962), the cancellation notice specified default on both the mortgage payments and the payments due under the contract.  The vendor subsequently accepted a contract installment from the vendee that did not include the mortgage payments in default.  Id.  The supreme court nonetheless held that the vendor had waived his right to insist upon forfeiture since the vendee had complied with one of the reasons for default in the notice and the vendor accepted and retained this payment.  Id., 119 N.W.2d at 284.

            Here, the district court explicitly found that respondent received the payment from appellants "but did not thereby intend to reinstate the October 1, 2002 Contract for Deed" and did not "intend to relinquish or waive her right to insist on [appellants'] forfeiture."  While we must defer to the district court's findings, particularly findings that involve witness credibility, we will not uphold a finding that is "manifestly contrary to the weight of the evidence."  See Randall, 519 N.W.2d at 458.

            Here, it is undisputed that respondent accepted and retained the payment for amounts due under the contract and set out in the cancellation notice.  Thus, even though respondent testified that she did not intend to waive her right to cancel the contract, her conduct in accepting and retaining the payment made by appellants under the contract is wholly inconsistent with her stated intent.  See Credit, Inc. v. Kutzik, 280 Minn. 272, 274, 159 N.W.2d 277, 279 (1968) (holding that vendors' acceptance and retention of payments on contract after cancellation proceedings were completed was "inconsistent with an intention to treat the contract for deed as terminated").  And even though respondent's attorney sent a letter to appellants stating that the contract was not reinstated, that letter was sent seven days after respondent's acceptance of the payment and did not offer to return the payment made by appellants.  See Jandric, 235 Minn. at 261, 50 N.W.2d at 628 (stating that "intent to accept the payment, once formulated, would constitute a waiver, and a change of mind later would not affect it").  To date, it appears that the payment still has not been returned to appellants.  The district court's finding that respondent did not intend to waive her right to forfeiture is therefore clearly erroneous.

            We therefore conclude that respondent waived her right to declare the contract for deed forfeited as a matter of law.  By accepting and retaining appellants' $20,014 payment, which respondent acknowledged included amounts for the $15,000 NRP grant, property taxes, and insurance, respondent waived her right to treat the contract for deed as cancelled.  The district court's decision to the contrary is reversed and the matter is remanded for further proceedings consistent with this opinion.

II.

            Appellants argue that the district court erred by failing to construe the contract for deed as an equitable mortgage.  Although this was an alternative argument, we address it to clarify the issues on remand.

            A transaction may be construed as an equitable mortgage if both parties intended a loan transaction with the deed as security only and not as a sale.  Ministers Life & Cas. Union v. Franklin Park Towers Corp., 307 Minn. 134, 138, 239 N.W.2d 207, 210 (1976).  The intent of the parties must be "ascertained by the written memorials of the transaction and the attendant facts and circumstances."  Id.

            Appellants correctly note that the evidence presented at trial established that (1) respondent was responsible for providing financing to move and repair the house; (2) the amount of the contract for deed, $106,770.65, represented the amount that respondent claimed she had spent on the project as of October 1, 2002; and (3) the parties intended that respondent would provide the financing and that appellants would purchase the house and the lot from respondent under a contract for deed.  These facts, however, do not support the existence of an equitable mortgage.

            As respondent argues, there is no deed absolute on its face here, so as to create an equitable mortgage:  respondent has always held title to the property.  The fact that the parties decided to transfer the property to appellants by contract for deed does not convert their contract into an equitable mortgage.  See Miller v. Anderson, 394 N.W.2d 279, 283 (Minn. App. 1986) (holding that equitable mortgage may exist when borrower deeds property to lender in exchange for loan of money and that it does not apply to situation where title originated with lender).  The contract for deed was a true sale, not a financing arrangement by which appellants were willing to give respondent a deed to the property in exchange for her lending them money.  As in the nature of a true sale, respondent was willing to sell her property to appellants so that she could recoup some of her investment and turn over to appellants the obligations for insurance, taxes, and the remaining listed and necessary repairs.  We therefore conclude that the contract for deed was just that:  a contract for the sale of property.

            Reversed and remanded.

[1]  Respondent also claimed that the parties entered into a second contract for deed for over $12,000, which she claimed represented interest owed by appellants and not paid.  Appellants claimed that they never signed this contract.  The district court found that this smaller contract for deed was unenforceable, a finding that is amply supported by the evidence presented at trial and is not challenged here on appeal by respondent.