Fadalla v. Fadalla

Decision Date18 November 2005
Docket Number1030695.,1030696.
PartiesVincent FADALLA and Fadalla's Auto Air and Detail, Inc. v. George FADALLA and Elouise Fadalla. George Fadalla and Elouise Fadalla v. Vincent Fadalla and Fadalla's Auto Air and Detail, Inc.
CourtAlabama Supreme Court

Deborah B. Hembree of Adams & Reese/Lange Simpson, LLP, Mobile, for appellants/cross-appellees Vincent Fadalla and Fadalla's Auto Air and Detail, Inc.

Clifford C. Sharpe and Maury Friedlander, Mobile, for appellees/cross-appellants George Fadalla and Elouise Fadalla.

SMITH, Justice.1

This appeal and cross-appeal arise out of a dispute between a father and son concerning the ownership of real property on which the son operates a business. Both parties challenge the judgment of the trial court entered after a bench trial. The appellants, Vincent Fadalla and Fadalla's Auto Air and Detail, Inc., appeal from the trial court's order reforming a deed on the grounds of mutual mistake and awarding back rent to George Fadalla. The cross-appellants, George Fadalla and Elouise Fadalla, appeal from the trial court's order insofar as it holds that a lease on the property had not been terminated. As to the appeal, we affirm in part, reverse in part, and remand. As to the cross-appeal, we affirm.

Facts and Procedural History

Before 1993, Vincent Fadalla ("Vince") owned and operated an automobile air conditioning and detailing business in Mobile. His father, George Fadalla ("George"), maintained the financial books for the business. In 1993, Vince negotiated an agreement to purchase real property for his business ("the Airport Boulevard property"). Vince agreed to purchase the Airport Boulevard property for $100,000; the purchase agreement was subject to the condition that Vince obtain financing within 60 days. Vince asked his father to help him obtain financing for the Airport Boulevard property, and George agreed to allow his credit to be used for the purchase. George and Vince secured a loan from SouthTrust Bank for the purchase, and on October 4, 1993, George and Vince purchased the Airport Boulevard property. Vince provided $25,000 for the down payment, and the rest of the purchase price was paid through the loan from SouthTrust Bank. SouthTrust Bank insisted that both George and Vince become co-owners of the property; therefore, George and Vince signed the installment note for the property, and the deed was conveyed to George and Vince, as joint owners.

The deed to the property stated that George and Vince would take title to the property "as tenants in common with equal rights and interest, for the period or term that said Grantees shall both survive, and unto the survivor of the said Grantees at the death of the other." James Brooks, the attorney who prepared the deed, testified that it was his practice to use this language in all deeds conveyed to multiple grantees unless the person requesting the deed specified otherwise.

After George and Vince purchased the Airport Boulevard property, Vince formed a corporation, Fadalla's Auto Air and Detail, Inc. ("Auto Air"), that would operate on the newly acquired property. Auto Air made all of the mortgage payments on the property as they became due.

In April 1994, Auto Air constructed a metal building for the price of $165,000 to house its business operations on the Airport Boulevard property. The cost of constructing the building was financed through Southland Bank, and the financing for the building construction accompanied a refinancing of the loan secured by the mortgage on the real property. Vince, George, and George's wife, Elouise Fadalla ("Elouise"), executed an agreement with the Small Business Administration ("SBA") to guarantee the loan from Southland Bank. The SBA loan agreement required a guarantee from Vince, a mortgage on the Airport Boulevard property, a guarantee from George and Elouise, and security from George and Elouise. George and Elouise offered another parcel of real property, also located in Mobile, as security for the refinancing loan. In addition, under the terms of the SBA loan agreement, Southland Bank and the SBA required George and Vince to lease the property to Auto Air. The lease period began on April 1, 1994, with George and Vince as lessors and Auto Air as lessee. The term of the lease was 25 years and the annual rent was $3,000 payable by Auto Air in monthly installments of $250 per month.

After the construction of the metal building and the start of the lease, Auto Air continued to pay the mortgage payments on the refinanced loan. Vince worked full-time for Auto Air and George continued to do the bookkeeping for the business.

In September or October 1996, George and Vince had a dispute over the proportion of stock each of them owned in Auto Air. George quit keeping the books for Auto Air; he alleges that Vince had "fired" him and had banned him from the Airport Boulevard property. George sent Auto Air a letter on October 16, 1996, stating that because it was in default in the rent due under the lease, the lease agreement was "null and void." George also demanded possession of the premises and instructed Auto Air to vacate the premises immediately.

On May 23, 1997, George and Elouise filed an action against Vince and Auto Air seeking a declaration of the ownership rights in Auto Air, claiming that they had an agreement with Vince pursuant to which George owned 50% of Auto Air. George and Elouise also alleged that Auto Air had not been making the rental payments required under the lease agreement between Auto Air, as lessee, and George and Vince, as lessors. Lastly, George and Elouise sought possession of the Airport Boulevard property.

George and Elouise filed a motion to bifurcate the issues for trial. They requested that the trial court hold one trial to determine the parties' ownership interests in Auto Air and a second trial to resolve the issues surrounding the Airport Boulevard property, including issues related to the lease. The trial court granted the motion to bifurcate. The first trial was held on February 21, 2002, and a jury found that Vince was the sole owner of Auto Air.

George and Elouise amended their complaint on April 18, 2002, seeking to have the original deed for the Airport Boulevard property reformed because of mutual mistake. On June 18, 2002, Vince and Auto Air filed an amended counterclaim. In the amended counterclaim, Vince and Auto Air sought to impose a constructive trust on the Airport Boulevard property. The amended counterclaim alleged that a constructive trust was appropriate because Auto Air had made all of the mortgage payments on the Airport Boulevard property and George had not made any of the mortgage payments.

George sent another letter to Auto Air on November 15, 2002, stating that Auto Air remained in default under the terms of the lease because of its failure to pay the rent. The letter also stated that "George Fadalla, as Lessor, has elected to terminate" the lease and that Auto Air had to vacate and deliver possession of the property to George within 10 days of the date of the letter.

A bench trial was held on October 14, 2003, to resolve the remaining issues in the case. The trial court held that a mutual mistake had occurred in the creation of the deed to the Airport Boulevard property and ordered that the deed be reformed. The trial court found that the true intent of the parties was to create a joint tenancy with a right of survivorship rather than concurrent life estates with cross-contingent remainders as Vince and Auto Air argued; therefore, the trial court ordered that the deed be reformed to reflect this intent. The trial court also found that the lease had not been terminated and ordered that Auto Air pay George $7,379 in back rent.

Vince and Auto Air filed a notice of appeal on January 15, 2004. On January 27, 2004, George and Elouise filed a notice of cross-appeal. On February 10, 2004, Vince and Auto Air filed a motion to dismiss George and Elouise's cross-appeal.

Standard of Review

"[W]hen a trial court hears ore tenus testimony, its findings on disputed facts are presumed correct and its judgment based on those findings will not be reversed unless the judgment is palpably erroneous or manifestly unjust." Philpot v. State, 843 So.2d 122, 125 (Ala.2002). "`The presumption of correctness, however, is rebuttable and may be overcome where there is insufficient evidence presented to the trial court to sustain its judgment.'" Waltman v. Rowell, 913 So.2d 1083, 1086 (Ala.2005) (quoting Dennis v. Dobbs, 474 So.2d 77, 79 (Ala.1985)). "Additionally, the ore tenus rule does not extend to cloak with a presumption of correctness a trial judge's conclusions of law or the incorrect application of law to the facts." Id.

Discussion
I. Vince and Auto Air's Appeal (no. 1030695)
A.

Vince and Auto Air argue that the trial court erred in reforming the deed to change the joint ownership arrangement. Specifically, Vince and Auto Air argue that reforming the deed was improper because, they say, there was insufficient evidence of a mutual mistake of the parties.

The parties stipulated in the trial court that the original deed for the Airport Boulevard property created "concurrent life estates with cross-contingent remainders in fee; or a tenancy in common for life with a contingent remainder in favor of the survivor." Durant v. Hamrick, 409 So.2d 731, 736 (Ala.1981). This type of property interest, recognized by this Court in Durant, creates a right of survivorship that is indestructible by the acts of one of the concurrent owners. 409 So.2d at 737 ("The power to defeat the survivorship interest does not extend to cotenants who hold concurrent life estates with contingent remainders. The contingent remainder held by a cotenant cannot be defeated by the other."). George requested that the trial court reform the deed to create a joint tenancy with a right of survivorship. In contrast to...

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