Langman v. Alumni Ass'n of University of Virginia

• Decision Date: 15 April 1994
• Docket Number: No. 930663,930663
• Citation: 442 S.E.2d 669,247 Va. 491
• Parties: , 90 Ed. Law Rep. 854 Margaretha W. LANGMAN v. ALUMNI ASSOCIATION OF the UNIVERSITY OF VIRGINIA, et al. Record
• Court: Virginia Supreme Court

Page 669

442 S.E.2d 669

247 Va. 491, 90 Ed. Law Rep. 854

Margaretha W. LANGMAN v. ALUMNI ASSOCIATION OF the UNIVERSITY OF VIRGINIA, et al.

Record No. 930663.

Supreme Court of Virginia.

April 15, 1994.

James N. Deinlein, Charlottesville (Peter B. Vaden, Feil, Deinlein, Pettit & Williams, on briefs), for appellant.

Kenneth G. Roth, Fairfax (Montedonico, Hamilton & Altman, on brief), for appellee Alumni Ass'n of University of VA.

No brief or argument on behalf of appellees Caleb N. Stowe, Leroy R. Hamlett and Resolution Trust Corp.

Present: CARRICO, C.J., COMPTON, STEPHENSON, WHITING, LACY and KEENAN, JJ., and POFF, Senior Justice.

KEENAN, Justice.

The primary issue in this appeal is whether a deed containing a mortgage assumption clause was repudiated by the grantee.

Dr. Margaretha W. Langman filed a bill of complaint seeking a declaration of rights pursuant to a deed to real property. The bill of complaint named, among others, the Alumni Association of the University of Virginia, doing business as the University of Virginia Fund (Alumni Association), which was the grantee in the deed. Langman, one of the grantors in the deed, alleged that the Alumni Association had failed to pay the mortgage secured by the property conveyed by the deed, in contravention of a mortgage assumption clause in the deed.

Langman further alleged that she had cured the default, but that the Alumni Association had refused to reimburse her, contending that it was not obligated by the assumption clause in the deed. The Alumni Association interposed affirmative defenses of fraud, mutual mistake, and the statute of frauds.

The trial court received evidence in a three-day hearing. The evidence showed that Langman, a psychologist, and Caleb N. Stowe, a real estate broker, both residents of Albemarle County, previously had dealt together in commercial real estate transactions. On June 3, 1986, Langman and Stowe, as tenants in common, purchased commercial real property from Empire Management & Development Company, Inc. (Empire). The property, known as "Ferdinand's Arcade," was located in Allegany County, Maryland, and included an "arcade type" commercial building.

The sales contract included a provision by which Empire guaranteed a specified monthly income from the property until the actual income equalled or exceeded the guaranteed amount for three consecutive months. The closing statement further provided that Empire's rental guarantee would survive the closing of the transaction.

The deed stated a consideration of $780,000. An appraiser for the mortgagee had valued the property, as of March 19, 1986, at $775,000. In connection with the transaction, Langman and Stowe executed a note payable to Dominion Federal Savings and Loan Association (Dominion Federal) ¹ in the amount of $600,000, secured by a first deed of trust on the real property and its improvements, fixtures, rents, and income.

Later in 1986, both Langman and Stowe determined that they would make separate gifts to the University of Virginia. Stowe wished to honor a pledge of $100,000, and Langman wished to establish an endowed chair in the university's medical school. These gifts were to be accomplished by the transfer of the Ferdinand's Arcade property to the university.

Samuel B. Long, III, of the Office of University Development, suggested to Stowe that the property be conveyed to the Alumni Association. Marion B. Peavey, Vice President for University Development, testified that assets owned by the Alumni Association were more easily liquidated than those held by the university itself.

Correspondence dated in December 1986 and April 1987 between Peavey and Langman's son, who was writing on Langman's behalf, shows that part of Langman's initial contribution to funding of the endowed chair was to derive from Langman's "equity interest" in the Ferdinand's Arcade property, which was valued in the correspondence at approximately $86,000.

The deed that is the subject of this litigation is dated December 30, 1986. It states that Langman and Stowe, as grantors, convey to the Alumni Association, as grantee, the Ferdinand's Arcade property in fee simple. The consideration recited is "the love and respect which the Grantors have for the University of Virginia."

The deed states that the property is subject to the lien of the deed of trust securing the $600,000 debt to Dominion Federal. The next sentence reads, "The Grantee does hereby assume payment of such obligation and agrees to hold the Grantors harmless from further liability on such obligation." The deed was not signed by a representative of the Alumni Association, nor was there a space provided for the grantee's signature.

Langman testified that she signed the deed on December 31, 1986, that she read the deed very carefully, that she understood the legal significance of the mortgage assumption clause and the difference between a mortgage assumption and a transfer "subject to" a mortgage, and that she would not have signed the deed if it had not contained a mortgage assumption clause. She stated that her expectation was that, if the Alumni Association wished to obtain her equity interest in the property in order to begin funding her gift of the endowed chair, it would have to assume the mortgage debt on the property.

In a letter dated December 31, 1986, Gilbert J. Sullivan, director of the Alumni Association, wrote to Langman and Stowe and acknowledged the gift represented by the deed. David Murphy, a certified public accountant and comptroller of the Alumni Association, testified that at some point in early 1987 he received the deed and, in accordance with Sullivan's instructions, delivered it to Joseph M. Wood, II, an attorney for the Alumni Association, in order to have it recorded. Wood testified that he received the deed from Murphy in March or April of 1987, and that he was asked only to have the deed recorded in Maryland, which he accomplished. He then returned the original deed to Murphy.

Both Murphy and two accountants employed by the Alumni Association's independent auditors stated that the Dominion Federal mortgage on the property was viewed and journaled as a liability of the Alumni Association. Further, the audited balance sheets and financial statements of the Alumni Association for the fiscal years ended June 30, 1987, and June 30, 1988, identified the Dominion Federal mortgage as a liability, and the footnotes to financial statements stated that the Alumni Association had "assumed the mortgage on property donated during the year ended June 30, 1987." One of the auditors testified that the language of the footnotes reflected a mortgage assumption, rather than a conveyance "subject to" a mortgage, in accordance with differences in the way the two types of transactions were viewed from an accounting perspective.

Sullivan testified that he objected to the independent auditors about the fact that the balance sheet showed a liability associated with the Ferdinand's Arcade property, because this did not accord with his understanding that the Alumni Association had no responsibility for the Dominion Federal indebtedness. However, both Murphy and the accountants employed by the independent auditors denied that any complaints of this kind reached them.

The evidence also established an oral agreement between Stowe and the Alumni Association whereby Stowe undertook, after the conveyance of Ferdinand's Arcade to the Alumni Association, to "follow through, manage [the] property, collect the rents, and get it sold." Beginning in 1987, Stowe assumed the management of the property and its tenants, and saw that both the operating expenses and the mortgage debt were paid out of the property's income. When the income was insufficient to meet these expenses, Stowe paid the shortfall from his own funds.

In both 1987 and 1988, the expenses did in fact exceed the revenues. For the fiscal years ending in 1987 and 1988, both Stowe and the Alumni Association originally recorded the shortfall amount as a debt owed to Stowe; however, after the Alumni Association's yearly audit, Stowe forgave the debt, the Alumni Association removed its accounts payable entry, and both parties treated the amount as a charitable contribution on the part of Stowe. During the time period from 1987 through early 1989, several lease documents and a liquor license application were signed relating to business tenants at Ferdinand's Arcade, which show the Alumni Association as the "lessor" and "owner of premises" and bear Sullivan's signature as the Alumni Association's agent.

In the summer of 1989, Stowe apparently became unable to continue making up the shortfalls in expenses on the Ferdinand's Arcade property, including the debt service. At that time, his building and development corporation entered Chapter 11 bankruptcy proceedings. In August 1989, Trustbank, the successor in interest to Dominion Federal, notified Langman that the note secured by the Ferdinand's Arcade property was in default, and it called upon her to cure the default. Langman in turn demanded that the Alumni Association make the required payments, but the Alumni Association disclaimed any responsibility for payment of the mortgage debt. Langman paid the amounts demanded under a reservation of rights and commenced this litigation.

In its letter opinion, the trial court held that the Alumni Association "did not knowingly accept the gift with contractual conditions," that the assumption clause was mistakenly placed in the deed by an unknown draftsman, and that by its disavowal of the obligation sought to be enforced, the Alumni Association had "sufficiently rejected the gift to require a finding by the court that the conveyance is ineffective." The trial court held that the assumption clause was unenforceable and the attempted conveyance a nullity, and that the Alumni Association had no liability to the mortgagee, Langman, or Stowe with regard to the amounts paid...