Nielson v. Benton
| Decision Date | 15 September 1995 |
| Docket Number | No. S-6107,S-6107 |
| Citation | 903 P.2d 1049 |
| Parties | Kathy NIELSON and Loren Domke, Husband and Wife, Appellants, v. David BENTON and Lori Telfer, Husband and Wife, Appellees. |
| Court | Alaska Supreme Court |
Loren Domke, Loren Domke, P.C., Juneau, for Appellants.
Thomas W. Findley, Caroline Crenna, Dillon & Findley, P.C., Juneau, Sitka, for Appellees.
Before MOORE, C.J., and RABINOWITZ, MATTHEWS, COMPTON and EASTAUGH, JJ.
This appeal arises out of a failed real estate transaction. Its resolution turns on the question of whether a dispute over the seaward boundary of a property, potentially giving the State of Alaska (State) a claim to part of the property, constitutes a cloud on title justifying rescission of the sales agreement. The superior court held that there was a cloud on title and granted rescission. We affirm in part, vacate in part, and remand for further proceedings relating to attorney's fees.
Lori Telfer and David Benton entered into a contract to purchase real property from Loren Domke and Kathy Nielsen. The property in question is designated Lot 56 and is located at 17295 Glacier Highway, abutting Lena Cove seventeen miles from Juneau. On February 12, 1992, the parties entered into a contract designated "Earnest Money Receipt and Agreement to Purchase." The contract bound Telfer and Benton to purchase Lot 56 for $165,000, subject to terms and conditions stated therein. It set the closing for May 29. The following addendum to the contract was included:
Buyers shall have an unconditional right to revoke this agreement without forfeiture of earnest money for any of the following:
(a) structural defects;
(b) clouds on the title;
(c) unrecorded encroachments or unrecorded easements;
(d) unavailability of bank financing due to conditions of the property.
After signing the contract Telfer and Benton initiated various procedures necessary to secure financing. The loan process and negotiations with the owner of property adjacent to 17295 Glacier Highway brought to light a variety of defects in the property. In May the discovery of these previously undisclosed imperfections caused Telfer and Benton to notify Domke and Nielson that they wished to rescind the contract.
Domke and Nielson informed Telfer and Benton that they would treat the latter's actions as a repudiation of the contract and would file suit if an assurance of performance was not forthcoming. Upon reviewing the letter from Domke and Nielson, Telfer and Benton's attorney advised them that they might not be able to legally withdraw from the contract at that time. Telfer and Benton notified Domke and Nielson that they would continue to seek financing.
With the passage of time more deficiencies in the property surfaced, including the discovery that a seawall protecting the property and a section of the front yard potentially encroached on State-owned land. 1 As-built surveys of the lot prepared in 1981 (Plat of June 22, 1981) and 1992 (Plat of July 29, 1992) indicated that the seaward boundary of the lot was a line running across the front yard short of the seawall. A plat prepared on May 5, 1993 showed the seaward boundary of the lot to be beyond the seawall. According to two of the three surveys, it appeared that the State owned some portion of the lot. 2
It is not disputed that Nielson and Domke had represented that the property they owned extended out to and included the seawall. Telfer and Benton consulted another attorney, who sent Domke and Nielson a letter expressing his clients' concerns with the property. The letter specifically communicated distress over the seawall and front yard. The letter informed Domke and Nielson that Telfer and Benton wished to rescind the earnest money agreement.
Domke and Nielson responded that the insufficiencies identified were insignificant and that they expected Telfer and Benton to continue to perform under the contract. To secure Telfer and Benton's performance, Domke and Nielson filed the suit from which this appeal arises. Telfer and Benton responded by informing Domke and Nielson that before they would proceed with the loan application process, they would ask the court to ensure that the property's deficiencies would be remedied. Telfer and Benton's loan application was submitted and denied in September. Once the loan application was denied, Domke and Nielson demanded that Telfer and Benton seek a "non-conforming home loan." Telfer and Benton chose not to do this.
Initially Domke and Nielson sought both specific performance of the Earnest Money Receipt and Agreement to Purchase and damages for breach of contract. Telfer and Benton responded with a motion for summary judgment seeking rescission of the contract. Later Domke and Nielson filed a cross motion for summary judgment and withdrew their request for specific performance. The court granted Telfer and Benton's motion for summary judgment. The court found that the contract language itself provided grounds for rescission. The court reasoned that the disparate conclusions of the three surveys could only be resolved through an action to quiet title. 3 Thus, the uncertainty over the seaward boundary of the property was a cloud on the title justifying rescission of the contract. Accordingly, the court granted rescission and dismissed the other claims by both parties. Domke and Nielson moved for reconsideration after the State announced that it would not defend against the quiet title action. The motion was denied and this appeal followed.
In reviewing a grant of summary judgment, this court must determine whether any genuine issue of material fact exists and whether on the established facts the moving party is entitled to judgment as a matter of law. Wright v. State, 824 P.2d 718, 720 (Alaska 1992). We review de novo an order granting summary judgment. Tongass Sport Fishing Ass'n v. State, 866 P.2d 1314, 1317 (Alaska 1994).
Under the plain language of the Earnest Money Receipt and Agreement to Purchase, Telfer and Benton are entitled to rescission of the agreement. The revocation is provided for by the following language included in the addendum to the sales agreement:
Buyers shall have an unconditional right to revoke this agreement without forfeiture of earnest money for any of the following:
....
clouds on the title.
(Emphasis added). The superior court found that the uncertainty over the property's boundary line created a cloud on title. The court found that "the only way to resolve the uncertainty of the extent of Lot 56 [17295 Glacier Highway] is for the owner of the lot to bring an action to quiet title." The court reasoned that where a lawsuit is necessary to determine title to part of the property, there is clearly a cloud on the title to that property. The superior court was correct.
Domke and Nielson argue that there was no cloud on title to the property, because there was no uncertainty over the seaward boundary. They claim that extending the yard over the original meander line did not create uncertainty in the title, because at the time of oral argument no evidence of uncertainty was produced. It is their position that the location of the seaward property boundary was at the mean high water mark, as a matter of law, and that the May 1993 survey clearly established this line to be down the beach from the yard. They further argue that the certainty of the seaward boundary was established when the Department of Natural Resources (DNR) refused to defend the quiet title action.
Domke and Nielson's argument relies on the fact that after they filed a quiet title action, DNR refused to defend the action. However, the validity of the State's potential claim, after the quiet title action was brought, is not pertinent. "A cloud on title is an outstanding claim or incumbrance which, if valid, would affect or impair the title of the owner of a particular estate." Newpar Estates v. Barilla, 161 N.Y.S.2d 950, 952 (N.Y.Sup.Ct.1957), rev'd on other grounds, 4 A.D.2d 186, 164 N.Y.S.2d 132 (N.Y.App.Div.1957). To be a cloud on title the claim need not be valid, it need only be colorable until removed by a quiet title action. See Beal v. Mars Larsen Ranch Corp., Inc., 99 Idaho 662, 667, 586 P.2d 1378, 1383 (1978) (). 4 A cloud on title is removed when "shown by extrinsic proof to be invalid or inapplicable to the estate in question." 74 C.J.S. Quieting Title § 12 (1994). The test for whether there is a cloud on title is whether the owner would be required to offer evidence to defeat an action based on the alleged cloud. Allott v. American Strawboard, 237 Ill. 55, 86 N.E. 685, 688 (1908); Haggart & McMasters v. Chapman-Dewey Land Co., 77 Ark. 527, 92 S.W. 792 (1906); 74 C.J.S. Quieting Title § 13 (1951).
According to two of the surveys, the State had a colorable claim to some portion of the property. The State potentially owned this land, because the Federal Government had granted to the states all submerged lands within their boundaries. See 43 U.S.C. § 1311 (1986). The appearance that the State had at least a colorable claim to part of the lot was created by the July 1992 and June 1981 surveys, coupled with statements made by a DNR employee prior to the filing of the quiet title action that the seawall and yard encroached on State land. Both the superior court and the DNR postulated that the only way to ensure that the owner of this property owned the entire front yard was to bring a quiet title action. 5 Such an action would have required the owner to present extrinsic evidence. The...
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