Woznicki v. Musick

• Decision Date: 06 September 2005
• Docket Number: No. 03CA2505.,03CA2505.
• Citation: 119 P.3d 567
• Parties: Laurence WOZNICKI, Plaintiff-Appellee, v. John D. MUSICK, Jr., and W/J Ranch, Inc., Defendants-Appellants.
• Court: Colorado Supreme Court

119 P.3d 567

Laurence WOZNICKI, Plaintiff-Appellee, v. John D. MUSICK, Jr., and W/J Ranch, Inc., Defendants-Appellants.

No. 03CA2505.

Colorado Court of Appeals, Division I.

April 7, 2005.

Certiorari Granted September 6, 2005.

COPYRIGHT MATERIAL OMITTED

Stevens Littman Biddison Tharp & Weinberg, LLC, Mark E. Biddison, Boulder, Colorado, for Plaintiff-Appellee.

Appel & Lucas, P.C., Garry R. Appel, Denver, Colorado, for Defendants-Appellants.

PICCONE, J.

Defendants, John D. Musick, Jr., and W/J Ranch, Inc., appeal the judgment entered upon a jury verdict for plaintiff, Laurence Woznicki. We affirm.

This case involves a number of parties, two separate lawsuits, and several interwoven cross-claims. The trial court split its determination of the case into five phases. This is the appeal of Phase I, the forcible entry and detainer (FED) action.

Musick was president of W/J Ranch. W/J Ranch and Musick entered into a contract to buy and sell real estate with Woznicki whereby W/J Ranch and Musick would sell and Woznicki would purchase the property located at 150 Bullwinkle Circle in Aspen. The contract was summarized in the "W/J Deal Summary," which stated that W/J Ranch was selling the property to Woznicki; W/J Ranch had an option to repurchase the property from Woznicki within eighteen months of the sale; and the property was leased to W/J Ranch for up to eighteen months following the sale. The transaction was referenced as a sale in the W/J Deal Summary.

Title to the property was transferred from W/J Ranch to Woznicki. W/J Ranch did not exercise its option to repurchase the property, and following the expiration of the lease, W/J Ranch and Musick remained in possession despite Woznicki's demand that they vacate the property and deliver possession to him. Since the expiration of the lease, neither W/J Ranch nor Musick has paid rent to Woznicki. Woznicki brought this FED action against W/J Ranch and Musick.

The issues before the jury were whether the transaction between W/J Ranch and Musick and Woznicki was an equitable mortgage or a sale of property, or stated differently, who is the lawful owner of the property; who was entitled to possession of the property; and whether Woznicki was entitled to damages from W/J Ranch and Musick in the form of rent for the time during which they unlawfully detained the property.

The jury found that Woznicki was the lawful owner of the property; W/J Ranch and Musick unlawfully detained the property for thirty-one months; and Woznicki was entitled to damages for that period. This appeal followed.

I. Judgment Notwithstanding the Verdict

W/J Ranch and Musick contend the trial court erred in denying their motion for judgment notwithstanding the verdict (JNOV). We disagree.

C.R.C.P. 59(e) states in relevant part:

A judgment notwithstanding verdict may be granted for either of the following grounds:

(1) Insufficiency of evidence as a matter of law; or

(2) No genuine issue as to any material fact and the moving party being entitled to judgment as a matter of law.

See Bigby v. Big 3 Supply Co., 937 P.2d 794 (Colo.App.1996).

When the motion for JNOV challenges the sufficiency of the evidence to support a verdict, it may be entered only if, after viewing the evidence and the inferences from it in the light most favorable to the nonmoving party, reasonable persons could not reach the same conclusion as the jury reached. Boulder Valley Sch. Dist. R-2 v. Price, 805 P.2d 1085, 1088 (Colo.1991), overruled in part by Cmty. Hosp. v. Fail, 969 P.2d 667 (Colo.1998); Nelson v. Hammon, 802 P.2d 452, 454 (Colo.1990); Raleigh v. Performance Plumbing & Heating, Inc., 109 P.3d 978 (Colo.App. No. 02CA1076, 2004 WL 963817, May 6, 2004).

When reviewing a trial court's decision on a motion for JNOV, we must view the evidence in the light most favorable to the nonmoving party and must draw every reasonable inference that may legitimately be drawn from the evidence in favor of that party. Nelson, supra, 802 P.2d at 454.

A. Equitable Mortgage

We reject W/J Ranch and Musick's contention that their affirmative defense of equitable mortgage was established as a matter of law.

Section 38-35-117, C.R.S.2004, Colorado's statute governing equitable mortgages, states:

Mortgages, trust deeds, or other instruments intended to secure the payment of an obligation affecting title to or an interest in real property shall not be deemed a conveyance, regardless of its terms, so as to enable the owner of the obligation secured to recover possession of real property without foreclosure and sale, but the same shall be deemed a lien.

The intention of the parties and the true nature of the transaction govern whether a transaction is an equitable mortgage or a conveyance. Rocky Mountain Gold Mines v. Gold, Silver & Tungsten, 104 Colo. 478, 93 P.2d 973 (1939). "The character of the transaction is fixed at its inception and is what the intention of the parties makes it. The form of the transaction and the circumstances attending it are the means of finding out the intention." Taylor v. Briggs, 99 Colo. 89, 98-99, 60 P.2d 1081, 1085 (1936) (quoting 1 Jones on Mortgages § 314, at 380-81 (8th ed.)).

Whatever the form of the contract, if the parties intend to create a security interest in real property, the contract gives rise to an equitable mortgage. Griffin v. United Bank, 40 Colo.App. 513, 580 P.2d 818 (1978), aff'd, 198 Colo. 239, 599 P.2d 866 (1979); see Crosby v. Gateway Motel, Inc., 163 Colo. 384, 431 P.2d 23 (1967); Rocky Mountain Gold Mines, supra.

Intent may be inferred from the "totality of the circumstances surrounding the transaction." Restatement (Third) of Property: Mortgages § 3.2 cmt. e (1997). In this determination, the parol evidence rule "is usually deemed inapplicable . . . on the theory that the absolute deed was not intended to embody the complete agreement of the parties. Thus the oral agreement merely supplements the deed concerning a matter with which the latter did not purport to deal." Restatement, supra, § 3.2 cmt. c; see, e.g., Ver Straten v. Worth, 79 Colo. 30, 243 P. 1104 (1926)(oral testimony may be admitted concerning the true nature of the transaction); Baird v. Baird, 48 Colo. 506, 517, 111 P. 79, 82 (1910) (suggesting that court must look outside of document in deciding whether a transaction amounts to an equitable mortgage); see also Taylor, supra, 99 Colo. at 99, 60 P.2d at 1085 (quoting 1 Jones, supra, § 340, at 425: "It is a settled rule and practice of courts of equity to set aside a formal deed . . . upon proof, even by parol evidence, that the conveyance was not a sale, but merely a security for a debt, and therefore a mortgage.").

Relevant factors which may be considered when determining whether a transaction is a sale or an equitable mortgage include the existence of a debt, the relationship between the parties, the availability of legal advice, the sophistication and circumstances of the parties, the adequacy of consideration, and the possession of the property. See 12 Thompson on Real Property § 101.08, at 503 (D. Thomas ed.1994); see also Restatement, supra, § 3.2 (intent may be inferred from, inter alia, statements of the parties). No one factor is determinative. See Restatement, supra, § 3.2 cmt e.

Several Colorado cases, decided prior to the enactment of § 38-35-117, discuss factors that may be considered when determining whether a transaction is a sale or an equitable mortgage. These factors include the value of the property, see Taylor, supra; whether the "seller" remained in possession of the property, see Ver Straten, supra; and whether there was a covenant to reconvey, see Baird, supra, 48 Colo. at 517, 111 P. at 82 (covenant to reconvey may be one factor showing that the parties intended the deed to operate as a mortgage, but, "standing alone, it is not sufficient to work that result").

Woznicki presented evidence including the contract to buy and sell real estate; the W/J deal summary; a deed to him from W/J Ranch; a deed of trust from him to UFMC; a fax from Musick to Khoshabe regarding "sale Parcel II"; and a fax from Musick to Carmichael regarding the contract to buy and sell real estate. These documents classified the transaction as a sale. Viewing this evidence in the light most favorable to Woznicki, and drawing every reasonable inference in his favor, we conclude the jury could reasonably determine that the transaction was a sale, not an equitable mortgage.

Further, the facts regarding whether the parties intended to create a mortgage were disputed. At trial Woznicki testified that he understood the transaction to be a sale, and the evidence included numerous documents characterizing the transaction as a sale. W/J Ranch and Musick urged that the parties did not intend the transaction to be a sale despite the language in the documents and that, in their view, such language was immaterial. Therefore, a determination as a matter of law could not be made.

B. Unlawful Detainer

W/J Ranch and Musick contend § 13-40-104(1)(c), C.R.S.2004, which defines unlawful detention as occurring when a tenant holds over, does not apply as a matter of law. Specifically, they assert they were in lawful possession of the property because the term of W/J Ranch's lease had not yet expired when Woznicki filed this lawsuit. They also contend there was insufficient evidence to support the verdict on Woznicki's unlawful detainer claim. We disagree with both contentions.

As an initial matter, Woznicki argues W/J Ranch and Musick's objections were not raised in the trial court. However, the record demonstrates that W/J Ranch and Musick made a specific, contemporaneous objection to the unlawful detainer claim instruction before it was given to the jury "for the reasons indicated in our motion for directed verdict." We conclude W/J Ranch and Musick preserved this issue for appeal.

Under the W/J Deal Summary, W/J Ranch was to "quit possession of the property upon the date...