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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Allen v. Vaughn (06/22/2007) sp-6133

Allen v. Vaughn (06/22/2007) sp-6133, 161 P3d 1209

     Notice:   This opinion is subject to correction  before
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) Supreme Court No. S- 12080
Appellant, )
) Superior Court No.
v. ) 3PA-03-00933 CI
Appellee. ) No. 6133 - June 22, 2007

          Appeal  from the Superior Court of the  State
          of  Alaska, Third Judicial District,  Palmer,
          Eric Smith, Judge.

          Appearances:  Ralph B. Cushman,  Law  Offices
          of  James  H.  McCollum, LLC, Anchorage,  for
          Appellant.   Sarah J. Tugman, Anchorage,  for

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          FABE, Chief Justice.

          Wesley Allen and Barbara Vaughn were divorced in  1996.
Their property settlement called for the division of the proceeds
from  two  parcels of real estate that both parties  expected  to
sell soon.  In 1997, when the parcels had not yet sold, Allen and
Vaughn  reached  a  new agreement under which  each  party  would
receive  one of the parcels and buy the others interest  in  that
property.   Because Allens property was worth significantly  more
than  Vaughns,  Allen  owed Vaughn a  balance  of  $18,040.   The
settlement  agreement gave Allen until April  2002  to  pay  this
amount and specified that [i]f the note is not satisfied, .  .  .
Vaughn  will  maintain  an interest of 50%  in  [Allens]  .  .  .
property.   Despite the five-year payment period and  a  reminder
from  Vaughn  approximately a month before the  due  date,  Allen
failed to pay the amount owed.  When Vaughn rejected Allens  late
attempts  to pay, claiming that he had forfeited a fifty  percent
interest  to her, Allen brought an action to quiet title  to  the
          The  superior court found that the parties intended the
language  at  issue  to  operate as a  forfeiture  provision  and
determined that equity favored enforcement of the provision.   On
appeal, Allen argues that:  (1) the court erred in looking beyond
the four corners of the document to determine the parties intent;
(2)  the  circumstances of the case warrant the  creation  of  an
equitable   mortgage,  not  the  enforcement  of   a   forfeiture
provision;  (3)  Vaughn  should not  have  received  any  of  the
proceeds  from  the  subsequent sale of the property  beyond  the
original  amount owed by Allen; and (4) the trial court erred  in
awarding attorneys fees to Vaughn.  Because equity does not favor
a  forfeiture  and  the  contract  provision  at  issue  did  not
expressly  provide  for  a forfeiture, we  reverse  the  superior
courts decision.
     A.   Background and 1997 Agreement
          Allen and Vaughn were married in 1990.  At the time  of
their  marriage, Allen was a real estate broker and Vaughn was  a
hairdresser,  but later in 1990, Vaughn became  a  licensed  real
estate  agent.  They divorced in 1996, and they agreed  in  their
property  settlement  to  divide evenly  the  proceeds  from  two
parcels  of  real estate that they expected to sell in  the  near
future.  But the two properties  a residence in Palmer and a  lot
in  downtown  Wasilla  did not sell.  In April  1997,  with  both
properties  still unsold, Allen and Vaughn met  to  draft  a  new
agreement  regarding  these two properties.   No  attorneys  were
involved in drafting the agreement.
          Under  the  1997 agreement, Vaughn was to  receive  the
Palmer  residence and Allen was to receive the Wasilla lot,  with
each  buying  out the others share of equity.  Because  they  had
built  more  equity  in the lot allocated to Allen  than  in  the
property  given  to Vaughn, the amounts were offset,  with  Allen
paying  the  difference.  The agreement,  which  was  in  Vaughns
handwriting,  provided for Allens payment of this  amount  within
five years:
          1.   Barbara    A.   Vaughn   will    receive
               $26,740.00  .  . . in exchange  for  her
               interest in the [Wasilla] property.
          2.   Wesley  S.  Allen will  pay  Barbara  A.
               Vaughn $8,500 . . . from the proceeds of
               the  sale of [a separate property] as  a
               down payment for this property.
          3.   The  balance of $18,0401 . . . is to  be
               paid  in full plus 5% interest per  year
               on or before April 28, 2002.
          4.   If  this  note is not satisfied, Barbara
               A.  Vaughn will maintain an interest  of
               50% in the above described property.
Vaughns  interest  in the property was transferred  to  Allen  by
quitclaim deed.2
          Vaughn  and Allen both testified about the drafting  of
the  contract. According to Vaughn, they discussed each provision
in detail, and Allen helped her with the wording.  Vaughn claimed
that she proposed the fourth paragraph and that she explained  it
to Allen as follows:
          [Y]ou  have  never paid the  bills,  you
          have  all of our property several times,
          many   times,   all  of  the   time   in
          foreclosure.  There is nothing that  you
          have  done to show me that you will  pay
          me  this amount of money and so  and  Im
          giving you five years and if you do  not
          pay  me  within that time frame, then  I
          will just resume my interest in  my half
          interest in the property.
Vaughn  testified that her understanding of the fourth  paragraph
was that if the debt was not paid by the deadline, [t]he property
would  go  half back into my name and it would be half  mine.   I
would be the legal half owner of it.  Allen acknowledged that  he
had  promised to pay Vaughn to equalize the property distribution
but  maintained  that there was no discussion or  agreement  that
Vaughn  would retain a fifty percent interest in the property  if
he  failed to pay on time.  Allen asserted that he understood the
fourth  paragraph to mean that [Vaughn] will maintain an interest
in the property until what I owe her is paid.  Allen claimed that
if  he  had  known  that  the agreement  contained  a  forfeiture
provision, he would not have signed it.
          In September 1997 Vaughns attorney sent Allen a deed of
trust  note and escrow instructions.  Although the agreement  had
already been recorded, Vaughns attorney claimed that the proposed
deed  of  trust better set[] forth the intent of the parties  and
[was]  more in line with the sort of document title professionals
. . . are accustomed to working with.  Allen did not respond.
          After  he  received title to the property, Allens  only
use of it was to place two railroad cars on it.  Allen failed  to
pay  the taxes on the property, and the Matanuska-Susitna Borough
obtained  a  judgment  of  foreclosure  in  July  2001.3    Allen
testified  that he was unable to pay the taxes at  the  time  but
that  he believed he could redeem the property at any time during
the  ten years following the foreclosure.  Vaughn ultimately paid
to redeem the property and was issued a repurchase quitclaim deed
by the City of Wasilla.
          Approximately  a  month  before  the  deadline,  Vaughn
called Allen to remind him of his obligation.  Allen promised  to
pay  but did not do so.  On May 11, 2002  two weeks after the due
date   Allen gave Vaughn a handwritten note promising to pay  her
$22,000  in  exchange for extend[ing] the agreement  to  July  1,
2002.   Because  of  the five percent annual interest  provision,
          this was less than the amount that had been due in April 2002.
Vaughn  did  not  respond  to this offer.   Further  negotiations
happened between the parties, culminating on June 16, 2003,  when
Allen  offered  to  pay the entire amount due  and  to  reimburse
Vaughn for her tax payments on the property.  This offer was also
rejected by Vaughn.
     B.   Procedural History
          Allen brought an action to quiet title on July 3, 2003.
Having  heard  testimony from both parties,  the  superior  court
determined that Allens statements about his understanding of  the
agreement  were utterly without credibility.  The court explained
this finding in detail:
          Mr.  Allen  is a real estate broker.   It  is
          inconceivable  that given  his  training  and
          experience,  he  would  not  carefully   have
          reviewed  the  document  before  signing  it,
          especially since he concedes that Ms.  Vaughn
          raised  her concerns about being paid at  the
          time  he  signed the agreement.  Rather,  the
          court   accepts  as  credible   Ms.   Vaughns
          testimony that Mr. Allen helped her write the
          agreement and that he knew full well that the
          intent  was that he would forfeit [] 50%  [of
          his]  interest in the property if he did  not
          pay  what he owed by the due date.  Given Mr.
          Allens  demeanor and manner  of  avoiding  or
          putting off difficult questions on the stand,
          the  court frankly cannot escape the  feeling
          that  Mr. [Allen] acceded to paragraph  4  in
          part  because  he  had no real  intention  of
          paying Ms. Vaughn, he knew this paragraph was
          inartfully drafted, and he figured  he  could
          rely  on  the  imprecise  wording  to  escape
          forfeiture if Ms. Vaughn tried to enforce the
Based  on  its finding that the parties understood that  a  fifty
percent  interest would revert to Vaughn, as well as its  reading
of  the fourth paragraph,4 the superior court determined that the
contract  provided for forfeiture in the event of Allens  failure
to pay.
          Although the superior court conceded that forfeiture is
generally a disfavored remedy, it held that the circumstances  of
this  case  including the agreements status as part of a property
settlement instead of an arms length bargain and the courts  view
that  Allen  would  not suffer a loss out of  proportion  to  the
benefit   obtained  by  Ms.  Vaughn  if  forfeiture  is   allowed
justified  enforcement  of the agreement.   The  court  therefore
ruled  that Vaughn had a fifty percent interest in the  property.
It  then  ordered  the sale of the property,  with  the  disputed
portion of the sale proceeds to be held in escrow pending a final
          In  June  2005  the lot was sold for  $191,716.   Allen
received $89,426, the amount to which he would be entitled  under
          Vaughns theory of the case, following certain credits and debits
associated with the encumbrances on the property and credit  back
for the $8,500 down payment . . . with interest.  Vaughn received
$31,959,  the amount to which she would be entitled under  Allens
theory  of the case.  In September 2005 the court issued a  final
declaratory judgment that awarded the disputed sum of $50,581  to
Vaughn.  An attorneys fee award of $3,042.60 was partially funded
by  $3,000 that had been set aside for that purpose.  This appeal
     A.   Standard of Review
          We  will  not  set aside a superior courts findings  of
fact unless those findings are clearly erroneous, and we give due
regard   to   the  trial  courts  opportunity  to  evaluate   the
credibility  of  witnesses.5  On questions  of  law,  this  court
applies its independent judgment, adopt[ing] the rule of law that
is most persuasive in light of precedent, reason, and policy.6  A
trial  courts award of attorneys fees is reviewable for an  abuse
of discretion.7
     B.   It  Was  Error To Find that the Agreement  Operated  To
          Require a Forfeiture.
          The  trial  court  determined that the  intent  of  the
parties  when  drafting  paragraph  four  was  that  Allen  would
immediately forfeit a fifty percent interest to Vaughn if he  did
not pay her on time:
          [T]he  court finds the parties intended  that
          Mr.  Allen  would  immediately  receive  full
          title to Lot 5D and that paragraph 4 operated
          to  forfeit to Ms. Vaughn the 50% interest in
          Lot  5D she had sold to him if Mr. Allen  did
          not pay her on or before April 28, 2002.
The trial court made this determination based on the testimony of
the parties at an evidentiary hearing.
          Vaughn  testified that she wanted to motivate Allen  to
pay  her for the property, that she was willing to take the  risk
that  the  property would depreciate in value, and that she  told
Allen that if he did not pay her the money he owed her, she would
resume  her half interest in the property.  Allen testified  that
he  did  not  read the document carefully before signing  it  and
understood  paragraph four to mean that if he did not  pay,  then
Vaughn  would  retain her fifty percent interest in the  property
until  he  paid her.  Allen also testified that if he  had  known
that  he  could  possibly forfeit his fifty percent  interest  to
Vaughn, he would not have signed the agreement.
          The  trial  court did not find Allens testimony  to  be
credible and determined that, given Allens experience as  a  real
estate  broker,  he would have carefully reviewed  the  document.
The trial court further found that Allen agreed to paragraph four
because  he had no intention of paying Vaughn and knew  he  could
rely  on  the  imprecise  wording of  paragraph  four  to  escape
forfeiture if Vaughn tried to enforce the agreement.   The  trial
court therefore found that the parties intended paragraph four to
          operate to forfeit half of Allens interest in the property to
Vaughn  in  the  event  of  nonpayment.   The  trial  court  also
determined  that it would be equitable for Allen to forfeit  half
of his interest in the property as a penalty for late payment.
          Regardless  of the trial courts findings on credibility
and  intent,  we  must  still determine  whether  paragraph  four
creates   an  enforceable  forfeiture  provision.   As  we   have
previously  recognized:  It is well settled in this  jurisdiction
that  equity abhors a forfeiture, and we have frequently relieved
a  party therefrom.  When the principles of equity and justice so
require,  we  may  refuse to enforce even an  express  forfeiture
provision in a land sale contract.8  And we have repeatedly  held
that  a  purchaser faced with forfeiture should be given time  to
cure  a  default.9   For  example, in Land Development,  Inc.  v.
Padgett,  we refused to enforce a clause in a land sale  contract
that provided that, in the event of non-payment, the seller would
retain  all of the buyers payments as liquidated damages and  the
buyer would be required to vacate the property.10  We affirmed the
ruling  of the trial court which gave the buyer time to  pay  the
balance due on the contract.11
          Although  we have recognized that it may be appropriate
to  enforce  an  express forfeiture clause in some extreme  cases
[where]  the purchasers history of performance is so inauspicious
that   equity  not  only  allows  a  forfeiture,  it  demands   a
forfeiture,12  this  is not such a case.   Here,  the  forfeiture
clause  was  not express, and Allen made an attempt to  cure  his
default less than one month after Vaughn asserted that Allen  was
trespassing on the property.
          Other jurisdictions similarly disfavor forfeitures  and
have  allowed  opportunities to cure.13   In  BankWest,  N.A.  v.
Groseclose, the South Dakota Supreme Court held that it would  be
unconscionable  to  allow  repossession  of  land  after  default
without providing the defaulting party an opportunity to cure the
default.14  And in Lewis v. Premium Investment Corp.,  the  South
Carolina  Supreme  Court refused to enforce  a  clear  forfeiture
provision  in an installment land contract, determining  that  it
would  be inequitable to enforce the forfeiture provision without
a right to redeem.15
          In  this  case, paragraph four does not clearly provide
for  forfeiture in the event of Allens default.  And even  if  it
did,  it  is  unclear why, under the circumstances of this  case,
Allen  should not have been allowed to cure the default within  a
month  of  Vaughn  asserting that Allen was  trespassing  on  the
          Because  forfeitures are disfavored and paragraph  four
does  not explicitly provide for forfeiture, we decline  to  read
paragraph  four  as  a  forfeiture provision  regardless  of  the
parties intent.  It was error to conclude otherwise.
          The  trial  court may have believed that the nature  of
this   agreement,  as  part  of  a  divorce  property  settlement
agreement,    provided   an   unusual   circumstance   justifying
forfeiture.  The trial court emphasized that [i]t is important to
note  at  the  outset that this agreement is not a typical  arms-
length  real  estate transaction.  Rather, it  is  more  properly
          viewed as an effort to implement a portion of the parties divorce
property  settlement.  Moreover,  the  trial  court  found  that,
because  the  agreement  was drawn up by the  parties  after  the
original divorce and without the involvement of the attorneys, it
was  inappropriate  to  interpret the agreement  as  creating  an
equitable mortgage.
          Settlement agreements that divide property in a divorce
case  are  generally treated under general contract law  theories
and  can  be  held  invalid if there is fraud, duress,  or  undue
influence.16   A court also cannot enforce settlement  agreements
that are unconscionable or unfair.17  But, in this case, there is
no  claim  of  fraud or unfairness in the settlement  itself  but
merely a dispute as to what the agreement means and the intention
of  the parties regarding the agreement.18  And there is thus  no
basis to find that the agreement should not be enforced as if  it
were  an  arms-length  real  estate contract.19   Thus,  although
paragraph  four  was entered into as part of a  divorce  property
settlement,   it   is  still  analyzed  under  general   contract
          Rather  than  construe paragraph four as  a  forfeiture
provision,  we  believe it should be understood  as  creating  an
equitable mortgage.  A mortgage is [a] lien against property that
is  granted to secure an obligation (such as a debt) and that  is
extinguished upon payment or performance according to  stipulated
terms.20  The Restatement (Third) of Property: Mortgages defines a
mortgage  as  a  conveyance or retention of an interest  in  real
property as security for performance of an obligation.21   Vaughn
had  an interest in the property, and while that interest was not
clearly  defined, it was an interest that was used to  secure  an
obligation on Allens part: the payment of money due Vaughn  under
their  agreement.  Given that Vaughn retained an interest in  the
property  to  secure the payment of the note,  the  agreement  is
properly viewed as an equitable mortgage.22  And because it is an
equitable mortgage, Allen had the opportunity to cure even  after
Vaughn  elected to proceed to foreclose in order  to  regain  her
half-interest in the property.23  Allen offered in June  2003  to
pay  Vaughn the full amount due under the contract, including the
tax payments Vaughn made.  And, indeed, Vaughn is entitled to the
money  originally due to her under the agreement, along with  the
payments   she  made  to  redeem  the  property  from   the   tax
foreclosure, and all associated interest.  On remand,  the  trial
court  should  determine the amount due  to  Vaughn,  which  will
include  any  payments  made  when redeeming  the  property  from
foreclosure and the associated interest.24
          For  the reasons set forth above, we REVERSE and REMAND
the case to the superior court.
     1     Although the difference between $26,740 and $8,500  is
$18,240,  the parties agreement stated that the balance owed  was

     2      Allen  recorded  the  deed  immediately,  and  Vaughn
recorded the agreement in June 1997.

     3     At  that  time,  the  owner of record  was  Studington
Fitzroy  Brown.   Allen testified that he had transferred  it  to
Brown  for  safekeeping during a bout of treatment  for  prostate
cancer.   Allen held an unrecorded deed transferring the property
from Brown back to himself.

     4     The  court acknowledged that the agreement was not  as
precise  as  it  could  have been, but maintained  that  it  most
certainly  does not present the transaction as a  loan  from  Ms.
Vaughn  to  Mr. Allen, and does not otherwise . .  .  create  any
security interest in the property on behalf of Ms. Vaughn pending
payment by Mr. Allen.

     5     Horton  v.  Hansen, 722 P.2d 211,  215  (Alaska  1986)
(quotations  omitted); see also Alaska R. Civ.  P.  52(a),  which
provides:  Findings of fact shall not be set aside unless clearly
erroneous,  and  due regard shall be given to the opportunity  of
the trial court to judge the credibility of the witnesses.

     6    Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).

     7    Laidlaw Transit, Inc. v. Anchorage Sch. Dist., 118 P.3d
1018, 1038 (Alaska 2005).

     8    Strack v. Miller, 645 P.2d 184, 187 (Alaska 1982).

     9     Id. at 187; Moran v. Holman, 501 P.2d 769, 770 (Alaska
1972); Jameson v. Wurtz, 396 P.2d 68, 75 (Alaska 1964).

     10    369 P.2d 888, 889 (Alaska 1962).

     11    Id.

     12    Curry v. Tucker, 616 P.2d 8, 13 (Alaska 1980).

     13    Lewis v. Premium Inv. Corp., 568 S.E.2d 361, 364 (S.C.
2002);  BankWest, N.A. v. Groseclose, 535 N.W.2d 860,  865  (S.D.

     14    535 N.W.2d at 865.

     15    568 S.E.2d at 364.

     16     1 Brett R. Turner, Equitable Distribution of Property
3:14 (3d ed. 2005).

     17    Id.

     18     While  the  trial  court found that  Allen  knew  the
settlement provided for a forfeiture, had no intention of paying,
and  intended to rely on imprecise wording to escape  forfeiture,
Vaughn  does not claim that Allen acted fraudulently in executing
the settlement agreement, and the trial court did not find actual
fraud on Allens part.

     19     Although  Vaughn is correct that  the  terms  of  the
settlement  were  intended to effect a fiftyfifty  split  of  the
marital  property,  each  received a  separate  parcel,  and  the
remaining  payment  due  from Allen to  Vaughn  was  required  to
achieve an equal division.

     20    Blacks Law Dictionary 1031 (8th ed. 2004).

     21     1.1 (1997).

     22     An equitable mortgage is [a] transaction that has the
intent but not the form of a mortgage, and that a court of equity
will  treat as a mortgage.  Blacks Law Dictionary 1032  (8th  ed.

     23    See Restatement (Third) of Property: Mortgages  3.1(a)

     24     Allen maintains that if this court reverses the trial
courts  judgment, it should also reverse its award  of  attorneys
fees  since  that award is predicated on Vaughns  status  as  the
prevailing party.  Because we reverse the decision of  the  trial
court, we remand the issue of attorneys fees.

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