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Nielson and Domke v. Benton & Telfer (9/15/95), 903 P 2d 1049
Notice: This is subject to formal correction
before publication in the Pacific Reporter.
Readers are requested to bring typographical
or other formal errors to the attention of
the Clerk of the Appellate Courts, 303 K
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264-0607, fax (907) 276-5808.
THE SUPREME COURT OF THE STATE OF ALASKA
KATHY NIELSON and LOREN )
DOMKE, Husband and Wife, ) Supreme Court File No. S-6107
Appellants, ) Superior Court File No.
) 1JU-92-1554 Civil
DAVID BENTON and LORI TELFER, ) O P I N I O N
Husband and Wife, )
Appellees. ) [No. 4258 - September 15,
Appeal from the Superior Court of the State
of Alaska, First Judicial District, Juneau,
Walter L. Carpeneti, Judge.
Appearances: Loren Domke, Loren Domke, P.C.,
Juneau, for Appellants. Thomas W. Findley,
Caroline Crenna, Dillon & Findley, P.C.,
Juneau, Sitka, for Appellees.
Before: Moore, Chief Justice, Rabinowitz,
Matthews, Compton and Eastaugh, Justices.
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
II. FACTS AND PROCEEDINGS
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
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
(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
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.
A. Standard of Review
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).
B. The Superior Court Correctly Concluded That There
Was a Cloud on Title to 17295 Glacier Highway
Justifying Rescission of the Sales Contract at Issue
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
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. 1957), rev'd on other grounds by, 164 N.Y.S.2d 132
(N.Y. 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., 586 P.2d 1378, 1383
(Idaho 1978) (a cloud on title is an outstanding instrument,
record, claim, or encumbrance which although actually invalid or
inoperative, may nevertheless impair the title to property).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. Allot
v. American Strawboard, 86 N.E. 685, 688 (Ill. 1908); Haggart &
McMasters v. Chapman-Dewey Land Co., 92 S.W. 792 (Ark. 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 mere fact that this evidence would be required to
clear the title is enough to create a cloud on title. See 74
C.J.S. Quieting Title ' 13 (1951).6
C. Domke and Nielson Were Not Wrongfully Denied an
Opportunity to Cure the Title to 17295 Glacier Highway
Generally, a buyer of real property who discovers
defects in the title must make those defects known to the seller
and must allow the seller a reasonable time to cure. Callister
v. Millstream Assocs., Inc., 738 P.2d 662, 664 (Utah App. 1987).
However, the contract itself may define the period during which
the seller may cure a defect. See Bailey v. First Mortgage Corp.
of Boca Raton, 478 So. 2d 502 (Fla. App. 1985). Thus, the
question is not what remedies equity might provide Domke and
Nielson, but whether the contract requires or implies that Domke
and Nielson be allowed an opportunity to cure.
The contract does not expressly designate any time
within which the sellers have an opportunity to cure defects in
the title. Moreover, the plain language of the contract gives
Benton and Telfer "an unconditional right to revoke this
agreement without forfeiture of earnest money for . . . clouds on
title." This express grant to the buyers of an unconditional
right to revoke is inconsistent with an implied right to cure in
the sellers. We will not engage in legal fictions by
interpreting the simple language of this addendum to require
conditions precedent to repudiation. We interpret
"unconditional" to mean without limitation or restriction. See
Black's Law Dictionary 1367 (5th ed. 1979); Webster's II, 1255
(1988) ("Being without conditions or limitations: absolute.").
Thus, Benton and Telfer had an unconditional right to revoke upon
discovering a cloud on title. They were not obligated to allow
Nielson and Domke an opportunity to remove this cloud.
D. The Attorney's Fee Award
Apparently applying the version of Alaska Civil Rule 82
in effect prior to July 15, 1993, the superior court awarded
Benton and Telfer $10,653.67 in costs and attorney's fees.
Benton and Telfer claimed that they had spent a total of
$21,631.16 on costs and attorney's fees. The award constituted
approximately fifty percent of their total expenditures.
Domke and Nielson challenge the award on three grounds:
(1) the court erred in varying and increasing the fee award from
the statutorily mandated twenty percent without explaining its
reasons for doing so as required by amended Civil Rule 82;7 (2)
the court was unjustified in awarding more than twenty percent of
the actual fees; and (3) the court erred in awarding paralegal
The language of current Civil Rule 82 became effective
on July 15, 1993. According to Civil Rule 98, rule changes
"govern all civil actions and proceedings thereafter commenced
and so far as just and practicable all proceedings then pending."
Alaska R. Civ. P. 98 (1994). Summary judgment was entered for
Benton and Telfer on June 7, 1993. The parties submitted moving
papers in June seeking a determination of which were the
prevailing parties for the purpose of taxing costs and awarding
attorney's fees. Benton and Telfer were adjudged the prevailing
parties on August 16, 1993. They then filed motions for
attorney's fees and costs, with documentation. Domke and Nielson
opposed the motions in two pleadings, arguing that under amended
Rule 82, effective July 15, 1993, no variance from the schedule
should be allowed. Attorney's fees were
awarded on November 1, 1993. The superior court did not indicate
under which version of Rule 82 it calculated its award, but we
infer that the court applied the former version, due to the
amount awarded and the manner in which it was awarded.
Although this "civil action or proceeding" commenced
before the adoption of amended Rule 82, Benton and Telfer advance
no persuasive reason -- indeed, virtually no reason -- why it is
not just and practicable to apply amended Rule 82 to this
proceeding, which was pending when the rule was amended. They
simply assume that it did not apply to this proceeding, and thus
it would have been a mistake not to have focused arguments before
the superior court on the former version of Rule 82, instead of
amended Rule 82. In the alternative, they argue that even under
amended Rule 82, there is a basis for sustaining the superior
court. They point out that under either version of Rule 82, the
fee awarded is ultimately determined at the discretion of the
trial judge.9 Thus, it cannot be assumed that requiring the
trial court to apply amended Rule 82 would change the amount of
attorney's fees awarded.
It is true that the superior court might have awarded
the same amount under amended Rule 82 as it did apparently under
former Rule 82. However, we cannot indulge in speculation.
Prior to the effective date of amended Rule 82, the parties had
only addressed the prevailing party issue. No ink had yet been
spilled on application of either version of the Rule to the
particular facts of this case. Benton and Telfer do not claim
reliance on former Rule 82 in making any decisions with respect
to the litigation. It is "just and practicable" to apply amended
Rule 82 to this pending proceeding. We conclude that the award
of attorney's fees must be vacated and remanded to the superior
court for redetermination in accordance with amended Rule 82.
The superior court's grant of summary judgment is
AFFIRMED, because there existed a cloud on title which, under the
contract, allowed the buyers an unconditional right to rescind
the contract. The superior court did not err in denying Domke
and Nielson an opportunity to cure the title they tendered. The
attorney's fee award made under former Civil Rule 82(b)(3) is
VACATED and the issue REMANDED to the superior court for
redetermination in accordance with amended Rule 82.
1 Although Benton and Telfer discuss other alleged
misrepresentations about the property, the only imperfection
pertinent to this appeal is the dispute over the seaward boundary
of the property.
2 The State's claim to this land results from the
Federal Government's grant to the states of all submerged lands
within their boundaries. See 43 U.S.C. ' 1311 (1986).
3 In a separate action Domke and Nielson filed a suit to
quiet title to the front yard and seawall. The court found the
filing of this action "to be at least a tacit admission by the
plaintiffs that there was, indeed, a cloud upon their title."
After summary judgment was granted in the instant case, the
Department of Natural Resources, Division of Lands, disclaimed in
writing any interest in defending the quiet title action.
4 See also Vanguard Equities, Inc. v. Sellers, 587 S.W.2d
521, 525 (Tex. 1979) ("a cloud on title is an outstanding claim
or encumbrance apparently valid, but in fact, invalid"); Pepper
v. Pyramid Oil & Gas Corp., 287 So. 2d 620, 623-24 (La. App.
1973); York v. Newman, 163 S.E.2d 282, 285 (N.C. App. 1968) ("A
cloud upon title . . . shows prima facie the right of a third
party either to the whole or some interest in it, or to a lien
5 Tacitly, Domke and Nielson must also have believed this
to be the case because they eventually brought such action.
6 Domke and Nielson insist that the disparity between the
June 1981, July 1992, and May 1993 surveys only created the
possibility of a boundary dispute with the State and this
possibility is not sufficient to create a cloud on title. They
are correct that mere apprehension on the part of a property
owner that an adverse claim of title or interest may be asserted
against him does not constitute a cloud on title. See Frontage,
Inc. v. Allegheny County, 162 A.2d 1, 6 (Pa. 1960); Lansburgh v.
Market St. Ry. Co., 220 P.2d 423 (Cal. App. 1950). However, a
claim which causes "reasonable fear that it may be asserted
against the owner injuriously" does constitute a cloud on title.
See I. Blum, Annotation, What Constitutes Cloud on Title
Removable in Equity, 78 A.L.R. 24, 44 (1932); 74 C.J.S. Quieting
Title ' 13 (1951). Here there was more than a mere apprehension
that the State might assert a claim to part of Lot 56. The 1992
and 1981 surveys and the State's advice that a quiet title action
was necessary created a reasonable fear that a claim might have
been asserted against the owner of the property.
Finally, Domke and Nielson contend that only recorded
instruments or encumbrances should give rise to clouds on title.
This is not the law. It has been established in other
jurisdictions that clouds on title are not limited to recorded
interests. Buttrill v. Stanfield, 178 P.2d 889 (Okla. 1947);
Gardner v. Buckeye Sav. & Loan Co., 152 S.E. 530, 532-33 (W. Vir.
App. 1930); See also Bank of America Nat. Trust & Sav. Ass'n v.
Town of Atherton, 140 P.2d 678 (Cal. App. 1943). Additionally,
this court has in the past assumed that non-recorded interests
were clouds on title. See Davis v. Tant, 361 P.2d 763 (Alaska
1961) (referring to a non-recorded cloud on title).
7 The current Civil Rule 82(b) provides:
(2) In cases in which the prevailing party
recovers no money judgment, the court . . .
shall award the prevailing party in a case
resolved without trial 20 percent of its
actual attorney's fees which were necessarily
incurred. . . .
(3) The court may vary an attorney's fee
award calculated under subparagraph (b)(1) or
(2) of this rule if, upon consideration of
the factors listed below, the court
determines a variation is warranted.
. . . .
If the court varies an award, the court shall
explain the reasons for the variation.
Alaska R. Civ. P. 82(b)(2)-(3)
8 Under Civil Rule 82(b)(2) an attorneys' fee award may
include "fees for legal work customarily performed by an attorney
but which was delegated to and performed by an investigator,
paralegal or law clerk." Alaska R. Civ. P. 82(b)(2). Benton and
Telfer included a $1,864.00 charge for paralegal work in their
claim for attorneys' fees. Nielson and Domke contend that the
paralegal work listed was secretarial work and not work normally
performed by an attorney. They argue that none of this $1,864.00
should be charged as attorneys' fees.
On remand the superior court should review the
paralegal work charged and determine what portion of this work
may be included in the fee award under Alaska Rule of Civil
9 The prior language of Civil Rule 82 directed that
"[s]hould no recovery be had, attorney's fees may be fixed by the
court in its discretion in a reasonable amount." Former Alaska
R. Civ. P. 82 (1992). The present language provides that a
prevailing party who recovers no money judgment in a case without
trial shall be awarded twenty percent of its fees, but that this
amount may vary "if based on the factors listed [in 82(b)(3)],
the court determines a variation is warranted." Alaska R. Civ.
P. 82 (b)(3) (1994).