Minnesota

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

STATE OF MINNESOTA IN COURT OF APPEALS

C3-02-664

November 5, 2002

LILLIAN M. SERBUS, APPELLANT,

v.

MICHAEL W. SERBUS, ET AL., RESPONDENTS.

Chisago County District Court File No. C2-01-441

William L. Norine, Stephenson & Sandord, 501 Marquette Avenue, Suite 1440, Minneapolis, MN 55402 (for appellant)

Gary C. Eidson, Julie A. Doherty, Patrick R. Rohland, Fabyanske, Westra & Hart, P.A., 920 Second Avenue South, Suite 1100, Minneapolis, MN 55402 (for respondents)

Considered and decided by Harten, Presiding Judge, Lansing, Judge, and Randall, Judge.

The opinion of the court was delivered by: Randall, Judge

Affirmed

UNPUBLISHED OPINION

On appeal from summary judgment in this real-estate dispute, appellant-wife alleges that her estranged husband fraudulently transferred to his parents certain real property that she and husband were buying on contract for deed from his parents. She alleges that (a) the notices of cancellation of the contract for deed were defective; (b) the conveyance was fraudulent under Minn. Stat. §á513.44 (2000); (c) the district court should have imposed a constructive trust on the property to preserve appellant's interest; (d) the facts of this case invoke the doctrine of equitable subrogation; and (e) the district court should have allowed appellant to amend her complaint to include a claim for punitive damages. Respondents argue that appellant's fraud claim is moot.

We affirm. Appellant's fraud claim is prospectively moot, and the district court did not otherwise err or abuse its discretion.

FACTS

Respondents Carolle and Terry Serbus (mother and father, collectively parents) sold property on contract for deed to their son, respondent Michael Serbus, and his wife, appellant Lillian Serbus (husband and appellant). After a failure of timely payments, parents tried to cancel the contract for deed and served a notice of cancellation five days before appellant petitioned to dissolve her marriage to husband. Parents rescinded that cancellation when husband and appellant reconciled. Subsequently, parents served a second cancellation notice, but only on husband, not appellant. After that attempted cancellation, parents purportedly leased the property back to husband, but not appellant. Seventeen months later, appellant filed a second petition to dissolve her marriage to husband. Appellant filed a fraud action against husband, mother, and father, arguing that she was unaware of the cancellation and the lease of the property to husband, and that the second cancellation was defective. During this fraud proceeding, parents served a third notice of cancellation, this time on both husband and appellant. Appellant contests the summary judgment granted by the district court to respondents in the fraud action.

DECISION

I. Cancellation

Respondents argue that because appellant was served with a valid third contract-for-deed cancellation notice, her fraud claim is moot. Appellant argues that the third cancellation notice was defective because it was not in the form authorized by Minn. Stat. §á559.21, subd. 3 (2000), because it included a "convoluted and confusing paragraph" referring to the second (attempted) cancellation. The paragraph at issue is not included in the statutory notice. See Id. A cancellation notice, however, need not mirror the statutory language to be effective; the critical question is whether the vendee was prejudiced by any mistake in the notice (if there was one). See Karim v. Werner, 333 N.W.2d 877, 879 (Minn. 1983) (affirming ruling that notice's $100 overstatement of amount of statutory attorney fees due did not render notice defective); Conley v. Downing, 321 N.W.2d 36, 39-40 (Minn. 1982) (ruling cancellation notice not defective where it both overstated statutory attorney fees due by $100 and understated amount due on the contract for deed by $300); Hoffman v. Halter, 417 N.W.2d 747, 750 (Minn. App. 1988) (stating "[a]bsent a showing of prejudice, the Minnesota Supreme Court has determined some discrepancies in a notice of cancellation will not render it fatally defective" (citing Karim and Conley)), review denied (Minn. Mar. 18, 1988).

Whether contract language is ambiguous is a legal question on which we need not defer to the district court. Blattner v. Forster, 322 N.W.2d 319, 321 (Minn. 1982). Contract language is ambiguous if its language "is reasonably susceptible of more than one meaning." ICC Leasing Corp. v. Midwestern Mach. Co., 257 N.W.2d 551, 554 (Minn. 1977). Here, the paragraph in question is a series of unambiguous assertions by respondents that (a) they believe the second cancellation notice was effective; (b) they are serving the third cancellation notice in case the second notice is ruled defective; and (c) their service of the third notice does not waive their right to argue that the second notice was effective. We reject appellant's argument that the notice is defective because the paragraph in question is "convoluted and confusing." It is not.

Appellant also alleges that the third notice is defective because it overstates the amount in default under the contract for deed. Generally, to avoid cancellation of a contract for deed, a vendee on whom a cancellation notice is served must, among other things, tender the amount in default under the contract. Minn. Stat. §á559.21, subd. 2a(2) (2000); Dale v. Pushor, 246 Minn. 254, 258, 75 N.W.2d 595, 599 (1956). Here, however, we need not address the amount due. We simply note that the record shows both a default and that appellant did not attempt to tender any portion of the amount in default. Any misstatement in the third cancellation notice of the amount due is not prejudicial here. Appellant made no attempt to comply with the statute.

Because the district court properly found the third cancellation was effective, parents were entitled to the property after cancellation. Any defect in the second cancellation was moot as of the effective date of the third cancellation. Cf. In re Schmidt, 443 N.W.2d 824, 826 (Minn. 1989) (stating an issue is moot if a party could not be afforded effectual relief). This conclusion is consistent with caselaw stating that the Uniform Fraudulent Transfer Act does not apply to "regularly conducted, noncollusive" contract-for-deed cancellations. In re Butler, 552 N.W.2d 226, 228 (Minn. 1996).

II. Uniform Fraudulent Transfer Act

Minnesota has adopted the Uniform Fraudulent Transfers Act (UFTA). Minn. Stat. §§á513.41-.51 (2000). Appellant argues that the cancellation of the contract for deed and resulting transfer of the property to parents is a transfer that violates the UFTA and entitles her to compensation.*fn1 On appeal from summary judgment, appellate courts (a) view the evidence in the light most favorable to the party against whom summary judgment was granted; and (b) exercise de novo review to determine whether there are any genuine issues of material fact and whether the district court correctly applied the law. STAR Centers, Inc. v. Faegre & Benson, L.L.P., 644 N.W.2d 72, 76-77 (Minn. 2002).

Under the portion of the UFTA cited by appellant, "transfers" by "debtors" are fraudulent relative to a "creditor" if the transfer is made "with actual intent to hinder, delay, or defraud any creditor of the debtor." Minn. Stat. §á513.44 (a)(1). For purposes of this appeal, we assume that appellant correctly asserts that her claims against husband in the dissolution make her a "creditor" and husband a "debtor" for purposes of the UFTA. See Minn. Stat. §á513.41 (3), (4), (6), (12) (defining claim, creditor, debtor, and transfer respectively). Here, however, the second cancellation (i.e., the alleged transfer about which appellant complains) was not valid because appellant was not served.

A vendor may cancel a contract for deed executed, after July 31, 1985, by serving notice of cancellation "upon the purchaser or the purchaser's personal representatives or assigns[.]" Minn. Stat. §á559.21, subd. 2a (2000). "Where there is more than one purchaser, [Minn. Stat. §á559.21] must be read accordingly." Enga v. Felland, 264 Minn. 67, 70, 117 N.W.2d 787, 789 (1962). Here, the contract for deed names husband and appellant as purchasers. Neither the return of service nor the affidavit of service for the second cancellation notice states that the notice was served on appellant, and appellant alleges she was not served. Because this record does not show that appellant was served with the second cancellation notice, the second (attempted) cancellation was defective and could not result in a transfer of the property.*fn2 Because the second cancellation attempt did not result in a transfer, it could not supply the transfer required by the UFTA*fn3 and summary judgment regarding the second cancellation was appropriate.

Because we conclude that the second attempted cancellation could not be the basis for an application of the UFTA, we need not address whether appellant showed the existence of a genuine issue of material fact whether husband had the intent required by the UFTA when allegedly transferring the property to parents. See Minn. Stat. §á513.44(b) (listing factors to be considered when determining whether "actual intent" is present)*fn4.

III. Constructive Trust

Appellant alleges that the portion of the summary judgment denying her request for a constructive trust should be reversed because her interests in the property were "defeated by [r]espondents' secret transactions." A constructive trust is an equitable remedy imposed to prevent unjust enrichment of a person holding property under a duty to convey it or use it for a specific purpose. * * * [W]henever the legal title to property is obtained through fraud, oppression, duress, undue influence, force, crime, or similar means, or by taking improper advantage of a confidential or fiduciary relationship, a constructive trust arises in favor of the person equitably entitled to the property. Wright v. Wright, 311 N.W.2d 484, 485 (Minn. 1981) (citations omitted; emphasis added).

Because a constructive trust presumes that someone other than the person(s) who are equitably entitled to property holds it, and because the third notice of cancellation was effective, parents are currently equitably (and legally) entitled to the property. Therefore, there is no need for the remedy of a constructive trust.

IV. Subrogation

The Minnesota Supreme Court has stated:

"Subrogation rests on the maxim that no one should be enriched by another's loss." There are two kinds of subrogation: equitable and conventional. Equitable subrogation is a product of common law and its purpose is "to place the charge where it ought to rest, by compelling the payment of the debt by him who ought in equity to pay it." Medica, Inc. v. Atlantic Mut. Ins. Co., 566 N.W.2d 74, 77 (Minn. 1997) (citations omitted).

Here, appellant alleges that (a) parents set contract for deed payments in an amount that allowed them to use the payments to make their mortgage payment; (b) husband and appellant made substantial payments on the contract for deed; (c) canceling the contract for deed will inappropriately enrich parents by the amount of the payments on the mortgage; and therefore (d) appellant (and presumably husband) are entitled to be equitably subrogated to parents' status as mortgagors. Because the third contract-for-deed cancellation was valid, it is unclear how parents' exercise of their statutory right to cancel the contract for deed inappropriately enriched them. Also, to adopt appellant's argument that she (and presumably husband) essentially became mortgagors of the property would, despite a statutory mechanism for canceling a contract for deed, eliminate the ability of vendors to cancel a contract for deed when (a) a contract-for-deed payment was set in an amount allowing the vendor to meet the vendor's mortgage payment; and (b) the vendees had made "substantial" payments on the contract for deed.

V. Punitive Damages

Appellant challenges the district court's refusal to allow her to amend her complaint to include a claim for punitive damages. Punitive damages can be sought only where (a) the district court grants a motion to amend a complaint to include a claim for punitive damages; and (b) the party seeking punitive damages identifies a statutory basis for those damages under Minn. Stat. §á549.20 (2000). Minn. Stat. §á549.191 (2000). Under Minn. Stat. §á549.20, punitive damages are allowed only upon clear and convincing evidence that defendants' acts "show deliberate disregard for the rights and safety of others." Minn. Stat. §á549.20, subd. 1(a); see Minn. Stat. § 549.20, subd. 1(b) (explaining when a party acts with "deliberate disregard for the rights or safety of others"). Here, appellant alleges that parents' engaging in "secret transactions" with husband, "an 'insider' under the [UFTA], in a blatant attempt to frustrate and extinguish [appellant's] significant equity in her home[,]" satisfies Minn. Stat. §á549.20. Behind the rhetoric, appellant's claim for punitive damages is simply a derivative of her UFTA claim. Our rejection of appellant's UFTA claim compels affirmance of the district court's denial of the motion to amend to include a claim for punitive damages.

Affirmed.

Opinion Footnotes

*fn1 Appellant also alleges that the parents, in an apparent attempt to avoid the impact of a "due-on-sale" clause in their mortgage of the property, never recorded the contract for deed. How appellant has standing to assert interests of the mortgagee is neither clear nor explained. Appellant further argues that the first contract-for-deed cancellation notice was defective. Even if true, the relevance of that allegation is unclear; parents reinstated the contract for deed after that (alleged) cancellation.

*fn2 We note that neither the parties nor the district court addressed the possibility that the contract for deed may have been abandoned. Cf. Mitteness v. Dahl, 351 N.W.2d 685, 688 (Minn. App. 1984) (addressing whether contract for deed was abandoned).

*fn3 Because the second cancellation attempt could not result in a transfer of the property, that attempt and the subsequent purported leases of the property back to husband cannot be the basis of the equitable mortgage to which appellant alleges she is entitled. See First Nat. Bank of St. Paul v. Ramier, 311 N.W.2d 502, 503 (Minn. 1981) (stating that when the intended nature of a transaction is that of a loan secured by real estate, the transaction "may be treated as an equitable mortgage, without regard to the actual form of the instrument of conveyance").

*fn4 Appellant also argues that the badge of fraud involving a transfer under threat of litigation is involved here because husband was under threat of the first dissolution when the first cancellation was served. See Minn. Stat. §513.44 (b)(4) (2000) (identifying transfer under threat of litigation as a consideration in deciding whether intent to defraud was present at time of transfer). But the contract for deed was reinstated after that attempted cancellation as a result of husband and appellant's reconciliation. Therefore, if there was any intent to defraud in the prior proceedings, it is not clear that any such intent should be transferred to the subsequent cancellation proceedings.

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