IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
Vanderbilt Mortgage and Finance, Inc., ) C.A. No. 8690-MA
Plaintiff )
v. )
)
Weldon C. Thomas and Diane L. Burton, )
Defendants. )
MASTER’S REPORT
Date Submitted: July 8, 2014
Draft Report: October 20, 2014
Final Report: October 30, 2014
Pending before me is a motion for summary judgment filed by Plaintiff
Vanderbilt Mortgage & Finance, Inc. (hereinafter “Vanderbilt”), who is seeking a
reformation of a deed of trust and imposition of a constructive trust on real
property located at 37196 W. White Tail Drive, Selbyville, Delaware (Sussex
County Tax Map Parcel No. 5-33 11.00 270.00) (hereinafter “the Property”).
Defendant Diane L. Burton, the sole owner of the Property, opposes the motion,
arguing that there are several disputed issues of material fact which preclude
summary judgment, including whether she intended to use the Property as
collateral to secure the installment loan she obtained on May 10, 1996, when she
and Defendant Weldon C. Thomas purchased a manufactured home that was
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subsequently affixed to the Property.1 For the reasons that follow, I recommend
that Vanderbilt‟s motion for summary judgment be denied.
Background
On May 13, 1992, Daniel Pacini passed away. 2 In his Last Will and
Testament, Pacini left the Property, described as “Lot 3 Deer Run Acres Tax Map
5-33-11 Parcel 270” and valued at $12,000, to Burton, who was his stepdaughter.
On May 10, 1996, Burton and Thomas purchased a manufactured home.3 They
secured financing through CMH HOMES, INC. D/B/A LUV HOMES, INC. #345
(hereinafter “CMH”), which is located in Millsboro, Delaware. A copy of the
“Retail Installment Contract – Security Agreement” (hereinafter “the Contract”) in
the record shows the cash price (including “sales tax” of $1,792.00) was
$49,592.00, the amount financed was $48,270.50, and the total periodic payments
to be made over the 17-year term of the Contract plus the initial deposit equaled
1
The Sheriff of Kent County personally served Thomas with the summons and
complaint on August 28, 2013, at his home in Camden-Wyoming, but Thomas
never filed an answer to the complaint. Docket Item (“DI”) 13. Burton filed her
Answer on November 25, 2013, after she appeared pro se at a Rule to Show Cause
hearing on November 7, 2013, and was allowed additional time to find counsel and
file her response. DI 18 & 19.
2
Amended Verified Complaint at Ex. A. DI 4.
3
According to her answer to Vanderbilt‟s first set of interrogatories, Burton stated
that she and Thomas were boyfriend and girlfriend in May 1996, and Thomas
resided with her on the Property until approximately May 1997. Plaintiff‟s
Memorandum of Law in Support of Motion for Summary Judgment, Ex. 2 at ¶¶ 20
& 22. DI 27.
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$112,360.60.4 The Contract recited the proposed location of the manufactured
home as “Route 2 Box H 1 Selbyville DE 19975,” the same address given for the
buyers. Thomas and Burton signed the Contract, but although CMH was listed as
the seller, no signature of a CMH representative appears on the Contract.
A “Deed of Trust” prepared by James F. Gallagher was signed by Thomas,
Burton, and Gallagher on May 10, 1996, and recorded in the Office of the
Recorder of Deeds in and for Sussex County, Delaware.5 The Deed of Trust
recites the obligation secured as “PROMISSORY NOTE DATED / /96
WHEREIN THOMAS WELDON & DIANE BURTON ARE MAKER AND
CMH HOMES INC. D/B/A LUV HOMES #345 IS PAYEE” in the amount of
$48,270.50.6 The Deed of Trust also recites the address of the subject real property
as R.D. 1 Box H1, Selbyville, Del. 19975, and recites the legal description of the
subject real property as follows:
COUNTY OF SUSSEX
DELAWARE
BEING A PART OF THE LANDS CONVEYED UNTO JANUARY
CORP., A DELAWARE CORPORATION; BY DEED OF DAVID
GRAMKOW, ET UX., DATED FEBRUARY 1, 1974, AND OF RECORD
4
Amended Verified Complaint, Ex. B. DI 4. Because of the poor quality of the
copy of the Contract that is in the record, it is difficult to decipher the printed
numbers. Some of the figures in this draft report may be slightly incorrect as a
result.
5
Id. at Ex. C. It appears from the certificate of preparation on the recorded Deed
of Trust that Gallagher was a manager at CMH.
6
Id.
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IN THE OFFICE OF RECORDER OF DEEDS AT GEORGTOWN [sic],
IN DEED RECORD VOLUME 725, PAGE 554.7
On January 17, 2013, CMH assigned the Deed of Trust to Vanderbilt.8
Issues
Vanderbilt argues that, as a matter of law, Burton has been unjustly enriched
because she has admitted that she received loan proceeds from CMH to purchase a
manufactured home, and is now delinquent in her repayment of that loan.9
Further, Vanderbilt contends that the Deed of Trust was intended by the parties to
secure an obligation, i.e., the Contract, wherein Burton granted a security interest
in the Property to CMH. According to Vanderbilt, because of the mutual mistake
of the parties with respect to the legal description of the Property in the Deed of
Trust, the only way for the parties to receive the benefit of their bargain is for the
Deed of Trust to be reformed to reflect an adequate legal description of the
Property. Alternatively, Vanderbilt argues that as a matter of law, it is entitled to
have a constructive trust imposed over the Property in order to remedy Burton‟s
unjust enrichment.
7
Id.
8
Id. at Ex. D.
9
Burton‟s Response to Plaintiff‟s First Request for Admissions, at ¶ 16. Ex. 1 of
Plaintiff‟s Memorandum of Law in Support of Its Motion for Summary Judgment.
DI 27. According to Vanderbilt, Burton owes Vanderbilt $10,981.77, representing
the total amount past due as of May 21, 2014. Ex. 3 of Plaintiff‟s Legal
Memorandum in Support of Its Motion for Summary Judgment.
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Burton denies that she has been unjustly enriched, arguing instead that it is
Vanderbilt who has been unjustly enriched because CMH charged her an unlawful
sales tax and included that sales tax in the amount that it financed, thereby inflating
the amount of money owed by Burton. Additionally, Burton argues that
Vanderbilt has a remedy at law since it may sue upon the Contract for money
damages, or file a writ of replevin as it did previously in 2002. Burton contends
that because CMH included an unlawful sales tax in the amount financed under the
Contract, there are material questions of fact as to the amount still owed to
Vanderbilt, if any, and whether Burton is in default of the Contract. Finally,
Burton argues that the legal description in the Deed of Trust is so grossly
inadequate that it is unenforceable.
Vanderbilt argues, in reply, that the sales tax was properly collected and
included in the amount financed by CMH, but even if it were not, Burton‟s
suggestion that Vanderbilt is precluded from obtaining a judgment under the
unclean hands doctrine is futile because Burton failed to plead this as an
affirmative defense in her Verified Answer to Amended Complaint. Finally,
Vanderbilt acknowledges that the legal description in the Deed of Trust is wholly
inadequate; had it been legally sufficient, Vanderbilt would not now be seeking to
reform the Deed of Trust.
Standard of Review
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A motion for summary judgment under Court of Chancery Rule 56 will be
granted “where the record reflects that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.”10
When reviewing a motion for summary judgment, “the facts must be viewed in the
light most favorable to the non-moving party and the moving party has the burden
of demonstrating that there is no material question of fact.”11
Analysis
Vanderbilt, as the moving party, has the burden of demonstrating that there
is no material issue of fact and is entitled to judgment in its favor as a matter of law
on all three counts: (1) unjust enrichment; (2) reformation of the Deed of Trust;
and (3) constructive trust.12 For the following reasons, I recommend that the Court
deny Vanderbilt‟s motion for summary judgment in its entirety.
1. Unjust Enrichment
A claim for unjust enrichment is premised on “„the unjust retention of a
benefit to the loss of another, or the retention of money or property of another
10
Viacom Int’l, Inc. v. Winshall, 2012 WL 3249620, at *10 (Del. Ch. Aug. 9,
2012).
11
Senior Tour Players 207 Mgmt. Co. LLC v. Golftown 207 Holding Co., LLC, 853
A.2d 124, 126 (Del. Ch. 2004).
12
In my draft report I am addressing the arguments in the sequence in which they
were presented by Vanderbilt in Plaintiff‟s Legal Memorandum in Support of Its
Motion for Summary Judgment, rather than the sequence of the actual legal counts
in Vanderbilt‟s Amended Verified Complaint.
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against the fundamental principles of justice or equity and good conscience.‟”13
The elements of unjust enrichment are: (1) an enrichment; (2) an impoverishment;
(3) a relation between the enrichment and impoverishment; (4) the absence of
justification; and (5) the absence of a remedy provided by law.14 I do not need to
address all of the elements of this claim because I find that there exists a material
question of fact whether there has been an enrichment here.
The Contract plainly states that the purchase price of the manufactured home
included a sales tax in the amount of $1,792.00. It is undisputed that Burton is a
Delaware resident who purchased her mobile home in Delaware, and placed it on
the Property, which is also located in Delaware. Delaware has no general sales tax
on mobile homes that are intended to be located in Delaware.15 Vanderbilt argues,
however, that the “sales tax” reflected in the Agreement was consistent with a
transfer tax, which is typically 3.75% of the purchase price, and that the sale of the
mobile home should have been subject to such transfer tax. While transfers of real
property are subject to county taxation,16 I can find no statutory authority for
13
Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010) (quoting Fleer Corp. v.
Topps Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del. 1988)).
14
Nemec, 991 A.2d at 1130 (citing Jackson Nat. Life Ins. Co. v. Kennedy, 741
A.2d 377, 394 (Del.Ch. 1999); Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571,
585 (Del.Ch. 1998)).
15
See PNC Bank v. Marty’s Mobile Homes, Inc., 2001 WL 849866, at n.6 (Del.Ch.
July 10, 2001). See also 9 Del. C. § 8103.
16
See 9 Del. C. § 8102.
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Vanderbilt‟s contention that $1,792.00 was a legal transfer or sales tax for a mobile
home.
The Contract calls for 204 monthly payments beginning May 15, 1996. By
my computation, the last payment under these terms would have been made on or
about April 15, 2013, if Burton had continued to make payments on schedule.
According to Vanderbilt, Burton‟s last payment of $561.82 was made on January
1, 2012,17 approximately 15 months before the end of the Contract‟s 17-year term.
Burton‟s monthly payment obligation of $561.82 included principal of $550.82
and escrow of $11.00, with interest for each late payment assessed thereafter at
10.5%.18 Looking at the evidence in a light most favorable to the non-moving
party, it appears that Burton was charged an illegal sales tax in the amount of
$1,792.00, which was then included in the financing agreement, improperly
inflating the total amount owed to Vanderbilt for the purchase of her mobile home.
I find that there exists a material issue of fact as to whether Burton has been
enriched in this case. Therefore, I recommend that the Court deny the motion for
summary judgment as to Count III – Unjust Enrichment.
2. Reformation of Deed of Trust
17
Affidavit of Bill Peterson, Legal Affairs Representative at Vanderbilt. Ex. 3 of
Plaintiff‟s Memorandum of Law in Support of Its Motion for Summary Judgment.
18
Id. As of May 21, 2014, Burton had accrued late charges in the amount of
$140.00, and owed Vanderbilt $10,981.77. Id.
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Vanderbilt argues that it is entitled to reformation of the Deed of Trust as a
matter of law because the record shows that, but for a mutual mistake of the parties
with respect to the legal description, it was intended by the parties that Burton
convey a security interest in the Property in order to receive loan proceeds to
purchase the mobile home. According to Vanderbilt, therefore, a reformation of
the Deed of Trust to reflect a sufficient legal description of the Property is both
necessary and appropriate to remedy the mutual mistake.
This Court has the power to grant reformation of a contract “in order to
express the „real agreement‟ of the parties involved.”19 Under the doctrine of
mutual mistake, a plaintiff must show by clear and convincing evidence that both
parties were mistaken as to a material portion of the written agreement.20
Although Vanderbilt argues that, on its face, the Deed of Trust reflects
Burton‟s intention to convey a security interest in the Property, Burton has
provided an affidavit in which she avers that she did not understand the terms
“security interest,” “legal description,” or “title search” when she purchased the
mobile home.21 All she knew was that Vanderbilt was on the certificate of title as
19
Cerberus Int’l, Ltd. v. Apollo Management, L.P., 794 A.2d 1141, 1151 (Del.
2002) (quoting Colvocoresses v. W.S. Wasserman Co., 28 A.2d 588, 589 (Del.Ch.
1942)).
20
Id., citing Collins v. Burke, 418 A.2d 999, 1002 (Del. 1989).
21
Affidavit of Diane L. Burton, Ex. F of Defendant‟s Answering Brief. DI 29.
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having a lien on her mobile home.22 Burton also denies that she intended to
convey a security interest in the Property when she executed the Deed of Trust
because she did not know the meaning of a security interest.23 She further claims
that she did not review the legal description in the Deed of Trust when she
executed that document,24 and that she only intended to buy a home when she
executed the Deed of Trust so she signed where they told her to sign.25
Viewing this record in a light most favorable to Burton, the non-moving
party, it appears that summary judgment would not be appropriate on this count
because the determination of whether the parties came to a specific prior
understanding before executing the Deed of Trust will depend in large part on the
credibility of the witnesses.26 Therefore, I recommend that the Court deny
summary judgment as to Count I -- Reformation of the Deed of Trust.
3. Constructive Trust.
Vanderbilt argues that, in the alternative, it is entitled to a constructive trust
securing its interest in the Property because, unlike reformation, the doctrine of
constructive trust is not meant to enforce the parties‟ intentions, but to rectify an
22
Id.
23
Defendant‟s Response to Plaintiff‟s First Request for Admissions at ¶ 12, Ex. 1
of Plaintiff‟s Memorandum of Law in Support of Its Motion for Summary
Judgment. DI 27.
24
Defendant‟s Answers to Plaintiff‟s First Set of Interrogatories at ¶ 24, Ex. 2 of
Plaintiff‟s Memorandum of Law in Support of Its Motion for Summary Judgment.
25
Id. at ¶ 27.
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otherwise unjust result. According to Vanderbilt, Burton has been unjustly
enriched by her receipt of the loan proceeds used to purchase her mobile home and
her failure to repay such proceeds as agreed under the terms of the Contract.
In order to be entitled to the imposition of a constructive trust, a plaintiff
must show that “defendant‟s fraudulent, unfair, or unconscionable conduct causes
him to be unjustly enriched at the expense of another.”27 “If one party obtains, or
retains, legal property by fraud, by violation of confidence or fiduciary relations, or
in any other unconscionable manner, a court will impress a constructive trust upon
the property in favor of the one who is in good conscience entitled to it.”28
Vanderbilt‟s claim for a constructive trust over the Property is based on
Burton‟s failure to make the remaining payments under the terms of the Contract,
as a result of which Burton allegedly has been unjustly enriched. Vanderbilt has
not alleged any breach of fiduciary duty or fraudulent conduct on Burton‟s part so
it appears that its claim falls under the rubric of “unconscionable” conduct. For the
reasons stated above in my discussion of Vanderbilt‟s claim of unjust enrichment,
there is a genuine issue of material fact whether Burton has been unjustly enriched.
26
Cerberus Int’l, Ltd., 794 A.2d at 1150.
27
Neumeister v. Herzog, 2007 WL 2162556, at *5 (Del.Ch. July 12, 2007) (citing
Adams v. Jankouskas, 452 A.2d 148, 152 (Del. 1982)).
28
Id. (quoting Bird’s Construction v. Milton Equestrian Center, 2001 WL
1528965, at *3 (Del. Ch. 2001) (quoting 1 Pomeroy’s Equity Jurisprudence § 166,
at 210-11 (5th ed. 1941)).
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As a result, I recommend that the Court deny the motion for summary judgment as
to Count II -- Constructive Trust.
Conclusion
For the foregoing reasons, I recommend that Vanderbilt‟s motion for
summary judgment be denied in its entirety.
Respectfully,
/s/ Kim E. Ayvazian
Kim E. Ayvazian
Master in Chancery
KEA/kekz
cc: Leslie Case DiPietro
Victoria J. Hoffman
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