Opinion
No. C1-01-460
Filed December 4, 2001.
Appeal from the District Court, Goodhue County, File No. C199608.
George L. May and Terence G. O'Brien, Jr. (for appellants)
Douglas A. Boese, (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
The district court denied James and Rosita Wilkuses' posttrial motions in this litigation involving a complex land transaction among family members. After entry of judgment incorporating the underlying jury verdict, the Wilkuses brought this appeal challenging the damages amount, admissibility of summary charts, and the computation of prejudgment interest. We conclude that the evidentiary rulings were within the court's discretion, but reverse and remand for a new trial on damages.
FACTS
The Federal Land Bank foreclosed a real estate mortgage on the Wilkus farm in Goodhue County in 1985. Two years later, the bank notified the Wilkuses that a bid had been submitted to purchase the farm for $259,000. Exercising their statutory right of first refusal for agricultural land, the Wilkuses submitted a matching bid. When the Wilkuses were unable to arrange financing for the repurchase, Jim Wilkus approached his sister, Judith Haiar, to request financial assistance.
Judith Haiar and her husband, Gene Haiar, agreed to assist the Wilkuses by loaning them $10,080, taking title to the farm, executing a mortgage to the Security State Bank of Kenyon, and assigning the farm rents as security for the mortgage note. As part of the transaction, the assigned rents were to be deposited into an escrow account at the bank and applied to monthly principal and interest payments on the mortgage. The $221,000 mortgage proceeds, the Haiars' $10,080 loan, and advance lease payments from a tenant allowed the Wilkuses to repurchase the farm from the Federal Land Bank for $259,000 and transfer title to the Haiars.
Before the Haiars obtained title, they signed an agreement drafted by Jim Wilkus that set out the terms of the transaction between the Wilkuses and the Haiars. The agreement provided that the Wilkuses would continue to live on the farm, make various payments to the Haiars, make payments into the escrow account for a year to equalize escrow income and mortgage payments, and pay all farm expenses including real estate taxes and insurance. After the first year, according to the agreement, the income stream generated by the farm rents would equal the amount needed to amortize the mortgage. The Wilkuses agreed to repay the Haiars all cash that the Haiars personally invested in the property at a specified interest rate plus a flat fee of $5,000 for the risk they assumed in assenting to this financing arrangement. The agreement also provided the Wilkuses an opportunity to repurchase the farm anytime after January 1, 1988.
In 1999, shortly before the mortgage was paid in full, the Wilkuses asked the Haiars to reconvey title to the property. Jim Wilkus wrote the Haiars and requested that they provide a list of the expenses incurred during the course of the agreement. The Haiars refused to convey the property or to provide a list of expenses, claiming they had absolute ownership of the farm.
The Wilkuses brought this action, alleging, among other claims, that the deed obtained by the Haiars did not transfer ownership but was given as security for a loan transaction resulting in an equitable mortgage. The Haiars denied the allegation. Both the Haiars and the Wilkuses alleged breach of contract.
At trial the Haiars claimed absolute ownership of the farm. In the alternative, they claimed damages of $689,000, which included $221,000 from the proceeds of the mortgage, $220,000 in additional expenses incurred over the 14-year period, and $213,000 in interest on the aggregated amounts. The Haiars' damages were based, in part, on their contention that the farm rents generated since they took title to the farm, approximately $590,000, were solely their property. Consistent with this position, the Haiars maintained that the rent payments used to pay principal and interest on the bank mortgage and other expenses did not reduce the Wilkuses' obligations to the Haiars.
The jury found that the transaction between the Wilkuses and the Haiars was an equitable mortgage to secure both the $10,080 cash loan and the $221,000 loan from the mortgage proceeds. On the breach-of-contract claim, the jury computed the Haiars' damages as $415,000 and the Wilkuses' damages as $27,500. In its findings of fact, conclusions of law, and order for judgment, the district court found that, although the bank mortgage had been paid in full, the equitable mortgage created by the transaction between the Haiars and the Wilkuses remained the Wilkuses' unpaid obligation. The court further found that the jury included this $231,080 obligation plus interest in the $415,000 awarded for breach-of-contract damages. The court offset only the Wilkuses' $27,500 contract damages and entered judgment against the Wilkuses in the amount of $387,500. By issuing these findings, the district court implicitly concluded that the Wilkuses had no legal right to the farm rents totaling about $590,000.
The Wilkuses moved for amended findings or, in the alternative, a new trial. The district court denied the motion to amend the findings on damages and prejudgment interest and denied the request for a new trial.
DECISION I
The granting of a new trial rests largely within the district court's discretion, and reversal is warranted only when the district court's decision involves a violation of a clear legal right or a manifest abuse of discretion. State Farm Fire Cas. Co. v. Short, 459 N.W.2d 111, 114 (Minn. 1990); Templin v. Crestliner, Inc., 263 Minn. 149, 151, 116 N.W.2d 178, 180 (1962). A jury's special-verdict answers must be reconciled if possible. Carufel v. Steven, 293 N.W.2d 47, 48 (Minn. 1980). But if the findings can not be reconciled consistent with controlling legal principles, a new trial must be granted. Id. at 48-49. A new trial should be ordered only when the verdict cannot be reconciled with the evidence and its fair inferences on any theory. Raze v. Mueller, 587 N.W.2d 645, 648 (Minn. 1999).
On appeal, neither the Wilkuses nor the Haiars dispute the jury's finding that the transaction was an equitable mortgage. An equitable mortgage is created when a deed of conveyance is intended by the parties merely to be security for payment of a debt, rather than an actual conveyance of property. First Nat'l Bank v. Ramier, 311 N.W.2d 502, 503 (Minn. 1981). The rights and obligations of the parties under an equitable mortgage are the same as a legal mortgage. Sievert v. LaMarca, 383 N.W.2d 368, 370 (Minn.App. 1986), review denied (Minn. May 22, 1986). The Wilkuses argue that the jury's finding that the Haiars did not own the property but only held an equitable mortgage is inconsistent with the jury's findings and the district court's conclusions on damages and thus a new trial is necessary.
The jury's finding that the transaction between the Wilkuses and Haiars was an equitable mortgage affects the legal rights to the farm rents. Minnesota is a lien-theory state; thus, a mortgagee acquires only a lien on the property and a mortgagor retains rights to possession, rents, and profits of the mortgaged land up to the end of the statutory redemption period. Mut. Benefit Life Ins. Co., v. Frantz Klodt Sons, Inc., 306 Minn. 244, 247-48, 237 N.W.2d 350, 353 (1975); s ee also Cross Cos. v. Citizens Mortgage Inv. Trust, 305 Minn. 111, 117-18, 232 N.W.2d 114, 118 (1975); Fredin v. Cascade Realty Co., 205 Minn. 256, 259, 285 N.W. 615, 617 (1939); Grady v. First State Sec. Co., 179 Minn. 571, 572, 229 N.W. 874, 874 (1930). Therefore, the Haiars, as mortgagees, did not have a legal right to the farm rents generated during the period of the equitable mortgage.
The Haiars contend that because they were the named lessors they were entitled to the rents independent of the operation of principles of mortgage law. Any probative force of this argument is dissipated by the agreement's recitation that Jim Wilkus acquired the leases and by the assignment of the rents to the bank as part of the total financing transaction. Although the written agreement between the Haiars and the Wilkuses could have specifically provided for a different allocation of the rents, it did not.
The jury found that the principal amount of the equitable mortgage was $231,080 and the breach-of-contract damages were $415,000. Relying on the jury's verdict, the district court found that the breach-of-contract damages included the principal and interest of the equitable mortgage and entered judgment based on that premise. These findings are problematic, however, because once the jury determined that the transaction was an equitable mortgage, the farm rents, totaling about $590,000, were not the property of the Haiars but the property of the Wilkuses, as possessors and mortgagors. Thus, the jury's finding of an equitable mortgage is inconsistent as a matter of law with a damage amount that includes the entire equitable mortgage and does not credit the Wilkuses for the farm rents. The jury was not instructed on the legal effect of an equitable mortgage or how to calculate the Wilkuses' remaining obligation if they found the transaction to be an equitable mortgage. Failing to credit the Wilkuses for the farm rents in calculating their obligation under the equitable mortgage allows the Haiars both the attributes of a mortgage and the attributes of outright ownership in the land. This determination is contrary to Minnesota law that governs the rights associated with a mortgage.
For these reasons we reverse and remand for a new trial on damages. Consistent with the law of the case, the jury should be instructed that the transaction created an equitable mortgage and that the Wilkuses, as mortgagors, are entitled to the farm rents generated after the inception of the equitable mortgage. Thus, the farm rents will reduce the Wilkuses' obligation on the equitable mortgage and out-of-pocket expenses to the extent that the rents were used for these purposes. The jury may then determine any remaining obligation on the equitable mortgage as well as any out-of-pocket expenses incurred by the Haiars that were not reimbursed by farm rents.
II
The remaining claims of evidentiary error and prejudgment-interest error are to some degree moot as a result of our determination that a new trial is necessary on the issue of damages. But because the Wilkuses appealed the evidentiary ruling as an alternative basis for a new trial, and because the prejudgment-interest question will likely recur at the conclusion of a new trial, we address them briefly.
Under Minn.R.Evid. 1006, the contents of voluminous writings may be presented to the court in the form of a chart or summary if it is inconvenient for the writings to be introduced individually. Minn.R.Evid. 1006 (2001). The two disputed exhibits contain a summary of the Haiars' farm expenditures and a summary of the loans the Haiars' took out to meet some of the expenses. The Haiars' attorney created both exhibits based on financial information received from Judith Haiar.
The admissibility of summarized evidence is a matter within the discretion of the district court. Adrian v. Edstrom, 304 Minn. 52, 59-60, 229 N.W.2d 161, 166 (1975). Although the charts contain inconsistencies and may lack the precision and specificity to establish damage amounts in a new trial that will require more detailed calculations, we conclude that the district court did not abuse its discretion when it allowed the summary charts into evidence. See Wolf v. State Farm Ins. Co., 450 N.W.2d 359, 362 (Minn.App. 1990) (affirming admissibility of hand-written medical-expense summaries prepared by client and attorney), review denied (Minn. Mar. 16, 1990). Even though Judith Haiar did not physically prepare the summaries, she provided the information and vouched for its accuracy. In this sense, she worked with her attorney in preparing the summary charts. The inconsistencies that opposing counsel was able to show in Judith Haiar's calculations raised issues of fact or credibility for the jury to consider, but did not demonstrate that the court abused its discretion in allowing the charts to be admitted into evidence.
On the issue of prejudgment interest, we make three observations to clarify prejudgment-interest procedures after the retrial on damages. First, a party may collect prejudgment interest from commencement of an action or written notice of claim "except as otherwise provided by contract." Minn. Stat. § 549.09, subd. 1(b) (2000). The contract between the Wilkuses and the Haiars provided for repayment of the Haiars' out-of-pocket expenses at a specified interest rate. The district court's order for judgment did not indicate which amounts are subject to the contractual interest and which amounts may not be subject to contractual interest and thus would receive statutory prejudgment interest. Following the retrial on damages, we anticipate that contractual interest may be claimed on out-of-pocket expenses that were not reimbursed from the escrow account or were belatedly reimbursed. We recognize that the damages amount will change on remand, but the court should make specific findings on the application of prejudgment interest to facilitate appellate review.
Second, the district court's order provided for statutory prejudgment interest on the entire judgment beginning on August 12, 1987. Minnesota caselaw provides that statutory interest begins to run on an unliquidated claim when it is "readily ascertainable by computation." ICC Leasing Corp. v. Midwestern Machinery Co., 257 N.W.2d 551, 556 (Minn. 1977). To allow interest to accrue on the Haiars' out-of-pocket expenses from August 12, 1987, would permit the Haiars to collect interest on these amounts before they incurred the expense.
Finally, we reject the Wilkuses' argument that because the damages were disputed they were not ascertainable. A bona fide dispute as to the amount of damages does not bar the accrual of interest in all circumstances, or a claimant's right to interest would depend merely upon the reasonableness of the opposing party. Lacey v. Duluth Missabe Iron Range Ry. Co., 236 Minn. 104, 108, 51 N.W.2d 831, 834 (1952).