This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. sec. 480A.08, subd. 3 (1994).

STATE OF MINNESOTA

IN COURT OF APPEALS

C6-95-2081

C4-95-2158

James Burton Souder,

Respondent (C6-95-2081),

Appellant (C4-95-2158),

vs.

Pamela Marie Ruff,

a/k/a Pamela Marie Kirchoff,

Appellant (C6-95-2081),

Respondent (C4-95-2158).

Filed May 21, 1996

Affirmed as modified

Randall, Judge

Hennepin County District Court

File No. 94-007396

Sholly A. Blustin, Edward B. Silberman, Mansfield & Tanick, P.A. 1560 International Centre, 900 Second Avenue South, Minneapolis, MN 55402 (for Respondent Souder)

Philip W. Getts, Law Offices of Philip W. Getts, Suite 2500, 120 South Sixth Street, Minneapolis, MN 55402 (for Appellant Ruff)

Considered and decided by Randall, Presiding Judge, Toussaint, Chief Judge, and Mulally, Judge.*

U N P U B L I S H E D O P I N I O N

RANDALL, Judge

After judgment was entered for James Souder in this breach-of-contract case, the parties filed cross appeals, which we consolidated. Pamela Ruff challenges the trial court's award on a contract claim, which she argues Souder neither pleaded nor proved. Souder challenges one of the trial court's amended findings. We modify the judgment and affirm.

FACTS

In March 1992, when appellant Pamela Marie Ruff and respondent James Burton Souder first began living together, Ruff alone owned the house in which the parties cohabited. The property was subject to a $132,000 mortgage. After Souder moved in with Ruff, he made the monthly mortgage payments as well as additional payments on the principal, satisfying the mortgage in full on August 28, 1992.

In September 1992, the parties decided to define their respective interests in the property. [1] Ruff agreed to convey an undivided two-thirds interest in the property to Souder in return for his promise that as long as she did not marry anyone but him, she could live in the house without obligation to him. Ruff executed and delivered a quitclaim deed to Souder for a two-thirds interest in the property, and on September 24, 1992, he recorded the deed in Hennepin County. Ruff has never disputed this transfer of interest.

Ruff and Souder had an on-again-off-again relationship. Souder moved from their home for three weeks in July 1992 and again in January 1993. In September 1992, Ruff began an affair with another man; however, in March 1993, Ruff and Souder agreed to reconcile, and Souder later returned to their home.

In August 1993, Ruff ended her relationship with Souder and asked him to leave. He agreed. However, according to his trial testimony, he added,

Pam, I'm not leaving here until I get my money out of the house. You are not going to live with another man at my expense. But if you want me to leave, I will leave, so we'll just refinance the house, I will get my money out of it, and I will leave, and you can have [the other man] forever.

Consequently, on August 30, 1993, both Souder and Ruff applied at Lakeland Mortgage Company to refinance the house jointly. In anticipation of the loan's approval and the return of his investment, Souder had his lawyer draft a quitclaim deed conveying his two-thirds interest in the property to Ruff. On September 3, 1993, Souder signed the deed and had his signature notarized, but did not deliver this deed to Ruff, apparently awaiting his payment. Souder also prepared a document entitled "Understanding Agreement and Promise," which set out in writing the oral agreement of the parties, but Ruff never signed it.

About three weeks later, after Souder returned to his home in Arizona, he learned from Ruff that Lakeland had some difficulty approving the loan because of the lender's requirement that the property be the primary or secondary residence of both parties. During the pendency of the loan process, Ruff and Souder made another attempt at reconciliation. Souder returned to their home on Thanksgiving Day, 1993.

In early December 1993, the Hennepin County Assessor's Office sent a notice that the property was eligible for only one-third of the homestead tax credit because Ruff, the person claiming it as her homestead, owned only a one-third interest. On December 6, 1993, when Ruff told Souder of the homestead notice, he called the clerk at the assessor's office and learned that if he quitclaimed his two-thirds interest in the property to Ruff within a few days, the property would get the full homestead credit.

Consequently, Souder decided to transfer his two-thirds interest to Ruff by the September 1993 quitclaim deed (the one he had prepared in anticipation of the loan approval), and she would then immediately transfer the two-thirds interest back to him by another quitclaim deed. Ruff would record the September 1993 deed and obtain the full homestead credit. Souder would retain an unrecorded two-thirds interest in the property until the loan's approval.

Souder's plan went awry. Although his attorney made several attempts to fax a "reversing" quitclaim deed, Souder never received it. According to Souder's trial testimony, he nevertheless decided to give Ruff the deed to his two-thirds interest with the understanding that

when the loan comes through then, you know, it'll be okay, I will have my money, and it's not defrauding the county or anything, as far as I know, there is no intent to defraud the county, it might be a little bit improper, but I think it's all right, it would be a matter of days.

According to Souder, Ruff acknowledged that she understood the arrangement. According to his testimony, Souder added, "Pam, you know, I'm totally trusting you in this," to which Ruff replied, "I know." On the same day, December 6, 1993, Souder delivered to Ruff the quitclaim deed he had previously executed on September 3, 1993, and Ruff promptly recorded it.

In February 1994, Souder learned the loan application at Lakeland was "suspended." Souder then contacted another mortgage company who seemed willing to approve the loan, and he delivered a new loan application form to Ruff. On March 22, 1994, during a long distance telephone conversation with Souder, Ruff told him she had not applied to the second lender, adding, "[W]hy would I do that anyway, I don't want a mortgage on this house?"

In May 1994, Souder brought an action against Ruff. On cross-motions for summary judgment, the district court dismissed all of Souder's claims except one involving Ruff's promise to refinance the property. The district court framed the issue for trial as a determination of whether Souder's December 6, 1993 transfer of his two-thirds interest was a gift or

a transfer subject to a promise to refinance the house and use the proceeds to reimburse Souder or reconvey the 2/3 interest in the [property] back to Souder.

One week later the case was tried to the bench. On May 1, 1995, the trial court found, inter alia, that (1) the parties created an enforceable contract, whereby Souder promised to transfer his two-thirds interest in the property to Ruff in return for her promise to obtain a mortgage in order to repay Souder $132,000; (2) the parties entered this contract on August 30, 1993, when Ruff and Souder made a joint loan application; (3) because Souder lacked donative intent, his transfer of the deed on December 6, 1993, was merely an early fulfillment of his part of the bargain and not a valid gift (4) Ruff breached the contract by failing to obtain a mortgage and repudiating her obligation to continue her efforts to do so.

Consequently, the trial court returned the parties to their pre-contract positions: it ordered Ruff to deliver to Souder a deed giving him an undivided two-thirds interest in the property "as a tenant in common." The trial court also concluded that

Ruff has a continuing obligation to make reasonable efforts to secure a first mortgage on the property and to sign all papers required to execute said mortgage and to fully cooperate with Souder in securing said mortgage.

Although Ruff made no motion for a new trial, she did move for amended findings. Her motion was denied. However, by order on June 20, 1995, the trial court amended one finding and added one conclusion of law. First, it found that by the parties' 1992 agreement outlining their respective interests, the parties had agreed that Souder's interest in the property would terminate if he predeceased Ruff, but that he would have a claim against Ruff's estate for his two-thirds interest if she predeceased him. Second, it ordered

[t]hat when a mortgage in the amount of $132,000 has been secured on the property, the proceeds shall be paid to [Souder] who shall then transfer his 2/3 interest in the property to [Ruff].

The trial court retained jurisdiction over the matter to resolve any later disputes. Judgment was entered July 11, 1995. Ruff appeals from the judgment, and Souder appeals from the amended order. We consolidated the appeals.

DECISION

On appeal from a judgment, this court's scope of review is limited to deciding whether the trial court's findings are clearly erroneous and whether it erred in its legal conclusions.

Citizens State Bank v. Leth, 450 N.W.2d 923, 925 (Minn. App. 1990) (citing Gruenhagen v. Larson, 310 Minn. 454, 458, 246 N.W.2d 565, 569 (1976)). A reviewing court is not bound by and need not give deference to a trial court's decision on a purely legal issue. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).

1. Ruff contends the trial court erred by granting relief on a breach-of-contract cause of action because it was not pleaded. We disagree.

It is fundamental that a party must have notice of a claim against him and an opportunity to oppose it before a binding adverse judgment may be rendered. * * * A trial court, therefore, is required to base relief on issues either raised by the pleadings or litigated by consent.

Folk v. Home Mut. Ins. Co., 336 N.W.2d 265, 267 (Minn. 1983) (citations omitted). Here, in paragraph 10 of Souder's complaint, he alleges that in December 1993, he gave up his two-thirds interest in the property

in exchange for [Ruff's] continued agreement to secure a new mortgage against the subject property so as to reimburse [Souder] for all his principal, interest, and taxes [sic] payments toward the First Union Mortgage.

In paragraph 11, he states that Ruff agreed to sign the written agreement he had prepared (apparently the "Understanding Agreement and Promise" document) and that Ruff

failed to fulfill this obligation and subsequently refused to complete refinancing of the subject property in direct breach of the agreement entered into by the parties.

Further, paragraph 8 suggests that when the parties initially applied for a mortgage on the property, they had an agreement that the proceeds of the loan would be used to reimburse Souder.

Although Souder's complaint focuses primarily on allegations of fraud, when read in its entirety, it alleges a breach-of-contract theory by the language asserting that Ruff's refusal to complete the refinancing of the property constituted a "direct breach" of their agreement. Contrary to Ruff's contention that the trial court amended the complaint sua sponte by framing and trying the issues under a contract theory, the pleadings themselves gave Ruff adequate notice of the breach-of-contract claim.

2. Ruff contends the trial court's findings that the parties formed a contract and that Souder's December 1993 transfer of his interest was not a gift are both unsupported by the evidence. We strongly disagree.

It is undisputed that in August 1993, Ruff intended that Souder receive $132,000 from the property if she secured financing. This earlier understanding refutes Ruff's later contention that Souder's December 1993 transfer of the deed was made simply so that Ruff could obtain the full homestead tax credit. [2] Indeed, Souder's testimony supports the trial court's finding that at time of the December 1993 deed transfer, Ruff affirmed her intention to go forward with the loan process by acknowledging that she understood Souder was still expecting his money and that he was "totally trusting" of her good faith.

Further, an essential element of a gift is donative intent. Oehler v. Falstrom, 273 Minn. 453, 456-57, 142 N.W.2d 581, 585 (1966), aff'd after remand, 281 Minn. 561, 160 N.W.2d 403 (1968). An alleged donee bears the burden of proving donative intent by clear and convincing evidence. Id. at 457, 142 N.W.2d at 585. Here, Ruff presented no evidence that Souder had the intent to give an ex-companion approximately $132,000 with no rhyme nor reason.

We emphasize our incredulity over Ruff's disingenuous argument. It defies belief that Souder would relinquish his entire $132,000 interest in real estate to obtain a small property tax credit. The trial court did not accept this argument. Neither do we.

3. Ruff contends that (1) as a matter of law, the alleged agreement is unenforceable because it omits essential terms concerning the procedure the parties would follow if they were unable to secure financing, and (2) even if there is an enforceable contract, she did not breach it because the contract was contingent upon financing and when the contingency was not satisfied, she had no further obligation to seek financing.

An alleged contract is unenforceable only if it

is so uncertain as to any of its essential terms that it cannot be consummated without new and additional stipulations between the parties.

Triple B & G, Inc. v. City of Fairmont, 494 N.W.2d 49, 53 (Minn. App. 1992).

Where a purchase agreement contains a contingency relating to financing, the purchaser is under a good faith duty to attempt to obtain financing.

Wiggins v. Shewmake, 374 N.W.2d 111, 116 (S.D. 1985) (emphasis added); cf. Plaisted v. Fuhr, 367 N.W.2d 541, 5456 (Minn. App. 1985) (referring to a vendee's duty to seek financing in good faith). This good faith duty constitutes an "implied promise" that the purchaser will use his or her "best efforts to bring about the happening of the condition." Wiggins, 374 N.W.2d at 116.

Because we agree that a good faith requirement is implicit in an agreement contingent on financing, we conclude that the parties did not omit an essential term. Further, Ruff testified that she fully intended at the time she completed the Lakeland loan application that Souder receive $132,000 from the property. Souder testified that in December 1993, when he transferred the deed to Ruff, she manifested her understanding that Souder still expected to receive the refinancing proceeds. There is evidence Ruff knew in December 1993 that Lakeland was having difficulty approving the loan. All this evidence supports an inference that the parties understood and intended that Ruff would make further refinancing applications if the Lakeland application were refused. Thus, the evidence supports the finding that Ruff breached her obligation to continue to seek financing, regardless of whether that obligation was implied or express.

4. The trial court granted Souder a two-thirds interest in the property pending Ruff's procurement of a $132,000 loan; after Ruff pays Souder the loan proceeds, he is ordered to transfer his interest back to Ruff. Ruff contends this award of specific performance is an inappropriate remedy. We disagree.

Specific performance is an equitable remedy addressed to the sound discretion of the trial court, and a reviewing court will not disturb that decision absent an abuse of discretion. Lilyerd v. Carlson, 499 N.W.2d 803, 811 (Minn. 1993). In general, "[i]f real property is involved, specific performance is a proper remedy, even if the other remedies would be adequate." Schumacher v. Ihrke, 469 N.W.2d 329, 335 (Minn. App. 1991) (citing Shaughnessy v. Eidsmo, 222 Minn. 141, 150, 23 N.W.2d 362, 368 (1946)).

Souder points out that he has no adequate remedy at law because the record shows Ruff would be unable to pay Souder for his $132,000 interest in the property without obtaining a refinancing loan. [3] Further, to put the parties in the position they were prior to Souder's December 1993 transfer of his two-thirds interest, without requiring Ruff to continue to seek refinancing, is tantamount to holding there was no contract, and providing Souder no relief. The trial court was correct in ordering specific performance and not a money judgment.

5. In its amended order, the trial court changed paragraph 20 of the May 1995 order for judgment, a finding that during the course of the parties' revision of the attorney-prepared draft of the eventual September 1992 agreement "other terms were added regarding disposition of the parties' respective interests in the event of their deaths." The amended finding now add the following:

These terms were:

a. [Souder]'s interest in the property would terminate if he should predecease [Ruff]; and

b. [Souder] shall have a claim against [Ruff]'s estate for two-thirds of the fair market value of the property in the event [Ruff] should die before [Souder].

Souder appeals from the trial court's order, contending this amended finding should be set aside because it has no basis in fact. Although this issue is not independently appealable, it is within this court's scope of review on an appeal from the judgment. See Minn. R. Civ. App. P. 103.04 (stating that on appeal from a judgement, an appellate court "may review any order involving the merits or affecting the judgment").

Souder argues that in the event he should predecease respondent, his interest in the property should pass to his estate. We agree. We note that if Ruff predeceases Souder, her share is protected for her estate. We modify the judgment to avoid potential confusion concerning survivorship rights in the property, and because the finding appears to contradict the trial court's remedy.

We first note the trial court did not change its decision reestablishing Souder's two-thirds interest in the property as a tenant in common. The trial court clearly intended to grant, and granted, Souder a two-thirds interest as a tenant in common. Yet the amended finding purports to treat his interest as a joint tenant, and it is clear the trial court did not intend to create a joint tenancy. It is axiomatic that a tenancy in common has no right of survivorship, and respondent is a tenant in common with Souder.

A joint tenancy is distinguished from a tenancy in common by the fact that a surviving joint tenant succeeds to the person with whom he shared the joint tenancy.

Hendrickson v. Minneapolis Fed. Sav. & Loan Ass'n, 281 Minn. 462, 464, 161 N.W.2d 688, 690 (1968). Thus, by ordering Ruff to convey to Souder a deed giving him an undivided two-thirds interest as a tenant in common, the trial court preserved that interest for Souder's estate if he predeceased Ruff.

Second, we note that the trial court did not change its conclusion that

Souder's interest in said property is subject to the conditions set forth in the contract between the parties attached as Exhibit 1.

"Exhibit 1" is a copy of a draft of the parties' September 1992 agreement with a number of handwritten notations. This working draft contains no provisions regarding the parties' rights in the event of their deaths. Thus, regardless of the amended finding, the "amended" term will not govern the rights and duties of the parties because it does not appear in Exhibit 1.

We, therefore, reinstate the earlier finding of paragraph 20 which the amended finding replaced. Souder's interest in the property is that of a tenant in common, and his estate, not Ruff, succeeds to his interest if Souder predeceases Ruff.

Affirmed as modified.


Footnotes

* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

[1] The parties consulted an attorney; however, on their own, they made changes to the attorney's draft, which both parties signed. Each party kept a copy of the agreement with their personal papers. However, in 1993, without Ruff's permission, Souder destroyed both copies. Thus, the only documentary evidence of the September 1992 agreement is the attorney's draft and Souder's notes.

[2] Contrary to Ruff's argument, determining who initiated the idea of transferring the property to receive the homestead credit is irrelevant to the issue of whether there was an enforceable contract. We note that obtaining the credit was mutually beneficial.

[3] In support of his argument, Souder refers to Ruff's testimony that while she was with Souder, he paid for all their living expenses and she held no job and that at the time of trial she had only a part-time job.