Meyer v. Meyer

KEHOE, J. This appeal arises out of a dispute between William J. Meyer, Jr., appellee (“Father”), and two of the appellants, his son, William J. Meyer, III (“Son”), and his daughter, Rachael 1 Meyer (“Daughter”), regarding the equitable division of the proceeds of sale of real property (the “Property”) owned jointly by them. A second issue relates to the enforceability of a provision in a marital separation agreement between Father and the third appellant, Kimberly O’Neil (“Mother”), 2 that would require Father to pay a portion of the proceeds of the sale of the Property to Mother. After a court trial, the Circuit Court for Carroll County determined that Father was entitled to contribution from Son and Daughter for a portion of his mortgage, tax, and insurance payments for the Property and ordered the distributive shares of the three to be adjusted accordingly. The circuit court also concluded that the provision in the marital separation agreement regarding Mother’s right to payment was unenforceable.

The court entered judgment to that effect. Upon a timely appeal, appellants raise two issues, which we have reworded: 3 I. Did the circuit court abuse its discretion in ordering Son and Daughter to contribute a portion of their shares of the proceeds of sale to Father to reimburse him for mortgage ⁶⁴⁴ payments, taxes and insurance incurred in connection with their jointly owned property?

II

Did the circuit court err in determining that the controverted provision of the marital separation agreement was unenforceable? We answer each question in the affirmative. We will reverse the judgment of the circuit court as to the first issue and vacate the court’s judgment as to the second and remand the case for further proceedings. Factual and Procedural Background Father and Mother were married on March 2, 1984.

Two children, Son, born February 12, 1985, and Daughter, born April 7,1988, were born of the marriage. In 1987, Father and Mother purchased the Property, a residence located at 412 Leppo Road, Westminster, Maryland, as tenants by the entireties for $113,000.00. The Property was the marital home. On May 2,1989, Father and Mother mutually and voluntarily separated.

On November 16, 1990, Father and Mother executed a voluntary separation agreement (the “Separation Agreement”). Section 8 of the Separation Agreement provided in pertinent part: It is the intention of the parties, upon execution of this Agreement, to transfer all of their right title and interest in the marital home to Husband, who shall assume all of the obligations of the mortgage____ * * * In consideration for relinquishing all of her right, title and interest in the marital home to Husband, Wife shall receive, upon the sale of said home, one-half of the net proceeds of said home ... up to a maximum of Ten Thousand Dollars ($10,000.00). The Separation Agreement also provided that, pending transfer of Mother’s interest to him, Father was to be “solely responsible for the payment of the mortgages, and all other expenses associated with the ownership of the marital home....” At the time the Separation Agreement was signed, ⁶⁴⁵ the Property was subject to a mortgage in the approximate amount of $103,000. On November 4, 1991, Father and Mother conveyed the Property to Father, Son and Daughter as joint tenants with right of survivorship.

Son and Daughter were, respectively, six and three years old at the time of the conveyance and resided with Father in the Property. The deed provided in pertinent part: This Deed, made this 4th day of November in the year one thousand nine hundred and ninety-one by and between [Father] and [Mother], husband and wife, parties of the first part, and [Father], [Son] and [Daughter], parties of the second part. Witnesseth, There being no consideration for the transfer of the hereinafter described property, the said parties of the first part do hereby grant and convey unto the said parties of the second part, as joint tenants with the right of survivorship, [the Property]. This transaction is pursuant to the terms of a written Voluntary Separation and Marital Property Agreement dated November 16, 1990 and as approved by the Circuit Court for Carroll County.... * * * And the said parties of the first part hereby covenant that they have not done or suffered to be done any act, matter or thing whatsoever, to encumber the property hereby conveyed ....

As previously indicated, at the time of the transfer, the Property was subject to a mortgage naming Father and Mother as the borrowers. On December 12, 1993, Father petitioned the circuit court to direct the refinancing of that mortgage in the name of Father, Son and Daughter, pursuant to Md.Code Ann. Est. & Trusts § 13-204 (1974, 2001 Repl. ⁶⁴⁶ Vol.). 4 The circuit court granted Father’s petition on January-24, 1994 and Father subsequently refinanced the mortgage in his sole name. In March of 1994, Father filed a pro se petition in the circuit court stating that in 1991, he and Mother “granted the [Property] to [Father] and to their two children [Son] and [Daughter], the children as joint tenants with right of survivorship, in accordance with [Father’s] desire to have this property pass to his said children upon his death.” The petition stated that it was desirable to refinance the mortgage on the Property and Father requested that the circuit court appoint him as guardian of Son and Daughter: [F]or the purpose of allowing him to refinance the current mortgage on the residence and to transfer the real property interests of his minor children to himself as [may be] required by the lender. In the event that [the current] lender or another lender will refinance this mortgage without the requirement that the minor children relinquish their interests, then [Father] will, with this court’s consent, refinance the property as now titled.

The circuit court held a hearing on the petition and subsequently denied it, citing its “reluctance to take any action that would remove the children’s names from the deed.... ” As the years passed, and for reasons not directly pertinent to the issues raised by this appeal, the relationship between Father and the children deteriorated. In July, 1998, Son and Daughter moved from the Property to reside with Mother. ⁶⁴⁷ On July 31, 2003, Father again refinanced the mortgage on the Property. He was listed as the sole borrower and neither Son nor Daughter were aware of or signed the deed of trust. In August, 2004, Father and his current wife obtained a home equity line of credit, using the Property as security.

Son, then 19, and Daughter, then 16, both signed the home equity deed of trust as grantors. Son testified, without contradiction, that Father told him that neither he nor Daughter would obligate themselves on the line of credit by joining in the deed of trust. In April, 2007, Father and his wife moved from the Property and purchased a home in Halethorpe, Maryland. On August 14, 2007, Father filed a complaint against Son and Daughter for Sale in Lieu of Partition of the Property.

Father requested that the court adjust the shares of Son and Daughter to the proceeds to reimburse him for a portion of his mortgage, tax and insurance payments for the Property from July, 1998 (the date Son and Daughter moved to Mother’s house). Son and Daughter filed their own complaint for Sale in Lieu of Partition of the Property on August 28, 2007 and the cases were consolidated by court order dated December 5, 2007. 5 On May 13, 2008, the parties agreed to sell or auction the Property and place the proceeds of the sale with the clerk of the court, who would retain the funds in an interest bearing account until the circuit court ruled on how the funds should be distributed. The circuit court conducted a two day merits hearing on January 26 and 27, 2009. At the hearing, Mother testified that she and Father had discussions at the time of the conveyance and that it was their intention that the conveyance be a gift to the children.

Son testified that when he spoke with Father about the 2004 line of credit, Father assured him that he and Daughter would have no financial obligation to pay ⁶⁴⁸ back the home equity line of credit. Daughter was 16 years old at the time the documents regarding the line of credit were executed. Father testified that he never planned on selling the Property and, therefore, never planned on asking the children for reimbursement for payments made on the Property. The circuit court determined that Son and Daughter were obligated to contribute to Father’s mortgage payments, taxes and insurance reimbursements and other “expenditures that preserve the property.” The circuit court also denied Mother’s request for her share of the proceeds of the sale pursuant to the Settlement Agreement.

Specifically, the circuit court stated: The major issue among these parties is [Father’s] claim for contribution. [Father] seeks contribution for two-thirds of all mortgage payments, taxes and insurance, he has made since July of 1998 [when Son and Daughter ceased living with him]____ The total amount he expended from July, 1998 through January of 2009, was $124,566.58. [Father] now seeks contribution of one-third of this sum from [Son] and one-third of this sum from [Daughter]. There is little doubt that these sums have been paid by [Father], and there is no doubt that the refinancing that occurred during that period did not increase the indebtedness on the property and benefitted all. The only contention in this matter is that [Son and Daughter] contend that the Court should deny any claim for contribution asserted by [Father]. In reviewing the contentions made by [Son and Daughter], the Court must review the applicable law of contribution.

Ordinarily, a co-tenant is entitled to contribution from his other co-tenants for payments made toward mortgage payments, taxes, and insurance and any repairs on a property. The general rule appears to be that while the Court has discretion in the matter, co-tenants have a right to contribution among themselves for expenditures that preserve the property.....In this case, [Father] has paid mortgage payments, taxes and insurance on the premises, during the period of time when [Son and Daughter] ⁶⁴⁹ were not residing there, equaling $124,566.58, and he seeks reimbursement for the same. The primary case relied on heavily by [Son and Daughter] is Maas v. Lucas, 29 Md.App. 521 [ 849 A.2d 655 ] (1975).... The basic argument in Maas, supra, was that there is a presumption of gift by the father in that case in having paid off the mortgage.

This Court sees the facts in that case as distinguishable, because unlike the facts in the instant case, in Maas, supra, there had been straw deeds declaring the property was conveyed unencumbered. Further, there was a complete release of the mortgage 25 years prior to the partition action. The Court of Special Appeals appeared to place emphasis on deeds evidencing that the title was unencumbered, and upon the fact the mortgage had been released and that the claim of the father in that case was well subject to laches and/or limitations. In the instant case, [Father, Son and Daughter], took title to their interest in the Property by a conveyance from [Father and Mother] at a time when the property was clearly encumbered by mortgage debt.

Counsel for [Son and Daughter] argues that they are entitled to their one-third interest in this Property free and clear of any operative effect of even the then existing mortgage indebtedness or any claim of contribution by [Father]. He relies heavily on Maas for the basic proposition that the conveyance is an outright gift and that [Father] must not only absorb the costs of mortgage payments, taxes and insurance that he has made for many years, but must also pay from his share of the proceeds of the sale of the Property all of the outstanding mortgage indebtedness. There is also some evidence that [Son and Daughter] knowingly participated in the refinances of this Property and the existing indebtedness thereon. The Court does not find that Maas is dispositive in this case, and believes that [Father] is entitled to recover a ⁶⁵⁰ proportionate share of the mortgage payments, taxes, and insurance he paid on this Property.

The bottom line result of all of this is that [Son and Daughter] acquired a two-thirds interest in this Property, which is a house on a 3-1/2 acre lot, as a result of the divorce of their parents, and that they take no greater interest in that Property than their parents had at the time the deed was executed, and that by far a large portion of the expenditures made by [Father] were in payment of the purchase price of the Property, including interest and further payment of taxes and insurance thereon. It would be inequitable, under the circumstances of the testimony developed at trial, for the Court to reduce or eliminate the contribution that is sought here. The final issue for resolution by the Court is whether or not [Mother] is entitled to the Ten Thousand Dollar payment set forth in the parties’ Agreement set forth above. She is entitled to Ten Thousand Dollars if she had transferred all of her interest in the Property to [Father].

That is not what occurred here. Effectively, all of her interest in the Property, together with a portion of [Father’s] interest in the Property, was directly transferred to the parties’ children. As such, the Court does not find that the payment, set forth in the Agreement, is due and payable to [Mother]. The Court, therefore, will enter Final Judgment in this matter granting sale in lieu of partition of the Property, and appointing a Trustee to make sale of the same and any other appropriate relief.

The Court will delay entry of that Judgment for fifteen (15) days to allow the parties to consider its holding in this matter, and to hopefully resolve the situation by some form of post trial settlement among them. An order to that effect was entered on April 9, 2009. Appellants filed a timely appeal from that order. We shall discuss additional facts as required in this opinion. ⁶⁵¹ Discussion The action below was tried without a jury; therefore, we “will review the case on both the law and the evidence. [We] will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Maryland Rule 8 — 131(c).

We “ ‘must consider evidence produced at trial in a light most favorable to the prevailing party and if substantial evidence was presented to support the trial court’s determination, it is not clearly erroneous and cannot be disturbed.’ ” L.W. Wolfe Enters. v. Md. Nat’l Golf, L.P., 165 Md.App. 339, 343 , 885 A.2d 826 (2005) (quoting GMC v. Schmitz, 362 Md. 229, 233-34 , 764 A.2d 838 (2001) , quoting in turn Ryan v. Thurston, 276 Md. 390, 392 , 347 A.2d 834 (1975)). However, where the trial court’s decision “‘involves an interpretation and application of Maryland statutory and case law, our Court must determine whether the lower court’s conclusions are ‘legally correct’ under a de novo standard of review.’ ” L.W. Wolfe Enters., 165 Md.App. at 344 , 885 A.2d 826 (quoting Walter v. Gunter, 367 Md. 386, 392 , 788 A.2d 609 (2002) ). As we will explain, equitable principles confer upon a court broad discretion to allocate the proceeds of the sale of jointly owned property. Appellate courts afford considerable deference to a trial court’s exercise of its discretion.

See, e.g., Wilson-X v. Dept. of Human Resources, 403 Md. 667, 677 , 944 A.2d 509 , cert. denied, — U.S. -, 129 S.Ct. 101 , 172 L.Ed.2d 83 (2008). However, deference has its limits. We do not defer to a lower court’s exercise of discretion based upon an error of law, Davis v. Davis, 280 Md. 119, 125-26 , 372 A.2d 231 (1977), nor when the court’s ruling is “ ‘clearly against the logic and effect of facts and inferences before the court.’” North v. North, 102 Md.App. 1, 13 , 648 A.2d 1025 (1994) (quoting Shockley v. Williamson, 594 N.E.2d 814, 815 (Ind. App.1992)). ⁶⁵² I. Father’s Right to Contribution Son and Daughter’s principal argument to us is that Father’s transfer of interests in the Property to them, as well as Father’s subsequent payments for mortgage, property tax, insurance and similar expenses, were gifts.

Relying on our decision in Maas, they contend that Father has no right to seek contribution for gifts and that the circuit court abused its discretion in ordering their respective shares of the net proceeds to be reduced by one-third of those expenses. 6 Father, conversely, asserts that the conveyance to his children was not intended to be a gift but was rather in the nature of an “insurance policy,” to guarantee that his children would receive the Property at his death. He argues that Son and Daughter had the burden of proving that the conveyance was a gift and that they failed to do so. Father contends that his request for contribution is justified by the fact that Son and Daughter indicated to him that they desired that the Property be sold. He asserts that the circuit court was correct in concluding that Maas is distinguishable from the present case.

Before addressing the parties’ specific contentions, it will be useful to review the pertinent law. We begin with Maas itself. The pertinent facts of that case were: ⁶⁵³ At the time of the dissolution of the marriage in 1943, [Maas] and his [soon-to-be-divorced] wife conveyed the property by straw deeds to a straw party who reconveyed it to appellant and his children as tenants in common. Both straw conveyances warranted the property specially and contained covenants that the grantors (parents) had done: “no act, matter or thing whatsoever to encumber the property hereby conveyed.” There was in existence at that time, however, a mortgage on the property executed by the real grantors, appellant and his wife, (as opposed to the straw party to whom they had represented that warranty).

Less than one year later, appellant discharged the mortgage by full payment of the $4,770 balance due. The children did not assume any obligation under the mortgage, nor was the mortgage assigned to appellant upon discharge for subrogation or otherwise. The payment was made and full release recorded. 29 Md.App. at 532-33 , 349 A.2d 655 . More than twenty-five years later, Maas filed an action for sale in lieu of partition and, in that proceeding, claimed that the portion of the proceeds to be paid to his children should be reduced by their proportionate shares of the mortgage pay-off.

The circuit court agreed, on the basis that “‘it would be inequitable, even outrageous, to allow the children to force their father to assume the whole burden of the mortgage when they received the benefit of his payment discharging the mortgage.’ ” Id. at 534 , 349 A.2d 655 . In a lucid and scholarly opinion written by Judge Thomas Hunter Lowe, this Court reversed the trial court’s decision. Our decision was based upon three grounds. First, the transfer to the children was presumptively a gift and there was no evidence to overcome that inference.

Id. Second, the property was expressly conveyed without encumbrances and the mortgage was released by Maas without any attempt to reserve a right of contribution by subrogation. Id. Finally, we distinguished Maryland cases holding that one co-tenant is liable for contribution for a mortgage payment made by another be ⁶⁵⁴ cause, in all of those cases, both co-tenants were parties to the obligation, whereas Maas’ children were not.

Id. at 535-36 , 349 A.2d 655 . We concluded: [W]e know of no authority that would permit the chancellor to impose a personal debt upon the children where none ever existed. Upon remand the children should be relieved of the obligation to contribute to their father’s mortgage which he discharged over a quarter of a century ago. Id. at 536 , 349 A.2d 655 .

Son and Daughter contend that Maas is dispositive of the contribution issue. We agree, and, in explaining why, will elaborate on its analysis. As the circuit court noted, in a partition action, it has broad, discretionary authority to distribute the proceeds of sale to the parties. Maas, 29 Md.App. at 525-26 , 349 A.2d 655 (citing, among other authorities, Bowers v. Balto.

G. & E. Co., 228 Md. 624, 629 , 180 A.2d 878 (1962); Dugan and Lyman, Trustees v. Mayor & Council of Baltimore, 70 Md. 1, 8 , 16 A. 501 (1889), and 1 J. Story Equity Jurisprudence § 656(b) (14th ed. 1918)). There are, however, “certain general principles and guidelines to which [the court] must adhere” in exercising its equitable powers. Maas, 29 Md.App. at 526 , 349 A.2d 655 . The “principles and guidelines” at issue in this case pertain to the legal effect of Father’s execution of the 1992 deed to Son and Daughter and his subsequent mortgage, tax and insurance payments.

Father maintains that the conveyance was intended to facilitate the transfer of title to Son and Daughter at his death. Be that as it may, Father does not seek to set aside the conveyance on the basis that his original intent was frustrated by the sale of the house prior to his death; instead, he contends that he has a right of contribution from the children because they were co-tenants. The deed contains no language suggesting that Father intended to retain such a right. While this is not necessarily fatal to Father’s case, the disconnect between what Father testified ⁶⁵⁵ was his initial intent, the relief Father sought from the circuit court, and the actual language of the deed create obstacles that he must overcome in order to prevail.

The Restatement (Second) of Trusts (1959) (the “Restatement”) summarizes the applicable principles. When a person transfers property to another without consideration, there is a presumption that the transferor intended to retain the beneficial interest in the property. When this occurs, the property is said to be subject to a “resulting trust” in favor of the transferor. In the words of the Court of Appeals: “It is well settled as a general rule that where the purchase price is paid by one person and the title is taken in the name of another, there arises in favor of the person paying the purchase money a resulting trust, and the holder of the legal title becomes a trustee for him.

Of course, where a person attempts to establish a resulting trust, the burden is on him to prove such trust, and it must be made out by plain and unequivocal evidence [....” WSSC v. Utilities, 365 Md. 1, 38 , 775 A.2d 1178 (2001) (quoting Fitch v. Double “U” Sales Corp., 212 Md. 324, 330 , 129 A.2d 93 (1957)); see also Restatement § 440 (as a general rule, when “a