Sussex County Federal Credit Union v. Henry J. Evans, Sr. and Rosa Evans

• Court: Court of Chancery of Delaware
• Decided: January 6, 2017
• Docket: CA 11887-MA
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

) Sussex County Federal Credit Union, ) C.A. No. 11887-MA Plaintiff, ) v. ) ) Henry J. Evans, Sr., and Rosa Evans, ) Defendants. )

MASTER’S REPORT

Date Submitted: September 20, 2016 Draft Report: December 20, 2016 Final Report: January 6, 2017

In 2002, a couple deeded two acres of their 28-acre parcel to their son and

daughter-in-law. Several months later, their son and daughter-in-law borrowed

$195,000 from a credit union in order to construct a new house on their two acres.

The loan was secured by a mortgage on their property. After taking out a second

mortgage and obtaining a mortgage modification, the son and daughter-in-law

defaulted on their payments. After initiating foreclosure proceedings in 2014, the

credit union discovered that the house straddled the boundary line between the son

and daughter-in-law’s property and the adjacent property owned by the parents. In

2015, the credit union purchased the foreclosed property for $1,000 at a sheriff’s sale.

The credit union is now seeking to reform the 2002 deed executed by the parents.

The proposed reformation would: (a) redraw the boundary lines to include the house

Page 1 of 10 as built within the credit union’s property, and (b) redraw the boundary lines to give

the parents some of credit union’s acreage in exchange. The parents oppose

reformation, contending that it would be unconscionable and against public policy to

take real property from them when they have done nothing wrong in order to

compensate the credit union for its own mistakes. Pending before me is a motion for

summary judgment filed by parents. For the reasons that follow, I recommend that

the Court grant summary judgment in favor of the parents, but deny their request for

an award of attorney’s fees and costs.

Factual Background

In 1969, Defendants Henry J. Evans, Sr. and Rosa Evans, his wife, purchased

two adjacent lots, totaling approximately 28 acres, near Milton, Delaware. 1 Evans,

Sr. wanted a large parcel of land as a place where his extended family could live. 2

The original parcel was shaped like a square and landlocked on three sides. The

fourth side bordered Sussex County Route 319, commonly known as Sand Hill

Road.3

In early 2002, Defendants gave “two acres” of their land to their son, Henry J.

Evans, Jr., and his wife, Maribeth Evans, for the purpose of building a house. 4

Defendants allowed the younger couple to select the land they wanted on their

1 Def. Op. Brief, Ex. A. 2 Id., Ex. C (Deposition of Henry J. Evans, Sr. at 10). 3 Id., Ex. G. Page 2 of 10 parents’ parcel. 5 Evans, Jr. and his wife selected a 2.119 acre parcel of land shaped

like a jug, which nearly bisected Defendants’ property. 6 A 2015 survey shows a

driveway called Tobacco Road running approximately 500 feet along the “jug

handle” of the 2.119 acre parcel. 7 Tobacco Road then turns and runs a short distance

past a derelict building over land owned by Defendants. 8 Even though Evans, Jr.

could have extended Tobacco Road further along the “jug handle” to avoid crossing

Defendants’ property, Evans, Jr. did not do so. Instead, after his house was

constructed, Evans, Jr. drove across a portion of his parents’ land to access the

backyard of his house.9 Evans, Jr. also used an old well that was located near the

derelict building to run water to his new house. 10 Defendants were aware that their

son drove across their land and had a line to the well, but viewed it as a “family

situation.”11

4 Id., Ex. C (Deposition of Henry J. Evans, Sr., at 10). 5 Pl. Ans. Brief (Deposition of Rosa Evans at 31). 6 Def. Op. Brief, Ex. K. See also Ex. D. 7 Def. Op. Brief, Ex. K. 8 In 2006, Defendants gave approximately two acres of their remaining land to their daughter, Kia Lynn Evans-Watson. Def. Op. Brief, Ex. F. A minor subdivision plan shows that the daughter’s parcel is shaped like a mirror image to the property now owned by SCFCU, but runs along the southern edge of Defendants’ parcel where a second driveway (“Plantation Road”) provides access to the daughter’s house. Def. Op. Brief, Ex. G. 9 Def. Op. Brief, Ex. C (Deposition of Henry J. Evans, Sr. at 37). 10 Id. at 22. 11 Id. at 37. Page 3 of 10 The 2.119 acre parcel was conveyed to Evans, Jr. and his wife by deed

executed by Defendants on January 30, 2002 (“the 2002 Deed”).12 On October 31,

2002, Evans, Jr. borrowed $195,000 from Plaintiff Sussex County Federal Credit

Union (“SCFCU”), and executed a construction mortgage encumbering their 2.119

acres with “improvements now or hereafter erected on the property” as security for

the loan.13 They subsequently borrowed another $47,791 from SCFCU on September

5, 2008, secured by a second mortgage on their property, and on July 16, 2012, they

executed a mortgage modification agreement with SCFCU. 14 However, Evans, Jr.

and his wife were unable to make payments under the mortgage modification

agreement, and SCFCU initiated mortgage foreclosure proceedings in the Superior

Court on April 30, 2014.15 On October 16, 2014, Evans, Jr. and his wife filed an

emergency motion for stay of execution and sale, alleging that a survey completed

that same date showed that the house was situated across the boundary line of the

property and the adjacent property owned by Defendants. 16 With knowledge of this

title defect, SCFCU purchased the property for $1,000 at a sheriff’s sale conducted on

April 24, 2015.17

12 Def. Op. Brief, Ex. E. 13 Def. Op. Brief, Ex. I. 14 Def. Op. Brief, Ex. J. 15 Def. Op. Brief, Ex. L. 16 Def. Op. Brief, Ex. M. 17 Def. Op. Brief, Ex. N. Page 4 of 10 A survey prepared for SCFCU on July 13, 2015, shows that two-thirds of the

house that was constructed by Evans, Jr. and his wife is located on land owned by

Defendants.18 By letter dated September 29, 2015, Defendants informed SCFCU that

they were relinquishing any right or interest they might have in the house or the well

encroaching on their property, and authorized SCFCU to enter onto their land and

relocate or remove the encroachments.19 SCFCU then filed this complaint against

Defendants on January 11, 2016.

Issues

In their motion for summary judgment, Defendants argue that since they

conveyed Plaintiff’s property to their son and daughter-in-law before Plaintiff’s

original loan or the construction of the house, and since they were not involved with

the loan or the construction of the house, there is no basis for an equitable

modification of the boundary lines separating the two properties. According to

Defendants, equity cannot modify unambiguous property lines called out in a deed

without causing mischief. 20 Defendants also argue that Plaintiff has brought this

action in bad faith because Plaintiff admits that it has the ability and authority to

relocate the house and admits that it has never relied upon any agreement, promise or

18 Def. Op. Brief, Ex. K. 19 Def. Op. Brief, Ex. P. 20 Def. Op. Brief, at 12 (citing Martin v. Turner, 2009 WL 4576228, at *2 (Del. Ch. Nov. 23, 2009) (Master’s Final Report)). Page 5 of 10 assurance by Defendants. As a result, Defendants are seeking an award of attorney’s

fees for having to defend a meritless action.

Plaintiff opposes summary judgment, arguing that reformation of a deed is an

appropriate equitable remedy where it can show a unilateral mistake accompanied by

knowing silence by Defendants. According to Plaintiff, Defendants intended to

convey to their son and daughter-in-law two acres of land upon which they would

build their house. The deed executed by Defendants does not conform with their

intent because the house straddles both properties. Furthermore, Defendants had

constructive notice of the property boundaries from the recorded deed, and actual

knowledge of the location of the house and its encroachment on their property

because they had consented to their son’s use of the well on their property and

allowed their son to drive across their land. According to Plaintiff, Defendants only

broke their silence as to these encroachments when Plaintiff purchased the property.

As successor in interest, Plaintiff argues that it has the same rights as the original

grantee to seek equitable reformation of the deed. Finally, Plaintiff argues that there

is no basis for an award of attorney’s fees because it has not ignored “longstanding

and clear legal precedent” as Defendants now claim, nor has it brought suit to coerce

Defendants.

Page 6 of 10 Analysis

A motion for summary judgment may be granted if no genuine issue of

material fact is in dispute and the moving party is entitled to judgment as a matter of

law.21 The burden is on the moving party to establish that there are no issues of

material fact, 22 and the court must review all evidence in the light most favorable to

the non-moving party. 23 Once the moving party has met its burden to show no material

facts exist, the nonmoving party must submit “specific facts showing that there is a

genuine issue for trial to survive a motion for summary judgment.” 24

Plaintiff is seeking reformation of the 2002 Deed to effectuate the original

intent of the parties to the agreement, which Plaintiff contends was to provide

Defendants’ son and daughter-in-law with property upon which their house would be

built. According to Plaintiff, the 2002 Deed did not achieve that objective because

the house was mistakenly built straddling the boundary line between Defendants’

property and what is now Plaintiff’s property. However, Plaintiff misconstrues the

equitable doctrine of reformation. In order to reform a deed, there must be “a

showing of a mutual mistake or, in appropriate cases, unilateral mistake on plaintiff’s

21 Ct. Ch. R. 56. 22 Scureman v. Judge, 626 A.2d 5, 10 (Del.Ch. 1992). 23 Id. at 10-11. 24 In re Novell, Inc. S’holder Litig., 2014 WL 6686785, at *6 (Del.Ch. Nov. 25, 2014) (quoting Goodwin Live Entm’t, Inc., 1999 WL 642565, at *5 (Del.Ch. Jan. 25, 1999), aff’d, 741 A.2d 16 (Del. 1999)). Page 7 of 10 part coupled with knowing silence on defendant’s part.”25 In deed reformation cases,

the mistake relates to the description in the deed, and the fundamental question is:

what is the property that was actually conveyed? If the property as described in the

deed is not what the parties intended to be conveyed, then the erroneous contract may

be reformed.

Here, the record includes a survey dated May 16, 2001, which was prepared for

Evans, Jr. by Coast Survey, Inc. and recorded in the Office of the Register of Deeds

in and for Sussex County as a “Lot Partition.” 26 The Defendants allowed their son

and daughter-in-law to select their own land within the 28-acre original parcel, and

their selection is evidenced by the 2001 Survey. The 2001 Survey also served as the

basis for the metes and bounds description prepared by the law firm that drafted the

2002 Deed conveying the 2.119 acre property from the Defendants to their son and

daughter-in-law. 27 A comparison of the two documents shows that the distances and

directions called out in the 2001 Survey and in the 2002 Deed are identical. The only

reasonable inference to be drawn from this evidence is that the property described in

the 2002 Deed is the property that the parties intended to be conveyed. Since there

was no mistake, either mutual or unilateral, as to what property was being conveyed

in the 2002 Deed, there is no equitable basis for this Court to reform the 2002 Deed.

25 Collins v. Burke, 418 A.2d 999, 1002 (Del. 1980) (citations omitted). 26 Def. Op. Brief, Ex. D. Page 8 of 10 Several months after the property was conveyed to Evans, Jr. and his wife, they

borrowed money from Plaintiff and began construction on their new house. For

unknown reasons, the new house was built partially on the Defendants’ property. If

this was the result of a mistake by Evans, Jr. or his contractor or surveyor, it was,

nevertheless, a mistake that occurred several months after the conveyance of the land.

Defendants testified in their depositions that they were not involved in the

construction of the house and were unaware that the house was encroaching on their

property until the foreclosure proceedings began. 28 Nor can the Court reasonably

infer from Defendants’ knowledge that their son was using their well and driving

across their land to access his house that Defendants also knew their son’s house

encroached on their land.

In the absence of any mistake in the written contract, there is no equitable basis

for reforming the 2002 Deed. Accordingly, I recommend that the Court grant

summary judgment in favor of Defendants. Defendants are seeking reasonable

attorneys’ fees under the bad faith exception to the American Rule. The facts of this

case are unusual. Even though Plaintiff has the capacity and authority to relocate the

house onto its property, I do not find Plaintiff’s decision to litigate this matter to be so

27 Def. Op. Brief, Exs. D & E. 28 Def. Op. Brief, Ex. C (Deposition of Henry J. Evans, Sr. at 21-22); Pl. Ans. Brief (Deposition of Rosa Evans at 31, 33). Page 9 of 10 egregious as to warrant shifting fees. Therefore, I recommend that the Court deny

Defendants’ request for their reasonable attorneys’ fees.

Conclusion

For the reasons stated above, I recommend that the Court grant summary

judgment in favor of Defendants Henry J. Evans, Sr. and Rosa Evans, and dismiss the

complaint to reform a deed filed by Plaintiff Sussex County Federal Credit Union. I

also recommend that the Court deny Defendants’ request for an award of attorney’s

fees.

Respectfully,

/s/ Kim E. Ayvazian

Kim E. Ayvazian Master in Chancery

KEA/kekz

Page 10 of 10