Friday, June 18, 2010

Rent as a Defensive Offset: a new Equitable tool for non-Ousted Cotenants

Curtis v. Dorn (ICA June 17, 2010)

Background. In 1991 after Hurricane Iniki, Catherine Curtis and Jeff Dorn, an unmarried couple, bought property in Kilauea on Kauai for $171,000 with a down payment of $36,000. Curtis paid $34,000; Dorn paid $2,000. Curtis, Dorn, and their daughter moved into the house and lived there. Curtis and Dorn paid insurance, mortgage, and taxes equally until 1993, when their relationship deteriorated and Dorn moved out voluntarily. Curtis brought a partition action asking the circuit court to terminate the joint venture or partnership with Dorn, determine the equitable property interests, and the amount due to Dorn.

After a non-jury trial, the circuit court--relying on the analysis from Sack v. Tomlin, 871 P.2d 298, 36 (Nev. 1994)--concluded that Curtis had 59.4% equity in the house and Dorn had 40.6%. Applying those percentages to the total equitable amount (the value of the property - the amount owed on the mortgage), the circuit court concluded that Curtis' equitable share was $22,601.28 and Dorn's was $156,139.73. The circuit court also considered expenses like taxes, improvements, and insurance. The circuit court concluded that Curtis contributed $242,901.72, while Dorn contributed $32,888; that meant Curtis paid excess contributions up to $210,013.72. The circuit court divided that excess amount by two: $105,006.86; then the circuit court subtracted that amount from Dorn's equitable share leaving $51,132.87. The circuit court ordered that Curtis pay Dorn $51,132.87 and that Dorn transfer his interest in the property. The circuit court refused to credit Dorn for Curtis' occupation and use of the property after he left in 1993. Dorn appealed.

Let's get Equitable. Partition actions are in equity and, thus, are reviewed for an abuse of discretion. Kimura v. Kamalo, 106 Hawai'i 501, 506, 107 P.3d 430, 435 (2005). In a partition action, the court has the power to divide the property between parties "according to their respective proportionate interests" and "exercise any other power pertaining to a circuit court in a civil action." HRS § 668-7.

Majority Jurisdictions don't Credit Tenants for the Other's rent and use of Property. According to the ICA, a majority of jurisdictions have held that absent an agreement or ouster, the tenant in common in possession of the property is not liable to his or her co-tenant who is not in possession for the rent and use of the property. De Mello v. De Mello, 24 Haw. 675, 676 (Terr. 1919); Haw. C. & S. Co. v. Waikapu S. Co., 9 Haw. 75 (Haw. Provisional Gov't. 1893); Sack v. Tomlin, 871 P.2d 298, 306 (Nev. 1994); Williams v. Sinclair Refining Co., 47 P.2d 910, 912 (N. M. 1935). The rationale for this is when the co-tenant "may enter the whole or any part of the common estate as he [or she] has a legal right to do, and the presumption of the law is, when nothing more is done, that he [or she] intends to do nothing beyond the assertion of his [or her] right." HC&S v. Waikapu S. Co., 9 Haw. at 80.

No Ouster here. The ICA agreed with the circuit court that Dorn was not ousted. Ouster is the "wrongful dispossession or exclusion from real property of a party who is entitled to the possession." HC&S v. Waikapu S. Co., 9 Haw. at 80. In disputes between cotenants, "ouster must be (1) actual, meaning physical dispossession[,] or (2) its equivalent: a demand for possession by the cotenant out of possession and a refusal by the cotenant [in possession] claiming by reason of adverse possession." Redfearn v. Kuhia, 53 Haw. 378, 381-82, 494 P.2d 562, 564 (1972). It is presumed that the co-tenant in possession of the property "does not occupy the premises adversely to his [or her] cotenants but in common with them." Id. at 381, 494 P.2d at 564. The presumption can be overcome "only by conduct of one cotenant which constitutes an ouster or disseisin of other cotenants." Id.

The record, according to the ICA, clearly demonstrated that Dorn left voluntarily and, if he wanted to, he could have moved into another bedroom in the house. Dorn also left his things at the house and would come over to visit his daughter. The ICA concluded that Dorn had been ousted.

Even Without Ouster, Equity Allows Credit for Improvement and Maintenance. The ICA noted that although the non-ousted cotenant cannot seek rent out right, many courts allow the cotenant out of possession to request rent to "offset" contributions for maintenance and improvements of the property demanded by the cotenant in possession. See Adkins v. Adkins, 595 So.2d 1032, 1035 (Fla. Dist. Ct. App. 1992) ("When a cotenant in possession seeks contribution for amounts expended in the improvement or preservation of the property, that claim may be offset by cotenants out of possession to the extent it has exceeded his or her proportionate share of ownership."); Esteves v. Esteves, 775 A.2d 163, 165 (N. J. Super. Ct. App. Div. 2001); Laniger v. Arden, 450 P.2d 148, 149-50 (Nev. 1969); Clark v. Dady, 131 S.W.3d 382, 390 (Mo. Ct. App. 2004); Janik v. Janik, 474 N.E.2d 1054, 1058 (Ind. Ct. App. 1985); Gilleland v. Meadows, 351 S.W.2d 656, 658 (Tex. Civ. App. 1961); Fundaburk v. Cody, 72 So.2d 710, 718 (Ala. 1954); Winn v. Winn, 269 N.W. 376 (Neb. 1936).

Entre the Defensive Offset . . . The ICA agreed with these jurisdictions and held that "a court in equity, in a partition action not involving ouster or agreement, has the discretionary authority to allow an apportioned defensive rental offset against maintenance-related and improvement-related contributions, to the extent that the 'reasonable rental value of the use of the property by the [cotenant in possession] . . . has exceeded his or her proportionate share of ownership.'" After all, he "who seeks equity must do equity." Adair v. Hustace, 64 Haw. 314, 321 n. 5, 640 P.2d 294, 300 n. 5 (1982).

The Remedy: Vacated Judgment. The ICA vacated and remanded the case back to the circuit court. According to the ICA, circuit court refused to credit Dorn the rents on an unsound legal principle--that it could not. The ICA noted that the defensive offset is available to the circuit court, but the circuit court--sitting in equity--still retains "significant" discretion in the partition action. On remand, the ICA ordered that the circuit court issue findings and conclusions as to whether Dorn is entitled to some rent during Curtis' occupancy in order to equitably offset Curtis' claims for maintenance and improvement contributions.

A Warning for Cotenants in Possession. Out-of-possession cotenants have a new tool: the defensive offset. But it was clear that this offset can only be invoked when the cotenant in possession seeks contributions for maintenance and improvements. Even then, the offset is limited to anything exceeding the in-possession cotenant's share of ownership. That would suggest that if the cotenant in possession has a big share, the rent as a defensive offset may be pretty small. It is unclear how to determine when the cotenant in possession exceeds his or her share. Is it a spatial share or a temporal one? These questions are to be resolved at a later time; and given the rarity of an appeal from partition actions (note the reliance on cases from the Territory and the Provisional Government), it may be a while.