George v. Tanner , 108 Idaho 40 ( 1985 )

HUNTLEY, Justice.

This is an appeal by H. Reynold George and his brother, Dennis L. George, from a judgment in favor of Nyle and Cheryl Tanner, quieting title to business property .in the Tanners. The Tanners cross-appeal from that portion of the judgment which awarded a money judgment to the Georges on the basis of unjust enrichment.

The Georges owned a theater in Rigby, Idaho, while Tanners owned an adjoining cafe and apartments. In 1970 the Georges sold the theater to the Tanners on an installment contract for $50,000. In 1976 Tanners sold the cafe on an installment contract to Mr. Webb Evans and his corporation. At that time the Tanners still owed approximately $40,000 to the Georges on the theater contract. Shortly thereafter the Georges and Tanners entered into an assignment, the terms of which purported to “sell, assign and transfer and set over unto [the Georges] all our right, title and interest in and to that certain balance of $150,000 as set forth in that certain contract of sale,” that is, the cafe contract between Tanners and Webb Evans. The purpose of this assignment was testified to be to cancel the debt on the theater contract owed by Tanners to Georges in exchange for approximately $50,000, (constituted by the assignment of the $150,000, of which $100,000 was to be paid under escrow arrangements to retire a bank mortgage on the cafe). The sum of $20,000 which was to be paid by Evans to Tanners as a “downpayment” on the cafe under the contract was also not assigned. After four monthly payments Evans defaulted. At that point major repairs and replacements were needed in the cafe, and its major liabilities totalled approximately $105,000. The cafe property appeared to have no value in excess of the underlying mortgage.

The parties had a number of discussions on what to do, but could not reach any agreement. The Tanners offered to sell their interest in the property to the Georges for $20,000 and at one time offered to relinquish their interest in the cafe to the Georges if the Georges would assume the liability of the underlying mortgage. Reynold George rejected Tanners’ offers, consistently disclaimed any interest in the property, stating that he wanted nothing to do with it, and indicated that he and his brother would pursue their remedies against Evans and the Evans’ corporation. Because the Tanners were personally liable on the outstanding loans on the property, they made efforts to find renters for the cafe and keep it open. They made substantial expenditures for repairs, mortgage payments, taxes and other expenses. The cafe lost money for some time after Evans defaulted but at the time of trial it appeared that through the Tanners’ efforts, it was once more a going business with a value in excess of the mortgage.

The Georges determined that Evans’ corporation had filed a petition for bankruptcy, and that Evans as an individual did not possess assets sufficient to enable him to respond to a judgment on the installment sales contract. In February 1978 the Georges filed the instant action seeking to quiet title to the cafe on the basis that the cafe was security for the assignment of the installment sales contract.

The trial court found that under the assignment the Georges had the right to look to the cafe as security upon default, but held that they were barred from asserting that right by the Tanners’ equitable defenses of laches and estoppel. Accordingly, the trial court quieted title in the cafe to Tanners. On the ground that Tanners had been unjustly enriched by now holding clear title to the theater, the trial court awarded the Georges a compensatory award of $22,686.¹ Both parties appealed. This court heard the appeal, and issued its opinion on September 30, 1982. A petition for rehearing followed.

This case turns on whether the assignment from Tanners to Georges was:

(1) an assignment of an account receivable, or;

(2) a partial assignment of all of the seller’s various rights under a contract of sale, including the right to foreclose on the real estate.

If the former, the Georges would have had no remaining interest in the property after Evans’ default on the contract, and the trial court’s award of $22,686 to Georges should be reversed.

If the latter, the Georges would have an interest in the cafe which is proportionate to their interest in the contract, because both parties would have had the right to foreclose under the terms of the contract. Under this scenario, when Evans conceded default, obviating the need for a foreclosure action, the Georges and the Tanners became co-owners.

The difficulty here is that the trial court made no explicit finding of fact or conclusion of law as to which characterization of the assignment is proper. However, implicit in the trial court’s result is a resolution of the issue in favor of a contract interest when it made a finding of a respective 5/7 and 2/7 interest in the parties. The trial court found that the assignment provided that the theater contract was can-celled in exchange for Georges receiving all right, title and interest of Tanners in the contract with Evans. The trial court also found that Georges had a right to look to the cafe as security.

In its Memorandum Decision the trial court ruled that the defenses of laches and estoppel could be applied to divest a co-owner of his interest in real estate. We reverse; the law of co-tenancy does not, absent an agreement to that effect, forfeit a co-tenant’s interest in property by reason of unwillingness or inability to share in protecting the co-owned interest. See Hawe v. Hawe, 89 Idaho 367, 406 P.2d 106 (1965); Dimmick v. Dimmick, 58 Cal.2d 417, 24 Cal.Rptr. 856, 374 P.2d 824 (1962); Hunter v. Schultz, 240 Cal.App.2d 24, 49 Cal.Rptr. 315 (1966).

As to the award of compensatory damages to Georges on the grounds of unjust enrichment, we must also reverse. When the Tanners were deeded the theater in exchange for assignment of an account receivable or of the contract of sale, Georges relinquished their right to receive $40,-000 under the theater contract in exchange for the right to receive $50,000 payable over a shorter time and at a higher rate of interest. Both parties entered into the contract voluntarily, at arms length, with full knowledge and in good faith. Had Evans not defaulted, the Georges would have made at least a $10,000 profit. The Tanners were not unjustly enriched by the transaction. The doctrine of unjust enrichment does not operate to rescue a party from the consequences of a bargain which turns out to be a bad one. The theater contract was irrelevant to the resolution of the post-default interests of the parties in and to the cafe.

The trial court’s findings that the Georges have a 5/7 interest and the Tanners have a 2/7 interest is supported by the evidence. However, having concluded that the parties are in a co-ownership situation, it was inappropriate for the trial court to order one party to buy the other out. Rather, the appropriate relief would be to order either sale or partition if the parties do not agree to an alternative mutually acceptable resolution.

On remand the trial court should take testimony to determine any offsets or reimbursement necessary (in addition to those items referenced in footnote 1 herein) to compensate those parties for their efforts and expenditures incurred in preserving or developing the property since the date of the June 29, 1979 judgment.

The trial judge, the Honorable Arthur P. Oliver, has now retired from the bench. In order that the proceedings on rehearing might be limited to additional or explanatory evidence, rather than a retrial of the entire case which could be subject to Rule 40(d)(3), we recommend that the Administrative Judge of the Sixth Judicial District ascertain whether Judge Oliver would be willing to conduct the further proceedings.

Costs to be divided equally; no attorneys’ fees awarded.

DONALDSON, C.J., and BAKES, J., concur. SHEPARD, J., dissents without opinion.

1 . Because of the Georges' $50,000 interest and Tanners' $20,000 interest in the contract proceeds, the trial court found that the Georges had had a 5/7 interest in the cafe proceeds, and the Tanners a 2/7 interest. At the time of trial the cafe was valued at $150,000, of which $100,000 was encumbered by mortgages, back taxes and assessments. Of the $50,000 equity, the trial court held that Georges would have been entitled to 5/7, or $35,700, and Tanners to 2/7, or $14,300. Tanners were awarded $500 per month for 2 years ($12,000), plus $513.33 in expenditures from Georges’ interest to compensate for Tanners' efforts and expenditures on the cafe. This leaves $35,700 - $12,513.33 = $23,186.67. (The trial court’s calculation appears to have been $500 too low.) The relative interest between the parties, then, is $23,186.67 or 43.67% in the Georges, and $26,813.33 or 53.63% in the Tanners.