Real Property

Installment Land Contract Not 'Sale' Under Separation Agreement

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In what it called "a hybrid action raised under a divorce caption, couched in declaratory judgment terms and requesting monetary damages," the Pennsylvania Superior Court found that a divorced couple's separation agreement did not require them to evenly split the down payment they received pursuant to an installment land contract for the sale of their home because the contract itself did not constitute a sale.

Therefore, the court found, an alleged oral agreement under which plaintiff Sarah Bernhardt was to trade her claim to half of the down payment for all of the property's oil and gas rights was necessarily invalid.

In an unpublished opinion in Bernhardt v. Dieffenbach, a three-judge panel unanimously affirmed a Bradford County trial court's ruling that Bernhardt was not entitled to half of the $35,000 down payment she and her former husband, defendant Daniel Dieffenbach, received pursuant to an installment land contract with a would-be buyer named April Conklin, but did so on different grounds.

While the trial court found that the separation agreement had been modified by the subsequent oral agreement requiring Bernhardt to swap her claim to half of the Conklin down payment for all of the property's subsurface rights, the Superior Court said the portion of the separation agreement entitling Bernhardt to half of the down payment had never actually been triggered to begin with.

Judge Jacqueline O. Shogan, writing for the court, said paragraph 15 of the separation agreement required the former couple to evenly split the equity in their marital home in the event of either a sale or a termination of tenancy.

But Shogan said an installment land contract did fall under the common meaning of "sale," which both Black's Law Dictionary and the Merriam–Webster Online Dictionary define as the transfer of ownership in property or title for a price.

Therefore, Shogan said, Bernhardt was not entitled to half of the Conklin down payment.

"The record indicates that the parties entered into a contract, whereby April Conklin paid $35,000 as a down payment and was required to make additional installment payments on a monthly basis after the execution of the contract and before the time appointed for the conveyance of title to the dwelling," Shogan said. "No transfer of title took place upon receipt of the down payment, as in a traditional real estate sale. Accordingly, because the contract was not a sale, it did not trigger that portion of paragraph 15 of the agreement entitling Bernhardt to one-half of the equity in the marital residence."

Because paragraph 15 was never triggered, Shogan added, Bernhardt never had a claim to a portion of the Conklin down payment to trade for the property's subsurface rights.

Therefore, the Superior Court reversed the portion of the trial court's ruling requiring performance of the alleged oral agreement.

Shogan was joined by Judge Cheryl Lynn Allen and Senior Judge John L. Musmanno.

Bernhardt had sought a declaratory judgment that she was entitled to half of the Conklin down payment, but Shogan said the separation agreement did not fall within the purview of the Declaratory Judgment Act.

In order for the agreement to be interpreted under the act, Shogan said, the trial court would have first had to reform the contract to include installment land contracts under paragraph 15.

Under the state Supreme Court's 1945 ruling in Baskind v. National Surety, according to Shogan, the act cannot apply in a case where the contract must be reformed before it can be interpreted.

"The trial court may not open the agreement, permit reformation thereof, and thereafter interpret the agreement as reformed," Shogan said. "Thus, we conclude this matter could not be decided in a declaratory judgment proceeding, and we decline to review the trial court's order as a decree in equity."

Instead, Shogan said, the dispute in Bernhardt was governed by contract and real property law.

According to Shogan, the state Installment Land Contract Law defines an installment land contract as including "'every executory contract for the purchase and sale of a dwelling ... whereby the purchaser is obligated to make six or more installment payments to the seller after the execution of the contract and before the time appointed for the conveyance of title to the dwelling.'"

Shogan also noted that an installment land contract is alternatively known as a "contract for deed," which Black's Law Dictionary defines as a "'conditional sales contract for the sale of real property.'"

"Based on the foregoing authority, we do not agree with [Bernhardt's] argument that the Conklin transaction was a sale," Shogan said.

Therefore, while Bernhardt had argued that she never agreed to exchange her half of the Conklin down payment for 100 percent of the property's oil and gas rights, Shogan said it was unnecessary for the court to determine whether an oral agreement existed.

Shogan added that nothing in the record confirmed that Bernhardt and Dieffenbach actually reserved the subsurface rights when the property was eventually sold anyway.

"In sum, the trial court upheld an oral agreement that lacked factual and legal support and ordered specific performance based on an unsupported agreement and without authority to grant equitable relief," Shogan said.

Counsel for Bernhardt, Timothy M. Michaels of Tunkhannock, Pa., and counsel for Dieffenbach, Rinaldo A. DePaola of Griffin Dawsey DePaola & Jones in Towanda, Pa., could not be reached for comment at press time.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.

(Copies of the 17-page opinion in Bernhardt v. Dieffenbach, PICS No. 14-0136, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •

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