Saturday, May 03, 2003

God Bless The Child Who's Got His Own

Delauter v. Shafer, decided by the Court of Appeals on May 2, is a little outside of my normal haunts, but the facts are somewhat interesting. Going beyond the specific holding of the case, it gives an insight into the dynamics of dispute resolution through the courts.

In 1944, Shafer married one of the daughters of Mr. and Mrs. Deibert. Shafer and his wife lived with his parents until 1968 when then moved to the Deibert family farm. Mr. and Mrs. Deibert had previously moved their personal residence to a parcel across the road that they had purchased, but, even after the Shafers moved in, they were on the farm virtually every working day.

The Shafers paid virtually nothing to the Deiberts over the years. In fact, they had borrowed money from the Deiberts from time to time. The Deiberts paid all of the property taxes on the farm, and, except for certain improvements that the Shafers had made, the Deiberts paid all of the insurance premiums on the farm and its improvements.

Mr. Shafer declared bankruptcy in 1996. He did not list the farm as an asset in his bankruptcy estate.

Mr. Diebert died in 1990 and Mrs. Diebert died in November, 1998. In May of 1998, Mrs. Shafer died. In Mrs. Diebert's will she made a provision with regard to the farm, declaring it to be an "advancement" on the bequest to Mrs. Shafer under the will, with the amount of the advancement being $125.00 times the number of months that the Shafers had lived on the farm from March 1, 1969. Subject to the advancement and some other advancements noted in the will, Mrs. Diebert bequeathed her estate in equal shares to her children.

Trouble had begun brewing even before Mrs. Diebert's death. Shortly before she died, Mrs. Diebert's two other daughters, acting under a power of attorney from their mother, entered into a contract to sell the farm for a little less than $600,000.00 and attempted to get Mr. Shafer to vacate the farm. Mr. Shafer refused to vacate the premises. After Mrs. Diebert's death, these same two daughters, acting as the personal representatives of her estate, brought an ejectment action against Mr. Shafer.

Shafer responded with a counterclaim that a lease had existed for over 20 years, but that no rent had been paid or demanded. Thus, under the provisions of Section 8-107 of the Real Property Article of the Maryland Annotated Code, he argued that the estate could not seek rent or any right of reversion with respect to the property.

The matter was tried before a jury. The jury returned a special verdict in favor of Shafer, finding that a lease existed and that no rent had been paid or demanded for more than twenty years. Consequently, the trial court entered a judgment declaring that Shafer had title to the property.

The Court of Appeals rejected Shafer's position, resting its conclusion on two principles.

First, one of the pivotal issues was whether Shafer's possession of the farm was pursuant to a license from his in-laws or pursuant to a lease. The Court concluded that, because there was no dispute as to the underlying facts, the question of whether the arrangement was a lease or a license was a question of law for the court to determine and should not have been submitted to the jury.

Second, the Court outlined the distinction between a license and a lease. In particular, two elements that would argue that Shafer had leased the farm, the right to exclusive possession and the obligation to pay rent, were not present. Shafer lacked the right of exclusive possession to the farm, since the Dieberts had both been present at the farm virtually every working day, ceasing that activity only when physical infirmity overtook them. Additionally, it was clear that there was never a request or demand that either of the Shafers pay rent. Thus, the Court concluded that the arrangement was a license, not a lease. Consequently, the Court held that the provisions of Section 8-107 were not applicable and it reversed the circuit court.

What are the lessons with respect to dispute resolution?

First, it is likely that, as a practical matter, the case could not be settled since Shafer lacked the financial resources to make a reasonable settlement. After all, for the first 24 years of his marriage he lived at home with his parents. Thereafter, he lived rent free on his in-laws' property. Even then, he had to declare bankruptcy.

Second, the circuit court had abdicated its role when it allowed a jury to make the legal conclusion that the property was held by Shafer pursuant to a lease. To the extent that trial judges allow basic legal questions (as opposed to factual questions) to be resolved by a jury, litigation becomes a crap shoot. Litigants such as Shafer, who feel that they have nothing to lose, thus have an incentive to go to the legal gaming table.

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