Estate of Skvorak v. Security Union Title Insurance Company
| Decision Date | 23 April 2004 |
| Docket Number | No. 28717.,28717. |
| Citation | 89 P.3d 856,140 Idaho 16 |
| Parties | The ESTATE OF Linda SKVORAK; Roger Scott and Darien Scott, husband and wife; Roy Scott and Delores Scott, husband and wife, Plaintiffs-Counterdefendants-Respondents, v. SECURITY UNION TITLE INSURANCE COMPANY, Defendant-Counterplaintiff-Appellant. |
| Court | Idaho Supreme Court |
Preston, Gates & Ellis, Coeur d'Alene, for appellant. Peter G. Scott argued.
Ellis, Brown and Sheils, Chtd., Boise, for respondents. Allen B. Ellis argued.
Appellant Security Union Title (Security Union) is the successor in interest to a mortgage held by Crown Pacific LP (Crown Pacific). Respondents Linda Skvorak (now deceased) and her brothers Roger Scott and his wife Darien, and Roy Scott and his wife Delores, (the Skvoraks), are the original owners of the property at issue.
Gerald and Patsy Sylvester (the Sylvesters) agreed to purchase from the Skvoraks a 200-acre timber property called "Gold Cup" located in Bonner County, Idaho, for $700,000, payable with a $450,000 down payment, followed by the remaining $250,000 paid in five annual installments with interest at eight and one-half percent. Attorney Nick Lamanna (Lamanna) of Cooke, Lamanna, Smith, Cogswell & Elliott, represented the Skvoraks in this transaction, which was set to close in January 1995. Esther Cox (Cox), the office manager of Lamanna's firm, received a letter from the realtor on December 28, 1994, instructing Cox to "let [Crown Pacific] know the amount of the [down payment] check."
On January 3, 1995, the Skvoraks met with Lamanna, Cox, and Gerald Sylvester's brother to execute a warranty deed and an addendum, allowing the Sylvesters to alienate a portion of Gold Cup in order to pay the purchase price balance. The Skvoraks did not deliver the deed at this meeting, as the Sylvesters could not attend the meeting due to illness. Also at this meeting, Darien Scott asked Lamanna whether the Skvoraks would get the property back if the Sylvesters defaulted. Roger Scott testified he stated that the Skvoraks would not hold a second mortgage in this transaction and Lamanna agreed with him.
Lamanna testified he remembers Darien Scott asking him about default and Lamanna testified he understood Crown Pacific intended to advance the down payment based on sale of timber from Gold Cup. Therefore, in Lamanna's experience, he believed the Skvoraks were first in line. Lamanna further asserted Linda Skvorak knew about Crown Pacific's plan to advance the down payment from his conversations with her. Cox also testified that at the January 3rd meeting, Lamanna and the Skvoraks discussed Crown Pacific's plan to advance the down payment based on an interest in the timber only.
The morning of January 13, 1995, the Sylvesters and Norm Suenkel (Suenkel), resource officer for Crown Pacific, met at Lamanna's office and executed a mortgage in favor of Crown Pacific for the down payment. Lamanna and the Skvoraks were not present at this meeting, but Cox notarized the Crown Pacific mortgage. The Sylvesters also executed a promissory note for $450,075, a log purchase agreement, and a UCC-1 financing agreement, all of which Crown Pacific prepared. Later that day, the Sylvesters returned to Lamanna's office and executed a mortgage in favor of the Skvoraks to secure payment on a promissory note for the balance, and accepted delivery of the deed. Cox also notarized this mortgage. Crown Pacific recorded its mortgage January 19, 1995. Linda Skvorak recorded the Skvoraks' mortgage and warranty deed on January 31, 1995.
Larry Isenberg (Isenberg), Crown Pacific's Manager of Land and Timber, testified that in prior transactions with the Sylvesters, Crown Pacific advanced money to purchase property with timber on it, the Sylvesters would log the land, and Crown Pacific would then take the logs. Isenberg further testified he knew the Sylvesters owed a balance on the purchase price to the Gold Cup vendors, but did not know the Sylvesters gave the Skvoraks a mortgage on Gold Cup for the balance. Suenkel also testified that the purpose of Crown Pacific's involvement was to acquire logs from the Gold Cup property. Suenkel stated in his deposition he knew of the unpaid balance the Sylvesters owed the Skvoraks and that he "must have" known about the Skvoraks' mortgage. In 1996, the Sylvesters defaulted on the Skvoraks' promissory note. The Skvoraks filed a complaint against the Sylvesters and Crown Pacific to foreclose the mortgage and for a deficiency judgment. Crown Pacific filed its answer and cross-claims and included a third party complaint against William and Patty English (the Englishes). According to the record, the Englishes claimed an interest in the property as creditors of the Sylvesters. To settle the third party complaint, Crown Pacific and the Englishes entered into a settlement agreement. As part of the settlement agreement, Crown Pacific tendered all of its rights in Gold Cup to the Englishes and the Englishes title insurer, Security Union, for $85,000 and a fifty-fifty split of any recovery in the litigation with the Skvoraks.
The Sylvesters filed a Chapter 13 bankruptcy petition on September 27, 1997. The bankruptcy plan required the Sylvesters to list Gold Cup for sale and the Skvoraks and Crown Pacific would receive the proceeds. If either party claimed a deficiency, then they would share pro rata with the Sylvesters' general unsecured creditors. The property did not sell and on October 28, 1998, the Sylvesters' quitclaimed it through the bankruptcy to Crown Pacific and the Skvoraks as tenants in common.
In 1999, Crown Pacific received a property tax notice stating it owed taxes on the Gold Cup property. The tax notice was addressed to Crown Pacific and the Skvoraks. To avoid paying taxes, Crown Pacific executed two separate quitclaim deeds conveying Gold Cup to the Skvoraks in May and August 1999. The Skvoraks did not know about the deeds and paid nothing for the conveyances. Roger Scott paid the full amount of taxes due on Gold Cup from 1996 to date.
In April 2002, the district court held a court trial on the claims to Gold Cup between Crown Pacific's successor in interest, Security Union, and the Skvoraks. First, the district court considered the effect of the bankruptcy on the mortgages and concluded the Sylvesters' bankruptcy did not extinguish either party's mortgage. Next, the district court considered the effect on the Crown Pacific mortgage of the quitclaim deeds from Crown Pacific to the Skvoraks. The district court found the deeds did not extinguish Crown Pacific's mortgage because the Skvoraks did not give consideration and Crown Pacific never intended the quitclaim deeds to discharge the mortgage.
The district court next considered the issue of priority between the Skvoraks mortgage and the Crown Pacific mortgage. The trial court classified both mortgages as purchase money mortgages and concluded that Crown Pacific and the Skvoraks each had notice of the other party's mortgage prior to recording. These findings left the trial court with "a case of first impression in Idaho"; that is, the priority between two purchase money mortgages executed in the same transaction. Ultimately, the trial court looked to the Restatement (Third) of Property § 7.2(c) and determined that the Skvoraks' mortgage took priority over Crown Pacific's mortgage because the Skvoraks were the vendors of the mortgaged property. Security Union appealed.
On appeal, this Court will not set aside findings of fact unless they are clearly erroneous. I.R.C.P 52(a). Appellate review of the decision of the trial court is limited to ascertaining whether substantial, competent evidence supports the findings of fact and whether the findings of fact support the conclusions of law. Crea v. Crea, 135 Idaho 246, 16 P.3d 922 (2000); Baxter v. Craney, 135 Idaho 166, 16 P.3d 263 (2000). When an action is tried to a court without a jury, determinations as to the credibility of witnesses, the weight to be given their testimony, its probative effect and inferences and conclusions to be drawn there from, are all matters within the province of the trial court. Idaho Power Co. v. Cogeneration, Inc., 134 Idaho 738, 9 P.3d 1204 (2000). The trial court's findings of fact will be liberally construed in favor of the judgment entered. Beard v. George, 135 Idaho 685, 23 P.3d 147 (2001). This Court exercises free review over conclusions of law. Smith v. J.B. Parson Co., 127 Idaho 937, 941, 908 P.2d 1244, 1248 (1996).
A. The quitclaim deeds did not extinguish Crown Pacific's mortgage.
The Skvoraks argued before the trial court that the Sylvesters' bankruptcy proceeding discharged Crown Pacific's mortgage. However, in the bankruptcy order dated August 7, 2000, the bankruptcy court specifically stated that "creditors shall retain their lien against the real property and in the proceeds should the property be sold, in a priority to be agreed upon by the creditors, or later determined in a judicial forum." We agree with the district court's determination that the language in the bankruptcy order clearly provides Crown Pacific's mortgage was unaffected by the bankruptcy.
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