First Nat. Bank v. KUECHENMEISTER, 21891.

• Decision Date: 16 January 2002
• Docket Number: No. 21891.,21891.
• Citation: 2002 SD 9,639 N.W.2d 184
• Parties: FIRST NATIONAL BANK IN BROOKINGS, Plaintiff and Appellant, v. Charles W. KUECHENMEISTER and Darlene M. Kuechenmeister, husband and wife, Defendants, and Norwest Mortgage, Inc., Defendant and Appellee.
• Court: South Dakota Supreme Court

639 N.W.2d 184

2002 SD 9

FIRST NATIONAL BANK IN BROOKINGS, Plaintiff and Appellant, v. Charles W. KUECHENMEISTER and Darlene M. Kuechenmeister, husband and wife, Defendants, and Norwest Mortgage, Inc., Defendant and Appellee.

No. 21891.

Supreme Court of South Dakota.

Considered on Briefs November 13, 2001.

Decided January 16, 2002.

Eric N. Rasmussen of Glover, Helsper & Rasmussen, Brookings, for plaintiff and appellant.

Gary J. Pashby and Lisa Hansen Marso of Boyce, Murphy, McDowell & Greenfield, Sioux Falls, for defendant and appellee.

KONENKAMP, Justice.

¶ In preparing a mortgage loan, Norwest Bank contacted First National Bank on the status of its mortgage. Over a period of months, as Norwest processed its loan, First National repeatedly represented that its loan had a zero balance and that a satisfaction of mortgage would be forthcoming. Five months after Norwest's loan closed, First National issued its satisfaction. First National soon discovered that its loan had a substantial balance. It commenced an action to restore the priority of its mortgage lien. In denying relief, the circuit court held that although First National mistakenly satisfied its mortgage and the satisfaction was given after Norwest closed its loan, Norwest detrimentally relied on First National's continuous representations that its loan had been paid off. On appeal, First National contends that only the satisfaction itself could provide a legal basis for Norwest's reliance and that, because Norwest closed its loan before First National issued its satisfaction, no justifiable reliance occurred. Because detrimental reliance may accumulate from all the circumstances, we uphold the trial court's ruling that Norwest reasonably relied on First National's representations.

Background

¶ In 1994, Norwest Bank gave Charles and Darlene Kuechenmeister two loans of $24,000 and $19,670. To secure the loans, the Kuechenmeisters granted Norwest first and second mortgages on their home in Brookings. In 1996, the Kuechenmeisters gave First National a third mortgage on their home to secure a loan of $45,000 on a business venture, the Dakota Inn Café. All three mortgages were still extant in the fall of 1998, when the Kuechenmeisters applied to Norwest for a new loan. With this money, they planned to refinance their two loans with Norwest and to pay off some accumulated credit card debt from the café.

¶ In the process of applying for the new loan in October 1998, Charles Kuechenmeister mentioned to Pam Peterson, a home mortgage consultant at Norwest, that he and his wife might have a mortgage with First National. The Kuechenmeisters' credit report showed no existing obligation to First National. Peterson telephoned Cherry Tuma, a loan processor at First National, to learn whether it held a mortgage. Tuma told Peterson that First National had no record of a mortgage.

¶ Norwest ordered title insurance. A title commitment issued in early November 1998 confirmed the existence of the first and second mortgages with Norwest, but it also showed a third mortgage with First National. Peterson again telephoned Tuma to ask whether First National indeed held this third mortgage. Tuma reaffirmed that First National had no record of that mortgage.

¶ Norwest made a loan commitment of $64,000, the maximum allowable on the appraised value ($80,000) of the Kuechenmeisters' property. Had Norwest known of the First National mortgage and its outstanding balance of some $30,000 on the loan, Norwest would have been unable to make the new loan to the Kuechenmeisters because it would have been clear that they had no available equity. Upon receipt of a copy of the loan commitment in late November, Tim Hogan, an attorney and closing agent for Norwest, contacted Tuma to inquire whether First National held a mortgage on the Kuechenmeister home. On previous occasions, both Peterson and Hogan had been directed to Tuma when inquiring of First National about the status of customer loans. Tuma again confirmed that First National held no such mortgage.

¶ The closing of the refinanced Kuechenmeister loan with Norwest occurred on December 4, 1998. Charles Kuechenmeister again mentioned the possibility of a mortgage with First National; accordingly, Hogan again called Tuma, and she again told him that there was no mortgage. Hogan also called the Brookings County Register of Deeds to ask whether First National had filed a mortgage since the title insurance commitment had been prepared. Finding that it had not, Hogan proceeded to oversee the loan closing. During the three-day recision period after closing, and before the loan funds were disbursed, Hogan once more telephoned Tuma, who said that there was a zero balance on the bank's records and that a satisfaction of mortgage would be provided.

¶ Five months later, the Kuechenmeisters met with Thomas Raines, First National's loan officer, to discuss a payment schedule on their loans. Raines informed them that First National did indeed hold an unsatisfied mortgage on their home. Charles Kuechenmeister called to tell Peterson of this fact; she in turn told Hogan.

¶ Hogan then contacted Tuma and faxed her a copy of the title commitment. Tuma examined First National's hard-copy records, as she had earlier examined its computerized records, and was unable to find any evidence of the mysterious third mortgage. Tuma then drafted a satisfaction of mortgage and presented it to her supervisor, Barb Adelaine, for approval. Adelaine herself then checked First National's records for an obligation under the Kuechenmeister name, found none, and signed the satisfaction. It was then given to Hogan, who filed it with the Brookings County Register of Deeds on May 17, 1999.

¶ Later that same day, First National personnel learned that the undiscovered third mortgage had been indexed under the business name of Dakota Inn, rather than under the name Kuechenmeister. Neither Tuma nor Adelaine were aware that it had been so indexed, and each had done her previous checking under the name Kuechenmeister. Up to that point, First National had not cross-indexed its commercial and residential loans by both individual and business names.

¶ Still later on May 17, Mike Reisetter of Dakota Abstract and Title, upon learning that Norwest had obtained and recorded First National's satisfaction of mortgage, informed Tuma that the First National mortgage did not have a zero balance and that she had erred in issuing the satisfaction. Tuma immediately called Hogan and asked him to retrieve...