Gem-Valley Ranches, Inc. v. Small

• Decision Date: 08 March 1966
• Docket Number: No. 9554,GEM-VALLEY,9554
• Citation: 411 P.2d 943,90 Idaho 354
• Parties: RANCHES, INC., a corporation, Plaintifff-Respondent, Cross-Appellant, v. James SMALL and Ruth Small, husband and wife, Defendants-Appellants, Corss-Respondents and Third-Party Plaintiffs, v. SECURITY TITLE INSURANCE CO., a corporation, A. W. Moulton, its President, A. W. Moulton in his individual capacity, and Harold J. Pitkin, Third-Party Defendants.
• Court: Idaho Supreme Court

Page 943

411 P.2d 943

90 Idaho 354

GEM-VALLEY RANCHES, INC., a corporation, Plaintifff-Respondent, Cross-Appellant, v. James SMALL and Ruth Small, husband and wife, Defendants-Appellants, Corss-Respondents and Third-Party Plaintiffs, v. SECURITY TITLE INSURANCE CO., a corporation, A. W. Moulton, its President, A. W. Moulton in his individual capacity, and Harold J. Pitkin, Third-Party Defendants.

No. 9554.

Supreme Court of Idaho.

March 8, 1966.

William R. Padgett, Boise, for appellants Small.

Moffatt, Thomas, Barrett & Blanton, Boise, for respondent and cross-appellant Gem Valley Ranches, Inc. and third-party defendants Security Title Ins. Co., A. W. Moulton and Harold J. Pitkin.

TAYLOR, Justice.

This action arose out of a series of transactions between defendants (appellants) Small, husband and wife, and one H. B. Gillingham, Sr. The first transaction occurred on or about September 1, 1962, at which time Small borrowed $18,000 from Gillingham and as security gave Gillingham his promissory note and a quitclaim deed to the Helen Beck ranch property, involved in this action. Thereafter, Small borrowed other sums from Gillingham, making a total borrowed of about $80,000, as found by the trial court. These additional borrowings were represented by promissory notes and were secured by transfers to gillingham of Small's interest in other properties involved herein. December 7, 1962, these several transactions were merged by an instrument (plaintiff's exhibit 1) entitled 'Memorandum of Sale and Option,' executed by Small and wife and Gillingham and wife. This document on its face purported to be an outright purchase and sale of the title or interest of the Smalls in three ranch properties in Elmore county, known as the Helen Beck, Gladys Beck, and Rudge properties. The contract gave Small an option to repurchase the properties for the sum of $80,000 on or before March 1, 1963. Small was to remain in possession of the property during the life of the option.

Sometime prior to March 1, 1963, Small went to the office of the Security Title Insurance Co. (hereinafter called Title Company) and gave the president and manager of that company, one A. W. Moulton, an order for an examination and report on the titles of the properties involved. At that time Moulton also agreed to help Small find a lender who would loan Small money needed to pay his obligation to Gillingham. Such a lender was not found prior to March 1st, and after considerable negotiation the Title Company, through its president and manager Moulton, purchased Gillingham's interest in the 'Memorandum of Sale and Option' for the sum of approximately $82,000, and orally extended Small's option thereunder an additional two weeks. Small continued in his efforts to raise money with which to exercise the option and was again assisted in that effort by Moulton. This effort and assistance by Moulton continued beyond the expiration of the two-week oral extension of the option.

March 19, 1963, the Title Company made demand upon Small for possession of the property.

In the meantime, Moulton organized the Gem-Valley Ranches, Inc., a corportion (plaintiff-respondent and cross-appellant herein), and on March 26, 1963, the Title Company transferred its interest in the properties involved to Gem-Valley Ranches, Inc.

March 29, 1963, following Small's refusal to surrender possession of the property, Gem-Valley Ranches, Inc., commenced this action in ejectment. In his answer, Small affirmatively alleged that Moulton, as president of the Title Company, and as agent for Small, advanced to Small the sum of $82,870 and that that sum was used to exercise the option held by Small under the sale-option agreement with Gillingham, and that the option was exercised in the name of the Title Company at the request of Moulton, and as security for the loan of $82,870. Small also alleged that by agreement with Moulton, as president of the Title Company, on March 1, 1963, he was given a 'reasonable time' within which to repay the $82,870, together with other advances made by the Title Company through Moulton in a total amount of $160,729.04; that on April 9, 1963, payment of the total sum advanced by the Title Company was tendered to Moulton and also to his attorney, together with interest thereon, and that Moulton refused to accept the money tendered and demanded in addition thereto the sum of $40,000. Small prayed for an order allowing him six months within which to repay the amounts advanced by the Title Company.

A fourth ranch property known as the Mildren or Corder ranch (not included in the Small-Gillingham contract) was included in plaintiff's action to quiet title and described in its lis pendens. Small claimed to have made a payment of $20,000 upon the purchase price of $115,000 for the Mildren ranch, and acknowledged additional payments thereon made by the Title Company, totaling $56,480. These payments are included in the total amount of $160,729.04, which Small admitted was owing by him to the Title Company, as of April 6, 1963.

The four ranch properties, along with one other not involved herein, had been merged into one farming and ranching unit, and had been operated as such by Small until the appointment of a receiver in this action.

Defendants Small and wife filed a third-party complaint against the Title Company, and A. W. Moulton and Harold J. Pitkin, officers and stockholders. In this complaint Smalls alleged that the moneys paid by the Title Company to Gillingham were paid on behalf of Small and for the purpose of exercising Small's option to repurchase from Gillingham; that Moulton and the Title Company agreed to assist Small in obtaining a loan of $750,000 upon all of the ranch properties involved for the purpose, among others, of obtaining money to repay advances made by the Title Company; that Moulton and the Title Company advanced a further sum of $24,000 to obtain clear title to the Gladys Beck ranch; that Moulton and the Title Company, acting for Small, advanced $56,480 to Walten Mildren to exercise Small's option for the purchase of the Mildren ranch; that Moulton and the Title Company, after entering into the foregoing transaction, organized the Gem-Valley Ranches, Inc., a corportion, and in violation of their fiduciary relationship with Small, and with intent to defraud Small transferred their interests in the ranch properties to gem-Valley Ranches, Inc.; that the officers and stockholders of Gem-Valley Ranches, Inc., had full knowledge of Small's interest in the ranch properties involved; that as a result of the breach of trust by Moulton and the Title Company, Small was prevented from obtaining financing to complete the purchase of the properties, to his damage in the sum of $450,000.

In the second cause of action in the third-party complaint, Small alleges that the advances made by the Title Company, totaling $190,000, were for the purpose of exercising the options held by Small and that the transfers of contracts and titles to the Title Company were taken as security for the moneys thus loaned to Small; that the Title Company, Moulton, and Gem-Valley Ranches, Inc., have reserved and charged the sum of $30,000 as interest for the loan of $190,000 as of June 1, 1963; and that such interest charge is usurious.

After a motion made by plaintiff for a separate trial of the issues raised by the original complaint and answer, and after counsel had stipulated that the issue raised by plaintiff's complaint and defendants' answer thereto, was the question as to whether the transactions relating to the property in question constituted a sale or a mortgage, the court ordered that issue to be first and separately tried. Accordingly the trial of the issue as to whether plaintiff was a purchaser or mortgagee of the properties involved was tried to the court September 3, 1963.

By memorandum and order dated September 23, 1963, the court determined that transfers and conveyances received by plaintiff's predecessor, the Title Company, were given and received as security for loans made by that company to and on behalf of Small; that as a result thereof the plaintiff was a mortgagee of the properties and not a purchaser. As basis for this decision the court in its order noted that the agreement between Small and Gillingham of December 7, 1962, arose out of loans by Gillingham to Small; that the consideration expressed in the contract was to induce Gillingham to exercise Small's options; that Small was to remain in possession of the property; that property was included in that contract which had been previously deeded by Small to Gillingham, as security; that on the occasion of the transfer by Gillingham to the Title Company, Gillingham, addressing himself to Moulton, 'We were supposed to make $4,500.00 on this deal. How much are you making?' and Moulton's reply, '$900.00.' The court observed that this was strange language for a bona fide purchaser to have used. The court further noted that Small had merged the ranch properties into one operating unit on which he had asked Moulton to write title insurance as such operating unit; that there was a wide disparity in the estimated value of the properties and the amounts advanced by Gillingham and the Title Company; that Small claimed to have made payments upon the properties, which had not been disproven, as follows: Helen Beck ranch, $105,000; Rudge ranch, $30,000; Gladys Beck ranch, $6,000 (in subsequent proceedings Small claimed to have paid $20,000 on the purchase price of the Mildren ranch); the transactions between Small and Moulton indicated they considered the transaction a mortgage; Moulton was to write title insurance for the specific purpose of a loan of $750,000 from an insurance company; part of the need for the loan was to exercise the option and pay off Gillingham; that Moulton testified the price which was paid by the Title Company to Gillingham was 'fixed primarily between Gillingham and Small,'...